University of Groningen Faculty of Economics and Business
Nettelbosje 2, 9747 AE Groningen
Master Thesis
June 20th, 2017
National Culture: Its Influence on the Construct of Performance, Trust,
and Control in Interorganizational Relationships.
Supervisor: Abdul Rehman Abbasi Co-Assessor: Prof. Dr. Pieter Jansen
By:
Yvonne Shamiran Yadcar S3145824
M.Sc. Business Administration: Organizational and Management Control
Abstract
Trust and Control are two vital components when explaining the mechanisms of IORs. Careful management and balance of both constructs is challenging and demands careful considerations to positively impact the relationships outcome. With the world developing to a big market place, where the reach of borders are not a significant trade barrier anymore, the balancing of IOR elements is confronted with yet another obstacle: national cultural differences and their influence on alliances. The question arises, whether there are influences and how these affect the goal attainment of an IOR. This research focuses on the three dimensions of Hofstede: uncertainty avoidance, long-term orientation, and individualism, and their influence on the framework of interactions between trust, control, and relationship performance. In an empirical analysis, moderator effects have been tested and revealed negative and positive influences of culture on the constructs.
Table of Content
1. Introduction ... 1
2. Literature Review ... 2
2.1 Transaction Cost Economics ... 2
2.2 The Role of Contracts in IOR ... 4
2.3 The Role of Trust in IOR ... 5
2.4 Interaction of Trust and Control ... 6
2.5 Relationship Performance ... 6
2.5.1 Relationship Performance Through the Lens of TCE ... 7
2.5.2 Relationship Performance and Trust and Control ... 7
2.6 Hofstede’s Cultural Dimension ... 8
2.7 Research Framework and Conceptual Model ... 9
2.8 Control Variables ... 12
3. Method ... 13
3.1 Research Setting and Data Collection ... 13
3.2 Measurements ... 14
3.3 Data Analysis ... 15
4. Results ... 16
4.1 Descriptive Statistics ... 17
4.2 Correlations ... 17
4.3 Results of the Hypotheses ... 18
5. Discussion ... 20
6. Limitations and Conclusions ... 22
References ... 24
Appendices ... 29
A1. Rotated Factor Matrix, Varimax Rotation, and Cronbach’s Alpha ... 29
A2. Correlation Matrix of all Variables ... 30
A3. Regression Table: Model 1 - 4 ... 31
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1. Introduction
In a world where the economy is becoming increasingly international, businesses cannot stay behind. By embracing the opportunities that globalization brings, different national cultures inevitably come together (Dekker, 2004). Van de Ven and Ring (2006) say that: “Societies, in which insiders are perceived as being more trustworthy than outsiders will discover that they are dealing with more outsiders” (p.156). Meaning that much potential for problems arises, when people, partners, or companies of different national background come together in a business collaboration. Commonly, it is assumed that the so-called outsiders will be met with less trust than established and known partners with the same cultural background (Rousseau and Rousseau, 1998.). Considering that businesses are facing an increasingly multi-cultural environment, the topic is of high relevance. It has been widely argued that alliances between partners of a similar culture are more likely to succeed than alliances between less similar partners, which supports the claim of conducting more research in order to draw significant and valuable conclusions of the matter (Pothukuchi et al., 2002).
This subject is especially relevant in interorganizational relationships (IOR), which include strategic alliances, partnerships, coalitions, joint ventures and many more (Van de Ven and Ring, 2006). IORs depend on the level of trust and control between partners; these two constructs must be carefully balanced to be successful (Dekker, 2004). Both components are inversely related and influenced by many external factors, such as culture (Dekker, 2004). According to the theory of transaction cost economics, all business processes are regulated through transaction costs, and the anticipated behavior of the involved parties. This provides a theoretical framework to study IORs and its components (Riordan and Williamson, 1985).
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Distinct differences in national culture in a working environment (e.g. in working morale, communication, handling of conflict situations) can lead to difficulties in the building of trust (Langfield-Smith and Smith, 2003, Hofstede, 1985). People with differing cultural background are argued to face more difficulties getting accepted by the “in-group”, but once inside the inner circle, long-lasting relational bonds are formed (Griffith, Hu, and Ryans 2000). So, how does culture influence the resulting performance in transactions sculpted through trust and control, and to what extent? Research can help understand the interaction between the variables and to effectively transform the findings gained into behavioral suggestions for managers of multinational businesses. The gap to be filled in this research is the extent of the influential capacity of culture on business interaction between two partners of an IOR and its resulting effect of the alliance’s performance. Elaborating knowledge in this field will support people that operate in such scenarios, allowing them to prepare, and behave accordingly.
As an attempt to fill the identified gap, the following research question will be investigated:
“How does national culture influence the path from contractual control and IOR trust to relationship performance in a moderating way?”. It aims to investigate how relationships
develop, regarding IOR trust and contractual safeguards, and how national culture has an influence on said relationship.
The paper is structured as followed: First a theoretical framework will be established, summarizing the necessary terms, theories, and relations in order to follow up on the assumptions in this project. This will lead to the research framework and the hypotheses of this thesis to answer the research question. The methodological part, consisting of the data collection -and analysis process of the acquired data, will be followed by the summary of the results and their evaluation. The thesis will conclude in a discussion providing limitations and managerial implications.
2. Literature Review
To establish a common basis of knowledge of the subject in question, necessary concepts and definitions will be introduced in this chapter leading to the derivation of the conceptual model and the hypotheses.
2.1 Transaction Cost Economics
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2009; Poppo and Zenger, 2002). In addition to Coase, Williamson has had a significant impact on the continuing development of the transaction cost theory.
TCE sees the firm not as a producing entity, but rather as a governance structure to give an operational environment for transactions. The approach believes that each transaction has different attributes (differences in costs and capabilities, frequency, uncertainty, or asset specification) and aligns them within governance structures (such as contracts and other management control means) (Verbeke and Greidanus, 2009), to create positive economic performance results (Williamson, 1998). To provide an overall applicability of the theory, TCE seeks to answer three major questions in the context of relationships between economic organizations (Verbeke and Greidanus, 2009):
1. What transaction should be performed within the companies’ boundaries?
2. Assuming the linkage involves external actors: How must that linkage be governed? 3. How must the linkage within the firm be governed?
According to Verbeke and Greidanus (2009), answering these questions leads to the best possible input-output relation, given the available alternatives.
The theory offers a framework in which transaction costs can be negotiated and executed through governance structures and institutions (Riordan and Williamson, 1985). When transactions take place (e.g. transactions between firms), the theory of TCE further governs and observes them (Williamson, 2008). It examines individual transactions and is the driving force behind institutional formation (Williamson, 2008). Transaction costs are identified as everyday expenses and time, which are reduced in successful transactional arrangements (Coase, 1937). In accordance with Coase (1937), Ouchi (1977) defines transaction costs as all IOR activities which aim to satisfy all participating parties in an effort to distribute value in accordance with the prior specified expectations (Williamson, 2008).
TCE identifies two dimensions influencing the decision-making process in the transactional framework: opportunism and bounded rationality. These dimensions imply that transactions under conditions of uncertainty can become problematic in the sense that they might induce unnecessary costs.
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Without the ubiquitous presence of possible opportunistic behavior, all actors of a transaction would behave completely honestly, however this is far from reality (Moschandreas, 1997).
The second behavioral attribute of actors within transaction, bounded rationality, is the belief that agents will act in a limitedly rational manner (Williamson, 1993; 1998). It can manifest through multifaceted information or a distinction in the reasoning of identical information (Verbeke and Greidanus, 2009).
2.2 The Role of Contracts in IOR
Coase (1937) promotes the idea that managers would rather tie themselves to deals and agreements, to avoid having to contract analogous issues on a frequent basis. Through the lens of TCE, contracts are one of the commonly used control mechanisms when it comes to governance structures in IOR. Contractual agreements are formulated to prevent opportunistic behavior from either one of the parties (Poppo and Zenger, 2002). They are structures like rules, formal channels, or a set of possible consequences in case of inadequate performance (Vélez et. al., 2008; Vosselman and Meer-Kooistra, 2009, Tomkins, 2001). A contract includes, for example, specifications of the different roles within the relationship, responsibilities, monitoring agreements and penalties in case of non-compliance with the contracts rules. According to Macneil (1980), a formal contract includes agreements or obligations to perform specific actions in the future. A more complex contract indicates a greater set of promises and obligations. It thus ensures that the performance goals and outcomes that are specified in the contract will be fulfilled (Poppo and Zenger, 2002).
The purpose of a contract is to assure the economic exchange between participating parties, by applying specific actions to an interfirm transactional relationship, while keeping the transaction costs at minimum (Williamson, 2008; Vosselman and Meer-Kooistra, 2009, Poppo and Zenger, 2002). When negotiating the terms of an IOR agreement the major objective is to create a working environment in which it can be ensured that all transactions proceed as smoothly as possible. In accordance with the TCE, contracts give the structure to negotiate the terms of the transactions. These include aspects such as legal requirements, expectations about the execution, parties interest alignments, and performance expectations that all involved parties have decided on (Tomkins, 2001).
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Vosselman and Meer-Kooistra, 2009). The level of safety and the resulting basis to build trust encourages improved information sharing between IOR partners and thus lead to higher performances of the participants (Tomkins, 2001).
2.3 The Role of Trust in IOR
An IOR needs its factors to work together in a tranquil manner to function properly. IOR accrues from several factors such as control and IOR trust. Its qualitative characteristic is for the relational partner to have adequate confidence in the cooperation (Langfield-Smith and Smith, 2003; Das and Teng, 1998). According to Das and Teng (1998), a minimum degree of trust within an IOR is necessary for the alliance to function.
According to many researchers, trust is of crucial importance in developing and maintain IORs. IOR trust is a widely-defined term, which has been studied in several different scenarios (Aulakh et. al., 1996). The concept of trust can be investigated in the setting of IORs, because exchanges between partners eventually come down to being managed by individuals (Hosmer, 1995; Aulakh et. al., 1996). Zand (1972), for example, define trust as the level of willingness of one partner to increase their vulnerability towards actions of the other partner within the alliance. Projecting this definition on an economic context would mean that partners believe that their counterpart will not act in an opportunistic manner and continue to act and negotiate fairly, when such opportunities present themselves (Zaheer et. al., 1998). Thus, behaving as was agreed on when working toward the achievements of commonly set goals (Hosmer, 1995).
Trust is an informal, social control mechanism for performance in IOR (Dekker, 2004). Das and Teng (1998) argue that trust is valuable for the simple reason that firms must be able to rely on their partners to perform not only in their own best interest, but in the best interest of the cooperation. Anderson and Narus (1990) state that trust is the confidence that the other company will perform actions in a way that result in positive outcomes for both the firms and on the other hand to avoid taking unexpected actions that might result in negative outcomes. This is in accordance with the TCE, which says that trust is warranted when one party expects a gain when placing themselves at risk to another, and that this risk-taking action is implied to be trust (Williamson, 1993).
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trust has a positive effect on hierarchical governance (Aulakh et. al., 1990; Bradach and Eccles, 1989). Thirdly, the quality of market performance is influenced by the degree of trust that is present within the IOR (Parkhe, 1993).
2.4 Interaction of Trust and Control
Undoubtedly, trust and control are intertwined in an IOR (Das and Teng, 2011; Van de Ven and Ring, 1992). To avoid risks that might occur in IOR, management of these two components is of utmost importance (Das and Teng, 1989). In accordance with TCE, contracts help to counteract hazardous effects that might occur when opportunistic behavior presents itself (Williamson, 1998). Formerly, the focus was only on how formal control influences the effectiveness of IOR, whereas now, researchers have found that the influence of trust in such a matter must not be underestimated (Das and Teng, 1998). Another conception is the substitutive relationship between trust and control (Dekker, 2004). Meant by this is the simple assumption that the more trust there is, the less control is needed and vice versa (Das and Teng, 1998; Dekker, 2004). When trust is present, both parties assume that the other will act in each other’s interest. In a trustful ambiance, this results in little conflict and less need for control to protect against the possibility of opportunistic behavior (Dekker, 2004).
A reasonable application of formal control mechanisms will signal trust in the partner (Morgan and Hunt, 1994), whereas an extensive use of formal control mechanisms, will signal distrust and harm the interfirm relationship (Dekker, 2004; Das and Teng, 1998). To maintain a positive relationsip, the appropriate amount of control must be used carefully and individually for each relationship (Dekker, 2004).
2.5 Relationship Performance
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2.5.1 Relationship Performance Through the Lens of TCE
Presently, TCE is the theoretical context in which relationship performance is examined. An overview of studies approaching relationship performance by O’Toole and Donaldson (2002) illustrates the dominance of TCE in comparison to any other economic theory. According to TCE, performance can be optimized in transactional relationships, because of the heightened efficiency of the transactions (Riordan and Williamson, 1985). As stated in the previous section, a healthy and positive business-to-business relationship results in fewer transactional costs, such as a lower cost of negotiation (Palmatier et al., 2007; O’Toole and Donaldson, 2002; Zaheer et al., 1998). A well-functioning business relationship requires a lower investment of time and causes less stress due to the reduced need to supervise each other’s actions (Coase, 1937). Also, the presence of opportunistic options has a strong influence on the decision-making process of the partners and must be taken into account when predicting outcomes.
2.5.2 Relationship Performance and Trust and Control
An overall assumption used in the research study of Donaldson and O’Toole (2002) is that the quality of relationships affect performance. If it is a relationship where positive aspects outweigh negative ones, improvement of the overall performance is expected. It is a fact that a strong relationship between two partners enhances, amongst others, sales and profits, innovativeness and, at the same time, reduces transactional costs (Palmatier et al., 2007). Thus, successful IOR’s are essential to a firm’s financial performance (Palmatier et al., 2007).
With a sufficient level of trust in IOR, performance will increase (Zaheer et. al., 1998; Tomkins, 2001). Exchange partners offer each other more flexibility because of expectations of positive outcomes, by reaching results in less time (Zaheer et. al., 1998). When the partners of IOR can trust each other’s actions to be in the best interest of the joint alliance’s project, the outcome is likely to be in accordance with set goals – namely positive (Palmatier et al., 2007). IOR performance is therefore associated with the ability of all partners to reduce the overall transaction costs, and thus better performance outcomes (Zaheer et. al., 1998). With regard to TCE, Zaheer et. al. (1998) wrote that trust decreases transaction costs, such as negotiating costs, and encourages information sharing, leading to more efficient performance (Zaheer et. al., 1998). It can thus be concluded that a sufficient level of trust within an IOR will result in satisfying relationship performance (Parkhe, 1993).
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possibility of long-term relationships, since the parties do not have to worry about possible opportunistic behavior of the other. This lack of worrying eventually results in trust, and as was stated earlier, trust leads to increased performance. Supporting this claim, Dekker (2004) also researched this trust-performance relationship and came to the conclusion that control is important to IOR performance, because it reduces information asymmetry and will lead to higher performance through transactional governance structures.
In conclusion, it can be said that a sufficient level of trust enhances the performance of an alliance and that the amount of control applied does also have a positive influence on performance, as long as it is not too distinctive, such as that it could signal mistrust.
2.6 Hofstede’s Cultural Dimension
To integrate the factor of national culture into the framework, we must first define ‘national culture’. In literary research, it is challenging to find a consistent definition of the concept (Pothukuchi et al., 2002; Ralston et al., 2007). One of the most cited and most used applicable concepts of national culture in the IOR context, is the one by Hofstede (1980). He defines national culture as a set of values, beliefs, norms, and behavioral patterns that define a national group (Leung et al., 2005). Hofstede (1991) compares this group behavior to the “mental software of the mind” that is designed through rules of social interactions (Hofstede, 1991). It leads humans’ thinking, acting, and speaking and is experienced in all kinds of situation. Such collective mental programming differs between groups of people, which creates cultural differences. According to Hofstede (1991), most research is conducted on organizational culture, but national culture is as important, since it is described to create an organizational sense of collectivism. To grasp the importance of national culture in the context of interfirm alliances, Pothukuchi et al. (2002) broke down the underlying relevance: difference in national culture, affecting beliefs, values, and norms will lead to different psychological environments for the alliance, which will lead in turn to varied working practices and routines, and possibly to negative impacts on overall IOR performance (Pothukuchi et al., 2002). Additionally, national culture has proven to influence a group’s performance, and a firm’s capital structure and overall controlling mechanisms (Malmi and Brown, 2008; Leung et al., 2005).
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term orientation. Countries can be positioned along these dimensions. The resulting position is unique and is the source of differences in national cultures. The research in this thesis investigates only the effects of collectivism vs. individualism, uncertainty avoidance and long-term vs short-long-term orientation on the effects of control and trust on relationship performance, because of the limited time, scope, and resources available for the project.
The first dimension addressed in this thesis is collectivism vs. individualism. This dimension refers to the manner in which inequalities are handled. Individualism describes situations, in which people only look after themselves and their immediate families (emphasis on the “I”). Whereas collectivism is about “in-group” people, who look after each other in exchange for loyalty (“we”). Individualism encourages caring more for the tasks than for the quality of relationships (with collectivism this is vice versa). It encourages lower occupational mobility and the sharing of information (Hofstede, 1984).
Uncertainty avoidance describes to what degree members of a society feel uncomfortable
with uncertainty and ambiguity. Hofstede (1980) differs between a high and low degree of uncertainty avoidance. Organizations with high uncertainty avoidance, seek control through formalization and structure. They embrace rules and control systems and seek to know all answers to keep uncertainty at bay and avoid ineffectiveness. Weak uncertainty avoidance is defined by a more relaxed working atmosphere where practices count more than principles, and more risks are taken.
Long-term vs. short-term orientation addresses the timely and future orientation of an
organization. Short-term orientation means staying loyal to traditions and social obligations. For expectations to be met in this scenario, contracts must be signed to predefine the performance expectations and consequences in case of poor performance, since short-term oriented relationships are less quickly to trust. Long-term orientation describes values more oriented towards the future, which means that bonds are being made, funds are available for investment, and organizations are willing to change with their dynamic environment. To ensure a successful and positive relationship, contracts between participating parties will be made to secure long-term goals and methods to achieve them. These will provide an appropriate business environment in which transactions between the two alliance partners can occur without the fear of opportunism from the other party (Hofstede, 1984; 2011).
2.7 Research Framework and Conceptual Model
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Choosing the right partner for an interfirm relationship is crucial to an alliance’s success. Aulakh et. al. (1996) state that it is evident that choosing a partner firm from international options is influenced by many factors and that it can happen that the alliance is not a well-functioning one. The conceptual model of this project as shown in figure 1 will be elaborated on in the following.
When a company does not have a minimum amount of trust towards its business partner, the relationship will not be a long-lasting one. The longer a relationship lasts, the more trust will be created between the partners, because of the increased probability that the other will act in a manner that benefits both sides of the contract holders. In the context of TCE, transactions must be performed with as little transaction costs as possible. To ensure this, trust is a necessary factor. It reduces transactions costs such as monitoring and checking up on the performance of the partner. As was elaborated earlier, contracts support the establishment of trust in IOR. Additionally, contracts ensure that both parties have the same objectives and goals as the IOR, leading to the abandonment of short-term benefits (Aulakh et. al.,1996). Morgan and Hunt (1994) state that timely information sharing does build trust, and as was shown in the previous section, these conditions are also provided by contracts. One significant impact of contractual control on performance is that through it, the fear of unsatisfactory performance is removed and performance is therefore enhanced (Aulakh et. al.,1996). This leads to the first hypotheses of this paper:
H1: Long-term orientation has a positive moderating effect on the relationship between contract and relationship performance.
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H2: Long-term orientation has a positive moderating effect on the relationship between IOR trust and relationship performance.
Uncertainty avoidance is the degree to which people are comfortable in situations of uncertainty (Hofstede, 1980). Uncertainty can be decreased through means of control, such as monitoring mechanisms of the performance of the IOR. This will remove uncertainty and the pressure of it (Aulakh et. al.,1996; Anderson and Olivier, 1987). According to the TCE, it can be assumed that with high uncertainty avoidance, transactions will not be performed as fast as they could be, because of the risk of opportunistic behavior, which increases in situations with high uncertainty. Contracts act as safeguards against such risks (Tomkins, 2001; Vosselman and Meer-Kooistra, 2009).
For example, in a buyer-supplier relationship, uncertainty heightens the cost of search of a firm to find a buyer (Urbany, 1986, Money and Crotts, 2003). In an uncertain environment, investment of time and resources on researching the alliance is high in order to minimize risk and therefore increases the transaction costs of the IOR (Money and Crotts, 2003). Thus, through logical derivation, it can be said that contracts decrease uncertainty, resulting in enhanced performance. Therefore, uncertainty avoidance influences the creation of contracts. To support this claim, it has been shown that cultures that are high in uncertainty avoiding behavior are more cautious and less tolerant (Shane, 1995). These cultures strongly believe that deviating from organizational hierarchy might result in uncertain situations, possibly leading to punishment and the desire to reduce uncertainty through contractual control (Shane, 1995). Therefore, high uncertainty avoidance will lead to contractual agreements ensuring the expected and required relationship performance.
H3: Uncertainty avoidance has a positive moderating effect on the relationship between contract and relationship performance
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H4: Uncertainty avoidance has a positive moderating effect on the relationship between IOR trust and relationship performance
In situations where opportunistic behavior is possible, people from individualistic cultures put their own goals above the goals of the collective (Moorman and Blakely, 1995; Gudykunst et al., 1996). Sampson (1978) states that when personal goals are in line with the goals of the group, the overall performance will be positively impacted. But to prevent one partner to act opportunistic anyway, control mechanisms must be present. Additionally, the independent working characteristics of cultures are marked by a low degree of information-exchange, although the quality of communication is much better (Gudykunst et al., 1996). Overall, it can be said that when one partner of an IOR is more individualistic oriented, the relationship needs more formal structure to ensure the pursuing of the same interests, which results in the improved overall performance of the IOR.
H5: Individualism has a positive moderating effect on the relationship between contract and
relationship performance.
Opposed to that and relating to the TCE, it can be assumed that when an opportunity presents itself to act in an opportunistic manner, an individualistically oriented firm will take advantage of it. This means that building trust in such an environment is not easy and requires much control. Trust can be built through an appropriate amount of control (as was stated in the fifth hypotheses), but it will not be build when one partner of the alliance is in a ubiquitous risk-taking position. The promotion of contracts hence, caused by individualism, will lead to the conception that the partner’s performance and competence is lacking, resulting in less trust that goals will be achieved (Dekker, 2004). Therefore, the last hypothesis was formulated:
H6: Individualism has a negative moderating effect on the relationship between IOR trust and relationship performance.
2.8 Control Variables
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since it has been established that the size of the partner firm has a very high influence on the alliance (Stuart, 2000). When the partner firm is a large one, the smaller partner firm will benefit highly, thereby impacting the overall performance (Stuart, 2000). The size will be measured through the number of employees in both the firms (Stuart, 2000).
Fig. 1 Conceptual Model
3. Method
3.1 Research Setting and Data Collection
Van Aken et al. (2012) argue that a theory testing approach should be used when many entities face a similar business phenomenon, or problem. Prerequisite is that the literature streams are already quite elaborated and need to be supported with quantitative data. This is the case in this thesis.
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signed a formal contract. The participants were asked to answer all questions regarding one specific IOR. All participating firms came from Germany, the Netherlands, or Indonesia.
The data was collected in two stages by the research team of seven students. During the first stage, the potential participant, was contacted via phone or E-Mail and introduced to the content of the study and its purely academic nature. Also, they were assured that all the received data would be handled anonymously and confidential. The respondent was then asked for further contacts in order to have a broader field of respondents and to increase external validity. The second step was the actual data collection process. 131 surveys were collected. After removing the empty entries, 112 datasets remained. The response rate of the data collection was 54,05%.
3.2 Measurements
The supervisor of this thesis developed and provided the questionnaire, which measured the items through Likert scales and demographic and introductory questions. The required variables from the collected data set were given to us to further organize and analyze. The variables for this project are the independent variables of contract and IOR trust, and the data belonging to the dependent variable of relationship performance.
Table 1. Dimension Scores by Hofstede (Hofstede, 2010)
Hofstede’s Dimensions/ Country Germany n=27 The Netherlands n=59 Indonesia n=24 Uncertainty Avoidance 65 53 48 Long-Term Orientation 83 67 62 Individualism 67 80 14
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IOR Trust * Individualism of Indonesia) (Hartmann and Moers, 1999). These scores will be used to include culture in the statistical concept.
3.3 Data Analysis
An attempt was made to study the influence of culture on the relationship between trust and performance, and control and performance in the scope of an IOR. According to Podsakoff (1986) to rule out common method bias in the study, a factor analysis must not generate only a single construct (Harman’s one-factor test). As can be seen in A1 in the appendix, more than one construct resulted from the factor analysis, providing a setting with no common method bias. Following, the steps of Anderson and Gerbing (1988), it first must be tested whether the presented construct measures for which it was designed to (construct validity). Therefore, an exploratory factor analysis was conducted and items that did not load with the right construct got sorted out. Secondly, reliability of the constructs was examined with a Cronbach Alphas test. The hypothesized relationships between the constructs is tested with a multiple regression analysis. Before the regression analysis is run, outliers are removed by identifying points that lie outside the whiskers of a boxplot. Sequentially, following prerequisites must be met: 1) linear correlation, 2) the variables are normally distributed, 3) the variables have homoscedasticity and that there is 4) no multicollinearity (Backhaus et al., 2011). To test, if
linear correlation is given, a Durbin-Watson test was performed. The score must range between
1 and 3, which is shown in this analysis, providing autocorrelation (Backhaus et al., 2011). Also, the correlation values of the variables (table A1) must be between -1 and 1. A1 in the appendix proves the fulfillment of this condition. Whether the variables are normally
distributed is tested by examining the skewness and kurtosis of the different variables and by
running a Durbin-Watson test. A score between 1 and 3 implies a normal distribution, which is the case. The variables are normally distributed and show no issues with kurtosis and skewness.
Homoscedasticity of the variables is tested by examining the scatterplot, which is created while
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the relationship of the independent variable of IOR trust and its effect on relationship performance with attention to the two control variables and model 5 the effect of contract on relationship performance. The remaining models include the moderator variable of culture. Model 2 for instance shows the moderation of individualism on the concept of trust and relationship performance, including the controlling variables.
Table 2 Regression Model
4. Results
Conducting an exploratory factor analysis resulted in the elimination of items that do not measure the concepts that they are supposed to. An adequate loading should be at least 68,9% (Aulakh et al., 1996). This left three concepts measuring IOR trust, contract, and relationship performance (see App. A1) all with eigen value greater than one. The items of relationship performance factor loaded into two constructs. Because the overall loadings of construct 2 are higher, this concept was used in the further analysis. Secondly, to determine the reliability of the items and the constructs, Cronbach Alphas were calculated. Literature suggests that a Cronbach’s Alpha score of at least 0.7 is needed for a construct to perform a reliable analysis
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of the data. The Alpha Score of IOR Trust and Contract is 0.69, which is still acceptable. The score of the relationship performance construct is 0.869, indicating a high reliability (A1).
4.1 Descriptive Statistics
A2 in the appendix displays the descriptive statistics of the used variables. The average score for relationship performance lies at 4.34 (with 7 being the highest score), which is more than half the maximum score. The average of IOR trust lies at 4.19 and for contract at 5.01 (also with 7 as the highest score). The size of the firm ranges from ten to 212.000 employees with an average of 7082 employees. The average age of the interorganizational alliances is approximately ten years. The descriptive statistics of Hofstede’s cultural dimensions can also be found in appendix A2. Individualism scores an average of 62.13; long-term orientation scores an average of 69,74; and the average score of uncertainty avoidance is 54,78.
4.2 Correlations
A2 shows the correlation coefficients of all the variables used in this project. Unfortunately, the main effect variables of IOR trust, contract on relationship performance do not correlate on a significant level, which results in limited support for whether these correlate with cultural dimensions and the control variables.
A2 also shows that the control variable of the alliances’ age has only a minimal impact on the remaining variables. Additionally, the correlations are not significant, leading to the presumption that the age of an alliance does not influence the creation of relationship performance, the level of trust and contractual control, and the cultural dimension. The second control variable, firm size, correlates positively with IOR trust on a 95%-significance level. Other than that, firm size positively correlates with the cultural dimension of long-term orientation and uncertainty avoidance (~0,38), concluding that this control variable does have an influence.
The relationship between IOR trust and contractual control is negatively correlated, which conforms to the literature, since a higher level of trust results in less need of control and vice versa. The correlations between IOR trust and contract and relationship performance are not significant. The cultural dimension of uncertainty avoidance is positively correlated with control variables of firm size and alliance age, and negatively correlated with the contract variable, which is according to literature.
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variables not included in the measure that bias or influence the correlations (third-variable problem).
4.3 Results of the Hypotheses
To test the previously derived hypotheses, a regression analysis was run. Tables A3 and A4 in the appendix present the results of the regression. The regression models 1 and 5 in A3 and A4 show the regression results of the main effects only. Although both models do not have a sufficient level of significance, it can be said that with an increase of one unit of IOR trust, the resulting relationship performance will decrease by 0,117 units (model 1). An increase of one unit of contractual control, on the other hand, seems to have a positive impact on relationship performance (model 5). Neither of the controlling variables have a noteworthy statistically significant impact on models 1 and 5 or on the remaining models either. Although it might seem that with an older alliance, the performance should have a slightly better result, which would have been according to literature, but because of the insignificance, this is not the case. Contrary to expectations, alliance age and firm size do not seem to have an impact as was expected.
The remaining six models displayed in tables A3 and A4 tested the hypotheses. The moderator variables of individualism, long-term orientation and uncertainty avoidance were included and tested regarding IOR trust and contractual control. The inclusion of the moderator variables resulted in higher R square scores for all models and therefore positive changes in R square. Plus, all significances increased. None of the models, significant or not, are influenced by the control variables of firm size and alliance age. Thus, these factors do not determine whether an alliance has positive performance results or not.
Models 2 and 6 are both highly significant (p<0,01). Both models test constructs moderated by the dimension of individualism, indicating that the extent of individualism in a culture does have an impact on relationship performance in considerations of trust and control. Models 7 and 8 are significant on a 90% level and test the dimension of uncertainty avoidance and long-term orientation on the relationship between contract and performance. It would seem that contractual control does have a significant impact on the formation of relationship performance when measured with moderation
Hypothesis 1 suggests the positive moderating effect of long-term orientation on the
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(Contract*LTO) has a highly significant negative influence on the construct. This means that with an increase of long-term orientation in the alliance, the relationship performance will decrease by 0,029. When taking into account that without the moderator, the relation was a positive one, this leads to the rejection of the first hypothesis.
To test the effect of long-term orientation on the construct of trust and performance,
hypothesis 2 was formulated and tested in regression model 4. Unfortunately, the entire
construct is not statistically significant, making it impossible to make a statement about the relationship and leading to the rejection of hypothesis 2.
Hypothesis 3 alleges that uncertainty avoidance positively moderates the relation between
contractual control and relational performance. This hypothesis is tested in construct 8. Table A4 displays that the presence of a contract positively influences the model. The moderator (Contract*UAE) however, has a negative influence on the construct, which is also highly significant. Although the impact is low (-0,029), it is negative and significant, leading to the conclusion that there is a negative relation between uncertainty avoidance and contracts regarding performance. Therefore, the third hypotheses, too, gets rejected.
Hypothesis 4 states the positive moderation of uncertainty avoidance between IOR trust and
relationship performance. As can be seen in table A3, the fourth model is testing this. Trust in itself, is negatively influencing the construct, but when moderated by uncertainty avoidance, the effects are positive. This would lead to the presumption that the hypothesis can be proven. However, because the construct itself is not significant, the hypothesis must be rejected.
Hypothesis 5 predicts a positive moderating effect of the dimension of individualism on the
construct of contract and performance, which was tested in regression model 6 (table A3). Model 6 is significant on the 99% level, making the results highly reliable. Predicted was a positive moderation, however the positive impact of contractual control on the construct is moderated negatively by Hofstede’s individualism dimension. Although the moderating effect is small, it is negative. Additionally, the singular impacts on the model do not have significance, which suggests no effects of the variables on relationship performance at all. Hypothesis 5 is rejected.
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significant association on relationship performance, but since this is not directly tested here, it is not relevant. Because there is no correlation with the moderator, the sixth hypothesis is rejected.
5. Discussion
The purpose of this research was to generate insights on the influential mechanisms of culture on the creation of relational performance through trust and drafting contracts in a TCE context. To operationalize the concept of national culture, Hofstede’s dimensions of long-term orientation, uncertainty avoidance, and individualism were used. The need for research on the operating principles of culture in IOR is a recent and much discussed topic, since the world is in motion to becoming increasingly globalized, leading to outsourcing policies, cross-border alliances, and an increase in multicultural project teams. Therefore, having the knowledge of how culture is influencing such situations, and how the factors of trust and contractual control influence relationship performance, is valuable. To gain insight in this matter, and to establish an adequate common ground of knowledge, a research question has been formulated: How does
national culture influence the path from contractual control and IOR trust to relationship performance in a moderating way? It was established from literature that there is interactive
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moderating effects were assumed to be present with the cultural dimensions of uncertainty avoidance, long-term orientation, and individualism. Only the moderating influence of individualism on IOR trust has a negative effect, which is in direct opposition to the literature. In the previous section of this paper the results were presented and revealed that none of the hypothesis could be proven, because the outcome was not as expected or the overall construct was not significant enough to draw a conclusion from. However, it can be concluded that there is, to some degree, an influential character of cultural dimensions. Regression model 2 contains a statistically significant negative association between relationship performance and the individualism dimension (-0,019). It means that countries with a high score in the dimension of individualism will likely have to put more effort into building trust (e.g. the Netherlands). According to the outcomes of the research, there are reasons to assume that individualism influences performance outcome, but not in the conceptual setting presented in this thesis. Regression models 7 and 8 revealed a significant influence of the moderating effects of uncertainty avoidance and long-term orientation on the construct between contractual control and relationship performance. Although the literature predicted a positive moderation the analysis of the primary data resulted in a negative correlation. Thus, when a country scores high in either of the two dimensions, moderation is likely to take place. Germany, for example, scores high in both dimensions (aiming for long-lasting business relations with low uncertainty) and therefore will be eager to have detailed contractual agreements in the IORs to reduce uncertainty and tie the partner as long as possible to the relationship. The implication that can be taken from this result is that when managers face an alliance that has high differences in Hofstede’s scores of uncertainty avoidance and long-term orientation, they can take these into account to better prepare for the cooperation. Preparing and behaving accordingly will improve the overall working atmosphere, which has a positive effect on the alliance’s outcome.
Knowing how IORs are influenced will help companies extract value from the cultural differences and the knowledge on how to cope with them. Businesses have already started introducing diversity managers to even out differences and help teams and their managers to work together in a positive atmosphere and understand how to benefit from different cultures. With knowledge based on Hofstede’s dimensions, these management departments can support international teams precisely and in a goal-oriented way.
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insignificant, a final and clear statement cannot be made about the extent of the moderation of culture.
6. Limitations and Conclusions
The findings of this research are inconclusive, which is common when researching cultural influences in IOR (Pothukuchi et al., 2002). The results and findings must be interpreted with caution and with limitating circumstances in mind. First of all, it must be noted that the data collected only comes from three countries, making the results not generalizable for all remaining countries. Aulakh et al. (1996) established the issue of possible reciprocal relations in their study. This thesis measures the moderation on the entire concept only, and does not consider the possibility that the influential relationship is reverse. For instance, there might be an increase in trust level resulting from better relationship performance. Additionally, information was only collected from one of the relational partners, since the participants were not allowed or willing to hand out the contact information of their alliance partners. Although Gerninger and Herbert (1991) found out in their study that collecting responses from only one partner of an alliance will represent the IOR validly, it is desirable to have information from both sides of an IOR.
Another limitation is the overall low score of R squared and the overall low statistical significance. This implies that only a small number of the relations tested are explained by the model, making interpretations difficult and unreliable. The reason for this can be that other factors that are not included in the present study are strongly influencing the tested relations and making the overall result biased. Future research should include other factors that might account for the low R square in this study. Factors to be included can be further non-financial measures such as satisfaction and financial measures.
It is also important to acknowledge the fact that trust is a psychological issue and differs from person to person, which can result in different results depending on each person, thereby causing additional bias. Contracts, on the other hand, are created through crafting commonly agreed to facts and actions, leaving little room for personal bias. This leads to the assumption of why the contact related results are more dependable and statistical significant.
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also attempt to explain culture and might be better able to explain cultural influences on the interaction between trust and relationship performance and control and relationship performance.
During the analysis process, issues occurred regarding the variable of relationship performance. It is possible that the measurement of this variable was not accurate. The performance of the relationship can be measured by investigating and observing the common measurement indicators, like financial (e.g. profits and supplier ratings) and non-financial (positive interfirm relationships, flexibility, relational satisfaction) mattes (O’Toole and Donaldson, 2002; Macneil, 1980, Zhang et al., 2007). According to O’Toole and Donaldson (2002), in most studies relationship performance is not the primary focus, but rather an element of another research construct. Because of this, most researches only investigate interfirm performance from a financial perspective. Providing an overall and thorough performance measurement system with more than only the financial component of relational success taken into account (such as satisfaction with the relationship, the level of trust, and the governance and control structure), might better the measurement of relationship performance.
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Appendices
A1. Rotated Factor Matrix, Varimax Rotation, and Cronbach’s Alpha
Relationship Performance
IOR Trust Contract
RELTPER_9 0,906 RELTPER_7 0,821 RELTPER_8 0,778 IORTRUST_3 0,865 IORTRUST_4 0,724 IORTRUST_2 0,722 CONTRACT_2 0,881 CONTRACT_1 0,794 Cronbach’s Alpha 0,869 0,690 0,697
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A3. Regression Table: Model 1 - 4
Dependent Variable: Relationship Performance
Regression Model 1 2 3 4 Age of Alliance 0,003 (0,019) 0,003 (0,015) 0,007 (0,036) 0,007 (0,041)
Firm Size -5,231E-6
(-0,106) -5,583E-6 (-0,113) -5,202E-6 (-0,106) -4,902E-6 (-0,100) IOR Trust -0,117 (-0,120) 0,010 (0,010) -0,115 (-0,118) -0,111 (-0,114) Contract Individualism -0,019** (-0,352) Long-Term orientation -0,017 (-0,098) Uncertainty Avoidance -0,026 (-0,118)
IOR Trust * IND 0,003
(0,063)
IOR Trust * LTO 0,015
(0,120)
IOR Trust * UAE 0,019
(0,124) Contract * IND Contract * LTO Contract * UAE R square 0,031 (-0,001) 0,162** (0,116) 0,056 (0,003) 0,063 (0,010) F-value 0,977 3,482 1,065 1,200 Δ R square 0,095 0,025 0,032 Δ F-value 0,977 7,045 0,45 N 96 96 96 96 Correlation is significant at **p<0,1, *p<0,05
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A4. Regression Table: Model 5 - 8
Dependent Variable: Relationship Performance
Regression Model 5 6 7 8 Age of Alliance 0,008 (0,045) 0,006 (0,031) 0,005 (0,025) 0,004 (0,024)
Firm Size 0-6,647E-6
(-0,135) -4,591E-6 (-0,093) -4,015E-6 (-0,082) -3,750E-6 (-0,076) IOR Trust Contract 0,157 (0,173) 0,107 (0,117) 0,138 (0,152) 0,136 (0,150) Individualism -0,009 (-0,176) Long-Term orientation -0,015 (-0,087) Uncertainty Avoidance -0,021 (-0,095)
IOR Trust * IND IOR Trust * LTO IOR Trust * UAE
