The effect of cultural differences on supplier development practices within a cross-national buyer-supplier relationship

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The effect of cultural differences on supplier development

practices within a cross-national buyer-supplier relationship

An in-depth case study how to manage cultural differences

MSc Thesis for MSc Supply Chain Management University of Groningen, Faculty of Economics and Business

Author: Jille de Vries Student number: S3847675

Email: j.j.j.de.vries@student.rug.nl Supervisor: Dr. Ir. Thomas Bortolotti Co-assessor: Dr. Ir. Niels Pulles Date: 21-06-2020

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Abstract

This study investigated the effect of cultural differences on supplier development practices and provided actions to manage these effects. The study built on two blocks of supplier development practices, derived from the framework by Humphreys, Li, & Chan (2004): The transaction-specific investments and the infrastructure factors. Buying firms that implemented supplier development programs with suppliers in collectivistic and individualistic countries were investigated and compared. A case study has been conducted by following an inductive research approach. The primary source of data was collected by conducting 7 semi-structured interviews. The results revealed that supplier development practices, such as effective communication, trust, supplier evaluation, buyer’s expectations, long-term commitment, strategic goals and joint actions were most sensitive to cultural differences. The study contributed to the literature that mutual understanding, incentives, informal activities, and collaborative partnerships were essential remedies for individualistic buying firms to manage the effect of cultural differences, which arose from cross-cultural supplier development programs with collectivistic suppliers. Based on these remedies, the study provided 10 propositions to manage the effect of cultural differences in order to achieve effective supplier development programs.

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1. Introduction

To compete in today’s global markets, buying firms must ensure that their suppliers’ performance and capabilities surpasses the suppliers of competitors (Krause & Ellram, 1997b; Wagner, 2006). Hence, many buying firms have established supplier development programs in order to accomplish and maintain competitive advantages (Li, Humphreys, Yeung, & Cheng, 2012). However, the buying firm’s tendency to engage in supplier development programs is affected by its consciousness of supplier commitment, its expectation of relationship persistence and effective buyer–supplier communication (Krause, 1999). Moreover, to achieve effective supplier development programs, it is necessary that buyers and suppliers have a mutual understanding, which contributes to improvement and knowing how to accomplish it (Krause, Handfield, & Tyler, 2007). However, in today’s role of globalization, supplier development practices could be challenging as international firms have to cope with different local cultures (Cagliano, Caniato, Golini, Kalchschmidt, & Spina, 2008), which may result in misunderstandings and distrust due to differences in behaviour and expectations (Ribbink & Grimm, 2014).

Supplier development is any practice that a buying firm initiates to improve the performance and capabilities of its suppliers (Krause, Handfield, & Scannell, 1998). Supplier development programs promote continuous improvement across the supply base and achieve lower supply base costs, improved quality and distribution, increased capacity, shortened lead times and increased productivity (Modi & Mabert, 2007). Hence, the buying firm’ practices of supplier development programs represent a rent-creating process, which is in accordance with the relational view (Krause et al., 2007; Proch, Worthmann, & Schlüchtermann, 2017). In order to improve suppliers, Humphreys, Li, & Chan (2004) developed a framework, consisting of two building blocks for supplier development practices: (1) The transaction-specific investments and (2) the infrastructure factors. The transaction-specific investments are the core practices of supplier development, whereas the infrastructure factors support the practical use of the transaction-specific investments (Humphreys et al., 2004). To accomplish these practices effectively, buying firms share knowledge with suppliers to increase the understanding of the relationship (Krause et al., 1998).

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2 Christakopoulou, 1999; Hofstede, 1980). Hence, the cultural disparity between cross-cultural buyer-supplier relationships affects firms practices, decision-making processes and work related principles (Hewett, Money, & Sharma, 2006; Hofstede, 1984a). As a result, cross-cultural supplier development practices could be challenging, since cross-cultural differences in behaviour, beliefs and attitudes often lead to miscommunications and misunderstandings (Lin, 2004). However, buying firm’s experience with different cultures seems to be a helpful tool in working with suppliers from other cultures (Busse et al., 2016).

Although cultural differences have been extensively studied (Gelfand & Christakopoulou, 1999; Hofstede, 1980; Hofstede, 1984a), the effect of cultural differences on cross-national supplier development programs has been scarcely addressed in the literature yet. Further, until now, not much literature has analysed actions to manage cultural differences (Boscari, Bortolotti, Netland, & Rich, 2018). Moreover, the current literature has heavily focused on supplier development practices, such as capital investments, knowledges transfers, training, commitment, strategic objectives and joint actions, but how these practices are affected by cultural differences paired with actions to manage these remained unknown in the literature. Humphreys et al. (2004) confirmed the urgency of integrating an understanding of the cultural context in influencing supplier development practices. Because of this, little is known about the effect of cultural differences on supplier development practices and the managerial actions. Consequently, this led to the following research questions: (1) What is the effect of cultural differences on supplier development practices? (2) How to manage cultural differences in order to achieve effective supplier development programs?

The effect of cultural differences on supplier development practices was explored with support of the framework by Humphreys, Li, & Chan (2004). This study built on two blocks: (1) The transaction-specific investments and (2) the infrastructure factors. Further, the study used the relational view as an overarching body as supplier development activities create relational rents (Krause et al., 2007; Proch et al., 2017). The study contributed to the literature that mutual understanding, incentives, informal activities, and collaborative partnerships were essential remedies for individualistic buying firms to manage the effect of cultural differences, which arose from cross-cultural supplier development programs with collectivistic suppliers.

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2. Literature review

The literature section starts with explaining the relational view in accordance with supplier development programs. Afterwards, the supplier development programs are introduced by pointing out the antecedents and the benefits. The buying firm’s practices in order to develop suppliers is related to the framework of Humphreys, Li, & Chan (2004), which are the transaction-specific investments and the infrastructure factors. The next sub-section explains the characteristics of cultures and their differences. Subsequently, the impact of cultural differences on supplier development programs is proposed. The last sub-section displays the research framework, which measures the effect of cultural differences on the transaction-specific investments and the infrastructure factors.

2.1 The relational view

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4 in an partnership exchange, which cannot be generated by either firm in isolation, and can only be generated through joint idiosyncratic contributions of the specific alliance partners (Dyer & Singh, 1998).

The firms’ activities of supplier development, in which human or physical assets are converted into relationship-specific assets, represent a rent-creating process in accordance with the relational view (Krause et al., 2007; Proch et al., 2017). For instance, the involvement of the supplier in the buying firm’s new product design enables joint investments and synergy sensitive resources, sharing of information on cost structures enables knowledge exchange and the reward and recognition of supplier’s achievements by the buying firm enables more effective governance mechanisms (Sánchez-Rodríguez, 2009).

2.2 Supplier development programs

Many buying firms have established supplier development programs and teams as this is beneficial for realizing long-term and strategic goals (Wagner, 2011). The buying firm could acquire value added resources by increasing the performance and capabilities of the supplier, defined as supplier development (Humphreys et al., 2004). The development of suppliers may include target setting, assessment of suppliers, performance monitoring, training of suppliers and other related activities (Krause et al., 2007). The buying firm invests in supplier development programs to acquire tangible benefits such as lower cost, higher quality, flexibility, product development, more reliable deliveries and shortened lead times (Krause et al., 2007; Modi & Mabert, 2007). The buying firm must implement supplier development practices to gain these tangible benefits. This study builds on two blocks of supplier development practices derived from the framework by Humphreys et al. (2004), which are the transaction specific investments and the infrastructure factors. The transaction specific investments consist of 4 supplier development practices and the infrastructure factors consist of 7 supplier development practices.

The transaction specific investments

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5 specialized to the buyer-supplier’s exchange (Humphreys et al., 2004). Furthermore, the buyer’s direct involvement in developing suppliers also represents the expectations of buyers for supplier’s performance improvements (Krause, 1999). For instance, providing rewards for supplier’s outstanding performance and/or improvements indicates buyer’s recognition and stimulates suppliers for further outstanding performance (Lascelles & Dale, 1989). Joint action is the last important element of transaction-specific supplier development (Humphreys et al., 2004), which covers the cooperation between buyers and suppliers on certain activities that are necessary for improving buyer-supplier performance (Joshi & Stump, 1999).

The infrastructure factors

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2.3 Culture and cultural differences

Culture is the collective programming of the mind that distinguishes the members of one group from another (Hofstede, 1984b). Culture expresses itself in shared values, beliefs and behaviours, and offers a set of rules and guidelines that help its members understand individuals, their actions and situations (Brett & Okumura, 1998; Hofstede, 1985).For instance, within individualistic cultures, people view themselves as independent of others, seek own goals over group goals, and move easily in and out of groups (Cannon, Doney, Mullen, & Petersen, 2010). Within collectivist cultures, people believe that their destiny is strongly related to others, sublimate their own goals for collective goals, and barely move in and out of groups (Cannon et al., 2010). These different cultural characteristics provide grounds for the interpretation of actions (Lytle & Rivers, 2007). For instance, when individual and collective interests are at conflict, individual interests dominate individualistic cultures, while collective interests dominate collectivist cultures (Triandis, 2018). Hence, collectivists prefer conflict resolution methods that do not destroy relationships, while individualists are willing to go to court to resolve conflicts (Leung, 1997). Collectivists, compared to individualists, are more involved in their diverse ingroups and have stronger social connection with these ingroups (Chen, C. C., Peng, & Saparito, 2002). Individualists, compared to collectivists, put self-interest over group interests (Chen, C. C. et al., 2002). The individualistic cultural pattern is found in most northern and western regions of Europe and in North America, whereas the collectivistic cultural pattern is common in Asia, Africa, Latin America and the Pacific (Hofstede, 1984a).

2.4 The impact of cultural differences on supplier development programs

In context of this study, cultural differences arise when the buyer and supplier come from home countries that differ in individualistic and collectivistic cultures. Most US and European buying firms have formed outsourcing agreements with suppliers throughout the region of Asia and within China (Humphreys et al., 2004). Consequently, cross-cultural interfirm communication may be prone to misunderstanding (Busse et al., 2016) as cultural differences influence people’s values, behaviour and contextual understandings (Gelfand & Christakopoulou, 1999; Hofstede, 1980)

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7 misunderstandings (Lin, 2004), cross-cultural supplier development practices could be challenging.

The transaction specific investments implemented by the buying firm could be affected by cultural differences. The training of suppliers initiated by the buying firm, also called investment in human-assets, could be influenced by cultural differences as cross-cultural buyer-supplier relationships affect firms practices, decision-making processes and work related principles (Hewett et al., 2006; Hofstede, 1984a). Moreover, the buying firm expectations for supplier performance improvements could get twisted as people from various cultures may not share similar expectations (McCargar, 1993). Further, joint actions between the buying firm and the supplier could be influenced due to divergent interests, expectations, beliefs, behaviour and understandings. Different cultural norms and values affect the composition of attitudes and preferences (Lovelock & Yip, 1996). Thus, the cultural diversity between both parties could increase complexity and may hinder the direct supplier development practices.

The infrastructure factors that support the effective use of the transaction specific investments (Humphreys et al., 2004) could be even more affected by cultural differences as it consists of interpersonal supplier development practices. The strategic goals and the strategic objectives could be interpreted differently between the cross-cultural partners as cultural characteristics provide grounds for the interpretation of actions (Lytle & Rivers, 2007). Also, supplier development practices, such as bi-directionally communication, long-term commitment, evaluation of suppliers and trust could be influenced by cultural differences.

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2.5 The research framework

On the left side of the framework the cultural characteristics are displayed. On the right side of the framework the practices of transaction specific investments and infrastructure factors are displayed, which are fundamental in order to improve suppliers. In this study, it is expected that the individualistic buyers and the collectivistic suppliers interpret the practices of the transaction specific investments and the infrastructure factors differently due to the different cultures and their characteristics. A study by Cannon et al. (2010) underlined that individualist and collectivist cultures produce radically different normative orientations toward development and maintaining relationships.

The framework structured the literature, which was used for composing the research protocol and the code tree. The buying firm’s practice issues that occurred due to cultural differences were linked to specific cultural characteristics, resulting in impact and managerial insights. To investigate how to manage cultural differences in order to achieve effective supplier development programs, the execution and assessment stages of supplier development activities were studied, which is in accordance with the relational view (Jap & Anderson, 2007).

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3. Methodology

3.1 Research design

The main objective of this study is to map the effects of cultural differences on cross-national supplier development practices and provide managerial insights how to cope with these effects. To accomplish this objective an inductive case study has been conducted. A case study fits best in this study for several reasons. First, the effects of cultural differences on supplier development practices paired with actions to manage these remained unknown in the literature. Therefore, the exploratory lens of a case study supports studying a phenomenon that is not fully understood or where variables are unknown. Second, when studying an underexplored problem, a qualitative research approach fits best, which applies for this study (Karlsson, 2016). Third, the phenomenon can be studied in its natural setting by means of interviews or observing actual practice. This is beneficial as the different characteristics of cultures and the interpersonal supplier development practices are by nature complex to study due to contrasting subjective factors and perceptions. Fourth, a case study allows answering how questions with a relatively full understanding of the nature and complexity of the phenomenon (Karlsson, 2016). Since the impact of cultural differences on cross-cultural supplier development practices remained unknown in the literature and has a complex nature due to different subjective factors and perceptions, a case study suits best.

3.2 Case selection

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10 countries and individualistic countries. Second, the executed and assessment stages of supplier development programs were investigated in all selected cases. The relational view points out that the execution and assessment stages largely turn on issues of building and accepting dependence (Jap & Anderson, 2007). In order to study this, a retrospective approach may be used, allowing for more controlled case selection in retrospect (Karlsson, 2016). Third, as buying firms could change their approach regarding cross-national supplier development programs due to strategic reasons, the scope of this study was exclusively focused on the effects of cultural differences and their managerial impacts. Mostly medium to large multi-national buying firms implemented cross-national supplier development programs. After interviewing 7 participants, returning patterns and saturation originated between the cases. The characteristics of the buying firms are displayed in table 1.

Participant 1 (P1) Participant 2 (P2) Participant 3 (P3) Participant 4 (P4) Participant 5 (P5) Participant 6 (P6) Participant 7 (P7)

Buying firm's industry

Electronics Energy

Health Automotive Food Food Equipment

Telecommunication Infrastructure Equipment Construction Components Infrastructure Participant's function Project procurement manager CEO Supply chain manager Supply chain /Sourcing manager Senior vice president global operations General manager spare parts Purchasing manager Amount of employees 385.000 390 24.000 250 1600 300.000 11.500 Participant's

country The Netherlands Germany The Netherlands The Netherlands Malaysia The Netherlands The Netherlands

Table 1 The characteristics of the buying firms and the participants

3.3 Data collection

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11 the collected data from the interviews. The research protocol displays the operationalization of the important concepts.

Research protocol of the concepts

Introduction -Do you notice cultural differences when implementing supplier development programs in other cultures? -Do you experience those differences positively or negatively?

The effect of cultural differences on the transaction-specific investments (Humphreys et al., 2004)

Did you notice cultural differences regarding: -The training of suppliers?

-The direct investments? -Buyer’s expectations? -Joint actions?

If yes, how did you manage the cultural differences? What actions did you undertake?

The effect of cultural differences on the infrastructure factors (Humphreys et al., 2004)

Did you notice cultural differences regarding: -Mutual Strategic goals?

-Communication? -Commitment? -Evaluating suppliers?

-Strategic objectives (mutual recognition, strategic match)? -Trust

If yes, how did you manage the cultural differences? What actions did you undertake?

-How does the top management take into account effects of cultural differences?

Cultural characteristics (Gelfand & Christakopoulou, 1999; Hofstede, 1980; Hofstede, 1984a)

Did you notice cultural differences regarding:

-The social connection between you as buyer and the suppliers?

-The mutual understanding between you as buyer and the suppliers?

-The interests between you as buyer and the suppliers? -The behaviour between you as buyer and the suppliers? - Did you experience that suppliers adapted to you due to cultural differences? Why/how did the supplier adapt? How did this affect the development of suppliers?

-Did a supplier development program fail in the past? Why did it fail?

Table 2 Research protocol of the concepts

3.4 Data analysis

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12 categorised and linked to certain codes. The codes were deducted from the research framework and, thus, were grounded on literature. First, the within-cases were analysed, which supports to become familiar with each case as analysing a stand-alone entity allows to find internal unique patterns (Eisenhardt, 1989). This led to an in-depth understanding of each case separately, which was needed for the cross-case analysis (Karlsson, 2016). To find internal patterns, the descriptions of the quotes were linked to codes, namely 1st the supplier development activity and 2nd the cultural difference. As a result, each description correlated with a supplier development activity and its cultural difference. Second, the cross-case analysis was used, by constructing an array, recurring patterns were categorized and grouped. The use of a cross-case analysis increases the internal validity of the findings (Karlsson, 2016). The code tree the effects of cultural differences on supplier development activities is displayed in appendix I. The code tree managing cultural differences is displayed in appendix II.

The first code tree displayed how each supplier development practice was influenced by cultural differences. For instance, most of the participants mentioned that the buying firm had to adjust their expectations due to cultural differences. Moreover, implementing joint actions was sensitive to misunderstandings. Further, ineffective communication and evaluation occurred through the direct communication style of the buying firm. The second code tree displayed the managerial actions to cope with cultural differences. For instance, some participants mentioned that the negative effects of cultural differences could be avoided if the buying firm built a trust-based relationship with the supplier.

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4. Results

The following section shows the results. First, the effect of cultural differences on the transaction-specific investments is described. Second, the effect of cultural differences on the infrastructure factors is described. The effect of cultural differences on the supplier development practices is measured and arranged through the amount of participant’s mentions of these effects and the participant’s cultural accentuation on each practice. The most affected supplier development practices due to cultural differences are displayed in figure 2.

Figure 2 The effect of cultural differences on supplier development practices

4.1 The transaction-specific investments

The effect of cultural differences on the transaction-specific practices is described in this section. The most affected transaction-specific practices due to cultural differences were: (1) buyer’s expectations; (2) joint actions; (3) training of suppliers and; (4) direct investments.

4.1.1 Buyer’s expectations

Almost all participants highlighted that buyer’s expectations were affected due to cultural differences. Participant 1 stressed that more time had to be reserved for the collectivistic suppliers due to ineffective communication. In collectivistic countries it was important to build up relationships through personal and informal interactions. These kind of social connections affected the buyer’s expectations. Participant 2 complemented on this: “At some point you

0 1 2 3 4 5 6 7 Training of suppliers Direct investments Buyer's expectations Joint actions Strategic goals Effective communication Long-term commitment Supplier evaluation Supplier strategic objectives

Trust

Top management support

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14 notice that you have to adapt to cultural differences. Informal activities are indispensable in most collectivistic cultures. To get results you have to adapt.” Also, to motivate suppliers and present buyer’s recognition it was important to show appreciation. Participant 4 complemented on this: “Most collectivistic suppliers are very appreciated when they receive rewards. Collectivistic suppliers feel more pride compared to individualistic suppliers.” However, participant 5 stressed that most collectivistic suppliers were only satisfied when the buyer mentioned that they performed above par. “Some Chinese suppliers avoid loss of face. This is cultural embedded, at school they receive high grades and, thus, over time they create a feeling that they need to win.” Further, participant 5 mentioned that most collectivistic suppliers have not the same productivity as in the Netherlands due to lower skill. “As a supply chain manager it is important to adapt and expect lower productivity.” Also, in some collectivistic cultures it was important to take into account holy holidays. In addition, participant 3 underlined that it was important to prepare for cultural differences before a meeting as unclearness could damage the relationship. Participant 6 complemented on this: “Not spending energy in cultural values makes you disappointed. If you do not have cultural expectations, alignment will be complicated.”

4.1.2 Joint actions

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4.1.3 Training of suppliers

The training of suppliers and the direct investments of the buying firm could be affected due to cultural differences, which was stressed by 4 participants. Participant 2 mentioned that most of the collectivistic suppliers were very grateful if the buying firm educated them how to improve performance. Most of the collectivistic suppliers were motivated to learn and absorbed new knowledge willingly. However, if the buying firm wanted to train suppliers in individualistic countries, for instance Germany, some suppliers did not take the buyers seriously as some individualistic suppliers had technical arrogance. Participant 5 highlighted that some Chinese suppliers would not admit that they can improve. Some Chinese suppliers behaved only proactive when they experienced opportunities for personal development. Personal development is important in China. Hence, if the supplier thought that the training was not useful they would act reactive. Also, most of the Chinese suppliers could conveniently learned new knowledge by heart, although found it difficult to apply the new knowledge in practice. Participant 5 quoted: “It is important as a buying firm to adjust your training with the suppliers and underscore that they have to apply the new knowledge. Come back after a couple months and ask the suppliers how they applied the new knowledge. Motivate the suppliers to take action.” Likewise, participant 6 mentioned that the labour culture was different in collectivistic countries and, thus, supplier training could be complicated. Individualistic buyers measured output rates and collectivistic suppliers focused more on time. Hence, ensuring common ground was very important as the buying firm avoided to get stuck. Participant 7 stressed that the buying firm could train collectivistic suppliers effectively through repeating the learning methods timely as it could be interpreted differently over time. Therefore, face to face meetings were indispensable to ensure common ground.

4.1.4 Direct investments

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16 market performance.” Participant 7 mentioned that investments to suppliers in other cultures with long distances also required higher travel expenses and accommodation costs, compared to suppliers with short distances.

4.2 The infrastructure factors

The effect of cultural differences on the infrastructure factors is described in this section. The most affected infrastructure practices due to cultural differences were: (1) effective communication; (2) trust; (3) long-term commitment; (4) supplier evaluation; (5) strategic goals; (6) top management support and; (7) supplier strategic objectives.

4.2.1 Effective communication

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17 that buying firms only could communicate effectively with collectivistic suppliers when the buyers had a strong relationship. Participant 7 repeated that the further away the supplier is, the more important communication becomes. Hence, face to face meetings were very important to understand each other. Also, if the buying firm behaved passively and did not show up often, the collectivistic suppliers felt less important to the buying firm.

4.2.2 Trust

The effect of cultural differences on trust varied from culture to culture and from participant to participant. Participant 1 stressed that within cultures where trust is damaged it could take some time to build trust and a strong relationship. Participant 3 mentioned that individualistic suppliers trusted the buying firm when the firm payed on time. A Japanese supplier trusted the buying firm when the firm strove for quality improvements. Overall, most collectivistic suppliers trusted the buying firm when the firm invested time in building a strong relationship. On the other hand, participant 4 underlined that some suppliers in East Europe and South American were untrustworthy due to opportunism. These suppliers focused on short term profits and, thus, a long relationship was less important to the suppliers. Participant 2 complemented on this and repeated that some East European suppliers were untrustworthy. Participant 5 highlighted that trust in China was important, however the Chinese suppliers would never trust the individualistic buying firm fully. Participant 6 quoted: “Sticking to appointments is interpreted differently in collectivistic cultures. When is an arrangement an arrangement? To secure trust it is important to interact clearly what the appointments are.” Participant 7 mentioned that Chinese suppliers were very trustworthy when there was a mutual understanding.

4.2.3 Long-term commitment

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18 messy. Japanese suppliers focus on continuous improvement.” Some suppliers in East European and South American countries focused on short term goals due to opportunism, which was highlighted by participant 4. Not only in these countries opportunism occurred, some suppliers in China were not so collectivistic as many people thought, if the suppliers could earn more money at other customers they were gone. If money was involved some Chinese suppliers acted individualistic, which was stressed by participant 5. He also quoted: “They may behave individualistic because China is becoming more capitalists due to increasing welfare. You can be forever a customer in China if they keep earning money. If not, the relationship will be short.” Participant 6 mentioned that trust was very important for maintaining long-term commitment with collectivistic suppliers.

4.2.4 Supplier evaluation

Most of the participants underlined that it was important to take cultural values into account as indirect evaluation was appreciated by many collectivistic suppliers. Participant 1 quoted: “Be aware that you do not claim too much as it can damage the relationship. In most collectivistic cultures they accept some mistakes.” Participant 7 stressed: “If a collectivistic supplier does not perform well you cannot directly mention that it is a bad performance. When evaluating you first mention what goes well and thereafter mention some improvement points. Collectivistic suppliers understand indirect business.” Participant 2 mentioned, if tensions rose due to a bad evaluation it was important to take cultural values into account. Participant 6 complemented on this: “Supplier evaluation could be very emotional. Some suppliers will get defensive. Evaluating can sometimes be harassing.” Participant 5 commented on this as some collectivistic suppliers were more defensive when they received improvement points. He also mentioned: “Receiving feedback and providing feedback is experienced as something complicated in collectivistic cultures. In addition, some collectivistic suppliers were afraid that business will decrease if they did not perform well. As a result, if the evaluation is a small pass they want to hear it from you in time.” Participant 4 highlighted that some collectivistic suppliers responded to the buying firm that it is their fault that things did not worked out. Individualistic suppliers were more relaxed. However, some individualistic suppliers, for instance Germany, had technical arrogance, thus the buying firm had to be very correct in evaluating.

4.2.5 Strategic goals

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19 collectivistic suppliers were most of the time clear. However, every other goal was cultural dependent and could interpreted differently due to different mindsets. Participant 2 complemented on this: “Culture eats strategy for breakfast. Some Chinese suppliers focus on low costs, that is not my strategy. I want quality. I had to convince the Chinese suppliers to build relationships with their suppliers in order to secure quality improvement goals.” Participant 1 stressed that individualistic cultures spent more attention to strategic goals compared to collectivistic cultures. The knowledge gaps between the cultures could be a problem. Participant 6 commented on this: “Establishing mutual goals over long distances could be complicated as it is sometimes not clear if our individualistic standards meet the standards in collectivistic countries. What we see as correct could have an another definition in other cultures.” Participant 4 mentioned that some individualistic suppliers found it difficult when strategic goals were not met. A collectivistic supplier would do everything to achieve to strategic goals, however it is not the supplier’s fault when they did not achieve the goals as some of the collectivistic suppliers want to avoid loss of face.

4.2.6 Top management support

Top management support regarding cultural issues varied per participant. Participant 2 mentioned that there was no top management support for cultural issues. It was the issue of the purchasing and supply chain managers and they had to solve it themselves. Participant 3 complemented on this: “Top management is not interested in cultural differences. They want to see results.” However, participant 5 stressed that top management support was very important for solving cultural issues. Top management had to take into account that the cultures of the purchasers and the suppliers were equal. “It is easier to understand each other when there is a cultural match.” Although participant 5 mentioned that it was also important to rotate purchasers as buyer-supplier relationships could become too intensive. Participant 6 underlined that top management had to take into account cultural issues as it was important to be successful. Top management was responsible for training employees to cope with cultural differences. Participant 7 commented on this: “Top management takes into account cultural differences as they know the differences like no other. They have a lot of experience and fly all over the world.”

4.2.7 Supplier strategic objectives

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20 objectives. On the other hand, American suppliers wondered what the cost benefits were. Participant 5 quoted: “Sometimes with collectivistic suppliers you experience a mismatch as some objectives are important in other cultures. Climate goals are important for us, but in some cultures they are still striving for physiological needs.” Participant 6 highlighted that some collectivistic suppliers get motivated when they set the bar too high. “The objectives were unfeasible, although it motivated the suppliers.” In individualistic cultures the objectives were most of the time feasible. “This is a great cultural difference.”

4.3 Additional managerial actions

This subsection describes the management of cultural differences according to the participant’s perspectives. The management perspectives were linked to supplier development activities. However, not all perspectives could not be linked to certain activities, although, the perspectives were still important for achieving effective supplier development programs.

4.3.1 Understanding collectivistic cultures

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21 informal activities with collectivistic suppliers as this was indispensable for ensuring trust relationships.

4.3.2 Effective communication

Participant 1 mentioned: “To avoid communication misunderstandings, I make a report and write everything down as reading English, compared to listening to English, in collectivistic cultures is easier to understand. Also, it makes it easier for the supplier to ask questions directly after the meeting, which saves time due to less confusion.” He also stressed that the buyer had to be more clear in collectivistic cultures. “Sometimes at a meeting more than 20 stakeholders are at the table, which makes it complicated to discuss business plans. I plan in advance a meeting with only a small amount stakeholders that are involved. This saves time and creates mutual understanding because business plans are more clear.” Participant 3 commented that the buying firm had to delve into cultural values in order to communicate effectively. Participant 4 complemented on this as the buying firm had to adjust their language, communication style and information provision to cultural differences. The buying firm had to communicate directly and clearly to the individualistic suppliers and indirectly to the collectivistic suppliers. Participant 5 highlighted that integrity was different in China compared to the Netherlands. The buying firm sometimes had to ask a lot of questions to receive the truth. He also mentioned: “If you do not have subjects to talk about in collectivistic cultures, always use food or family topics. This is safe.”

4.3.3 Top management support

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5. Discussion

In the following section, the previous results will be discussed and linked to the existing literature. The discussion highlights important cultural values in relation to the supplier development activities paired with managerial insights, which were revealed in the results section. The cultural values are: (1) mutual understanding; (2) incentives; (3) informal activities and; (4) collaborative partnerships, which are essential remedies for buying firms to manage cultural differences. Every subsection consist of propositions, which were verified empirically with support of the findings and linked to the literature. The propositions confront the findings with the literature to reveal which propositions hold under what conditions. The propositions provide insights how to manage cross-cultural supplier development practices.

5.1 Mutual understanding

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Proposition 1.1: Individualistic buying firms, that implement joint actions with collectivistic

suppliers, may have the autonomy and decision making. Hence, integrate the suppliers to enhance product development, supplier commitment, creativity and involvement.

Suppliers in individualistic cultures tend to be more proactive, whereas suppliers in collectivistic cultures tend to be more reactive (Claes & Ruiz-Quintanilla, 1998). The small power distance in individualistic cultures will have a positive effect on proactive behaviour. The large power distance in collectivistic cultures will inhibit proactive behaviour (Hofstede, G., 1991). Participant 5 added on this that some Chinese suppliers behaved only proactive when they experienced opportunities for personal development. Personal development was important in China. Hence, if the supplier thought that the training was not useful they would behave reactive. Thus, the buying firm had to motivate the supplier to engage in the training program. However, striving for personal development and personal development over those of groups is primarily related to individualistic cultures (Shulruf, Hattie, & Dixon, 2007). Interestingly, participants 4 and 5 complemented on this that some suppliers in China were not so collectivistic as many people thought. Participant 5 mentioned: “They may behave individualistic because China is becoming more capitalist due to increasing welfare.” Indeed, the increase of foreign-funded enterprises, private businesses and rural industrialization have influenced the Chinese people changing towards individualistic desires (Chung & Mallery, 1999). In addition, a study by Steele & Lynch (2013) found that the Chinese culture may be more collectivist in theory, but in reality they increasingly tie individualistic elements to their valuations of their own subjective well-being. For instance, Jiaxue (2009) revealed that young people in China become more individualistic due to economic developments, new management systems, education, mass media, transformation of social patterns, attitude towards life and the self-oriented life style.

Proposition 1.2: Individualistic buying firms that train suppliers in China may have to take into

account individualistic behaviour of the suppliers due to personal developments, economic developments, individualistic desires, attitudes and new management systems.

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24 suppliers trusted the individualistic buying firms, the quality of guanxi would be higher. However, suppliers in Chinese cultures, compared to individualistic suppliers, have a lower propensity to trust for external partners (Huff & Kelley, 2003). As Chinese suppliers are acculturated to have less trusting attitudes toward out-group than in-group members, developing trusting relationship with out-group members will be more difficult (Huff & Kelley, 2003). To build trust, individualistic buying firms have to understand how Chinese suppliers view the world (Child, 1998).

Proposition 1.3: Chinese suppliers, compared to individualistic suppliers, have a lower

propensity to trust for out-group members. To build trust, the individualistic buying firms have to understand the Chinese cultural values to develop mutual understanding.

Collectivistic suppliers prefer indirect communication (Kapoor, Hughes, Baldwin, & Blue, 2003). Participant 3 confirmed that the buying firm would not earn respect if the buyer communicated too directly with the collectivistic suppliers. “If the buying firm has individualistic expectations and collaborate with collectivistic suppliers, communication will be ineffective.” Moreover, to ensure mutual understanding and, thus, effective communication, it was important to write a report in English as reading, compared to listening to English, was easier to understand in collectivistic cultures, which was stressed by participant 1. “It makes it easier for the supplier to ask questions directly after the meeting, which saves time due to less confusion.”

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25 The findings endorsed that the buying firm had to communicate directly to the individualistic suppliers. As some individualistic suppliers, for instance in Germany, had technical arrogance, the buying firm had to be very correct when evaluating.

Proposition 1.4: To implement effective supplier development programs with collectivistic

suppliers, the buying firm has to take into account indirect communication and evaluation. The buying firm could communicate and evaluate directly to the individualistic suppliers, although very correctly because some suppliers have technical arrogance.

The results showed that strategic goals could be interpreted differently in collectivistic cultures. Collectivistic cultures are differentiated by individuals subordinating their personal goals to the goals of some collectives. Individualistic cultures are differentiated by individuals subordinating the goals of collectives to their personal goals (Triandis, Brislin, & Hui, 1988). The divergent cultural goals may negatively influence the exchange of strategic goals. This was supported by participant 6: “Establishing mutual goals over long distances could be complicated as it is sometimes not clear if our individualistic standards meet the standards in collectivistic countries. What we see as correct could have an another definition in other cultures.” Also the strategic objectives could be interpreted differently by the collectivistic suppliers. Objectives between individualistic buyers and collectivistic suppliers could deviate as it is highly likely that both parties differ in their psychological needs (Hui & Villareal, 1989). Participant 5 supported on this: “Sometimes with collectivistic suppliers you experience a mismatch as some objectives are important in other cultures. Climate goals are important for us, but in some cultures they are still striving for physiological needs.” Hence, the strategic goals and objectives between the buyer and the supplier could deviate due to cultural differences.

Proposition 1.5: The strategic goals and objectives between the individualistic buyers and the

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26

Proposition 1.6: Top management that facilitates cultural matches between buyers and

suppliers increases mutual understanding. This will prosper supplier development.

5.2 Incentives

The use of incentives was essential for the collectivistic suppliers as it encouraged supplier development practices, such as: (1) Training of suppliers; (2) direct investments and; (3) supplier strategic objectives. As already mentioned, collectivistic suppliers compared to individualistic, tend to be more reactive (Claes & Ruiz-Quintanilla, 1998). The literature states that buying firms use incentives to indicate what the desired behaviour is and to encourage suppliers to display such behaviour in the future (Eisenberg, 1999). The findings showed that most of the collectivistic suppliers were grateful and motivated to engage in training programs. Moreover, the buying firms would earn support and appreciation when the firm invested in the collectivistic suppliers. However, in some cases the buying firm had to use incentives and motivate the supplier to invest in themselves as the supplier could become a preferred supplier. According to the literature, rewarding contracts are more successful in collectivistic countries, such as China, as suppliers exert greater effort and shrink less under rewarding contracts compared to penalty contracts (Lee, Ribbink, & Eckerd, 2018). Hence, the buying firm could use incentives to stimulate proactive behaviour of the collectivistic suppliers regarding training and investments. Yet, “in individualistic countries incentives are less needful as most of the suppliers already know that investments increase market performance”, which was quoted by participant 5.

Propositions 2.1: The buying firm’s use of incentives, in some cases, stimulates proactive

behaviour of the collectivistic suppliers regarding training and investments. In individualistic countries incentives are less needful as some suppliers already know that investments increase market performance.

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27 Sevincer, & Gollwitzer, 2008). However, the study of Oettingen et al. (2008) revealed that low feasibility beliefs often impede performance and, thus, interestingly does not motivate the suppliers.

Proposition 2.2: The feasibility beliefs in collectivistic cultures may be lower compared to

individualistic cultures and it is manifest that lower feasibility beliefs often result in reduced supplier motivation and performance. Hence, the buying firm should exchange feasible objectives to the collectivistic suppliers.

5.3 Informal activities

The findings accentuated that informal activities with collectivistic suppliers were essential for: (1) Effective communication; (2) long-term commitment; (3) trust and; (4) buyer’s expectations. The buying firm had to adapt culturally to the collectivistic suppliers. Participant 2 complemented on this: “At some point you notice that you have to adapt to cultural differences. Informal activities are indispensable in most collectivistic cultures. To get results you have to adapt.” Also, to motivate suppliers and present buyer’s recognition it was important to show appreciation. Participant 1 mentioned that suppliers in collectivistic cultures really appreciated it when the buying firm spent time in building relationships, mainly by doing informal activities. Bochner & Hesketh (1994) reinforced this as collectivistic suppliers have more informal contact with co-workers compared to suppliers from individualistic cultures. On the other hand, participants 3 and 4 stressed that buying firms did not have to focus much on informal activities and relational aspects with individualistic suppliers. Ramamoorthy & Carroll (1998) strengthened this as individualistic suppliers emphasized formal activities over informal activities.

Proposition 3.1: The buying firm might focus on informal activities with collectivistic

suppliers and formal activities with individualistic suppliers. Buying firm’s adaption to informal activities with collectivistic suppliers will contribute to effective communication, long-term commitment and trust.

5.4 Collaborative partnership

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28 differently with important, privileged relationship (i.e. the ingroup) than with others with whom relationship are less important or frequent (i.e. the outgroup) (Gorodnichenko & Roland, 2012). Due to the differences between in- and outgroups, participant 2 highlighted that individualistic buying firms could only communicate effectively with collectivistic suppliers when the buying firm had a strong relationship. The ingroup relationships were very important to build trustworthy relationships. This was confirmed by participant 3: “Most collectivistic suppliers trust you when you invest time in building a relationship.” Participant 2 complemented on this: “You can avoid the negative effects of cultural differences by building personal relationships. If you experience negative effects, you have to be open and honest trying to understand the culture.”

Proposition 4.1: The buying firm should build collaborative partnerships with the collectivistic

suppliers as entering to ingroup relationships will contribute to effective communication, trust and long-term commitment.

5.5 Theoretical implications

While the existing literature has heavily focused on supplier development practices, it remained unknown how these practices were affected by cultural differences paired with managerial actions. This study shed light on the effects of cultural differences on supplier development practices paired with managerial actions. The findings revealed that individualistic buying firms that developed collectivistic suppliers have to take into account different approaches due to the divergent cultural values. The study contributed to the literature by revealing managerial insights for buying firms to cope with the effect of cultural differences on supplier development practices.

5.6 Managerial implications

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29 Managerial actions

SDP practice Mutual understanding Incentives Informal activities Collaborative

partnerships

Joint actions Indiv. buying firms have

the autonomy/decision making. Hence integrate the coll. suppliers for effective joint actions. Training of suppliers &

direct investments

Indiv. buying firms that train Chinese suppliers may have to take into account indiv. behaviour of the suppliers.

The buying firm could use incentives to stimulate proactive behaviour of the coll. suppliers regarding training and investments.

Trust Chinese suppliers have a

low propensity to trust for out-group members. The indiv. buying firm should ensure mutual

understanding.

Buying firm's adaption

to informal activities with coll. suppliers will contribute to trust.

The buying firm should build

partnerships (ingroup) with the coll. suppliers to build trust.

Communication & evaluation

The buying firm should communicate and evaluate indirectly to the coll. suppliers.

Buying firm's adaption

to informal activities with coll. suppliers will contribute to effective

communication.

partnerships (ingroup) with the coll. suppliers for effective

communication.

Long-term commitment Buying firm's

adaption

to informal activities with coll. suppliers will contribute to long-term commitment.

partnerships (ingroup) with the coll. suppliers to ensure long-term commitment. Strategic goals &

objectives

The indiv. buying firm has to take into account that strategic goals and objectives could be interpreted differently. The feasibility beliefs in coll. cultures may be lower resulting in reduced motivation. The buying firm should exchange feasible objectives to the coll. suppliers.

Top management support

Top management that facilitates cultural matches between buyers and suppliers increases mutual understanding.

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5.7 Limitations and suggestions for future research

Besides the study’s theoretical and managerial contributions, this study had some limitations. The scope of the study was specifically focused on buying firms that implemented cross-cultural supplier development programs. Thus, to gain full understanding, future research could also examine cross-cultural supplier development programs from the perspective of the suppliers. Further, it was not uncommon that participants misinterpreted supplier development practices, such as strategic goals, supplier strategic objectives, joint actions and training of suppliers. As a result, some participants were unfamiliar with the effect of cultural differences on these practices. Another limitation was that the research questions of this study were particular broad as divergent perspectives on cultural differences arose from the findings. Hence, future research may examine this topic from a more in-depth approach with a larger sample size.

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6. Conclusion

As globalization continues and competition between firms is increasing, buying firms have to cope with cultural differences since supplier development programs are mainly cross-cultural. As a result, supplier development practices could be challenging because cultural differences could lead to misunderstandings and distrust due to differences in behaviour and expectations. This study aimed to investigate how the supplier development practices were influenced through cultural differences. Thereby, the study presented structured and novel way to investigate the effect of cultural differences on each supplier development practice, whereas some practices were more sensitive to cultural differences than others. As a result, the study discovered new insights how to manage cultural differences with the goal to achieve effective cross-cultural supplier development programs. The results revealed that effective communication, trust, supplier evaluation, buyer’s expectations, long-term commitment, strategic goals and joint actions were most sensitive to cultural differences. Overall, the infrastructure factors were most affected by cultural differences as it consisted of interpersonal supplier development practices.

The main findings of the study were that mutual understanding, incentives, informal activities and collaborative partnerships were essential remedies for individualistic buying firms to develop collectivistic suppliers effectively. It appeared that mutual understanding was involved in 8 supplier development practices and thus was an imperative finding. Further, informal activities were involved in 4 supplier development practices and incentives and collaborative partnerships were both essential for 3 supplier development practices.

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The effect of cultural differences on supplier development practices within a cross-national buyer-supplier relationship