Knowledge transfer between Dutch headquarters and Russian subsidiaries and its effect on performance

Knowledge transfer between Dutch

headquarters and Russian subsidiaries and

its effect on performance

A case study on Grolsch/SABMiller and Heineken

From vodka to beer

University of Groningen

Faculty of Management and Organization Landleven 5 Zernikecomplex Paddepoel 9747 AD Groningen Karlijn Veldman Student number: s1336886 E-mail: K.Veldman@student.rug.nl

PREFACE

When I started studying, I had much respect for the people who were writing their thesis. It seemed like a very difficult, long process. But my experience is that writing your own thesis is a pleasant challenge and gives a satisfactory feeling. I am proud of my end product and happy to finally show it

First I would like to thank my supervisors from the university, Prof. Dr. Luchien Karsten and Drs. Huib Stek for their encouragement, advices and helpful visits.

I would also like to thank my sister Manon Veldman for giving me the opportunity to perform research at Grolsch. And especially Mr. van Lierop and Mr. Skobelev for taking the time to help me at the starting phase of my thesis. A special thank goes to the respondents of Grolsch and Heineken Russia who participated in the research.

Besides that I would like to thank Theo, Ivo, Hans and Mark for their critical view on my thesis and especially on the language issues. I would also like to thank Marian and Wouter, for being very interested in my thesis and inspiration during the writing process. Finally, I would like to thank my friends for their encouragement and the oneness of writing a thesis.

The only thing left to say is wishing you fun while reading this thesis.

ABSTRACT

This thesis examines the influence of the institutional differences between the Netherlands and Russia on the knowledge transfer between headquarters and subsidiary. Research will be done by performing a case study on two Dutch beer breweries with one or more subsidiaries in Russia: Grolsch and Heineken. First there will be elaborated on the knowledge transfer between headquarter and subsidiary. After that the institutional context of Russia will be described, with the focus on the cultural, economic and political factors. As the theory illustrates that there is a large institutional distance between the Netherlands and Russia, the case study brings other results. The data collection found place by using interviews and questionnaires. The results are that the employees of both Heineken and Grolsch do not perceive many misunderstandings, cultural differences, and language barriers, economic or political differences. And most important, they also disagree that these factors have an influence on the knowledge transfer and that the performance of the subsidiary is disturbed by misunderstandings. A possible reason for explaining this difference can be that the institutional distance between the Netherlands and Russia has become smaller.

TABLE OF CONTENTS 1. INTRODUCTION ... 5 1.1 Problem statement... 5 1.2 Motivation/Literature gap ... 7 1.3 Conclusion ... 8 1.4 Goal... 9

1.5 Main research question ... 9

1.6 Sub questions ... 10

1.7 Conceptual model ... 11

2. THEORETICAL BACKGROUND... 12

2.1 Introduction... 12

2.2 Headquarter – subsidiary relationship ... 12

2.3 Theories on knowledge transfer... 15

2.4 Barriers and facilitators to the transfer of knowledge... 19

2.6 Institutional context ... 23

2.6.1 Culture... 24

2.6.2 Politics and legal system ... 32

2.6.3 Economy ... 35

2.7 Conclusion ... 40

3. METHODOLOGY ... 42

3.1 Case study ... 42

3.2 Cross-cultural management research ... 42

3.3 Research objects... 43

4. RESULTS ... 46

4.1 Interviews... 46

4.2 Questionnaires... 48

4.2.1 General ... 48

4.2.2 Structure of the organization... 49

1. INTRODUCTION

1.1 Problem statement

An area of increased attention in the international business literature is the role of subsidiaries in multinational firms (MNCs). Subsidiaries can take on various roles to develop and leverage capabilities that are a source of value creation in the subsidiary's market and possibly in other markets served by the firm. This contributes to the performance of the MNC as a whole. With the continued globalization and the increasing importance of foreign subsidiaries, the question of how to manage the relationship between headquarters and subsidiary becomes increasingly important (Hewett et al., 2003). The headquarter-subsidiary relationship is the primary connection through which the headquarters is able to manage the corporation. Almost all MNCs own several foreign subsidiaries. These subsidiaries are established in countries different from the headquarters’. The host country has different regulatory, normative and cognitive profiles from the home country. These differences in regulatory, normative and cognitive profiles, but also in culture, have an impact on how to manage to relationship between parent and subsidiary (Kostova et al., 2002).

An MNCs competitive advantage depends largely upon intangible resources, such as knowledge and relational capital. Unique, rare, inimitable and nonsubstitutable resources are an important source of competitive advantage (Barney, 1991). One important practice between headquarter and subsidiary is knowledge transfer. Knowledge is at the heart of understanding the overall firm performance (Johnston, 2005). Also, the competitive advantage that MNCs enjoy is dependent upon their ability to facilitate and manage intersubsidiary transfer of knowledge (Minbaeva et al., 2003). Completing, Johnston (2005) states the following:

‘ Inside a multiunit organization … knowledge transfer among organizational units provide opportunities for mutual learning and interunit cooperation that stimulate the creation of new knowledge and, at the same time, contributes to the organizational units’ ability to innovate’.

Knowledge transfer has been described as ‘a process of systematically organized exchange of information and skills between entities’. Western companies often struggle with transferring knowledge to their subsidiaries in transitional economies (May et al., 2005). Due to specific aspects of the country’s culture, values, attitudes and behaviors, the way the employees recognize the value of new information, assimilate it and apply it in business practices, can be different. Also the managers’ conflicting values could present barriers to knowledge transfer and limit their capacities to absorb knowledge (May et al., 2005).

it can better make important (strategic) decisions on its own; because it knows its own market best.

Elaborating on institutional theory, host country characteristics are important when managing the relationship between headquarters and subsidiary. In my case, the headquarters is located in the Netherlands and the subsidiary in Russia. As mentioned in the book by Holden (1998), working in Russia and collaborating with Russian partners, Westerners often face serious difficulties in understanding and communicating effectively, due to differences in economic and political systems, infrastructures, national and business cultures, and managerial attitudes and habits. When transferring knowledge to Russia, misunderstandings and misperceptions can occur, this can lead to lower performance. As we can understand more clearly the nature of these misunderstandings and miscommunications, Westerners should make interactions with Russian business partners more productive, resulting in higher performance (Holden, 1998). Consequences of the communitarian Russia in the 90s are corruption, fraud and bureaucracy. An aspect determining and understanding the Russian economy is the shadow economy. In 2003 the Russian shadow economy in percent of GDP was 48.7%. Such a large percentage means a high extent of trade in illegal goods, such as drugs, sex and transactions of legal goods where tax is dodged in an illegal way (Schneider, 2006). To gain more insight into the Russian culture, politics, economy and business and be more aware of the possible cultural differences between the Dutch headquarter and the Russian subsidiary to effectively manage the knowledge transfer between the two, it is important to investigate these items.

1.2 Motivation/Literature gap

knowledge transfer has mostly been conducted in developed economies (Yang et. al., 2008).

Therefore, in my thesis the focus of the location of subsidiaries is on Russia, an emerging country. It is an important country to do research on, for several reasons. Russia is rising, the economic growth is high (around 8.1% in 2007) and it becomes more and more interesting for firms to invest in Russia. An increasing number of companies are choosing to set up a subsidiary in Russia. Economically seen, Russia is a fairly ‘new’ and undiscovered country and this results in more needs and informative guides about how to invest in Russia. Discovering an undiscovered and new country brings many opportunities, but also many pitfalls for firms looking to start up a subsidiary (NRC, 2006). The relationship between Dutch headquarters and Russian subsidiaries is interesting because of the large differences between these two countries in terms of economics, politics, business (systems) and culture. These institutional differences have effects on the business as a whole and on the smaller business processes. The focus of my research is on one part of the business, knowledge transfer. In response to the fierce competition MNCs face and to sustain their competitive advantage, they must develop strong and effective knowledge transfer. The most important aspect of knowledge transfer is communication. As we can understand more clearly the nature of the misunderstandings and miscommunications that can occur due to the economic, cultural and political differences, Westerners should be in a better position to deal with them and consequently make interactions with Russian business partners more productive, resulting in higher performance.

Another gap exists on performing empirical tests and therefore creating empirical validity. Most literature only gives an extensive overview of the literature without exposing it to the real world. I will conduct a case study on two Dutch beer companies; Heineken and Grolsch, with subsidiaries in Russia for the field research part.

1.3 Conclusion

These characteristics are unique for that country and need to be taken into account when a company starts up a subsidiary and during its relationship with the subsidiary, being part of the company as a whole. The differences between countries in terms of its institutional context have impact on the way people act, what their norms and values are, how people do business. When we gain more insight into the institutional context of a country and know what the influence is on the daily knowledge transfer between headquarter and subsidiary, one can better deal with the differences and difficulties and anticipate more on possible misunderstandings/ miscommunications. I want to chart how large the influences of the Russian culture, politics, economics and business is on the knowledge transfer between the Dutch headquarter and its Russian subsidiary. Its outcome should help headquarters to be able to better manage the relationship with its subsidiary and act to it. When the headquarter knows what the influences are on its knowledge transfer, they can make the knowledge transfer process more effective, resulting an a better and faster process and ultimately a higher performance for the company as a whole. Logically flowing from these reasons for performing my research are the goal, main research question and the sub questions.

1.4 Goal

To improve the understanding of the influence of the cultural, economic and political differences between Dutch headquarters and its Russian subsidiary on their transfer of knowledge.

1.5 Main research question

1.6 Sub questions

Sub questions are helpful to provide an answer on the main research question. It’s also a guide for structuring my thesis. I will pose four questions and explain why they are helpful in answering my main research question.

o How can we describe the relationship between Dutch headquarters and Russian subsidiaries with respect to knowledge transfer?

Performing a study on the knowledge transfer between headquarter and subsidiary I first need to know what the literature describes on the topic of the headquarter-subsidiary relationship to understand the overall topic. I have chosen to focus on one daily activity of a business between headquarter and subsidiary: knowledge transfer. Therefore it is important to find theories describing this process.

o What is the institutional context of Russia and what are the cultural, economy and political differences between the Netherlands and Russia?

The subsidiary of my research is located in Russia. Finding out what the cultural, economic and political circumstances (the institutional context) are in Russia, I need to verify this by thoroughly examining the literature on this.

o How do these differences influence the knowledge transfer?

The real question in my thesis is what the influence of these circumstances on the knowledge transfer is. Having answered the previous questions, I will go deeper into the matter and try to find out how and how large the influence is on the knowledge transfer process.

o What is its effect on performance?

1.7 Conceptual model

To make the subject clearer, a conceptual model provides a visual overview of the concepts used and the direction the variables are heading to (Yin, 2003). For my research, host country characteristics, also described as institutional effects (Kostova & Roth, 2002) is thought to be an important variable influencing the knowledge transfer between Dutch headquarters and Russian subsidiaries. How these variables influence knowledge transfer, has to become clear in my thesis. When this knowledge transfer is effective, it will lead to a higher performance.

Figure 1 Conceptual model

Institutional

context

- Culture

- Politics and legal system

- Economy

Institutional

context

- Culture

- Politics and legal system

2. THEORETICAL BACKGROUND

´The realization that knowledge is the new competitive resource has hit the West like lighting´

Ikujiro Nonaka and Hirotaka Takeuchi

The knowledge-creating company (1995)

2.1 Introduction

In the last years, on the topic of the headquarter – subsidiary relationship much has been written, due to the globalizing world and as more and more firms establish foreign subsidiaries. To narrow this subject down, I will focus on the knowledge transfer between Dutch headquarters and Russian subsidiaries. To get a complete picture before constructing the interview questions and questionnaires, I will first elaborate on the HQ– subsidiary relationship with respect to the knowledge transfer. Then I will go deeper into the knowledge transfer theories and the accompanying knowledge types. Finally, the social context will be extensively expatiated on.

2.2 Headquarter – subsidiary relationship

‘With Russians it is better to think of relationships in terms of degrees of warmth rather than in terms of closeness’

Holden (1998)

institutional context shapes how a company organizes its business, causing the MNC to adopt certain local practices to become uniform with the local environment. At the same time, the utilization of organizational capabilities worldwide is an important source of competitive advantage for the MNC (Kostova & Roth, 2002). Especially in the case of a transition economy, such as Russia, the considerable heterogeneity in institutional environments emphasizes the need to better understand the characteristics of the country where the subsidiary is located (Hitt et al., 2004). This comes to the question to what extent the subsidiary (can) implement(s) the parents’ strategy, operations and goals while being aware of the institutional environment of the host country along with its cultural, social and legal embeddedness.

Figure 2 Theoretical basis: bridging the gap in international management research

My starting point will be the ‘high-context’ perspective, paying close attention to the national contexts of the Netherlands and Russia, basing my research on the institutional theory.

opportunity to focus on the transfer of knowledge between headquarter and subsidiary. Ofcourse, other business processes also contribute to the performance and competitive advantage, but knowledge transfer is a very important feature and narrowing down my thesis gives me more space to deepen one subject instead of focusing on many business processes at the same time.

2.3 Theories on knowledge transfer

‘Knowledge transfer in organizations is the process through which one unit is

affected by the experience of another’. My research focuses on the knowledge transfer from the headquarters to the subsidiary and not in the reverse way, because the headquarters controls the company and is the prime source of knowledge; it decides the strategies, structures etc. for the subsidiary. The way knowledge can be measured is through measuring changes in knowledge or in the performance of the recipient unit, such as the subsidiary (Argote & Ingram, 2000). Many definitions of performance can be found. The following fits best in my opinion: ‘Performance is the accomplishment of work assignments or responsibilities and contributions to the organizational goals, including behavior and professional demeanor (actions, attitude, and manner of performance) as demonstrated by the employee’s approach to completing work assignments’ (www.af.mil).

Having defined knowledge transfer and performance, the most important theories on knowledge transfer will be given.

1. Knowledge-based view: This view focuses on knowledge as the most strategically significant resource of the firm and emphasizes the capacity of the firm to integrate and transfer knowledge (Riusala & Suutari, 2004).

2. Tacit - explicit knowledge theory:

The tacit – explicit knowledge dichotomy is broadly enlarged upon in the knowledge literature field. Therefore this theory will be largely discussed. Nonaka (Hedlund & Nonaka, 1993; Nonaka, 1991, 1994; Nonaka & Takeuchi, 1995, 1996; Nonaka et al. 1996) introduced the concept of tacit knowledge into the literature and continues to be the principle reference point (Gourlay, 2002). These two types of knowledge are important for the knowledge transfer between headquarter and subsidiary. The main characteristic of tacit knowledge is that it cannot be codified (Riusala & Suutari, 2004). It is knowledge that people carry in their minds and is therefore difficult to access. To effectively share tacit knowledge requires extensive personal contact and trust. Without some form of shared experience, it becomes very difficult for people to share each others’ thinking process (Riusala & Suutari, 2004). The differences between tacit and explicit knowledge can also be explained by three areas. First, unlike tacit knowledge, explicit knowledge can be codified, it can be abstracted and stored and is transmittable in formal systematic language such as manuals and documents (Lam, 2000), (Riusala & Suutari, 2004). The methods for acquiring the two knowledge forms differ, in that tacit knowledge can be generated through practical experience, learning by doing. Explicit knowledge can be acquired through formal study and codification. Third, explicit knowledge can be aggregated at a single location and stored in objective forms. In contrast, tacit knowledge is personal and contextual. It cannot be easily aggregated because it is distributive. Some authors argue that new knowledge is generated through the dynamic interaction and combination of the two types (Lam, 2000).

physical objects, such as prototypes or technologies, or even depositing it in employees (expatriates) who visit different subunits or partly work there. Codification can help to identify opportunities, threats, strengths and weaknesses across markets because it facilitates flows of knowledge between headquarter and subsidiary (Schulz & Jobe, 2001). Thus, explicit knowledge is easier to transfer than tacit knowledge, which is stuck in people’s minds.

Nonaka (1994) identifies four different patterns which represent methods in which existing knowledge can be converted into new knowledge. These patterns involve interaction between tacit and explicit knowledge. The four different modes of conversion are (1) from tacit knowledge to tacit knowledge, (2) from explicit knowledge to explicit knowledge, (3) from tacit knowledge to explicit knowledge and (4) from explicit knowledge to tacit knowledge.

Figure 3 Modes of knowledge conversion

Figure 4 Spiral of organizational knowledge creation

The theoretical orientations to analyze knowledge transfer described above, classify the determinants of the knowledge transfer process. These determinants can be classified into four groups: characteristics of knowledge, knowledge senders, knowledge receivers and characteristics of the relationship between senders and receivers (Szulanski (In: Minbaeva, 2007), (Riusala & Suutari, 2004). Szulanski (In: Minbaeva, 2007) defines knowledge transfer as:

a process of dyadic exchanges of knowledge between the sender and the receiver, where the effectiveness of transfer depends to some extent on the disposition and ability of the source and recipient, on the strength of the tie between them, and on the characteristics of the object that is being created.

to be important in the knowledge transfer process, implying the significance of internal relational conditions on the knowledge transfer (Minbaeva, 2007), (Hewett et al., 2003). In addition, intensive collaboration between headquarters and subsidiaries was found to support knowledge sharing processes, caused by and resulting in strong structural ties. A strong relationship will also ease the understanding on a general basis (Chini & Ambos, 2005). It is important to understand this background information about the relationship between before focusing on the most important, the influence of the institutional context on the knowledge transfer.

Why is the knowledge transfer important for an MNC? The main reason is that the knowledge base of an MNC has perhaps the greatest ability to cause competitive advantage and eventually leads to greater performance. Important for sustaining competitive advantage is to be able to protect your knowledge from expropriation and imitation by competitors (Schulz & Jobe, 2001). MNCs transfer and exploit knowledge more effectively and efficiently through their network of subsidiaries than through external market instruments (Gupta & Govindarajan, 2000). Also, knowledge flows transmit local know-how which is generated in one unit (headquarter) to other units (subsidiaries). And knowledge transfer facilitates the coordination of work flows connecting the several, geographically dispersed subsidiaries. Knowledge flows are also crucial to be familiar with the moves of competitors, consumers and suppliers in the host-countries (Schulz & Jobe, 2001).

2.4 Barriers and facilitators to the transfer of knowledge

There has been substantial evidence gained from experience that internal transfers are far from easy, being not always smooth and successful (Szulanski, 1996),(Riusala & Suutari, 2000). The difficulty of transferring knowledge within the organization between units has often been referred to as internal stickiness. Sticky has been used as a synonym for inert or difficult to imitate. The ease or difficulty can be reflected in the cost of the transfer, stickiness is reflected in the incremental cost of transferring the information (Szulanski, 1996).

and knowledge are sometimes used interchangeably. But there is a large difference between information and knowledge. All authors writing on this subject, point to the complexity of knowledge compared to information. In knowledge transfer, individuals play an important role as creaters, carriers, conveyors and users. In the case of information, these same functions can happen outside humans and without their direct influence (Terra & Angeloni, 2002). Information could be described as a flow of messages. Knowledge is created, organized, changed and restructured by the flow of information (Nonaka, 1994). Knowledge includes information, besides other aspects. Information is transferred from the headquarters to the subsidiary and knowledge is then created. Another difficulty of transferring knowledge which the theory on internal stickiness leaves out is the way the recipient interprets the sent information. It can be understood on the basis of illocutionary and perlocutionary acts. An illocutionary act is a form of speech act that does not convey information like a statement but functions as an action in itself. For example, a request, a threat, a welcome, a warning, or an apology cannot be considered as true or false like a statement, but such utterances nonetheless bring about new psychological or social realities—saying is equivalent to doing. A perlocutionary act is the effect of a speech act on a listener. An illocutionary act may not produce the intended perlocutionary act on the part of the listener, as when a threat fails to induce fear. The first is an act performed in saying something, contrasted with a perlocutionary act which is an act performed by saying something (www.encyclopedia.com). An example to clarify this linguistic topic:

‘By the way, I have a CD of Debussy; would you like to borrow it?" Its illocutionary function is an offer, while its intended perlocutionary effect might be to impress the listener, or to show a friendly attitude, or to encourage an

interest in a particular type of music.’

In section 2.3 a definition of knowledge transfer is given. Based on this definition, there are four sets of factors likely to influence the difficulty of knowledge transfer: characteristics of the knowledge transferred, of the source, of the recipient and of the context in which the transfer takes place (Szulanski, 1996), (Minbaeva, 2007). Related to these four factors are their primary variables. An overview is given in the table below.

Knowledge transferred Source Recipient Context Causal ambiguity (Szulanski) Lack of motivation (Szulanski) Motivational disposition (Gupta) Lack of motivation (Szulanski) Motivational disposition (Gupta) Barren organization context (Szulanski) Unprovenness (Szulanski)

Not perceived as reliable (Szulanski) Lack of absorptive capacity (Szulanski)(Gupta) Arduous relationship (Szulanski) Tacit – Explicit (Riusala)

Value of the source unit’s knowledge stock (Gupta)

Lack of retentive capacity (Szulanski)

Social, organizational and relational context (Kostova)

Adaptation to the new context (Argote & Ingram) Moving people, tools, tasks

Table 1 Overview of factors likely to influence the difficulty of knowledge transfer (Szulanski, 1996)

2.5 Factors influencing knowledge transfer

Again showing the conceptual model, one can identify two factors influencing the knowledge transfer between Dutch headquarters and Russian subsidiaries: the institutional context of the Dutch headquarter and that of the Russian subsidiary (The social context (Kostova, 1999)).

Figure 5 Conceptual model

According to Kostova (1999), the process of transfer between headquarters and subsidiary does not take place in a social vacuum, but is contextually embedded, considering three types of context: social, organizational and relational. The focus of this paragraph is the social context. The social context is measured as the institutional distance between two countries, explained earlier in section 2.2 according to the institutional theory. Some countries provide more favorable circumstances for the transfer of certain practices, others presenting many difficulties and barriers.

Reviewing the literature, there are many factors influencing effective knowledge transfer, where the focus of my research is on the social context with the factors culture, politics and legal system and economy, providing the most complete overview.

Institutional

context

- Culture

- Politics and legal system

- Economy

Institutional

context

- Culture

- Politics and legal system

2.6 Institutional context

´Knowledge is generated in different language systems, (organizational) cultures and (work) groups. If the context changes (e.g. culture), knowledge also changes´

Venzin, 1998

Knowledge management

Repeating institutional theory, within MNCs, the participants are under social influence and are pressured to adopt practices to and be consistent with their institutional environment. These practices have to be appropriate for the situation; the institutional environment (Morgan and Kristensen, 2006), (Björkman et al., 2006). In addition, the subsidiary operates in its own environment, the host country which inhibits certain local forces that influences organizational practices. On the other side, the subsidiary is part of the MNC environment. Therefore, the foreign subsidiary must adapt to the local circumstances, and at the same time must adopt the practices used within the firm as being technically efficient (Hewett et al., 2003), (Björkman et al., 2006). Thus, the subsidiary faces a certain question: ´which set of institutions are more important – those that make it legitimate within the multinational or those which legitimate it in its local context?´ Following from this is the important assumption that the larger the institutional differences between two countries, the more difficult it becomes to successfully transfer practices from the headquarter to the subsidiary. And the influences of the host country are more likely to prevail (Morgan & Kristensen, 2006). ´Institutions are shared, collective understandings or rules of conduct reflected in laws, rules, governance mechanisms, and capital markets, which help to define observed patterns of market exchange´ (Hitt et al., 2004). Furthermore, institutional arrangements influence the development of national economies, organizational structures and managerial acts (Hitt et

al., 2004).

viewed as successful and constitute the nature of reality and the normative pillar, which emphasizes the values and norms that guide social behavior (Björkman et al., 2006) (Hewett, et al., 2003), (Scott, 2001). The similarities and differences among the regulatory, cognitive and normative institutions can be measured as the institutional distance between two countries. The larger the institutional distance, the more differences there are in institutions and the more difficult it will be for headquarters to establish legitimacy in the subsidiary’s host country (Frenkel, 2008).

Having provided clarity about the difficulties related to the institutions subsidiaries face in their local context and in the MNC context, I shall now focus on the institutional effects of a country in transition, Russia. The institutional effects on such a country are different from other countries, because of certain specific elements such a country faces. The most important reason is that there is a considerable heterogeneity in institutional environments between such a country and a Western country. An example is given that due to the large-scale changes in Russia, many revisions in its institutional environment occurred. The most important change was the decentralization of political control, central policies and power to evoke the adopted policies (May, 2005). This resulted in chaotic conditions which made managers focus more on the short-term to deal with the great uncertainties. Being able to identify the Russian culture, politics, legal system and economy, the influence of these environmental factors on the knowledge transfer becomes clear. In the next paragraphs, different elements of the social context will be discussed. The first paragraph will focus on the cultural aspect of Russia.

2.6.1 Culture

Writing on an international management subject, culture can be based on the following definition by Edward Burnett Tylor (1871):

‘Culture is that complex whole which includes knowledge, belief, art, morals, law, custom, and any other capabilities and habits acquired by man as a member of society’

In line with this, cultural indicators such as the social values and norms, belief systems, cultural frames etc. establish usual and preferred ways of doing things (Hewett et al., 2003). Further, some famous quotes by culture ‘gurus’ interesting for my research:

• Transmitted patterns of values, ideas and other symbolic systems that shape behavior, Kroeber, A.L. and Kluckholm (1952).

• Set of common understandings expressed in language, Becker and Geer (1970). • Primarily a system for creating, sending, storing and processing information, Hall,

E.T. and Hall, M.R. (1987). (All in: Holden, 2003)

• A relatively stable, homogenous, internally consistent system of distinctive assumptions, values and norms that members of a group, an organization, or a nation have to bear collectively, Gertsen and Soderberg (2000)

Focusing on the last quote, we can focus on the relatively stable, homogenous, internally consistent system of distinctive assumptions, values and norms that the nation Russia has to bear collectively.

feminine countries women's values are begin modest and caring, men possessing more of these characteristics than in very masculine countries. The Netherlands (53) scores medium on uncertainty avoidance and Russia (95) very high. Uncertainty avoidance deals with a society's tolerance for uncertainty and ambiguity; it ultimately refers to man's search for Truth. It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, and different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; 'there can only be one Truth and we have it'. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy (www.geert-hofstede.com). This can be motivated by the widely held view that Russia is a country with a high level of risk avoidance, having minimized novel, unknown and surprising situations by providing strict laws and rules. Hofstede has not scored the fifth dimension (Long Term Orientation) for Russia, but this gap can be filled by another research done by the World Economic Forum. In this research, countries are ranked on what they call ‘future orientation, or the extent to which a culture encourages and rewards such behavior as delaying gratification, planning, and investing in the future. Russia and the Netherlands vary greatly in how oriented they are on the long term, Russia belonging to the least future oriented country and the Netherlands belonging to the most future oriented cultures (Javidan, 2007).

this as mimicricy, that the nature of the knowledge transferred is primarily Western and the knowledge is associated with the superiority of the developed world. ´Colonial superpowers sought to canonize in their colonies texts and practices that they identified with their own cultural superiority and to force colonial subjects to emulate a Western role model´. The question ´where is it transferred?´ is from the IM discourse seen as that the knowledge transfer process always has a degree of difference between the headquarter and the subsidiary. When the knowledge transfer is partial and disruptive it is seen as a sign of failure, limited by the foreign affiliate’s cultural and institutional constraints. The Bhabhaian view is that the knowledge which is partial and disruptive is a strategic tool allowing the MNC to maintain its control. The purpose of the transfer from the IM discourse perspective is that the primary role of knowledge transferred is to improve the performance in the subsidiaries in the other countries, accepting the institutional contexts as a welcome side-effect. The other perspective is that the desire of the headquarters is to turn their subsidiaries into reformed and regulated entities that are ´almost the same but not quite´ (Frenkel, 2008).

Figure 6 The transfer process revisited

essential characteristic of a country and has apparent and concrete boundaries. In contrast, the Bhabhaian perspective believes the MNC is ´an arena of conflictual hybridization´. Within an MNC employees from different cultures mingle and interact with each other and the practice transferred is the mix of two or more cultures, overlooking the asymmetries present within MNCs (Frenkel, 2008). The final subject is on the conceptualization of the relations between host countries where the IM discourse describes the terms cultural and institutional distance in which more cultural or institutional distance means the less easy it is for the subsidiary to implement the transferred practices. The Bhabhaian perspective is that within the MNC, the employees are all exposed to a hybrid culture and their response to the transferred knowledge should be understood as embedded in hierarchical power relations (Frenkel, 2008).

Figure 7 The MNC revisited

and feelings directly affect international business. Implementing a business requires for example that partners write contracts in a foreign language; try to express ideas and concepts being unique in a certain language and use interpreters (Usunier, 1998). But a common language does not necessarily ensure that meaningful communication occurs and that the knowledge transfer is successful. These depend upon social knowledge. Social knowledge can be defined as: ‘Knowledge held by individuals, or groups of individuals, that enable them to interpret, understand, and predict the behaviour of other individuals and groups’. For my research, social knowledge becomes corporate social knowledge held by the members of the firms’ Dutch headquarter and Russian subsidiary. Thus, social knowledge in the form of understanding others’ behaviors, is an important factor in facilitating the receiver (subsidiary) to understand, learn and implement the transferred knowledge (Buckley et al., 2005). Differences in language can become a real barrier which prevents successful communication between headquarter and subsidiary. Relying on modern-day communication such as video conferencing, email networks and intranets does not guarantee successful communication (Tietze, 2008). Managing language problems can be solved by first understanding the language barrier and then to mix and match the solutions given in the table below which is right for the company in question.

Adopt a lingua franca; frequently this is English

Adopt ‘functional multilingualism’ – rely on a mix of languages to communicate Use external language resourcse such as translators and interpreters

Train the workforce

Introduce a common corporate language, in particular for core functions Deploy ‘language nodes’ (linguistically skilled personnel) strategically Follow selective recruitment to address language needs

Deploy expatriates to manage subsidiaries

Pursue inpatriation strategy – employ inpatriate subsidiary personnel into head office operations Use machine translation

Also, cultural distance between foreign partners may lead to misunderstandings that can limit the sharing of important organizational information or knowledge (Lyles & Salk, 1996). It is also possible that the effect of language differences increases uncertainty within the relationship. The relationship being labeled as one where suspicion, caution and mistrust arise is a relationship with much uncertainty (Tietze, 2008). Overcoming these misunderstandings, avoiding time-consuming translation and creating a sense of belonging to the firm is the introduction of a common corporate language. The different languages an MNC has to deal with can be partly overcome by providing common ground for communication through this managerial tool of increasing efficient communication. Besides a common corporate language, the company history, new developments and personal choice are the determinants of the language use in a company (Tietze, 2008). Most multinational companies use English as their common corporate language and it plays an important role in the knowledge transfer process. The dominance of English as a lingua franca in international business contexts, as between headquarter and subsidiary, cannot be denied anymore. ‘English is a high priority for management in most companies’ (Bloch and Starks 1999 in: Tietze, 2008) and ‘English has become a fact of life for many business people’ (Nickerson 2005 in: Tietze, 2008) make the importance of English stronger.

For the case of Russia, language is an important element of their culture. The Great Russian writer Turgenev (1818-1883) is famous for his words ‘The Russian language is great, mighty, truthful and free’. Every Russian believes in his words and is proud of it. Language brings about large emotional feelings and reactions. All Russians know all the Great Russian literature and quote them, probably during informal business meetings. This implies that they are amazed that foreigners do not possess great literature of their home country and thinks of them as materialistic, money-grabbing and uncivilized. It is almost seen as a business competence when you have read one of the great 19th-century Russian novels (Holden et al., 1998).

making an intellectual point or tell the truth, because it is dependent upon the moment. This is pretty frustrating and shocking for foreigners, adding that effective communication between westerners and Russians is undermined due to the fact that western management terms and concepts are entering the Russian life at a venture.

Westerners who are not familiar with the Russians have to be aware of the influence of the language barrier on transferring know-how. Due to the enormous political and economic adjustment to the western market economy since the fall of the Russian socialistic world, Russia has to adapt to the western language of management. The transfer of this western management know how is largely blocked by a complicated language barrier accustomed by the depth of the socialist experience, culture-specific factors and receptiveness to this know how influencing language change. An example of how Russians interpret some management concepts is given below.

English term Russian translation

Performance Achievements

Track record History of the company Challenge Problem

Table 3 Distortion through translation (Holden, 1998)

When western managers do not have much knowledge of the Russians, mutual misperceptions and antipathy can occur. These possibility of miscommunication and lack of understanding between western and Russian managers in the field of each other’s behavior, attitudes and motivation lead to the fact that if we understand more clearly the nature of these misunderstandings, we should be in a better position to deal with them and therefore make interactions with Russian partners more productive (Holden, 1998).

process as well as the conditions of the Russian language itself, the introduction of the new Western management terms happened at a slow pace and was not a smooth process (Holden et al., 2008). The new language evolving during the creation of the market economy is not quite Russian, but the Russian language in a new costume; a mixed English-Russian language. The language barrier causes a constraint on the smooth transfer of management know-how into Russia.

Concluding, I can assume that the Netherlands and Russia differ in their cultures. The cultural distance between these two countries is quite large that it could have a possible influence on the knowledge transfer process. Cultural distances between foreign partners may lead to misunderstandings that can limit the transfer of important information or knowledge. The literature shows that as firms and units are culturally more distant from each other, the knowledge transfer decreases (van Wijk et al., 2007). Even though some authors (Jensen & Szulanski, 2004) found a positive relationship between cultural distance and organizational knowledge transfer, overall previous research has largely found a negative relationship between cultural distance and organizational knowledge transfer (van Wijk et al., 2007).

2.6.2 Politics and legal system

empathy and interaction will be eliminated and the rules are applied as if the system is a computer (www.actualiteit.net).

There is a difference in unofficial and official statistics about the size of the Russian state bureaucracy. According to critics of the state bureaucracy, in October 2001, Boris Jeltsin argued that the number of state bureaucrats in Russia is five to ten times higher than in West-European countries. In 2002, other critics estimated the number of state bureaucrats on 4 million, twice as many as in the late Soviet era. Official statistics represents a less dramatic situation, by the end of the 1990s, the number of state bureaucrats was 2,4 million (Brym & Gimpelson, 2004). Knowing the numbers on bureaucracy, what is the opinion of the population on the effectiveness of bureaucracy? Considering a research done by Sedova (2008), the majority of the population finds the performance of the Russian state bureaucracy ineffective (57.1%). Only 9.6% rates the functioning of the bureaucracy positively to one degree or another. Important to know is that these numbers do not depend on what age these people have, how well acquainted they are with the work of bureaucrats and how effective their personal contacts with the bureaucratic machinery have been (Sedova, 2008).

Corruption is the misuse of entrusted power for private gain (Lambsdorff, 2007). According to the Corruption Perception Index 2007 by Transparency international, which is a coalition fighting against corruption, out of 180 countries, Russia is ranked as 143rd. The accompanying index figure is 2.3, in where 10 is the highest meaning and 1 the lowest being a highly corrupt country. In contrast, the Netherlands is ranked 7th out of 180 countries and the index figure is 9.0 being a low corrupt country. Russia, together with India and China also scores very low on the Bribery Payers Index (5.16), indicating that Russian companies have a high propensity to bribe abroad (www.transparency.org).

Fleming et al., 2002). In 2008 the Russian shadow economy in percent of GDP was around 44%. Such a large percentage means a high extent of trade in illegal goods, such as drugs, sex, criminal activities and transactions of legal goods where tax is dodged in an illegal way. The most important cause of the shadow economy is an increase of the tax and social security contribution burdens. In that case, people do not report their incomes because they do not have to pay taxes and other contributions. The results of this report indicate that the shadow economy increases corruption in low income countries, such as Russia (Schneider, 2006).

What is the effect of the bureaucracy on knowledge sharing with Russia? It is difficult to find theories exactly describing this relationship, but we can connect bureaucracy to knowledge sharing. Nowadays, in post-communist Russia it is publicly stated that there is democracy, press freedom and a ban on censorship. However, the right to use information remains severely limited and it is difficult to access. This is due to the fact that the state claims much information to be confidential and state, military and commercial secrets prevail. The effect is that the bureaucracy cannot work properly under circumstances where information is held secret and not made publicly. Through this ban on politically incorrect, ideologically sensitive or just restricted information, knowledge sharing becomes more difficult. Because of the low transparency on information flowing through the country, for many cases one needs certain documents or certificates before getting access to information. This has an effect on the knowledge sharing between foreigners and Russia, it takes longer and it is more difficult to get the available information or the information could not be available at all (Smaele, 2007).

way of showing disrespect towards law, international and national (NRC, 30/31 aug. & 2 sept.). The effect on the economy is huge. The shareprice-index RTS decreased with more than 7 percent and is the lowest since 2006. Also, the Russian business noticed a decrease in capital inflow from foreign countries of 87 percent. For now, the Russian state has large money reserves, but in the long term it could have serious consequences for the economy. Russia needs foreign investments and Russian companies have invested billions abroad. The credit circumstances will deteriorate and Western companies are less inclined to invest in Russia due to the political crisis (NRC, 29 aug. & 1 sept.). In addition, the great energy supplies facilitate states efforts to make Russia authoritarian which in the long term is negative for its position and foreign investors (Aslund, 2007).

2.6.3 Economy

Russia is an emerging country in terms of GDP growth, with an 8,1 % growth in 2007. The Gross Domestic Product (GDP) of Russia in 2007 was 859.3 billion euros. The Gross Domestic Product per capita in 2007 was 8,763 euros. For comparison, the Gross Domestic Product of the Netherlands in 2007 was 754.9 billion euros and the Gross Domestic Product per capita in 2007 was 40,532 euros. The Netherlands has a much higher number for its gross domestic product per capita, being a more prosperous country than Russia, economically seen. The economic climate of Russia is dominated by a few, large firms, called oligarchies. There is a challenge to encourage and stimulate the development of small and medium sized enterprises (SMEs). Besides that, the banking system is not functioning properly, due to the fact that the banks are controlled by entrepreneurs and oligarchs who use banking credits to firms that are associated to themselves. And the banking system is still small relative to the banking sectors of Russia's emerging market peers. Due to the high economic growth, the few rich people of Russia have become richer, causing a huge gap between the poor and the wealthy (Zarubine, 2008).

this emerging country with large opportunities (Baker & Mckenzie, 2007). But as could be read in the previous paragraph, the investor trust has decreased, due to the war with Georgia.

Energy plays a very important role in the Russian economy (Aslund, 2007). In 1999, the oil- and gas sector accounted for 12.7 percent of GDP. In 2007 it is almost 32 percent. Russia is addicted to its energy incomes and many Western countries (especially Germany and Italy) are dependent upon its stocks (NRC, 2 sept.).

In the recent book ‘Why market reform succeeded and democracy failed’, Aslund (2007) explains these political and economic changes in Russia. The success of the market economy and failure of the democracy increases the disparity between Russia’s economic growth and its authoritarian politics. This imbalance between economic and political freedom has become worse, due to Russia’s increasing authoritarianism. The degree of democracy in a country has been measured by Freedom House. Between 1992 and 2003 Russia was rated as ‘partially free’ and from 2004 as ‘not free’. Measuring Russia’s degree of market economy can be with the EBRD’s transition index ranking countries from no market economy (0) to normal Western market economy (1). Russia reached 0.7, the level of a full-fledged market economy. Russia has undertaken early, radical economic reform because of its fast rise. A market economy indicates that economic decisions are primarily made by free individuals and independent firms. Russia’s status as a market economy was confirmed by the European Union and the United States by complying with strict legal criteria (Aslund, 2007). On the other hand, the CIA fact book describes that Russia has made little progress in building the rule of law, the bedrock of a modern market economy. The government has promised additional legislative amendments to make its intellectual property protection WTO-consistent, but enforcement remains problematic. Besides this, other serious problems persist. Oil, natural gas, metals, and timber account for more than 80% of exports and 30% of government revenues, leaving the country vulnerable to swings in world commodity prices (CIA Factbook, 2008).

the providers and users of capital, customers and suppliers, competitors, firms in different sectors and employers and different kinds of employees. Market economies can be compared as different kinds of economic organization in which economic activities and relationships are coordinated and controlled in different ways (Whitley, 1998), (Whitley, 2002). The defining characteristics of different economic coordination and control systems have to be constructed so that variations in the nature and behavior of ‘firms’ can be described and explained, rather than simply presumed to be identical across market economies. The nature of firms is dependent on the significance of ownership and legal boundaries in the society which differ considerably between economies (Whitley, 2002).

The six ideal ownership types are: fragmented business systems, coordinated industrial districts, compartmentalized, collaborative, state organized and highly coordinated business systems.

Business-system characteristic

Russia

Netherlands

Business-system type State organized Collaborative

Ownership coordination

Owner control Direct Alliance Ownership integration of production

chains

High High Ownership integration of sectors Some to high Limited Non-ownership coordination

Alliance coordination of production chains

Low Limited Collaboration between competitors Low High Alliance coordination of sectors Low Low Employment relations

Employer – employee interdependence Low Some Delegation to employees Low High Table 4 Key characteristics of business systems and the type of business systems for Russia and the Netherlands

market economy is rising, indicating that economic decisions are primarily made by free individuals and independent firms. This is in contrast with Russia being a state organized business system. But the CIA fact book says Russia has made little progress in building the rule of law, the bedrock of a modern market economy. So, it could be that the Russian business system is changing. Which business system then fits best, or towards which business system is it changing is an interesting question for further research.

In a state organized business system, large firms that integrate production chains and activities in different sectors through a unified administrative apparatus dominate the environment. These business systems differ in their ownership patterns as families and partners in these economies are typically able to retain direct control over large firms because the state supports their growth through subsidized credit. For example, because of strong ties of vertical dependence where both firms and state and within enterprises managers dominate, employer – employee interdependence is limited (Whitley, 2002).

Contrasting, the Netherlands comes closest to the collaborative business system where there is much collective organization and cooperation within sectors, but less ownership integration of activities in technologically and market-unrelated sectors. Greater interdependence of employer-employee and trust of skilled workers is developed than in state-organized business systems (Whitley, 2002).

Institutional feature

Russia

Netherlands

Business system type State organized Collaborative

The state

Strength of state’s coordinating and developing role

High Considerable Strength and incorporation of intermediaries Low High

Strength of market regulation High High Financial system

Capital market or credit based Credit Credit Skill development and control

Strength of public training system Limited High Union strength Low High Dominant organizing principle of unions Employer Sector Centralization of bargaining Low High Trust and authority

Trust in formal institutions Limited High Paternalist authority High Low Communitarian authority Low High Contractarian authority Low Low

Typical business environment Dirigiste Collaborative Table 5 Institutional features associated with the state organized type for Russia and the Netherlands

Political uncertainties associated with this year's power transition, corruption, and lack of trust in institutions continues to dampen domestic and foreign investor sentiment (CIA Factbook, 2008).

The larger the institutional distance, the more differences there are in institutions and the more difficult it will be for headquarters to establish legitimacy in the subsidiary’s host country. As Russia’s economy and business system as part of the institutional context and are much different from the Netherlands, it is expected that the knowledge transfer is affected by this difference and that it takes longer before they understand the more complex and profound knowledge flowing from the West (Aslund, 2007).

2.7 Conclusion

The theoretical foundations of this thesis are depicted as a funnel. First, general theories and information about knowledge transfer between headquarter and subsidiary is provided, including barriers and facilitators to the transfer of knowledge. To deepen the subject of knowledge transfer between headquarters and subsidiary and narrow it down, the focus was on factors influencing the knowledge transfer. From this paragraph, more specific information on Russia was given. The institutional context is extensively enlarged upon to make the theoretical background more complete. The social context consisting of the cultural, political and economic circumstances in Russia gives a clear overview to start with the interview questions and questionnaires.

3. METHODOLOGY

To be able to explore what impact the institutional context has on the knowledge transfer between Dutch headquarters and Russian subsidiaries, the theoretical foundations have to be exposed to the real world. To find out if the culture, politics and economy of Russia have an influence on knowledge transfer and in what way, I will perform an empirical analysis. In my opinion, the best way to do this is to check if the theories described are approved by asking employees of Russian subsidiaries about their experience with the influence of these factors of knowledge flowing from their Dutch headquarter. Therefore I need Dutch companies with subsidiary(ies) in Russia. This empirical research is the methodology part of my thesis. By means of interviews and questionnaires a presentation of the real situation between headquarters and subsidiary located in Russia will be reproduced, finding out if the theory described is correct.

3.1 Case study

Performing a case study has several characteristics. In general, case studies are the preferred research method when ‘how’ or ‘why’ questions are being posed, when the researcher has little control over events and when the focus is on a contemporary phenomenon within some real-life context (Yin, 2003). Considering the case of two companies, this fits my research, and that means I will perform an explanatory survey. In addition, my research will be qualitative in nature.

3.2 Cross-cultural management research

3.3 Research objects

The two research objects for my thesis are Grolsch and Heineken. Grolsch is part of SABMiller, a large beer-brewing multinational company. The difficulty is that the headquarters of SABMiller is located in South-Africa and not in the Netherlands.

Grolsch/SABMiller N.V.

Koninklijke Grolsch N.V. is an iconic Dutch beer brand with almost 400 years (1615) of brewing heritage and a strong position in the Netherlands. It is positioned as a true Dutch beer brewed to an original recipe which is now complemented by 21st century production processes and innovative packaging. In addition to Grolsch Premium Pilsner, which accounts for over 90% of its portfolio, Grolsch also has a number of attractive brand variants including Grolsch Premium Weizen, Spring Bock and Autumn Bock as well as the Amsterdam brand. On November 19, 2007, SABMiller made an offer of €48.25 per share of Grolsch. From that date on, SABMiller owns Grolsch (www.grolsch.nl). SABMiller plc is one of the world’s largest brewers with brewing interests or distribution agreements in over 60 countries across six continents. The group’s brands include premium international beers such as Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner Urquell, as well as an exceptional range of market leading local brands. SABMiller has established three breweries in Russia (www.sabmiller.com).

Heineken N.V.

good weather and exceptional trading environment. In Russia, ten Heineken breweries have been established (Annual report Heineken, 2006).

Beer industry Russia

Russia is tightly associated with vodka. Despite that, the Russian beer market is growing fast. In the field of alcohol, the beer industry is the most promising market for the next few years. In 2007, around 40% of the market for alcoholic beverages consisted of beer. In 2008, beer as a proportion of total alcohol consumption was 47.5%. The use of beer is at the cost of the vodka consumption, demand for vodka will decline by 14% (www.evd.nl). There are around 1,400 brands on the Russian beer market. According to the top manager of Heineken Russia, Schwalbe, Russia has many advantages. The consumers have no preference for certain beer brands and are easy approachable. The costs of advertising are relatively low and the retail is less demanding than in many Western countries. There are good chances for the development of the top segment. And due to the growth of the market, beer breweries can exert much influence on their market position. But, on the other hand, Russia is politically and economically seen, a very unstable country. The risks are high. The demographics also create a negative image. The life expectancy is decreasing and the consumer base is declining (FEM Business).

3.4 Data collection

4. RESULTS

4.1 Interviews

Two interviews were held at the headquarters of Grolsch in Enschede. The first interview (May 13th) was with the senior brand manager, Mr. M. van Lierop. He is responsible for the Grolsch brand in many countries, including Russia. For Grolsch, Russia is the most important of the non-key markets. Here, the most important issues discussed in the first interview will be described.

According to Mr. Van Lierop, there is a lot of communication by both email and conference calls. The relationship with Russia is very stable and based on consensus and much deliberation. ´Control from the headquarter takes place on a regular basis, nevertheless there is relatively autonomy for the subsidiary´. It can be said that Grolsch uses a decentralized strategy. The most important issue with the employees at the subsidiary is the language barrier. ´Employees with basic language skills are less productive during discussions. This can cause problems´.

´Documents flowing from the headquarters to the subsidiary have to be translated in Russian for their clients. This slows down the knowledge transfer process, due to the fact that in Russia, certification is needed for every document. This is in line with the cultural differences. The main difference is bureaucracy. And the official reports all need to be controlled by the government. Everything requires more time from payments, and documents sent. Supplies are kept in customs for an extended time until the proper documents are signed. The bureaucracy is harming our business´.

´Another cultural difference is in the hierarchy. In Russia, when the manager talks, everybody listens; he has more power and respect. The rest has to agree with his opinion unless states otherwise´.

In the second interview Mr. A. Skobelev, General Manager of the Russian subsidiary of Grolsch, born and raised in Russia, gave his opinion.

Mr. Skobelev has studied in the Netherlands and therefore knows the Netherlands relatively good. What he likes about the Dutch business culture is that it is more open and goal-oriented than the Russian business culture. He also confirms that Grolsch makes use of a decentralized strategy. ´They are not strong in stimulating ideas from the subsidiaries. This also applies to the intranet of Grolsch. Its name is Grolsch World, but not enough use this intranet is made by the employees. Eventually this could mean that there is a (large) loss of good knowledge´. ´When I have a good idea for a promotion that could also be useful in other subsidiaries, it will take very long, because it has to be communicated to the headquarters first, but they might have other priorities. After that it takes long before it is communicated to the other subsidiaries, if it is communicated at all´.

Grolsch Russia is very autonomous, through the low amount of guidelines and rules (only for marketing and branding). They are very independent and can make many own decisions.

´Knowledge transfer from headquarter to subsidiary can take some time, because it is also very hard contact the right person, get the right information at the right time´.

Because Mr. Skobelev feels very western he doesn’t notice a cultural barrier between his subsidiary and the Dutch headquarter. ´But when I bring customers to the Netherlands, they feel Dutch traditions are different from their owns´.

´The bureaucracy means that everything more complex. Everything has to be documented and it takes some time before things gets done. It has a direct influence on the business of Grolsch in Russia, but not to the relationship between headquarter and the subsidiary. The influence it has on the business are things like getting a stamp/certificate for every action or goal one wants to accomplish and the time it takes to get it. This is caused by the political and legal circumstances in Russia´.