THE ROLE OF CULTURE ON SUPPLIER DEVELOPMENT & HOW TO MITIGATE CULTURAL DIFFERENCES
Master thesis, MSc Supply Chain Management University of Groningen, Faculty of Economics & Business
January 2021 Ojie Irabor
Student number: S3223809 e-mail: o.irabor@student.rug.nl
Supervisor Dr. ir. T. Bortolotti
Co-assessor Dr. ir N.J. Pulles
Acknowledgment: I would like to thank Mr Bortolotti for his guidance and patience throughout the process. He was extremely helpful and insightful in assisting me on how to tackle this topic. I would also like to thank Mr Pulles for his helpful comments and feedback regarding my work. Also I extend my deepest gratitude to my family, participants and work for taking time out of what has been an extraordinary year to help accommodate me during these challenging periods.
Word Count: 11,217
Abstract
Purpose: This research attempted to study how cultural factors impacted the use of supplier development. Also provide advice on how to mitigate these cultural differences.
Design/Methodology/Approach: A qualitative approach conducting interviews and questionnaires with professionals experienced with dealing with suppliers within the renewable energy, oil & gas, biking and cleaning & hygiene industry.
Findings: Findings suggest suppliers from high power distance countries are more receptive of demands making them highly compatible with direct supplier development. Buyers
adopted a collective approach with direct supplier development as a means to understand their culturally dissimilar suppliers better and obtain mutual benefits from better performances.
Besides culture, organisational size/ structure and industry/product specificity also seen to be factors affecting supplier development.
Practical Implications: Advice to managers on how to avoid over commitment from suppliers. Advice on factors to consider when undertaking supplier development with suppliers from high power distance and high individualist locations.
Originality/Value: to this studies knowledge, it is the first of its kind to study national culture within direct and indirect supplier development. Also it contributes to supply chain management literature by identifying the cultural factors in supplier development which is currently sparse.
Contents
1. Introduction ... 4
2. Theoretical Background ... 7
2.1 Supplier Development ... 7
2.1.1 Direct Supplier Development ... 8
2.1.2 Indirect Supplier Development ... 9
2.2 National Culture in Supplier Development ... 11
2.2.1 Dimension 1: Power Distance ... 13
2.2.2 Individualism vs Collectivism ... 14
3. Methodology ... 15
3.1 Research Design ... 15
3.2 Case setting and selection ... 16
3.3 Data Collection ... 19
3.3.1 Interview Details ... 19
3.3.2 Data Analysis ... 21
4. Results... 22
4.1 Supplier Development & National Culture ... 22
4.1.1 Supplier Development Observations ... 22
4.1.2 National Culture & Supplier Development Observations ... 24
4.1.3 Other Factors affecting supplier development ... 26
5. Discussion ... 27
5.1 Findings discussion ... 27
5.2 Practical Implications ... 29
5.3 Limitations & Future Research ... 30
6. Conclusions ... 31
7. References ... 32
8. Appendices ... 40
THE ROLE OF CULTURE ON SUPPLIER DEVELOPMENT & HOW TO MITIGATE CULTURAL DIFFERENCES
“You can change the culture of an organisation but you cannot change the culture of a country”
1. Introduction
Increased globalization and an urgency to reduce costs has led to businesses interacting more with suppliers in their network across the world (Milovanovic, Milovanovic and
Radisavljevic, 2017). Companies now understand the competitive advantage to gain through a closer relationships and increased collaboration with their suppliers (Patyal et al., 2020). One strategy used to initiate this sort of collaboration is supplier development (SD). Supplier development is defined as effort from the buying firm to improve the capabilities/performance of their supplier (Govindan, Kannan and Haq, 2010). Supplier Development has seen firms experience increases in quality, greater flexibility and better delivery times (Krause,
Handfield and Tyler, 2007). The improvement in product quality also leads to an increase in sales for the supplier thus making supplier development mutually beneficial for both buyer and supplier when implemented correctly (Carr and Kaynak, 2007).
These supplier development practices can further be classed into direct and indirect
approaches. A direct approach represents an active participation from the buyer to improve the supplier (Wagner, 2010) whether it be in the form of training workshops, cross functional teams or on site consultation (Krause and Ellram 1997; Krause, Handfield, and Scannell 1998;
Wagner 2010.) Whereas, an indirect approach pertains to a more passive and ambiguous form of improving supplier performances and capabilities such as recommendation, promises or requests (Wagner, 2010).
However, supplier development can be difficult to implement as businesses from different countries consist of employees that associate with their own national culture (Banomyong, R.;
Bohme, T., Hosoda, T.; Yaseen, 2011). This cross cultural interaction causes differential information perception which affects communication, exposes contrasting working habits and contrasting attitudes on approaching situations that arise (Ojiako and Chipulu, 2014). For
example, China has a high power distance culture which means that they are more accepting of power inequalities (Zhao et al., 2008) in comparison to the USA which has a lower power distance (Daniels and Greguras, 2014) and thus more inclined to dispute and challenge authority. Local businesses in China tend to treat their American buyers and suppliers better as they are believed to possess the technology and resources that locals do not (Wu and Ma, 2016) yet USA buyers regard their Chinese suppliers as replaceable with many already taking pre-emptive steps to replace them after calls from President Trump to do so (Reed, 2019).
Although, this commitment shown by the Chinese suppliers makes them prime candidates for direct supplier development as the buyer can tailor how they work with little confrontation.
This accentuates that supplier development practices is not a one size fits all approach when culture is involved. Onus is on the buyer to understand the cultural differences to ensure successful supplier development practices (Ribbink and Grimm, 2014; Gupta and Gupta, 2019).
Previous research on supplier development has primarily been descriptive with focus on establishing correct practices and the associated benefits (Arroyo-López, Holmen and de Boer, 2012). Whilst past studies have differentiated practices into direct and indirect
approaches (Yawar and Seuring, 2018), further research separating the approaches is not quite as forthcoming aside from (Wagner, 2010) who examined that both approaches do not work well when used together; rather it should be one or the other. This was because indirect supplier development is said to precede direct practices rather than used alongside (Modi and Mabert, 2007). The ambiguity involved with indirect supplier development due to
uncommunicated information between both sides, means it can be difficult to reach and measure specific goal thus resulting in unclear results (Wagner, 2010).
A lack of research into supplier development via its multiple approaches has subsequently led to an unascertained understanding into variable factors that may affect direct and indirect development in its isolation; one of these factors being national culture which this study will examine. Currently, literature posits a general outlook on key success factor for supplier development and perception of supplier’s strategic objective is regarded as one of these factors (Wen-Li et al., 2003). However, perception is said to derive from national culture (Carter et al., 2010). In addition, Krause and Ellram (1997) remark that cross functional teams and working with suppliers are also key success factors. However for cross-functional teams to work, there needs to be mutual understanding of the others behaviour and working habits which derive from national culture. This has led to researchers calling for future studies to
examine the interactions of national culture amongst other contextual variables due to current inconclusive knowledge stemming from arguments (Boscari et al., 2018). Hence why a new study is needed to bridge this gap of knowledge.
In the supply chain domain, national culture has been examined in regards to supplier selection decision making, disruption management, value creation and supplier selection but in regards to supplier development practices, studies is sparse (Carter et al., 2010; Goebel et al., 2012; Davis et al., 2014; Kumar, Liu and Demirag, 2015) especially when the practices are split. In Cao et al. (2015) they acknowledge a positive relationship between organizational culture and supply chain integration yet it does not go further to examine whether this remains the case for national culture and a supplier development type of collaboration. Businesses reside in all parts of the world with different cultures and their own ways of approach yet it is not understood how these cultural differences impact supplier development practices.
In an operations management context, it is said that national culture subconsciously has an impact on supply chain decision making (Kumar, Liu and Demirag, 2015) but this is tentative and descriptive in explanation. However despite how encompassing operations management is, areas such as supplier development have lacked examination in regards to the influence of NC despite being a key strategy to firms in their quest for competitive advantage. Due to the aforementioned, this study is relevant as it will provide a more robust understanding of a key strategy for businesses that is still underdeveloped theoretically (Gupta and Gupta, 2019).
The ambiguousness involved with indirect supplier development due to its passiveness of information sharing compared with direct supplier development which requires a higher level of participation means that culture will affect the application of both in different ways i.e.
investing in cross cultural suppliers or indirect methods of requests to suppliers from similar cultures due to a stronger mutual understanding. This leads to the following question:
Research Question 1: How does National culture influence direct supplier development practices
Research Question 2: How does National culture influence indirect supplier development practices
This research through a multi case method consisting of interviews and questionnaires will use the Hofstede national culture dimensions; power distance & collectivism/ individualism (Hofstede, 2011) as these two dimensions give an insight into the dynamics of cultural collaboration whilst also being the two dominant dimensions used in literature (Bochner and
Hesketh, 1994). The supplier development practices will be categorized in the following ways; direct and indirect supplier development practices. Whilst literature has fleetingly mentioned national culture amongst supplier development, it has not distinguished between direct and indirect when discussing national culture which limits the true understanding of supplier development and has provided inconclusive arguments on national culture.
This will thus allow the study to examine how national culture impacts the different supplier development practices within culturally similar and culturally dissimilar business
interactions.
The following section will be a theoretical background reviewing the literature on supplier development and natural culture. Following on will be the methodology explaining in detail how the study was conducted. After this will be the results and then the conclusion.
2. Theoretical Background
2.1 Supplier Development
In the event of undesirable supplier performances, the buying firm can choose to remedy this through developing their suppliers capabilities (Wagner, 2010). Supplier Development is defined as the effort from the buying firm to improve the capabilities or performances of the supplier to match their intended targets and goals (Govindan, Kannan and Haq, 2010). It first came to prominence in literature by Leenders (1966) to examine how manufacturers would increase the number of suitable suppliers they can use. Over time, supplier development has increasingly received attention from the supply chain domain due to the competitive
advantages that can be realized from using those practices (Krause and Ellram, 1997; Wen-Li et al., 2003) such as improved quality and delivery times. On a practical level firms are recognizing these strategic benefits and thus creating teams and programs to overlook this development process (Wagner, 2010). These competitive advantages require the contextual application of supplier development practices such as supplier evaluation, feedback, supplier training and the sharing and transfer of employees from one firm to another (Govindan, Kannan and Haq, 2010). Krause, Ragatz, and Hughley (1999) devised measures that explained that the buying firm relied on their perception of the suppliers commitment and efficient communication with the supplier to be factors assisting whether to take part in
supplier development. These practices can then be split into direct and indirect supplier development based on their level of resources used and manner of communication (Wagner, 2010).
There has been contradictory research into the use of direct and indirect practices simultaneously. Krause (1997) argued the point that the two variations of supplier
development were not mutually exclusive and can be used side by side with each other. This was an approach used by many Japanese firms with their supplier he goes on to add. But this view has had its opposition. Wagner (2010) debates that the two when used together is rather inefficient instead suggesting that if a firm is to get the best use out of supplier development, they need to engage in one variation at a given period of time rather than both. This is a further reason why more research is needed into direct and indirect supplier development, to bridge these contradictory gaps in knowledge through robust studies.
2.1.1 Direct Supplier Development
Direct supplier development is when the buying firm takes an active and engaged role in the supplier’s development through the deployment of resources in order to achieve agreed targets (Ghijsen, Semeijn and Ernstson, 2010). This can be done through investing
machinery, capital, training programmes or personnel transfer into the supplier as a means to assist them (Wagner, 2010). Inter-organizational knowledge transfer is seen as one of the critical factors towards a firm achieving competitive success and direct supplier development encompasses this substantially through activities such as training programmes (Dyer and Nobeoka, 2000).
Direct supplier development comes with its own risks (Humphreys, Li and Chan, 2004), which is why it is recommended that firms plan their direct supplier development based on the feedback they receive from formal supplier evaluations and communication of goals with suppliers if they are to see improvement in performances (Wagner, 2006). Research from Wagner (2010) says that direct supplier development was strongly attributed to improving the supplier capabilities. This outlook echoes the findings off Humphreys, Li, and Chan (2004) who in their study of 142 electronic manufacturing companies in Hong Kong firms found that direct supplier development practices such as the deployment of resources contributed to a successful supplier development process. However, caution needs to be applied as this form
of supplier development is seen as the riskier option because it can resort in lost capital and poorly utilised resources if the supplier does not improve (Wen-Li et al., 2003).
Buyers require a thorough understanding of their supplier when they take a direct approach, as this transaction has irrecoverable costs when the relationship is broken (Aʇan et al., 2016).
Direct supplier development can elicit opportunistic behaviour on the part of the supplier (Wagner, 2006) as they can downplay their capabilities and exaggerate their requirement for assistance. Rather than funding extra staff or investing in training camps to educate their staff thus creating more expenses, the supplier can lean on the buyer to provide this. Buyers need to be thoroughly aware and confident that these investments would in the long term result in an increase in value or lower costs above the extent of what could have been achieved through other methods of supplier improvement such as supplier switching or vertical integration (Wagner, 2010).
Direct Supplier Development Practices
On-site Consultation (Wagner, 2010) This is where the buyer visits the supplier and informs them on how they believe the supplier can improve their practice. As these are face to face conversations, body language, mannerisms impact perception.
Education and training programs (Krause, Scannell and Calantone, 2000) The aim of these programmes is to teach the supplier methods and ways to improve their level of work. These training programmes require investment into resources and time to put together.
Cross Functional teams (Krause and Ellram, 1997) This is when teams made up of different operational tasks come together. If this is set up by the buyer, it will involve some of their staff working alongside the suppliers staff.
2.1.2 Indirect Supplier Development
Indirect Supplier Development also known as externalised SD or narrow perspective SD was a term coined by Wagner (2010) to categorize less immersive SD practices. Theoretically, this form of strategy has been conceptualized as influence strategies by (Frazier and Summers, 1984; Ghijsen, Semeijn and Ernstson, 2010) as communication is used to elicit incentives and
improve supplier methods and way of working. There is an added emphasis on coercive and non-coercive practices to alter supplier behaviour (Krause, Handfield and Scannell, 1998;
Wagner, 2006). These methods can be in the form of information exchanging,
recommendations, requests, promises, threat and legal pleas (Bignoux and Gray, 2011). These practices shape the behaviour and operations of the suppliers. There is a coercive element here as the suppliers adapt their behaviour to the requirement of the buyer because they know they risk losing business with the buyer (Hartley and Choi, 1996). There is a possibility that they can be switched over to a more cooperative supplier if their behaviour and operations do not change to the satisfaction of the buying firm. This is supported by Frazier and Summers (1984) who postulate that these activities oblige the suppliers to improve quality, delivery and production as a means to avoid adverse consequences.
With indirect practices, there is an element of goal setting present (Wagner, 2010; Busse et al., 2016). This is the notion that setting goals is a strong way to motivate others (Lee et al., 1991). However, this is contingent on the goals being attainable but difficult to reach (Wagner, 2010). As targets are set, feedback can be exchanged and both the supplier and buyer can see where the supplier is performing in relation to the set goal (Govindan, Kannan and Haq, 2010). Initially this theory was used on an individual level, but over time the level of analysis has expanded to groups and inter-organizational relationships (Wagner, 2010) thus making it applicable to groups of different culture too.
Whilst direct supplier development is attributed to improvements in the suppliers capabilities, research from Wagner (2010) links indirect supplier development to noticeable improvements in the supplying firms service and product offering additionally. This sort of information and links can prove important to the buying firm if they know what part of the supplier
capabilities they are trying to improve. Although whether this general outlook holds true when culture is concerned is unsure due to the lack of research into this matter with culture as the cultural factor of context.
Indirect Supplier Development Practices (Frazier and Summers, 1984; Bignoux and Gray, 2011)
• Information Exchange- In this action information is shared between the buyer and supplier to aid decision making.
• Recommendation- Buyer gives supplier advice on actions to undertake that they believe will improve performances.
• Request- Buyer asks the supplier to complete a task for them
• Promise – Buyer will reward the supplier at a later date contingent on the completion of a specified tasks.
• Threat- Buyer informs the supplier that they risk consequences if they fail to comply with buyer’s needs.
• Legalistic Plea- Buyer posits that supplier needs to comply in accordance to contracts agreed.
2.2 National Culture in Supplier Development
National culture is the systematic programming of thinking and processing subject to a nationwide context (Hofstede, 2011). Culture plays a part in how individuals perceive and respond to information they receive and communicate to others (Zhao et al., 2008). In order for dissimilar cultures to succeed together, they need to come together to understand one another (Yuan et al. (2013).
Hofstede initially structured national culture into 4 different dimensions based on his time at IBM working with 50 different countries (Hofstede et al., 2002). These dimensions were power distance, collectivisms vs individualism, masculinity vs feminism & uncertainty avoidance. Over time he added the fifth dimension of time orientation based on work by Michael Harris Bond (Hofstede, 2011). Hofstede has come into criticism for his dimensions due to it being based on one firm, lacking fact finding approach and the belief that culture is too broad a term to use as it differs between individuals (Shaiq et al., 2011).
Due to its wide use amongst literature, an ongoing discussion has been present in papers in regards to how relevant these dimensions are in modern day. Despite developing these
dimensions over 40 years ago, it is still regularly referred to by scholars in present day (Carter et al., 2010; Ribbink and Grimm, 2014; Gupta and Gupta, 2019). Beugelsdijk, Maseland, and van Hoorn (2015) found in their study that the scores on the dimensions still uphold and remain stable through their study and thus still of use. Tang and Koveos (2008) put forward that power distance, individualism and long-term orientation has a curvilinear relationship with the wealth of the nation based on its GDP and so it becomes a factor based on the
national economy rather than the culture. Another study by Tang (2012) presents findings that these dimensions are relevant as they report opposing individualism levels cross culturally and power distance can impact the use of foreign direct investment; positively and negatively
respectively. Which posed questions to understand considering direct supplier development is a form of FDI. Whilst these are interesting findings, these conclusions have yet to receive widespread support amongst academia and so this study will progress with Hofstede dimensions.
In literature, the influence national culture has across the supply chain is not commonly agreed (Boscari et al., 2018); it is said the expansion of global markets has created a cross pollination of information and behaviours that renders national culture less relevant according to some researchers (Bird and Stevens, 2003; Cheung, Myers and Mentzer, 2010). An
extension of this belief is that the influence of national culture is diminishing due to the rapid rise of globalisation (Boscari et al., 2018).
The reason for studying culture in different types of supplier development is due to differences marked by researchers. Wagner (2010) has commented that both direct and
indirect SD practices cannot be used together. This study opted to separate the national culture between the direct and indirect practices as they both entail different levels of collaboration.
Divergent cultural differences between the buyer and supplier is one reason for this which can lead to difficulty of communication across cross cultural entities (Nair-Venugopal, 2015). Due to the majority of indirect supplier development practices containing a considerable amount of un-coded and ambiguous behaviour (Arroyo-López, Holmen and de Boer, 2012), thorough understanding of this is contingent on the buyer and supplier finding a way to mutually align their cultural differences and effectively communicate with each other cross culturally.
International buyer-supplier interactions will involve communication between both actors communicating in a manner in accordance with their culture (Kittler, Rygl and MacKinnon, 2011). Their interpretation and perception on information exchanged between each other is influenced by their cultural standards (Slovic et al., 2007). This becomes more difficult with tacit knowledge that is ambiguous and un-coded and thus will need its contextual solution (Wagner and Krause, 2009; Arroyo-López, Holmen and de Boer, 2012). This can lead to asymmetric understanding on benchmarks, involvement levels and information exchanged.
This low cross cultural understanding thus results in a miscommunication that can put
business transactions at risk (Incelli, 2013). For example, Western companies have a different approach to business relations in comparison to Asian businesses who uphold a more
collective attitude (Power, Schoenherr and Samson, 2010). This was seen in a study by Pagell, Katz, and Sheu (2005) who found in their case that Korean firms involved in technology outsourcing, valued building and maintaining relationships with their provider firms in
comparison to Western companies. So it is imperative that buyers and suppliers understand these deviations and develop a mutual understanding on goals and targets in order to reap the benefits of the closer relationships (Patyal et al., 2020).
2.2.1 Dimension 1: Power Distance
Power Distance (PD) is defined as the degree of which those less powerful in a society or institution accept that power is distributed unequally (Basabe and Ros, 2005). This dimension is a segment of the Hofstede Dimensions on national culture. It hinges on the notion that power inequality is promoted as much from the bottom as it is from the top (Hofstede, 2011).
In societies that have a high power distance such as nations like China and India, there is a stronger sense of acceptance regarding power inequality (Basabe and Ros, 2005). There is an emphasis on respect and shying away from decision making instead leaving it to those with a higher status to make them (Khatri, 2009). These decisions made by the dominant party receive little resistance from the high power distance party (Richards, 2014). In addition to that, there is an increased focus on top down decision making and workers are supervised with a substantially added amount of scrutiny to ensure that they are working to standards (Sagie and Aycan, 2003). Whereas on the other end of the scale, examples of low power distance countries are the UK and the USA (Ramaswami, Huang and Dreher, 2014).
Cultures with a low power distance value equality distributed amongst those in society and rely on democratic natured forms of participation (Rinne, Steel and Fairweather, 2012). It is generally perceived to encourage empowerment and higher team participation as those lower in the hierarchy have more of a say and input but this perspective has been questioned in past literature. Zhang and Begley (2011) contest this in their study by positing the relationship between empowerment and power distance is more complex than generally assumed and that higher power distance actually leads to higher team participation. Khatri (2009) purports that there is less information asymmetry in low power distance cultures as subordinates can air their views which is not the case with high power distance cultures. This bodes of interest to supplier development as indirect and direct both require differing levels of participation and
so it exposes potential areas of problems such as in direct supplier development where the supplier from a high power distance shy’s from robustly critiquing plans set out by the buyer.
In previous decades there has been a shift from studying power distance in a societal setting to exploring other contextual settings i.e. the individual (Farh, Hackett and Liang, 2007). On an individual basis, the focus is on how that individual responds to power imbalance in their environment. This individualistic lens takes a more micro view into national culture and power distance. Whereas taking these individuals as a collective for the business they work for and country operated in embodies an organisational level perspective which power distance is also suitable for. Out of all the dimensions power distance is seen as the most relevant for organisational structure and behaviour as it shares a close relation to the sharing of power and its centralisation (Shackleton and Ali, 1990).
2.2.2 Individualism vs Collectivism
Collectivism/Individualism is a dimension that is closely associated with power distance in literature (Ghosh, 2011). Nations that rank high on the individualism scale exhibit tendencies of working in their own self-interest and this usually can come at the expense of the group;
here the ties that hold individuals together are loose (Hofstede, 2011). Whereas the nations that rank low on this scale, are referred to be “collectivist”. In these nations, they operate in a manner which serves the group best and promotes a more team orientated outlook. Hofstede in his IBM study found that those that ranked higher on the IDV emphasised on personal free time and challenges while those on the collectivist end of the scale gravitated towards
training, use of skills and benefits (Minkov et al., 2017) .The latter of which can be achieved through direct supplier development and having the buyer invest in the firm via training and improving the suppliers infrastructure.
It is said that collectivist’s willingness to accept and conform stems from the need to gain acceptance of the group (Bhawuk, 2017). This in turn can make those who share these ideals to be more malleable and receptive of demands from authoritative figures.
This dimension has received criticism on its robustness empirically. Minkov et al. (2017) appeared to be wary of how Hofstede defines IDV & COLL and his operationalization of those factors. Furthermore, Taras, Steel, and Kirkman (2012) raises the suggestion that the measures need updating as they begin to wane as time goes on. However, despite critics from authors, this dimension still remains to be one of the dominantly used Hofstede dimensions
when examining national culture. Amidst the controversy, researchers have managed to conduct cross cultural studies incorporating this dimension (Basabe and Ros, 2005).
IDV/COL has been regarded as one of the more integral dimensions that constitutes behaviour within a society (Imamoğlu, 1998). Hence why this study will proceed to use it as one of the components of national culture.
3. Methodology
In this section, this study will describe the process behind the research design, case selection and setting, data collection & data analysis.
3.1 Research Design
Case studies have regularly been utilised as a methodology because it allows the researcher to study complex issues in a real world setting (Harrison et al., 2017). The objective of this study was to gain understanding on the potential role national culture has on direct and indirect supplier development practices. To find this out, an explorative multi case study was selected as the research design because it allowed the study to compare and draw patterns amongst different cases; which could provide an increasingly valuable and robust insight (Eisenhardt and Graebner 2007). In this situation, a single case study would not be sufficient as all companies have their own way of operating and putting too much emphasis on a single case could skew the observations (Eisenhardt and Graebner, 2007). This is positive for the external validity as finding a general consensus amongst multiple cases provides more possibility for this study to be replicated in other settings (Calder, Phillips and Tybout, 1982). Through separating the supplier development practices, this case study provided a unique perspective into examining how national culture impacts either forms of supplier development practices and to what extent.
The unit of analysis refers to the subject that is being studied (Wülferth, 2013), in this case it is the dyad as this study is examining how the cultural difference between buyer and supplier affects supplier development practices. The reason for selecting the dyad as the unit of analysis is because it will allow the study to examine the interaction between the buyer and
supplier when undertaking supplier development; forming multiple cases from single interviews and questionnaires. The buyers selected would have participated in supplier development practice and enacting on agreed terms and activities. This will allow for clearer comparison between those responsible for supplier development amongst different
organizations. This study will draw observations from both the buyer and supplier’s actions to gain understanding on how both of their cultures contribute to receiving, formulating and participating in the practices.
3.2 Case setting and selection
To maintain consistency with the research question, the study focused on businesses who engage in supplier development with local suppliers or foreign based suppliers. Professionals to interview were selected based on the criteria of having participated in the supplier
development process and also having suppliers in a different country or locally. The reason for this criteria was so that this research can get insight to how the diverging but also similar cultures interact in regards to supplier development. This study interviewed and received questionnaires from professionals in the biking industry, the cleaning and hygiene industry, oil and gas industry and finally the renewable energy field. These industries were deemed appropriate because they tend to source their products and services from outside the country due to lower costs but also locally depending on needs. A lot of what they use to manufacture and/or sell to consumer is subject to regulatory laws so there is onus on the buyer to improve the supplier capabilities in order to comply with regulatory standards otherwise they face the brunt of the issues from customers and regulatory bodies. These businesses used either direct and indirect practices as they have the capital and knowledge needed to assist the supplier.
The buyers in the dyads were based in Nigeria, United Arab Emirates, The Netherlands & the U.K. The U.K has a low power distance score meaning it believes power inequalities should be minimised, whilst Nigeria and the UAE score high on the power distance scale. As the study focuses on two dimensions, the dyads were labelled as Culturally Similar or Culturally Dissimilar. When the individualism/ collectivism score and the power distance score was similar they were labelled culturally similar and when these scores were substantially different, the dyads were labelled culturally dissimilar; the scores were compiled using Hofstede (2020) country comparison tool (Table 2). These were deemed to be the most appropriate labels to use as buyers and suppliers could come from different countries but yet share similar cultural outlooks in regards to power distance and collectivism/ individualism
such as The Netherlands & The UK. On a similar note, being on opposite sides of these dimension scores provided an interesting platform to contrast and compare how supplier development was impacted by the cultural similarity of the dyad. In Table 1, there is a case breakdown table providing information regarding case description.
As the unit of analysis was the dyad, in order to avoid a conflation between the cases, a case was the dyadic relationship between a buyer and supplier and one chosen form of supplier development. That means that one case could not involve both indirect and direct supplier development within it as this study aimed to examine both in its own merit. In some instances, not all the buyers were forthcoming with their suppliers name as this was sensitive
information to some and so they would refer to the supplier by country or location.
Table 1: Case Description Table below shows a descriptive breakdown of the cases.
Case # ISD DSD Supplier
overseas
Supplier locally
Industry Cultural Dyad set
up
Nation Buyer
&
Supplie r
Case 1 Cleaning
&
Hygiene
Culturally Similar
B: UK S: UK
Case 2 Cleaning
&
Hygiene
Culturally Dissimilar
B: UK S: FRA
Case 3 Cleaning
&
Hygiene
Culturally Dissimilar
B:UK S:PAK
Case 4 Biking Culturally
Similar
B: UK S: UK
Case 5 Biking Culturally
Dissimilar
B: UK S: CHI
Case 6 Renewabl
e Energy
Culturally Dissimilar
B: UK S: CHI
Case 7 Renewabl e Energy
Culturally Similar
B: UK S: UK
Case 8 Oil and
Gas
Culturally Dissimilar
B: UAE S: NED
Case 9 Oil and
Gas
Culturally Similar
B: UAE S: UAE
Case 10 Oil and
Gas
Culturally Dissimilar
B:UAE S: USA
Case 11 Oil and
Gas
Culturally Similar
B: NIG S: NIG
Case 12 Oil and
Gas
Culturally Dissimilar
B: NIG S: UK
Case 13 Import/
Export in Oil Gas
Culturally Dissimilar
B: NED S: NIG
Case 14 Import/
Export in Oil Gas
Culturally Similar
B: NED S: NED
Case 15 Oil &
Gas
Culturally Similar
B: UK S: UK
Case 16 Oil &
Gas
Culturally Similar
B: UK S: UK
Case 17 Oil &
Gas
Culturally Similar
B: UK S: USA
Case 18 Cleaning
&
Hygiene
Culturally Dissimilar
B:UK S:CHI
Table 2: Culture scores based of Hofstede Country Comparison (2020)
Country Power Distance Score Individualism Scores
United Kingdom 35 89
China 80 20
France 68 71
UAE 90 25
USA 40 91
Netherlands 38 80
Germany 35 67
Pakistan 55 14
Nigeria 80 30
3.3 Data Collection
The source of data collected for this study was semi structured interviews & questionnaires.
Interviews allowed the study to grasp the complexity and full scale of the phenomena at hand (DiCicco-Bloom and Crabtree, 2006). It also provided some room for flexibility that may not be captured in a questionnaire that had limited room for responses (Codó, 2009). The
conductor of this research reached out to people in their network to find compatible buyers responsible for the supplier development practice of their business to interview. The key criteria to be eligible for this research was being involved in the supplier development practice of their company. It was believed that those in these roles would be much more knowledgeable to question as dealing with suppliers is a remit of their day to day tasks.
3.3.1 Interview Details
To ensure the interview was conducted in the right and proper fashion, an interview protocol needed to be created for the researcher to follow (Gugiu and Rodríguez-Campos, 2007). The research question drove the main focus of the protocol with questions that allowed for
expanded responses and probes to push for more detail when necessary. Wagner (2010) use of indirect and direct supplier development practices drove the supplier development foundation while Hofstede (2011) national culture dimensions provided the characteristics for finding national culture.
The questions were sent to the interviewees ahead of the interview to allow themselves time to familiarise with it and give them an opportunity to ask about anything they were unsure over. In the email containing the interview questions, an overview of the interview and a privacy disclaimer was provided to let the interviewees know that they will be recorded and transcribed but only the interviewer will have access to these recordings. If they want their own transcription or recording, then they are more than welcome to it. For the professionals that could not participate in the interview, they returned the interview form with the answers filled out. It was important to still receive some sort of data that could be used to provide
insight into the research. For those that had time to participate, an hour of their time was scheduled in order to complete the interview process.
Background questions into the business opened the interview process. This was to allow the interviewee to get comfortable and understand the manner of questioning. Initially
interviewees tend to be more blunt and then open up as conversation flows. The aim of the initial questions besides giving context to the cases was to assist in building rapport with the interviewee which should allow them to be more forthcoming with their answers (McGrath, Palmgren and Liljedahl, 2019). After this, questions regarding supplier development based on direct and indirect practices separately were asked. Questions pertaining to national culture soon followed. By the end of the interview, questions and topics spanning both direct, indirect practices and the chosen national culture dimensions were covered. In Table 3, an example of each topic question is provided.
Table 3: Excerpts of questions asked
Topic Interview Question
Direct Supplier Development
Could you recall a time when you committed resources or investment to improve the capabilities or performances of an oversea supplier?
Indirect Supplier Development
Could you recall and explain a time you used feedback, requests or other more ambiguous and discreet methods to improve the performance or capabilities of a local and overseas supplier?
Power Distance Can you explain if you notice a power dynamic between your local or overseas supplier when you undertake indirect and direct supplier
development? If so, in what ways?
Individualism vs Collectivism
Can you explain if you have a more assertive or collaborative approach when using supplier development and does this change between local and overseas suppliers?
3.3.2 Data Analysis
The data gathered consisted of 6 interviews and 2 questionnaires thus producing 18 cases.
Once all the interviews were completed, they were transcribed using Microsoft Word & free hand. The questionnaires at this point could proceed straight to the coding stage. This study used the coding method stated by Corbin and Strauss (1990) using the coding software;
ATLAS.ti. The interview transcription and questionnaire was first coded via the open code method which identifies themes or sections within the data (Christopher et al., 2011). The aim of this process was to first attach a more specific label to pieces of data to condense and identify the key themes occurring within the passage. For example an interviewee said when asked on if supplier being overseas, affected the way they committed resources “So for example with Ascol which is based in Italy. Okai is based in China. I believe that there are slight differences. They definitely do have two different working cultures and that makes them more or less receptive in terms of how you're able to work with them.” This quote would receive the first order code of “China”,”Italy” and “culture impacting supplier development”.
Coding via country allowed the study to cross reference with Hofstede to attain the power and individualism index numbers, and specificying the aspect of supplier development assisted in attributing whether it was indirect or direct impacted.
Once all the questionnaires and interviews had received the first order codes, the next step was to look amongst the created codes (329) and create second order codes which grouped similar codes together (Wilhelm et al., 2016). This amount of codes was a result of
thoroughly going through the data and attempting to derive as much information as possible. Not all of the 329 first order codes were grouped as they were too abstract and did not fit with the purpose of the research. From the 329 codes generated, 26 coding groups were formed;
which can be seen in the Appendices. For the cultural dimensions, the dimensions served as group labels whereas with the supplier development practices, “Direct” and “Indirect” served as some of the group labels. An example of the thought process that went into the coding can be seen in the group called “Collectivist”. This group was formed with the first order codes of loyalty, collaboration, emphasis on working with each other, working together with UK Suppliers and close relationship. The rationale behind this was that all these codes exhibited behaviour of collectivism; working in the benefit of the group, so this helped bring codes together. From this stage already, cases and data were getting mapped and networked with each other due to the coding groups.
The final part of the coding was assigning these groups to an over arching topic; Supplier Development being one and National Culture being the other. Once this was completed, patterns and themes were explored for between the cases to see if there was a recurring event or pattern of behaviour associated within them. At this stage, the aim was to find information which could possibly support or oppose literature, or provide interesting observation that could be gathered.
4. Results
4.1 Supplier Development & National Culture
In this section, the results of the analysis outlined previous will be provided.
4.1.1 Supplier Development Observations
4.1.1.1 Indirect Supplier Development
Starting with indirect, making requests is a natural result of business interactions as the buyer will require competencies and services off the supplier to fulfil goals and objectives. The main indirect methods used by buyers were threats and KPI’s which was predominantly present in the indirect supplier development cases. Threats were used as they were seen to elicit quicker responses from the suppliers. The professionals were aware that this form of indirect supplier development could hurt relationships but they felt comfortable using it on their suppliers as a means to achieve the intended objective. In Case 2, the respondent said “China, specifically, imposing fines is one of the more efficient ways to get someone's attention… So we might imply it more, whereas suppliers within Europe… you're damaging that relationship, so you don't want to go there. The relationship doesn't seem to damage to the same extent within China with those suppliers because, again, it's just almost to them. It's just transactional to them.” The mutual risk involved with partnerships meant that threats were a necessity to increase performance levels. Regarding Case 9, a Logistics professional for a MNC speaking
on their supplier in the UAE said ”If they don't provide a reliable service we are at risk, so we actually see them as partner. We try and tell them you need to do this better otherwise we will have to remove you out.” They spoke about using threats on their suppliers acknowledging that although they want to build a partnership, the inherent dependence of their company on the supplier made threats a necessity for development.
The other predominant indirect method of supplier development was KPI’s. This was mainly spotted in the cases involving the professionals in the Oil Industry & the Cleaning &
Hyygeine industry. These businesses had suppliers that were based locally, regionally and further out overseas. The cases involving the oil industry would deploy a KPI form that was standardised for their suppliers. It would appear that they would have more success using KPI’s as in Case 8, the professional said “it is effective and allows us to check root cause analysis to see what the problem is.” These KPI’s were administered in the form of quarterly reviews where they sat down with the supplier to discuss targets that have been met or potential red flags that could arise. The reason why they standardised the KPI’s was to help the buying company compare between the suppliers performances conveniently. In cases 11
& 12, the Logistics Manager said “we have standardized KPI's basically for regional, local and international suppliers... Irrespective of the nature of the service, but it's basically the same KPI so it's much easier for us to compare an Apple to Apple peacefully.” Whilst it allowed for easier comparison for the buyer, the same Logisitics Manager acknowledged that their local and overseas supplier can respond differently to the feedback from the KPI review but due to organisational structure reasons rather than cultural reasons. They said
“international suppliers, they take your feedback and they feed it into their organization. But for the local suppliers, they provide an immediate feedback, because they are the highest heirachy in the organization.” This was an interesting observation that brought to light other factors that may impact supplier development which will be discussed further below and it was a view supported in the cases involving cases 9 & 10 who said “with the smaller
companies you dont have to go through 10 different VP's to get something. So in terms of that area, it is a bit easier than the more established big global conglomerates.”
4.1.1.2 Direct Supplier Development
To constitute direct supplier development, either capital, resources or time had to be deployed to improve the suppliers performance. The cases show that there was a host of different ways
to do so contextual to the business and their needs. In the cases involving the cleaning and hygiene professionals, their business set up an office in Shanghai with the intention of getting closer to the supplier and having someone on the ground to mitigate relations. The cleaning &
hygiene interviewee in Case 18 said ‘’also we are working with our Shanghai operation to make sure they understand the local requirements for each business”. They further
commented about the use of sending their internal auditors to go and audit the business. The deployment of these auditors was found to be in the preliminary stage of the relationship supplier. ”To help we've also used our own resources, our internal auditing team, which we send across to the suppliers to help, particularly when we are setting them up to guide &
show them.” The aim of this was to get the supplier up and running and accustomed to the standards of the buyer. What then followed this would be substantial orders. “We also work with suppliers where we've given them good orders to start with based on a certain criteria which they've gotta meet in terms of quality auditing and delivery schedules, which has enabled them to reinvest within the within their businesses and and deliver” and through that, the supplier could use the money to reinvest into the business and develop their resources thus improving capabilities and the partnership.
The other main form of direct supplier development seen amongst the cases was training and workshops which had appeared in the majority of direct supplier development cases. Similar to the KPI’s, this was associated predominantly in the cases involving Oil & Gas, Cleaning &
Hygiene but also the Renewable Energy industry too. In Case 13, the Import/ Export specialist said “time has been committed several times training suppliers on our processes and how to properly prepare their invoices for payment.” Whilst the Renewable Energy professional said “what we have normally done is pull them in for training. Those retraining are meant for us to correct perceived inadequacies.” These are industries that are regulation heavy and so the main take away was that these were in place to build up competencies to a satisfactory industry standard and reduce ad-hoc operating. Interestingly, only two cases made mention of training suppliers based locally. The idea was that in the oil & gas industry, local or not, they had valuable knowledge to share with local suppliers. In the cleaning and hygiene industry, suppliers that were based locally or in the European region were seen as closer to the ground and thus already aware of the requirements.
4.1.2 National Culture & Supplier Development Observations
4.1.2.1 Presence of power distance
Firstly, direct supplier development was primarily present in the Culturally Dissimilar cases as opposed to the Culturally Similar cases. These Culturally Dissimilar dyads were comprised of suppliers from high power distance nations such as Pakistan and China. It was observed that the buyers who came from the UK predominantly & the UAE multinational company;
despite being a nation with a low power distance score (35), felt that they could exert more power in their dyads with suppliers from high power distance nations such as China, as these suppliers were more willing to bend over to the demands of the buyers. This would then motivate the buyer to invest resources into these suppliers and dictate how they wanted things done. Asian suppliers from China and the Middle East, in Case 5 & 9 of the Culturally
Dissimilar dyads were described as “overcommitted” and ‘’[more receptive of demands] than the European suppliers” thus making them more malleable and consequently exhibiting a higher level of power distance. “We are not relying on what you’ve done with someone else before, we have to provide you with a training that is specific to our product” was the
comments in Case 6 when describing the dynamics between them and the Chinese supplier in their Culturally Dissimilar supplier during the process of direct supplier development.
4.1.2.2 Presence of individualism vs collectivism
Initially some buyers would exhibit individualistic tendencies by needing the supplier to uphold to their demands in a quite stringent manner and in some cases, avoiding physical meetings when it was not needed as it was seen as an unnecessary expense. Meanwhile, the supplier would show collectivist tendencies by working on the weekends to benefit the group’s performance. In Case 8 & 9, the interviewee said "With some suppliers, I tell them you need to do whatever you can to meet that deadline because you committed. That way you are being assertive” & “It's more flexible, They're willing to work on weekends because of the culture. So they're more agile in that sense, it appears no Europeans treat time differently”.
Whilst the Renewable Energy professional said “The less physical meetings you want to have with us the better as it saves us travel arrangement an staffing.”
However, buyers did increasingly try and adopt a collectivist approach and this was assisted by engaging indirect supplier development, this individualism would manoeuvre to a
collectivist perspective. Before that, there was a common notion from the buyer that they wanted to eventually have a collaborative relationship with the supplier. "We want them to see us as partners" was sentiments provided by a Logistics Manager in Case 8, whilst in Case 12,
