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THE IMPACT OF ‘CORPORATE LANGUAGE’ AND

‘SOCIAL COHERENCE AND INTERGROUP

EQUALITY’

ON SUBSIDIARY KNOWLEDGE INFLOWS FROM HQ

Miriam Moser

s2966360

Master thesis

MSc. International Business and Management

Supervisor: Dr. H. Khodaei

Co- Assessor: Drs. J. (Hans) van Polen

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Abstract

In a steadily growing business world, the importance of language has never been greater. Multinational companies (MNCs) experience language barriers when establishing subsidiaries abroad, which could be reversed by implementing an official corporate language. To reach successful knowledge transfers from headquarters (HQ) to its’ subsidiaries, a development of mental models or the existence of a corporate language is required. This study also adds two mediating effects, which were derived from the social identity perspective. Building on a sample of 146 subsidiaries from Japan and Germany, I found that a corporate language between subsidiary and HQ managers is positively related to knowledge flows from HQ to the subsidiary. ‘Social identity and shared HQ goals and vision’ mediates the relationship between ‘social coherence and intergroup equality’ and knowledge flows. The findings provide implications for further research on HQ-subsidiary knowledge flows, corporate language, knowledge-based view, and social identity theory.

Keywords: Corporate Language, Germany, HQ, Intergroup equality, Japan,

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Acknowledgment

This thesis is the conclusive part of my Master degree of International Business and Management at the University of Groningen.

First of all, I would like to express my gratitude to my supervisor, Dr. Hanieh Khodaei, for the useful comments, remarks and engagement through the learning process of this master thesis.

Also, I like to thank the participants in my survey, who have willingly shared their precious time.

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Table of contents

1. Introduction ... 8

2. Literature review ... 11

2.1. The impact of language on multinational management ... 11

2.2. Corporate language ... 12

2.3. Social identity theory and language ... 13

2.4. Knowledge based view of the firm and language ... 14

3. Development of hypotheses ... 15

3.1. Corporate language ... 15

3.2. Social coherence and intergroup equality ... 16

3.3. Social identity and shared HQ goals and vision ... 17

4. Methodology ... 19

4.1. Sample and data collection ... 19

4.2. Measures ... 20

4.2.1. Independent variable ... 20

4.2.1.1. Corporate language ... 20

4.2.1.2. Social coherence and intergroup equality ... 21

4.2.2. Dependent variable ... 21

4.2.3. Mediator variable ... 21

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4.3. Descriptive statistics ... 23

4.4. Analysis ... 25

5. Results ... 27

5.1. Corporate language ... 27

5.2. Social coherence and intergroup equality ... 28

5.3. Mediating effects ... 29

6. Discussion ... 31

7. Theoretical implications ... 34

8. Managerial implications ... 35

9. Limitations and contributions for future research ... 35

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Table overview

Table 1 Descriptive statistics: means, standard deviations and correlations ... 24

Table 2 Results of regression analysis for knowledge flows from HQ to subsidiaries ... 28

Table 3 Results of regression analysis for social identity & shared HQ goals and vision ... 29

Figure overview

Figure 1 Conceptual model ... 18

Figure 2 Mediation effect ... 26

Figure 3 Full and partial mediation ... 26

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List of abbreviations

BELF English as Business Lingua Franca

Cap Corporate language

DV Dependent variable

Goal Social identity and shared HQ goals and vision Group Social coherence and intergroup equality

HQ Headquarters

IV Independent variable

KBV Knowledge-based view of the firm

M Mediator

MNCs Multinational Corporations

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1. Introduction

The significance of language has never been greater than today (Feely & Harzing, 2003). In a steadily growing global business environment, multinational companies (MNCs) have to become more conscious of this. Due to the fact that these organizations operate worldwide, they are considered as multi-lingual by definition (Luo & Shenkar, 2006). However, every MNC will experience language barriers when establishing subsidiaries abroad, mainly if the local language is dominating and no official corporate language is introduced. The term “corporate” is defined as

“belonging to a united group” or “a joint identity”, which leads to a feeling of solidarity

(Corporate, n.d.). Therefore, a corporate language connects groups within a company as well as among headquarters (HQ) and subsidiaries. Building strong social coherence and group equality can facilitate the transfer of complex knowledge (Hansen, 1999).

Multinational companies like Daimler, Siemens or Ikea already recognized the importance of a corporate language. Daimler is one of the most successful car manufacturers worldwide with more than 280.000 employees (Daimler, 2015). 60,3% of them are employed in Germany, where the headquarters is located, however, the remaining 40% are globally allocated (Daimler, 2014). Moreover, in 2015 the company was ranked 17th on the Fortune Global 500 list, an improvement to the previous year (2014: 20th) (Fortune, 2015). Even if German is Daimlers’ parent country language, English is explicitly stated as the official corporate language on the firm website (Daimler, 2015). Recently, an increasing number of multinational enterprises (MNEs) have implemented corporate language policies, mostly in the form of English, which leads to better communication, coordination and control (Harzing & Pudelko, 2013; Neeley, 2012). Language is a prerequisite of communication that is again essential to management (Harzing & Feely, 2008). Therefore, an increasing number of researches emphasized the language in international management processes (Björkman & Piekkari, 2009) and looked at English as a ‘lingua franca’ (Fredriksson, Barner-Rasmussen & Piekkari, 2006).

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International studies of management and organizations, many following authors discussed the role of language in facilitating interaction between HQ and subsidiaries (Harzing & Feely, 2008). According to Marschan, Welch & Welch (1997) “a shared

company language is a common tool [that is] used not only for formal reporting but as part of the general process of communication at all levels throughout the global corporation” (p.591).

The Knowledge-based view of the firm (KBV) represents the opinion that knowledge is a company’s key resource, as it leads to a firm’s sustainable competitive advantage. This competitive advantage of the organization derives from the coordination and combination of diverse knowledge resources at the firm level (Fang, Jiang, Makino & Beamish, 2010). KBV is based on the distinction between explicit and tacit knowledge. Tacit knowledge can be linked to the individual, and is very difficult to transfer (Eisenhardt & Santos, 2002). In order to demonstrate the role of corporate language for tacit knowledge transfer in MNEs, more and more studies have been conducted (e.g. Mäkelä, Kalla, & Piekkari, 2007; Peltokorpi & Vaara, 2014; Reiche, Harzing & Pudelko, 2015). Moreover, as the largest part of knowledge in MNEs is tacit and hard to transfer, this transfer depends on the actors who convert it and give it a meaning (Reiche et al., 2015). Therefore, an elaboration of mental models and the existence of a (corporate) language in which knowledge can be articulated are required (Eisenhardt & Santos, 2002). Previous research also pointed out to potential negative implications of a corporate language, including the resistance to organizational change. However, there is also a large amount of advantages regarding the knowledge exchange, which evolves from a shared social identity between HQ and subsidiaries (Reiche et al., 2015).

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come into play as well, the likelihood of groupthink will surely increase (Harzing & Feely, 2008). The study of Gimenez (2002) showed that a corporate language could also create problems and end in a breakdown in communication between the two parties (Harzing, Köster & Magner, 2011). Even with an official corporate language, there is often a lack of awareness on what communication across languages and cultures involves, e.g. gestures and facial expressions (Louhiala-Salminen & Kankaanranta, 2012). English is broadly used as shared language in international business and communication, which may seem to be beneficial to all parties involved, however, there are also some related issues.

The purpose of this study is to exploit empirically the impact of corporate language on knowledge flows from HQ to the subsidiary. In this study, the effect of corporate language will be examined, as in a steadily growing business world the importance of language has never been greater. MNCs experience language barriers when establishing subsidiaries abroad, which could be reversed by implementing an official corporate language. Regarding my previous working experience, I had to deal with several people from different subsidiaries and countries. One of the senior managers was originally from Great Britain. Due to his insufficient German skills, the meetings were held in English. This could have been a problem to the manufacturing managers, as their English was not adequate. Therefore, I was questioning if a corporate language really facilitates the knowledge transfer. Moreover, prior research is mainly based on case studies of Scandinavian firms or on relationships that contained one native English-speaking country (Harzing & Pudelko, 2013). My study looks at German and Japanese subsidiaries, two non-native English-speaking countries that implemented English as their corporate language. Could it be that one of both countries is more likely to use and implement a corporate language than the other? To bridge the research gap of knowledge transfer between two non-native English-speaking countries (HQ – subsidiary relationship) that both implemented English as their official corporate language, this leads to the following research question:

“Does the implementation of a corporate language and social coherence and intergroup equality call for a change in knowledge flows from the HQ to the subsidiary,

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The remainder of the paper is organized as follows. Firstly, I review the literature regarding the effect of language on multinational management. Secondly, corporate language, the social identity theory, and the knowledge-based view will be accentuated. Thirdly, I will describe and put forward four hypotheses to be empirically tested. Then, the methodological approach will be introduced, which is based on a survey questionnaire addressed to subsidiary managers in Germany and Japan. The empirical findings will be subsequently discussed. Finally, in the concluding section, I will draw implications for practice and theory and acknowledge the limitations of the study.

2. Literature review

2.1 The impact of language on multinational management

Cultural differences, especially the language, play an important role in multinational management as they may hinder business operations. A famous quote of Usunier (1998) underlines this issue: “In the universal process of cultural homogenization, the

role of language will remain intact as a key cultural differentiator, while other sources of cultural differentiation will progressively disappear“ (p.167) (see Harzing & Feely,

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2008; Lauring, 2008). However, the quantitative study of Harzing and Pudelko (2014) adds new aspects regarding languages and countries. Björkman & Piekkari (2009), for example, were one of the first who took language as an independent variable and measured the impact of language competence in the shared language on different control mechanisms.

The relationship between language and knowledge transfer is a fundamental pillar of the knowledge-based view of the firm, which says that it is easier to transfer knowledge from one part to another in an organization due to attributes inherent to firms, such as a corporate language (Arrow, 1974; Kogut & Zander, 1992). However, this idea did not find many approvals, even despite the fact that knowledge transfer depends highly upon communication (Minbaeva, Pedersen, Björkam, Fey & Park, 2003). In particular, the paper of Ambos and Ambos (2009) proposed and tested a model of knowledge transfer effectiveness that also considered cultural and geographical measures. The results showed that there is a fundamental relationship between knowledge transfer and linguistic distance (Schomaker & Zaheer, 2013).

Social identity theory is well established and investigated in social psychology, in contrast to management and business studies (Reiche, Harzing & Pudelko, 2015). According to Ochs (1993), relation between language and social identity can be defined as “a predominantly sociolinguistically distant one” (p.288), which means that all linguistic structures of grammar or conversation are indicators of social identity for members as they regularly interact with each other and vice versa (Reiche et al., 2015).

However, there are two reasons why social identity theory should be applied to the link between corporate language and knowledge flows. First, it explains why tacit knowledge is important and emerges in an exchange between particular groups. Second, it provides an explanation through which methods individuals’ language attributes change into knowledge flows (Reiche et al., 2015).

2.2 Corporate language

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member“ or „relating to a large company“ (Cambridge Dictionaries Online, 2016).

Therefore, corporate language is a unitary language that is spoken officially in a company. A corporate language seems to be regarded as a benefit of the organization as it, for example, facilitates coordination, boosts organizational learning and value creation and minimizes the possibility of miscommunication (Louhiala-Salminen & Kankaanranta, 2012). Prior research examined mainly the function of English in global business, which has led to a focus on English as a lingua franca (Fredriksson, Barner-Rasmussen & Piekkari, 2006). Due to the broad usage of English in international business and communication it may appear to be beneficial to all parties involved. However, there remains always an issue of losing rhetorical skills like humor, symbolism, sensitivity, negotiation, persuasion, and motivation, even if the managers have a high competence in the language of the other party (Harzing & Feely, 2008; Salminen & Kankaanranta, 2012). The study of Louhiala-Salminen, Charles & Kankaanranta (2005) introduced the new concept of BELF, which is an abbreviation for English as Business Lingua Franca. Its aim is the shared language facility, which is used in professional communication in international business. An Austrian middle manager who was interviewed for the case study of Marschan et al. (1997) concerning the Finnish elevator company KONE, said:

“The situation is that we are speaking the same language with [the German unit], so

this makes it easier ... for us. This is not so between Austria and Finland. We must improve our ability to speak English ... and they must learn English ... It is very

important for a good relationship.“ (p. 594)

The quote above shows that a shared language facilitates business and acts as an enabler of relationships and groupthink.

2.3 Social identity theory and language

The Cambridge Dictionaries Online (2016) defines “groupthink” as the “process in

which bad decisions are made by a group because its members do not want to express opinions, suggest new ideas, etc. that others may disagree with”. Whereas

Tajfel and Turner (1986) define a group “as a collection of individuals who perceive

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involvement in this common definition of themselves, and achieve some degree of social consensus about the evaluation of their group and of their membership in it.”

(p.15). Social categories and social identity have a fundamental impact on intergroup relationships, as even ad hoc intergroup categorization causes in-group favoritism and discriminates the out-group (Reiche et al., 2015). An in-group can be described as the group in which the person is a member, whereas an out-group is any other group that is comparable to the in-group. This groupthink can be intensified if (current) conflicts between these groups exist.

One of the underlying theoretical frameworks of this paper is social identity theory. It is defined as “that part of an individual’s self-concept which derives from his[or her]

knowledge of his [or her]membership in a social group (or groups) together with the values and emotional significance attached to that membership’’ (Tajfel, 1978: 68).

Social identity theory (see Tajfel & Turner, 1986) is considered as the most widely accepted psychological social theory of group behavior. It is argued that individuals see themselves as interchangeable, which leads to a shift from the cognitive

representation of the personal self to the collective self (Yuki, 2003). Applying the theory to companies means that adequate interaction in business takes not merely a role on interpersonal contact, as employees also interact as associates of a business group to which they belong (Harzing & Feely, 2008). Moreover, the Anxiety and Uncertainty Management theory of Gudykunst (1995) stated that ambiguity in interpersonal interaction raises the importance of groupthink, and thus induces an absence of trust. Mistrust increases stereotyping and the avoidance of interaction with members of out-groups (Harzing & Feely, 2008).

2.4 Knowledge-based view of the firm and language

There are many definitions of ‘knowledge’, but I will rely on the one by Roberts (2000): “[knowledge is]the application and productive use of information […] it

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been focused by prior research on MNE knowledge management. It has been suggested that once valuable, firm-specific, and inimitable knowledge is transferred, it is beneficial to subsidiaries (see Capron & Hulland, 1999; Delios & Beamish, 2001; Fang, Wade, Delios & Beamish, 2007). The KBV represents the opinion that knowledge is a company’s key resource, as it leads to a firm’s sustainable competitive advantage. This competitive advantage of the organization derives from the coordination and combination of diverse knowledge resources at the firm level (Fang et al., 2010). However, HQ cannot expect that the knowledge can be effectively redeployed to the subsidiaries (Fang et. al, 2007; Simonin, 1999; Szulanski & Jensen, 2006). Therefore, a differentiation is made between tacit and explicit knowledge. The latter is generally argued to be easier to transfer, while the first is “sticky” and hard to transfer and imitate, which provides the driving forces for the companies’ competitiveness and performance (Ding, Akoorie & Pavlovich, 2009; Welch & Welch, 2008). But still, new knowledge is mainly absorbed from HQ, as it possesses valuable intangible assets and capabilities (Yang, Mudambi & Meyer, 2008). According to the paper of Reiche et al. (2015), the transmission of tacit knowledge can be seen as an action to create a shared identity, as it makes the understanding among individuals within an organization possible. This is especially important when individuals are geographically dispersed and belong to diverse social groups.

3. The development of hypotheses

3.1 Corporate language

According to Reiche et al. (2015), there are two reasons why subsidiary managers can expect a higher proportion of tacit knowledge from HQ due to the official corporate language.

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managers to generate correct impressions of the HQ identity (Reiche et al., 2015). Secondly, it will be easier for subsidiary managers to consider the HQ as an element to the same language-based-in-group when both share a corporate language throughout the MNC (Mäkelä, Kalla & Piekkari, 2007). Buckley, Carter, Clegg & Tan (2005) argued that "Knowledge transfer requires the use of language and

communication to enable articulation in order to promote assimilation" (p.48). Once

the subsidiary identifies itself with the HQ they can work in line with each other. Prior research indeed argues that language commonalities have a positive effect on knowledge flows, in spite of different cultures (Reiche et al., 2015; Schomaker & Zaheer, 2014). Finally, the transmission of tacit knowledge needs an expression procedure that makes the personal knowledge reachable to others, i.e. an official corporate language (Reiche et al., 2015; Welch & Welch, 2008). Concerning all the arguments above, I propose that:

Hypothesis 1: Corporate language between subsidiary and HQ managers will be positively related to knowledge flows from HQ to the subsidiary.

3.2 Social coherence and intergroup equality

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based on trust, facilitate knowledge distribution. Last but not least, knowledge transfer needs a common understanding so that all people who are involved in the knowledge flow process can withdraw the information that is useful to them (Ambos & Ambos, 2007; Raab, Ambos & Tallmann, 2014). Therefore, human-related factors such as social coherence and intergroup equality can be considered as facilitators of knowledge transfer among dispersed locations. All in all, I conclude the following hypothesis:

Hypothesis 2: Social coherence and intergroup equality towards HQ managers will be positively related to knowledge flows from HQ to the subsidiary.

3.3 Social identity and shared HQ goals and vision

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in stereotyping due to perceived social identity (Reiche et al., 2015). Thus, I argue that:

Hypothesis 3: The extent to which subsidiary managers share a social identity and shared HQ goals and vision will mediate the positive relationship betweencorporate language among subsidiary and HQ managers and knowledge flows from HQ to the subsidiary.

Hypothesis 4: The extent to which subsidiary managers share a social identity and shared HQ goals and vision will mediate the positive relationship between social coherence and intergroup equality towards HQ managers and knowledge flows from HQ to the subsidiary.

Figure 1. Conceptual model

Corporate language

Social identity & shared HQ goals and vision

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4. Methodology

4.1 Sample and data collection

A good possibility for collecting a large number of data, and providing a broad perspective, are surveys. Therefore, I conducted an online survey (Appendix 1) to test my hypotheses. Approximately 150 Japanese subsidiaries in Germany and 200 German subsidiaries in Japan were contacted and asked to participate in the online survey. The list of the subsidiaries was obtained from foreign embassies and chambers of industry and commerce. A total of 155 subsidiaries answered the online survey, yielding a response rate of 44%. Of these 155, 91 were based in Germany (Japanese subsidiaries) and 64 in Japan (German subsidiaries), which led to a response rate of approximately 59% for the Japanese, and 41% for the German subsidiaries. The overall response rate of 44% from the survey is higher than the estimated 34% average in electronic surveys (Peltokorpi, 2015). Due to certain missing answers in the questionnaire, the final sample size was 146.

As proposed by Björkman and Piekkari (2009), general managers should be chosen as contact persons because they are considered to have in-depth knowledge of the local situation and of the relationship between the subsidiary and the headquarters. Therefore, I searched for managers of the collected firms in social media (LinkedIn, XING) in order to get their email addresses. I also checked the Orbis database, as it provides key information and relevant contact information about 74 million active companies worldwide.

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The subsidiaries included in the study are made up by approximately 59% of Japanese and respectively 41% of German ones. The average size of employees working at these subsidiaries is 102 and the standard deviation is 133. Moreover, the subsidiaries execute various functions, namely 60% of them perform manufacturing assignments, 73% accomplish R&D, 71% HRM, 79% distribution/ logistics, 91% service delivery, and 86% are a national/ regional HQ.

4.2 Measures

4.2.1 Independent variables 4.2.1.1 Corporate language

To measure ‘corporate language’, I relied on the study and the already tested questions of Reiche et al. (2015). They used a subjective measure consisting of four questions. Therefore, I asked the respondents to estimate the language capability of (1) subsidiary managers in the language spoken in the HQ country, (2) subsidiary managers in the official corporate language, (3) HQ managers in the language spoken in the country the focal subsidiary is located in, and (4) HQ managers in the official corporate language (1 = very poor, 7 = native speaker).

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4.2.1.2 Social coherence and intergroup equality

The second independent variable ‘social coherence and intergroup equality’ was measured by Fulk (1993), whose paper is based on Stogdill’s (1967) five-item scale. Therefore, the respondents were asked for perceptions of the extent to which members of an individual’s work group: (1) cooperate with each other, (2) regard each other as friends, (3) know that they can depend on each other, (4) stand up for each other, and (5) work together as a team. The mediator variable of ‘social coherence and intergroup equality’ (Alpha= 0.86) had a mean of 3.55 (SD 0.80).

4.2.2 Dependent variable

Regarding the measurement of ‘knowledge flows from HQ to the subsidiary’, I followed the paper of Reiche et al. (2015), too. They asked to what extent their subsidiary receives knowledge from HQ in the area of (1) R&D, (2) manufacturing, (3) distribution/ logistics, (4) HRM, (5) service delivery, and (6) national/regional HQ. Respondents could rate these questions on a seven-point Likert scale, where 1 = ‘not at all’, and 7 = ‘very much’. The construct was created by taking the average of the scores on all issues (Alpha= 0.7), with a mean of 3.05 (SD 0.69).

4.2.3 Mediator variable

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4.2.4 Control variables

For this study I decided to use several control variables to improve the model estimation. First, I took the subsidiary age into consideration, as older subsidiaries had more time to develop a good relationship, which facilitates the transfer of knowledge from the HQ (Peltokorpi, 2015). I measured the age of the subsidiary by asking for how long the subsidiary exists in Japan/ Germany. To make the variable normal distributed, which is a prerequisite for conducting a regression analysis, I measured it as the logarithm and added 1. Furthermore, I also controlled for the country of the headquarters, because this could be an important effect as Japan and Germany are geographically dispersed.

Second, subsidiary size may affect knowledge transfer as well. Larger companies could have a greater choice of resources concerning knowledge creation and transfer (Peltokorpi, 2015). To measure the subsidiary size I asked the managers to fill in the total number of employees in their subsidiary. According to other studies (see Bouquet et al., 2009; Peltokorpi, 2015; Rabbiosi, 2011) I measured this control variable as the logarithm of the total number of employees plus 1.

Third, as many subsidiaries are performing different functions in the MNC, I added the question regarding the subsidiary’s function (R&D, manufacturing, distribution/logistics, service, national/regional HQ) and if the subsidiary are conducting any of these functions. I controlled for this by introducing a dummy for each function (0 = Other, 1 = Yes).

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differentiate between ‘advanced user’ and ‘intermediate user’ (ETS, 2015). I then coded both as dummies where 0 meant intermediate user and 1 advanced user.

4.3 Descriptive statistics

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Table 1. Descriptive statistics: means, standard deviations and correlations

**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

Variables Mean SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1. Social identity & shared HQ goals and vision 3.72 1.06 1

2. Social coherence & intergroup equality 3.55 .80 .66** 1

3. Corporate language 3.40 .75 .20* .24** 1

4. Knowledge flows from HQ to the subsidiary 3.05 .69 .05 -.02 .10 1

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4.4 Analysis

Multiple Regression Analysis was used to test the hypotheses regarding the relationship between corporate language and knowledge transfer, social identity and shared HQ goals and vision, and social coherence and intergroup equality. Regression analysis was deemed appropriate because it predicts the value of a variable based on the value of two or more other variables. In this paper, I used corporate language (1. independent variable (IV)), social coherence and intergroup equality (2. independent variable), and social identity and shared HQ goals and visions (mediator variable (M)) to predict the value of knowledge inflows from HQ to subsidiaries (dependent variable (DV)).

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Figure 2. Mediation effect

Figure 3. Full and partial mediation Mediator

Independent

variable Dependent variable

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For testing the conceptual model, I split it in several models. First, I tested the relationship between the dummy variables and the knowledge inflows. Second, I investigated the relationship between the corporate language and the knowledge flows (Hyp. 1). Third, I looked at the other independent variable, namely ‘Social coherence and intergroup equality’ (Hyp. 2). Then, the mediator effect of social identity and shared HQ goals and vision (Hyp. 3) was tested. Therefore, I first checked the relationship between corporate language and the mediator variable. Then, I researched the connection between social identity and shared HQ goals and vision and the knowledge inflows. Last but not least, the impact of the mediator variable was also tested on the link between ‘social coherence and intergroup equality’ and knowledge inflows (Hyp. 4). This analysis was split in two models as well. Firstly, the relationship between intergroup equality and HQ goals was measured, then the latter on knowledge inflows.

5. Results

5.1 Corporate language

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5.2 Social coherence and intergroup equality

I suggested in Hypothesis 2 that social coherence and intergroup equality towards HQ managers are positively related to knowledge flows from HQ to the subsidiary. Table 3, Model A2 shows that age is significantly negatively (Beta coefficient = -0.26, p < 0.05) related to knowledge inflows from HQ. This demonstrates again that younger firms receive more knowledge flows from the headquarters. R&D (Beta coefficient = -0.23, p < 0.05) and ‘intermediate’ (Beta coefficient = -0.93, p < 0.05) have also a negative significant impact on knowledge inflows from HQ. More surprisingly is that social coherence and intergroup equality has no significant effect on knowledge flows from HQ (Beta coefficient = 0.03, p = n.s.). The percentage of explained variance is 26, and no multicollinearity was found (VIF < 5). All in all, Hypothesis 2 is therefore not supported.

Table 2. Results of regression analysis for knowledge flows from HQ to subsidiaries

*p<0.1; **p<0.05; ***p<0.01

Knowledge flows from HQ to subsidiaries

Model A1 A2 A3

Variables β s.e. β s.e. β s.e.

Corporate language 0.15* 0.75 0.22*** 0.06 0.21** 0.06

Social coherence and intergroup equality 0.03 0.06 -0.08 0.08

Social identity and shared HQ goals and vision 0.17* 0.08

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5.3 Mediating effects

Hypothesis 3 stated that the extent to which subsidiary managers share HQ goals and vision mediate the positive relationship between corporate language among subsidiary and HQ managers and knowledge flows from HQ to the subsidiary. The results are presented in Table 4. First, I tested if there is a significant relationship between corporate language and HQ goals and vision. This is a first possible action of finding a possible mediation effect. However, there is no significant effect of corporate language on shared HQ goals and vision (Beta coefficient = 0.12, p = n.s.) (Table 4, Model B1) which leads to the rejection of Hypothesis 3. The only control variable that has a positive effect on shared HQ goals and vision is R&D (Beta coefficient = 0.27, p < 0.05). The percentage of explained variance is only 11, which is considerably smaller than that of the other models.

Table 3. Results of regression analysis for social identity & shared HQ goals and vision

Social identity & shared HQ goals and vision

Model B1 B2

Variables β s.e. β s.e.

Corporate language 0.12 0.09 0.02 0.07

Social coherence and intergroup equality 0.63*** 0.07

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Looking at Hypothesis 4 (Table 4, Model B2), which argued that the extent to which subsidiary managers share HQ goals and vision will mediate the positive relationship between social coherence and intergroup equality towards HQ managers and knowledge flows from HQ to the subsidiary. As Hypothesis 2 was rejected, I can exclude the direct effect of the independent variable on the dependent variable, which I discussed earlier. Therefore, partial mediation is not possible. However, due to the fact that ‘social coherence and intergroup equality’ is significantly positively related to ‘social identity and shared HQ goals and vision’ (Beta coefficient = 0.63, p < 0.01), and ‘social identity and shared HQ goals and vision’ has also a significant positive effect on knowledge inflows from HQ (Beta coefficient = 0.15, p < 0.1) (Table 3, Model A1), is the evidence for a full mediation. In contrast to the first part of this mediation effect, in Model B2 all control variables are not significant. The percentage of explained variance is 46, which is relatively high. All in all, these results support Hypothesis 4 that ‘social identity and shared HQ goals and vision’ fully mediates the relationship between ‘social coherence and intergroup equality’ and knowledge inflows from HQ. Moreover, additional support for Hypothesis 4 about the mediating effects of social identity and shared HQ goals and vision comes from the Sobel t-test (1982) (t = 1.82, p < 0.1) (Fig. 3). The Sobel test can be best performed in sample sizes greater than 50, which is the case in my study (sample size= 146) (MacKinnon, Warsi & Dwyer, 1995).

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Figure 4. Conceptual model with statistical significant relationships

*p<0.1; **p<0.05; ***p<0.01

6. Discussion

This study sought to address the research question if the implementation of a corporate language and social coherence and intergroup equality call for a change in knowledge flows from the HQ to the subsidiary, and if this relationship is mediated by the determined social factor. To address this research question, German and Japanese subsidiaries were chosen for the empirical context, because they differ in their English capabilities. As mentioned before, English is often considered as the lingua franca and therefore used as an official corporate language. Also in my study, English was the shared language in all subsidiaries, if there was an official corporate language.

The key findings can be summarized as follows: First, the present study found evidence that corporate language between subsidiary and HQ managers is significantly and positively related to knowledge flows from HQ to the subsidiary, which supported Hypothesis 1. This means that the implementation and usage of a Corporate language

Social identity & shared HQ goals and vision

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corporate language will enhance the knowledge inflows from HQ to the subsidiary. A possible explanation for this outcome could be that the knowledge transfer, especially the transfer of tacit knowledge, requires the existence of a language in which knowledge can be articulated (Eisenhardt & Santos, 2002). Therefore, a shared language, which may build a stronger barrier to social interaction than nationality or ethnicity could ever do (Reiche et al., 2015), facilitates the relationship between the HQ and the subsidiary, and ultimately pushes the knowledge transfer. This result was also supported in the study of Reiche et al. (2015). Moreover, the finding underlines the proposition that language commonalities have a positive impact on knowledge flows (Reiche et al., 2015; Schomaker & Zaheer, 2014). However, there is a significant negative impact of the age of the subsidiary on the knowledge flows from HQ. This could be explained by the fact that older subsidiaries do not receive that much knowledge from their headquarters anymore, as they have had more time to develop a knowledge stock (Noorderhaven & Harzing, 2009).

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The result of the analysis regarding the mediating effect of ‘social identity and shared HQ goals and vision’ (Hyp.3) reveals a positive, non-significant impact on the relationship between corporate language among subsidiary and HQ managers and knowledge flows from HQ to the subsidiary. The rejection of the hypothesis proves that, although cultural differences are a factor to take into account for organizations operating on a global scale, a strong social identity within the different foreign subsidiaries, as well as the presence of a shared HQ, do not undermine the positive effects of defining one corporate language on knowledge inflows from HQ.

By contrast, Reiche et al. (2015) found that shared HQ goals and vision mediates the relationship between corporate language and knowledge inflows from HQ to the subsidiary. This may be explained by the fact that Reiche et al. (2015) used different countries and did not consider English as the only official corporate language.

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7. Theoretical implications

Social identity theory is well known in Social psychology. However, in the MNC context it has only begun to be used by researchers (Reiche et al., 2015). Furthermore, only little research has investigated the relationship between corporate language and MNE knowledge flows, although there are many challenges that multinational companies have to face (Reiche et al., 2015). Therefore, the findings make several contributions. First, I showed that corporate language has a positive effect on knowledge inflows from HQ, which could ultimately lead to a competitive advantage. Language can be therefore seen as a transmitter for tacit knowledge. Second, social factors like shared HQ goals have no mediating impact on the positive relationship between corporate language and knowledge inflows, which was in contrast to the findings of Reiche et al. (2015).

Regarding prior research, it is conspicuous how many qualitative studies covered this topic. The emphasis, as mentioned earlier, was laid on Scandinavian case studies or on HQ that ‘spoke’ English as native language. Only a small sample of remarkable studies on this topic changed the approach and provided new insights concerning different HQ languages/ countries and quantitative research (see Björkman & Piekkari, 2009; Fredriksson et al., 2006; Reiche et al., 2015). Taking Japanese and German subsidiaries as the subjects of my empirical study, I added another quantitative perspective on this broad topic. Both of them are non-native English-speaking countries, which was not yet investigated in that form.

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predominating in the EU, even if the EU is considered as one unit. English-speaking countries need to understand that most people in the world do not speak English as their mother language, and the other people have to see that a corporate language facilitates relationships and therefore can serve as a bridge.

8. Managerial implications

The results of this study also provide some important practical implications. By implementing an official corporate language, the relationship between the headquarters and the subsidiary can be improved. Due to a clear communication about the importance of embracing a corporate language to all levels within the organization, the risk of misunderstanding may be reduced, and the collaboration can be enhanced. Tailored training programs for existing employees and new hires of foreign subsidiaries could be designed, and would facilitate usage of the corporate language. Reassuring and monitoring the consistent usage of the chosen corporate language could avoid the existence of two or more, possibly different, information flows. The findings may be a starting point for MNCs that detected several problems when exchanging knowledge from HQ to geographically dispersed subsidiaries. The absence of an official corporate language could be help to mitigate the problem.

9. Limitations and implications for future research

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10. Conclusion

The aim of this thesis was to investigate the impact of corporate language and ‘social coherence and intergroup equality’ on knowledge inflows from HQ to the subsidiary, and to test one social mediating variable, which could contribute to this relationship.

The study adds value to the extant literature by looking at MNEs from two non-native English-speaking countries, i.e. Japan and Germany. Statistical data was collected by an online survey. Through the study of 146 subsidiaries, the results reveal that the fully mediating effect of ‘social identity and shared HQ goals and vision’ supports positively the relationship between ‘social coherence and intergroup equality’ and knowledge flows from HQ. Moreover, the implementation of one corporate language shows a positive effect on the inflow of knowledge from headquarters to subsidiaries as well.

This result has not only an impact on the theoretical, but also on the practical side. The implementation of a corporate language to all levels within the organization may reduce the risk of misunderstanding, and thus the collaboration can be enhanced. Furthermore, ‘social identity and shared HQ goals and vision’ improves the knowledge inflows from HQ to the subsidiaries, thus headquarters’ are well advised to foster a strong and close relationship to their subsidiaries.

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Appendices

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Appendix 2 – Confidential letters

1) English

Confidential letter Dear prospective participant,

My name is Miriam Moser and I am a graduate student at the University of Groningen. For my Master thesis, I am examining the impact of corporate language on subsidiary knowledge inflows. For the empirical part, I decided to choose two non-native English speaking countries, or rather German HQ that hold subsidiaries in Japan and vice versa.

I am inviting you to participate in this research study by completing the attached link to the online questionnaire: https://de.surveymonkey.com/r/R3LQNN7

The following questionnaire will require approximately 5 minutes to complete. If you would rather not answer a question, you may leave it blank, but the results of this research will be most useful if you answer all the questions. In order to ensure that all information will remain confidential, please do not mention your name. The survey is voluntary and completely confidential.

If you have any questions, please contact me: Miriam Moser, Wilkemaheerd 107, 9736BR Groningen (The Netherlands), 0031 6 156 90 800,

m.moser.2@student.rug.nl

Thank you for taking the time to assist me in my educational endeavors. The data collected will provide useful information regarding my expected hypotheses, and offer new insights concerning different HQ languages and social structures, in which non-native English speaker are predominant.

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Sincerely, Miriam Moser

Results request card

If you wish to receive a report of the results of the ‘corporate language and subsidiary

knowledge flows’ questionnaire, enter your e-mail address in the space below. It may

take several weeks before results can be sent, so please provide your most permanent e-mail address.

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2) German

Vertrauliche Abmachung Sehr geehrte(r) Teilnehmer(in),

mein Name ist Miriam Moser und ich bin Masterstudentin der Universität Groningen. Für meine Masterarbeit untersuche ich die Auswirkung einer Unternehmenssprache auf den Wissenstransfer nach Tochtergesellschaften. Für den empirischen Teil habe ich mich für zwei Länder, die Englisch nicht als Muttersprache sprechen, entschieden. Genauer gesagt, deutsche Zentrale, die Tochtergesellschaften in Japan besitzen und umgekehrt.

Ich möchte Sie dazu einladen an dieser Forschungsstudie teilzunehmen, indem Sie den dafür eigens konzipierten Fragebogen unter folgendem Link beantworten:

https://de.surveymonkey.com/r/R3LQNN7

Das Beantworten des Fragebogens wird in etwa 5 Minuten in Anspruch nehmen. In dem Fall dass Sie es bevorzugen eine Frage nicht zu beantworten, können Sie das Feld freilassen. Allerdings wäre es für das Ergebnis der Studie am Nützlichsten wenn Sie alle Fragen beantworten würden. Um zu gewährleisten dass alle Ihre Informationen vertraulich bleiben, bitte ich Sie, Ihren Namen nicht hinzuzufügen. Der Fragebogen ist freiwillig und komplett vertraulich.

Falls Sie Fragen haben, können Sie mich gerne kontaktieren: Miriam Moser, Wilkemaheerd 107, 9736BR Groningen (Niederlande), 0031 6 156 90 800,

m.moser.2@student.rug.nl

Vielen Dank dass Sie sich die Zeit nehmen und mich in meinen akademischen Bemühungen unterstützen. Die gesammelten Daten liefern nützliche Informationen zu den aufgestellten Hypothesen. Außerdem bieten sie neue Erkenntnisse bezüglich verschiedener Sprachen in Hauptgeschäftsstellen und sozialen Strukturen, in welchen nicht-Englisch-Muttersprachler überwiegen.

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Beendigung und Rücksendung der Fragebögen werden als Bereitschaft zur Teilnahme verstanden.

Freundliche Grüße, Miriam Moser

Ergebnisantwortbogen

Falls Sie einen Ergebnisbericht zu der Studie erhalten möchten, tragen Sie bitte Ihre Emailadresse ein. Es könnte einige Wochen in Anspruch nehmen, ehe die Resultate verschickt werden können, weshalb ich Sie bitten würde, eine dauerhafte Emailadresse anzugeben.

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3) Japanese アンケートのお願い 調査に参加してくださる皆様へ グロニンゲン大 (University of Groningen) にて修士課程に在籍しておりますミリアム モーサー (Miriam Moser) と申します。修士論文執筆にあたり、社内の使用言語が子会社の知識流動に及ぼす 影響について調査しています。英語を母国語としない国2カ国としてドイツと日本を 選択し、ドイツに本社を置き日本に子会社を持つ会社と、日本に本社を置きドイツ に子会社を持つ会社について調査を進めています。 本調査へご協力いただける方は、オンラインの質問事項にお答えください: https://de.surveymonkey.com/r/R3LQNN7 本アンケートの回答時間は約5分程度です。回答しにくい質問については空欄のま までかまいませんが、調査結果の有効性を保つため、すべての質問に答えていただ けますと幸いです。また、すべての情報は機密事項として扱われるため、名前は記 載しないようお願いいたします。本調査は任意に行われるものであり、機密性が保 証されます。

質問がございましたらご連絡ください。Miriam Moser, Wilkemaheerd 107, 9736BR Groningen (The Netherlands), 0031 6 156 90 800, m.moser.2@student.rug.nl

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