‘The Influence of the perception of national culture on the selection of a Business Strategy’ By Tifany Sosa

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‘The Influence of the perception of national culture on the selection of a

Business Strategy’

By Tifany Sosa

MASTER THESIS

Master Thesis: MSC in BA: Small Business and Entrepreneurship University of Groningen

Faculty of Economics and Business Supervisor: Dr. Olga Belousova

15-August-2015

Tifany Sosa

Student number: s2659891 tifanysosa@hotmail.com

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Index of tables

TABLE 1:GLOBE'S NATIONAL CULTURE DIMENSIONS ... 8

TABLE 2:DIFFERENCES BETWEEN GLOBEMODEL AND HOFSTEDE MODEL ... 9

TABLE 3:BUSINESS STRATEGY DIMENSIONS ... 11

TABLE 4:OVERVIEW OF STUDIES LINKING THE INFLUENCE OF NATIONAL CULTURE TO BUSINESS STRATEGIES ... 12

TABLE 5:SUMMARY STATISTICS FOR BUSINESS STRATEGY DIMENSIONS ... 22

TABLE 6:HONDURAS' SCORES IN GLOBE'S SOCIETAL PRACTICES ... 24

TABLE 7:COMPARISON BETWEEN OUR SAMPLE’S RESULTS AND 'LATIN AMERICAN' CLUSTER ... 24

TABLE 8:CORRELATIONS AMONG VARIABLES ... 26

TABLE 9:BIVARIATE LOGIT REGRESSION RESULTS ... 27

TABLE 10:OTHER STATISTICALLY SIGNIFICANT RESULTS ... 27

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Introduction

Big Macs are the same around the world. They will taste the same in The Netherlands, China and even Honduras. But, this doesn’t mean that McDonald’s management practices are the same in every country. Even though the product is the same, the strategies to sell, to manage people and even some products must be adapted to the cultural values of each country (Newman & Nollen, 1996).

Culture is manifested at different layers of depth. Schein (1985) distinguishes three fundamental levels at which culture manifests itself: (a) observable artifacts, (b) values, and (c) basic underlying assumptions. For example, when McDonald’s opened their first store in China, they had already conducted a 5-year business research about the Chinese environment. The easiest information to obtain is the observable artifacts, so they re-design the chairs, tables and counters to adapt to the height and body shape of Chinese people. Even though the observable artifacts are the easiest to obtain they are often the hardest to interpret because we often cannot understand the underlying logic of ‘why’ a group behaves the way it does (Spencer-Oatey, 2012). To analyze this, we often look to the values that govern behavior, but because values are often hard to observe directly, we usually obtain them by interviewing members of a society. From interviewing Chinese people, McDonald’s learned that Chinese prefer chicken dishes to beef burgers, so they added more chicken products to their menu in order to attract more customers. However, to really understand a culture and to comprehend the group’s values and behaviors, we have to delve into the underlying assumptions, which are typically unconscious, but actually determine how group members’ perceive, think and feel (Spencer-Oatey, 2012). In consequence, this thesis dwells in the notion that differences in perception of culture can be one of the reasons managers tend to select a business strategy.

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national culture and business strategies that we didn’t take into account in th literature review, hence it gave us the opportunity to present some propositions for future research.

Literature Review

Defining Culture

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Perception of culture

The Cambridge dictionary defines ‘perception’ as a belief or opinion, often held by many people and based on how things seem. Perception is ingrained in culture. Fu et. al. (2004) refered to culture, based on Hofstede’s (1980) definition of culture, as a system of socially created and learned standards for perception, cognition, judgment, or behavior shared by members of a certain group. In their study, they argue that individuals hold beliefs about the relative effectiveness of strategies and that according to the theory of planned behavior and the expectancy-value framework, these beliefs and perceptions can affect the frequency with which the behavior is used, as strategies perceived as less effective are less likely to be used (Fu, 2004). Measuring culture is all about perception, and people living in the same societal culture can perceive his/her culture as a different extreme in a continuum. In this study, we measure the perceived culture of SME’s managers and analyze how their perception of culture may influence their selection of a business strategy. Hence, we propose the following research question:

How does the perception of national culture influence SME’s managers in the selection of a business strategy?

National culture

In our everyday language, people commonly treat ‘culture’ and ‘nation’ as equivalent terms (Spencer-Oatey, 2012). Geletkanycz (1997) interpreted national culture as a ‘common frame of reference or logic by which members of a society view organizations, the environment, and their relations to one another’. National culture implies that one way of acting or one set of outcomes is preferable to another (Newman & Nollen, 1996). National culture plays an important role for two reasons. First, the success of an organization in external adaptation requires closeness to the contextual culture, meaning that it must assimilate, or at least respect, the environment in which it works (House et al., 2004). Second, the employees working in the organization are members of the society and have been socialized into its values and assumptions, thereby, it is expected that they will bring those values into dealings within the organization (House et al., 2004).

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date since the 70`s when Hall (1976) reported that a primary characteristic of cultures is the degree to which they are focused on the individual (individualistic cultures) or on the group (collectivistic cultures). Subsequently, Hofstede (1980a) developed one of the most commonly employed measures of cultural values. He utilized statistical analysis, obtained from more than 100,000 respondents in more than 70 countries, and theoretical reasoning to isolate four basic cultural values: individualism, power distance, masculinity and uncertainty avoidance (Saeed, Yousafzai, & Engelen, 2014). In one of his most recent books, “Exploring Culture”, Hofstede (2002) adds a fifth dimension of culture: virtue or also referred to as ‘Confucian dynamism’ or long-term orientation. Even though Hofstede’s work has been the benchmark for most of the research on world cultures it also has been frequently criticized. Among the most pertinent issues criticized in his work are the relevancy, assuming cultural homogeneity, political influence due to the timing of the survey, a one-company approach, outdated, too few dimensions, the statistical integrity, his assumption of equating a nation with culture and the difficulty, and limitations on an understanding of culture by means of numeric indices and matrices (Baskerville, 2003; Jones, 2007). In a more recent research, Minkov & Hofstede (2012) indicated that a nation typically has a homogeneous culture, whereas culture tends to vary from nation, making nations suitable criteria for examining culture. Even though this theory has been controversial (see Baskerville, 2003; Scheuch, 1989) as far as this study is concerned, and to the extent of the research made and available resources, there has not been found a better and more exact way to measure national culture other than through nations. Therefore, this thesis uses a sample country (i.e. Honduras) to study culture.

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Collectivism, Institutional Collectivism, Performance Orientation, Power Distance, and Uncertainty Avoidance; briefly explained in Table 1.

Table 1: Globe's national culture dimensions

Dimensions

Description

Future Orientaiton

The extent to which individuals engage (and should engage) in future-oriented behaviors such as delaying gratification, planning, and investing in the future. Gender

Egalitarianism

The degree to which a collective minimizes gender inequality.

Assertiveness The degree to which individuals are assertive, confrontational, and aggresive in

their relationships with others. Humane

Orientation

The degree to which a collective encourages and rewards individuals for being farir, altruistic, generous, caring, and kind to others.

In-group Collectivism

The degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families.

Institutional Collectivism

The degree to which organizational and societal institutional practices encourage and reward collective distribution of resources and collective action.

Performance Orientation

The degree to which a collective encourages and rewards group members for performance improvement and excellence.

*Based on House, Hanges, Javidan, Dorfman, & Gupta (2004).

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study offers a more recent and theory-based dimensions. In consequence, after reviewing different approaches for national culture, this study uses GLOBE’s approach to measure national culture.

Table 2: Differences between GLOBE Model and Hofstede Model

Differences

GLOBE model

Hofstede Model

Time Period 1994-1997 1967-1973

Primary researchers involved 170 1

Respondents Managers Non-managers and managers

Organizations surveyed 951 1

Type of organizations Non-multinational IBM and its subsidiaries

Industries Food Processing, financial and

telecommunication services

Information technology

Number of societies surveyed 62 72

Analysis Team effort Single effort

Number of cultural dimensions

9 4

Versions of questionnaires 2 (Organizational and societal

versions, each subdivided into values, practices and leadership attributes)

1 (measuring societal values)

* Based on Shi & Wang, 2011.

Linking ‘national culture’ to ‘business strategy’

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the environment plays in the formulation, interpretation and response to strategy, and how these researchers consider national culture to be an influential factor.

Business strategy typologies, developed and used as a theoretical basis for identifying strategic groups, are frameworks that define multiple generic competitive strategies available to business units (Zahra et al., 1993). Of the various strategic typologies that have been proposed, those of Porter (1980) and Miles & Snow (1978) have received the most initial scholarly attention (Parnell, Long, & Lester, 2015). Miles and Snow’s identify four strategic orientation typologies: Prospector, analyzer, defender, and reactor. Prospectors focus on innovation, creating new markets and enacting uncertain environments (Miles & Snow, 1978). Defenders emphasize cost control in stable environments, concentrating their innovative efforts on process issues (Parnell et al., 2015). Analyzers build a firm foundation in efficiency but continue to pursue incremental innovation through flexibility (Parnell et al, 2015). Reactors are late to change, and lack a consistent strategy (Hagen et al., 2012). Furthermore, Aragón-Sanchez et al. (2005) analyzed the relationships between the strategic orientation in Spanish SME’s, using Miles and Snow’s typologies, and their key management factors. They argued that these aspects of management (i.e techonological innovation, flexibility and organizational design, and human resources management) can largely determine firm performance and business efficiency and concluded that the lack of a professional view in the strategic formulation and establishment in SMEs may have a bearing on the lack of adaptation to the environment, and consequently, it may account for the worst economic and financial result of SMEs in relation to larger firms.

Another important study concerning strategic orientation dimensions influenced by Miles and Snow’s (1978) typologies is the one of Venkatraman (1989). He developed six dimensions in terms of managerial perception across 200 business units in the field studied, which he named: aggressiveness, analysis, defensiveness, futurity, proactiveness and riskiness. He linked some of his 6 dimensions of strategic orientations to Miles and Snow’s typologies: he linked ‘proactiveness’ and ‘defensiveness’ dimensions to the ‘prospector’ and ‘defender’ typologies, respectively.

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strategy. He categorized them according to cost leadership, differentiation of products or services, and focus on a niche market. He also suggested that a company must choose and focus on just one because trying to combine them, e.g. cost leadership and differetiation, typically become “stuck in the middle” (Porter, 1980). Influenced by Porter’s (1980) business strategies, Zahra and Covin (1993) examined four business strategy dimensions in their study: commodity-to-specialty products, marketing intensity, cost leadership, and product line breadth. These dimensions represent fundamental strategic choices that are meaningful in a wide variety of environmental settings (Zahra and Covin, 1993). Table 3 briefly describes each of these dimensions. Moreover, the influence that the dimensions of national culture (i.e. using GLOBE’s 2004 study) may have on the selection of a business strategy (i.e. using Zahra and Covin, 1993) has not been fully addressed by the academic literature, and hence it’s discussed in this study.

Table 3: Business Strategy Dimensions

Business Strategy Dimensions

Commodity-to-specialty products

Commodity products: Low margin, non-unique products that are usually not suitable for high price market segments.

Specialty products: High margin, unique products that are often targeted toward a high price segment.

Marketing intensity Intensity of a firm’s marketing efforts (e.g. creating a business strategy through advertising or by other competitive tactics)

Cost Leadership Achieving the lowest cost structure (e.g. finding ways to reduce production costs, achieve high capacity utilization, offer competitive prices, and establish efficient operations)

Product line breadth Refers to the number and variety of items embodied in a company’s product line. Firms that emphasize product development do not necessarily have broad and diverse products.

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How is the selection of a business strategy influenced by national culture?

Cross-cultural studies have found that cultural values are associated with differences in preferences for the use of different strategies (e.g. Hirokawa & Miyahara, 1986; Schermerhorn Jr & Bond, 1991; Alas, Kraus and Niglas, 2009). For example, Alas et al. conducted a study in which they explore how Globe’s cultural dimensions are connected with manufacturing strategies and choices. They concluded that although there are several factors influencing manufacturing strategy and choices, cultural practices also have a connection with manufacturing. For example, advanced mass production and more fluctuating demand are more common to countries with high assertiveness, power distance and uncertainty avoidance. This study emphasized the possible connection it might exist between selecting a business strategy and adapting to the environment, in this case cultural context. Therefore, obtaining knowledge about traditions and customs in a concrete country may result useful before starting production in this country (Alas et al., 2009). These arguments lead to the purpose of this paper: an attempt to understand the potential influence national culture dimensions’ may have on the selection of a business strategy. The literature found potentially linking National Culture and business strategies is summarized in Table 4. The following section proposes the hypotheses based on the literature found.

Table 4: Overview of studies linking the influence of National Culture to Business Strategies

Reference

Description

Roth (1995) Described how two aspects of culture (i.e. power distance and

individualism) had a significant impact on the performance of brand image strategies.

Saeed, Yousafzai, &

Engelen (2014)

Studied the influence of uncertainty avoidance, power distance, in-group collectivism, and assertiveness in Entrepreneurial Orientation. Steenkamp, ter Hofstede,

& Wedel (1999)

Examines antecedents of consumer innovativeness in a cross-national context using Hofstede’s dimensions of individualism, uncertainty avoidance, and Masculinity.

Ayoun & Moreo (2008) Influence of uncertainty avoidance on hotel top managers’ approach

to strategy development.

Ndubisi (2004) Analyzed relationship marketing application in cultures of low

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Miller (1989) Porter’s strategy of Cost Leadership related to assertiveness in strategy making.

Alas, Kraus, & Niglas (2009)

Explained manufacturing strategies selection with cultural practices such that societies with high assertiveness, power distance and uncertainty avoidance select and advance mass production.

Dimensions of culture and Hypotheses

Even though all 9 dimensions of the GLOBE study were surveyed, only 5 were found to have a probable influence on the selection of a business strategy (we excluded Humane Orientation, Institutional Orientation, Gender Egalitarism, and Future Orientation form the 9 original GLOBE dimensions).

1. Power Distance

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Hypothesis 1: SME’s managers perceiving their culture as high in power distance will be more prone to select a low commodity-to specialty product business strategy (a) and a high cost leadership business strategy (b).

2. Uncertainty Avoidance

This dimension is based on Hofstede’s (1980b) dimension, also known as ‘truth’ or ‘uncertainty avoidance.’ He defined it as “the extent to which a society feels threatened by uncertain and ambiguous situations and tries to avoid these situations by providing greater career stability, establishing more formal rules, not tolerating deviant ideas and behaviours, and believing in absolute truths and the attainment of expertise” (Hofstede,1980b). Ayoun’s et. al. suggest that the cultural dimension of uncertainty avoidance had minimal influences on the approach managers might adopt toward devolping their business strategies (Ayoun et al., 2008). The results may also suggest that uncertainty avoidance is a dimension of culture difficult to measure, and thus Ayoun’s et al. (2008) precipitated to assume that this results can be generalized since organizations confront uncertainty in their environments, through the behavior of both employees and stakeholders (Hofstede, 2001).

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scores to prefer ‘specialty’ products, since they are more unique, adapted to customers’ needs, and thus, target high prices markets. On the other hand, we argue that for companies that offer ‘commodity’ products, a greater benefit will come from having customers in low Uncertainty Avoidance societies that could demand less from their products and seek low prices. These arguments lead to the next hypotheses:

Hypothesis 2a-b: SME’s managers perceiving their culture as low in Uncertainty Avoidance will be more prone to select a low comodity-to-specialty product business strategy (a) and a high cost leadership business strategy.

Moreover, Steencamp et al. (1999) found that innovativeness was stronger in high uncertainty avoidance countries than in countries low on uncertainty avoidance, but when introducing new products in high uncertainty avoidance cultures, it is important to position the new product as a continuous innovation that does not require radical changes in existing consumption patterns. In terms of selecting a business strategy, Zahra and Covin (1993) argue that the broader the product line the more product development, or innovativeness, the firm will have. Hence, we argue that firms in low uncertainty avoidance are less innovative and thus have narrower product lines, leading to the following hypotheses:

Hypothesis 2c-d: SME’s managers perceiving their culture as low in Uncertainty Avoidance will be more prone to select a low breadth product line business strategy (c), and a low marketing intensity business strategy (d).

3. In-Group Collectivism

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other dimension, in the strategy (i.e. entreprenuerial orientation) and performance relationship. They argued that potential customers in cultures characterized by low in-group collectivism are more open to adopting innovative products as oppossed to collectivistic cultures were innovative products are invested or purchased in a delayed manner because of complicated decision making (Saeed et al, 2014; Steenkamp et al., 1999).

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important. Proposing the following hypothesis:

Hypothesis 3a: SME’s managers perceiving their culture as high in In-Group Collectivism will be more prone to select a low marketing intensity business strategy.

Additionally, other researchers also examined the role that national culture plays on consumer innovatiness arguing that consumers in low In-Group Collectivism societies tended to be more open to adopting innovative products (Steenkamp, ter Hofstede, & Wedel, 1999). Moreover, Tiessen (1997) argued that firms in highly individualistic cultures were not able to leverage the resources necessary to proactively pursue environmental opportunities, suggesting that individualism may discourage proactive behaviors. His study claimed that individualists produce breakthroughs that collectivists implement and improve. Again, linking these findings to the business strategy selection, Zahra and Covin (1993) describe that firms that emphasize product development will generally have broader, more diverse product lines than firms without such programs, meaning that the narrower the line product the less innovative a firm is. Thus, leading to the next hypotheses:

Hypothesis 3b: SME’s managers perceiving their culture as high in In-Group Collectivism will be more prone to select a low breadth product line business strategy.

4. Assertiveness

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Hypothesis 4: SME’s managers perceiving their culture as low in assertiveness will be more prone to select a high cost leadership business strategy.

5. Performance Orientation

As outlined by the GLOBE’s researchers, performance orientation was derived from McClelland’s (1961) concept of ‘need for achievement’, which is defined as the need to continually do better (McClellands, 1987). Performance Orientation reflects the extent to which a community encourages and rewards innovation, high standards, and performance improvement (House et al., 2004). Performance orientation is an important dimension of a community’s culture because it relates to the issues of both external adaptation and internal integration (House et al., 2004). The GLOBE study (House et al., 2004) noted that societies whose respondents report strong Performance Orientation tend to value education and learning, emphasize results, set high performance targets, value taking initiative, and prefer explicit and direct communications. Moreover, countries exhibiting high levels of performance orientation achieve an above average increase in economic wealth (McClelland, 1961; House et al., 2004). In contrast, societies whose respondents report low Performance Orientation value social and family relations, loyalty, tradition, and seniority, and use subtle and indirect language. From the arguments mentioned above, we argue that customers in societies that report high on performance orientation will value high quality, innovative and functional products. These customers are referred to as ‘Performance value segment’ by Day & Moorman (2010), which place more emphasis on the quality of the products than on the low price of such. Linking these arguments to Zahra & Covin’s (1993) business strategies, we argue that firms are more prone to select a ‘specialty product’ business strategy, in which they adopt an aggressive technological posture and sell unique products, in societies that score high on performance orientation because of their costumers’ preferences and high economic purchasing power. Hence, we hypothesize that in societies with low performance orientation customers demand less from their products and have a lower purchasing power, compared to societies that score high in performance orientation, thus firms are prone to select a ‘commodity product’ business strategy.

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Methodology

General approach

This study adopts a theory testing approach since it’s based on the last three stages of the empirical cycle (deduction, testing and evaluating). The driver of theory testing process is a business phenomenon faced by many companies (Aken, Berends, & Bij, 2012), in this case the influence that the perception of the dimensions of national culture may have on the selection of a business strategy. All constructs, variables, and hypotheses are operationalized, surveyed, and measured quantitatively.

Research context

We selected Honduras as our case sample. Honduras is a developing country in which little research literature is available and hence, with this study, we attempt to contribute to the development of empirically tested theory based literature using Honduran SMEs’ managers. A brief review of the most important facts about Honduras found in some sources, also used in the GLOBE study to compare economic health between countries (House et al., 2004) is given next. According to The World Bank, Honduras is a ‘lower middle income’ country facing significant challenges, with more than two thirds of the population living in poverty (the population in Honduras for the year of 2014 was approximately 8 million) and five out of ten suffering form extreme poverty. In rural areas 6 out of 10 households live in extreme poverty. Since the 2008-2009 global economic crisis, Honduras has experienced a moderate recovery, propelled by public investments, exports and high remittances. Moreover, inclusive growth continues to be hampered by inequality (see Honduras Overview: World Bank, 2014). In the Global Competitiveness Index report for 2014-2015, Honduras is ranked 100 out of 144 countries with a 3.8 score on the 12 pillars measured for performance (see Global Competitiveness Index). This information is relevant to this study because it gives a better understanding of the economic situation of the country, which may have consequences on, for example: purchasing power of customers, the access to finance, the availability of resources (încluding skilled labor), among other important factor.

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cluster. These clusters explain the majority of societal-level influences on individual values (House et al., 2004). However, Honduras was not included among the 62 societies studied; hence it gives room for this thesis to score the dimensions of national culture in Honduran society. Limitations to these scores exist, but are discussed later on in a more extent way. Since Honduras has geographical proximity to countries like El Salvador, Guatemala and Costa Rica (i.e. these four being Central-American countries), and that the rest of the Latin Central-American countries (i.e. Ecuador, Colombia, Bolivia, Brazil, Argentina, Venezuela, and Mexico) are placed within the same category, as opposed to European countries which are spread into 5 different clusters, it can be expected that Honduras will have similar scores in the national culture dimensions. Furthermore, House et al (2004) based the ‘Latin American’ cluster on prior research showing a Latin American societal culture distinguishable from the rest of the world. Thus, it can be expected that Honduras has similar scores in the dimensions of societal practices and therefore can be compared to other societies in the ‘Latin American’ cluster.

Figure 1: Country Clusters According to GLOBE

Nordic Anglo

Ge rm an ic L at in E u ro p ea n Afri can Eastern European Middle Eastern C onf_uc ian So u th ea st A si an Lati n A mer ican Ph il ip pi n es In do n es ia Ma la ysi a In d ia Th ail and Ir an Ecu ado r El S alva dor Co lumb ia Bol ivia Braz il Gua t em ala Arg ent ina Co sta Ric a Ven ezue la Me xico Denmar k Finland Sweden Canad_a U.S.A_. Austra_lia Ireland England South A_frica (White_Sam ple) New Z_ealand A ust_ria Th e N eth erl_an ds Sw itz erl_an d (G erm an_S pe_ak ing₎ Ge rm an_y Is ra el It al y Sw it ze rl an d (F re nc h S pe ak ing) Sp a in P o rt uga l Fr an ce Zim babw e Na mib ia Zam bia Nige ria Sout h Af rica (Bl ack Sam ple) Greece Hungary Albania Slovenia Poland Russia Georgia Kazakh stan Turkey Kuwait Egypt Moroc_co Qatar Sin_ga po re Ho ng Ko ng Taiw an Ch ina So uth Ko rea Ja pan

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Data gathering

Data was collected through an online survey, using ‘Qualtrics’ (an online platform that allows researchers to create and collect surveys). We used a “snowball” approach: the questionnaire was sent to over 60 SMEs owners from the researcher’s in Honduras, who were asked to resend the online survey to other SMEs owners inside their networks. In total, 56 surveys were received from which 25 surveys were deemed irrelevant: 1 survey was filled by a firm with more than 101 employees (which falls outside the categorization of an SME), 1 survey was filled by an entrepreneur not born or that has lived in Honduras, and 23 surveys were deemed unusable due to incomplete data. From the 31 eligible surveys, 58% firms have between 1-10 employees, 35% have between 11-50 employees and only 7% have between 51-100 employees. Referring to the age of the firm, 39% of the firms have less than 3 years, 23% have between 3-7 years, 16% between 7-15 years and 23% more than 15 years. The surveyed entrepreneurs came form a wide array of industries: 29% of the firms correspond to the Hotels and Restaurants industry, 22% to retail, 13% to publicity, 6% to consulting, 6% to construction, 6% to catering, and the other 18% of the firms fall into more specific industries, such as health, manufacturing and, vehicle services, water related products and education.

Measures

This study defines ‘small firms,’ also refered as SMEs, according to the number of employees the business has. In the case of the country being studied, Honduras, an SME is that which has 100 or less employees.

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Business strategy was operationalized, following Zahra et al. (1993) questionnaire, along four dimensions of commodity-to-specialized products, marketing intensity, cost leadership, and product line breadth. For example, if a firm focuses on selling commodity products it will score low on the commodity-to-specialty product business strategy. In each case, the mean response to the scale items was used as the firm’s score in that particular measure. Zahra et al. (1993) anchored the scales in reference to a firm’s key competitors and identified two advantages for doing so: recognizing that strategy is a comparative term and controlling for the potentially confounding effect of industry variables on the observed relationships in the data.

Scale Reliability and Validity

Mean summated scores were computed from the items to derive aggregated scales for the nine dimensions and the four business strategies previously mentioned. Following House et al., we computed Cronbach’s Alpha on the basis of the averages of the items corresponding to national culture, to obtain scale reliability. The average Cronbach’s alpha for the nine societal cultural was .616, which exceeds the value of 6.0 suggested by Van de Ven & Ferry (1980). For the business strategy dimensions, as shown in Table 5 all scales also have alpha coefficients that exceed the value of 0.60. Accordingly, the scales are sufficiently reliable for data analysis purposes.

We were able to use, from existing literature of national culture (House et al., 2004) and business strategy dimensions (Zahra et al., 1993) construct items that had been empirically tested in previous research. Thus, content validity is easy to assess. Minimum criteria such as validation in previous studies in various contexts can be sufficient determinants of validity for these scales (Hair, JR, Black, Babin, Anderson, & Tatham, 2006).

Table 5: Summary statistics for Business Strategy dimensions

Scale Mean S.D. Cronbach’s Alpha

Commodity-to-Specialty 5.1048 .95911 0.670 Marketing Intensity 3.7634 1.5085 0.862

Cost Leadership 4.6613 .9214 0.800

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Analysis and Results

Comparing sample country to ‘Latin American’ cluster

Table 6 shows the results for the mean scores of our sample for each of GLOBE’s dimensions of national culture. Table 7 compares the scores to rest of the countries in the Latin American cluster, as established by House et al. (2004). Honduras’ scores show that the perceived societal practices are similar to the ones of the countries in the Latin American cluster. Even though the aggregated means for each dimension are similar to the ones in the cluster, there is a noticeable difference in the minimum and maximum individual scores for each dimension (see Table 6). We interpret this as a noticeable difference in the perception of culture among our sample, which is used in this study to compare the differences between high and low perception of a dimension and the selection of a business strategy.

Business strategies and national culture dimensions: correlations

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Business strategy and national culture: Predictions (Regressions)

To expand the analysis, a (bivariate) logistic regression was used to predict the odds that a firm implements a business strategy depending on the societal practices (i.e. national culture dimensions). First, we recoded each business strategy dimension into ‘low’ and ‘high’ score dummy variables. For example, in the commodity-to-specialty scale, scores between 1- 4.4 were considered commodity product business strategy (coded 1) and scores from 4.5 - 7 specialty product business strategy (coded 0). Our regression model predicted the logit, that is, the natural log of the odds of having selected one or the other business strategy. This means that the model predicted the probability of the event that is coded with 1 rather than with 0. The variables were coded according to the null hypotheses, meaning that the variables coded 1 are the ones tested in this study. Appendix 1 shows that coding of the variables and Table 9 presents an overview of the results.

We found significant results for hypothesis 2b (N=31, p< .05) and hypothesis 2c is party supported. According to our data, the odds of selecting a Cost Leadership business strategy are 6 times higher for firms that perceive to be in an environment with low uncertainty avoidance than those that perceive to be in an environment with high uncertainty avoidance. Also, managers that perceive low uncertainty avoidance are .125 as likely to select a low Breadth of Product Line as they are to select a High Breadth of Product Line.

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Table 9: Bivariate Logit Regression results

Exp (B) N=31 Hypothesis 1

(a) High power distance X Low Commodity-to-Specialty NS (b) High power distance X High Cost Leadership NS

Hypothesis 2

(a) Low uncertainty avoidance X Low Commodity-to-Specialty NS (b) Low uncertainty avoidance X High Cost Leadership 6.125** (c) Low uncertainty avoidanceª X Low Breadth of Product Line .125** (d) Low uncertainty avoidance X Low Marketing Intensity NS

Hypothesis 3

(a) High in-group collectivism X Low Marketing Intensity NS (b) High in-group collectivism X Low Breadth of Product Line NS

Hypothesis 4

Low Assertiveness X High Cost Leadership NS

Hypothesis 5

Low Performance Orientation X Low Commodity-to-Specialty NS ***p<.01, **p<.05, *p<.10, NS=Not significant

Table 10: Other statistically significant results

Commodity-to-Specialty

High Uncertainty Avoidanceª X Low Commodity-to-Specialty .294** Low Uncertainty Avoidanceª X High Commodity-to-Specialty 8.000** High Power Distance X High Commodity-to-Specialty .250***

Cost Leadership

High Uncertainty Avoidance X Low Cost Leadership 5.056* High Breadth of Product Line

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High Performance Orientationª X High Breadth of Product Line 3.800*** Low In-Group Collectivismª X High Breadth of Product Line 4.800** High Gender Egalitarianismª X High Breadth of Product Line 6.000*** High Assertiveness X High Breadth of Product Line 5.000***

Low Breadth of Product Line

Low Humane Orientationª X Low Breadth of Product Line .263** Low Assertiveness X Low Breadth of Product Line .167*

Marketing Intensity

High Uncertainty Avoidanceª X Low Marketing Intensity 2.667** High Future Orientationª X Low Marketing Intensity 2.714** Low Power Distanceª X Low Marketing Intensity 2.333** High Institutional Collectivismª X Low Marketing Intensity 2.667** High Humane Orientationª X Low Marketing Intensity 2.500* High Performance Orientationª X Low Marketing Intensity 3.000** Low In-Group Collectivismª X Low Marketing Intensity 2.222** High Gender Egalitarianismª X Low Marketing Intensity 2.500** ***p<.01, **p<.05, *p<.10, ª Constant

Discussion

Commodity-to-Specialty

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Cost Leadership

Hypotheses 1b, 2b & 4 potentially linked Power Distance, Uncertainty Avoidance, and Assertiveness to Cost Leadership, respectively. We found statistical significance for hypothesis 2b (B2=6.125, p= .075). Hence, managers that perceive low uncertainty avoidance are 6 times more likely to select a high Cost Leadership business strategy than those that perceive high uncertainty avoidance. Additionally, we found that these managers that perceive high uncertainty avoidance will be 5 times more prone to select a low Cost Leadership strategy. These findings help support the existing literature. For instance, House et al. (2004) associated high uncertainty avoidance practices with prosperous countries in terms of consumption and growth. Common logic might lead us to interpret this by assuming that managers in prosperous countries will tend to pursue other business strategies, such as, per se, high quality for higher price, to take advantage of the economic wealth of their consumers. But, even though this can be the case, managers in our study showed no tendency to select either low or high cost leadership strategy, as 52% of our sample selected a low cost leadership strategy and 48% a high cost leadership strategy. These results enhance the important role that perception of culture can play in the selection of a business strategy. In this case in particular, the selection of a business strategy was not only influenced by the aggregated score of the sample country in Uncertainty Avoidance, but the results also showed that the perception that each manager has about the environment can influence his/her choice.

Market Intensity

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times more prone to select a low Marketing Intensity business strategy than a high Marketing Intensity one.

Breadth of Product Line

Out of the four business strategies studied in this thesis, Breadth of Product Line business strategy appears to be the most influenced by the dimensions of national culture, finding statistically significance for all 9 of them, although not in the way we expected. For example, in hypothesis 2c we argue that managers that perceive low uncertainty avoidance will be more prone to select a low Breadth of Product Line business strategy, instead we found that managers that perceive the environment as low in uncertainty avoidance are .125 as likely to chose low Breadth of Product Line as they were to select a higher option in the continuum. Meaning that these managers, that perceive low uncertainty avoidance, are not influenced by how they perceive the environment in terms of uncertainty avoidance, but instead they might consider other factors as more important, when selecting how broad or narrow their firm’s product line will be.

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Performance

The above discussion was an attempt to explain how the perception of culture influences managers’ choice for a business strategy. To further extent our analysis, we correlated the business strategies to the firms’ performance. Business performance variable selection was made using two of the most common measures of traditional accounting-based items (i.e. sales and profitability). Considering the limitations of data availabilty and accessability to generate objective performance assessments of these measures, the small sample size, and that we didn’t control for industry in our sample selection, the respondents were asked to select approximated measures of the profits (in percentages) and sales of their firm for the last three year (i.e 2012-2014). Given that the financial performance measures are accepted in the culture-performance literature more than market performance, process outcomes, and succesful value innovation (Franczak, Weinzimmer, & Michel, 2009), we measured firm performance in terms of mean scores of profitability and sales for the last three years. Appendix 2 shows the outline of the variable scale.

These relationship, between business strategy and performance, was first examined on a bivariate basis as shown above in Table 8. We found no correlation between the Firms’ sales and the business strategies. And, given that we found a positive correlation between business profitability and Cost Leadership business strategy (r= .378, p=. 039), we calculated a simple linear regression to predict profitability based on a Cost Leadership business strategy. The results were in line with the bivariate analysis, concluding that a firm’s profitability increases .468 (that is 5%) for each unit increased in the scale of cost leadership (F (1,28) = 4.667, p=0.39). Meaning that the higher the Cost Leadership the firm pursues the higher its profitability will be.

Limitations and future research

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in the assumptions he utilized: equating nation states with cultures. Even though the differences between countries made intuitive sense as they conformed to national stereotypes (Scheuch, 1989), cultures do not equate with nations. Hofstede responded to this critique, that nations are not the best units for studying cultures, by writing: “ True, but they are usually the only kind of units available for comparison and better than nothing” (Hofstede, 2003). In his reply to Baskerville (Hofstede, 2003) he also added that even though national states cannot be equated with national cultures, it should not render the conclusions about cultural differences invalid, and that there’s a possibility that 90% of such conclusions still hold, especially in our case, as we deal with a relatively small country. As this study is concerned, and to the extent of the research made and available resources, there has not been found a better and more exact way to measure national culture other than through nations. For that reason, this research uses nations (i.e. countires) to study culture.

We know that when adopting a quantitative research design, a failure to use a large sample can significantly limit the reliability and validity of the research. Nevertheless, textbook recommendations of sample size requirements for reliability studies vary widely (Bonett, 2002). Still, we expect that with a larger sample size the significance in the correlations among variables could have been higher. However, our findings can serve as the basis for further research to provide more substantial validations of the results presented in this study, specially the aggregated scores of the dimensions of national culture. A reasonable course of action would be to do the experiment again using large samples of two or more countries to compare, not only the perception of culture, but also the aggregated scores of each dimension of national culture and analyze their effect in the business strategy-performance relationship.

Conclusions

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Honduras employ, the higher their profitability will be. Given these results, we argue that, in Honduras, which scored low in uncertainty avoidance, firms that implement a high Cost leadership business strategy will have higher probability of being profitable.

Given that the results for the hypotheses proposed were not as we expected, we searched for significant results comparing all the dimensions (high and low) with the four business strategies proposed by Zahra and Covin (1993), including those that, to the extent of this research, were not linked to existing literature. The results highlight the impact that the perception of culture has on the selection of high or low breadth of product line, which influences the innovativeness of a firm (Zahra & Covin, 1993) and in marketing intensity.

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Appendix

Appendix 1: Dummy coding for variables

Variable Coding

Commodity-to-specialty Low (Commodity)=1 High (Specialty)=0 Marketing Intensity Low=1

High=0 Cost Leadership Low=0 High=1 Product Line Breadth Low=1 High=0 Uncertainty Avoidance Low=1 High=0 Power Distance* Low=0 High=1 Performance Orientation Low=1 High=0 In-Group Collectivism* Low=0 High=1 Assertiveness Low=1 High=0

*Reverse coding

Appendix 2: Performance Scales

Sales _{Profitability}

0 = Less than L1 million 0 = Didn't report any profits

1 = L 1 - L 5 million 1 = 0-10%

2 = L 5 - L 10 million 2 = 11-20%

3 = L 10 - L 20 million 3 = 21-30%

4 = More than L 20 million 4 = 31-40%

‘The Influence of the perception of national culture on the selection of a Business Strategy’ By Tifany Sosa