Essay: elements of a specific business culture can influence cross-border buyer-supplier relationships

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1.4 – Contribution
The purpose of this study is to describe how elements of a specific business culture can influence cross-border buyer-supplier relationships and define the limitations, which should be explored in future research. Only a few prior studies have considered this role of cultural sensitivity in international exchange (Skarmeas, Katsikeas, & Schlegelmilch, 2002). Therefore, this paper contributes to existing literature by expanding on the cultural issues companies face by trading abroad.

1.5 – Research Design and Data Collection
This bachelor thesis is a literature review. The formulated problem statement and research questions are answered based on existing literature and secondary sources. By searching for, and selecting literature that has been used in this thesis, attention has been paid to the date of publishing, expertise of the researchers, context of the study, relevance, and number of citations of the article concerned. In order to find the right articles, Google Scholar is the source that has been used most frequently. Concepts that served as keywords are: “Hofstede’s typology of culture”, “culture”, “relationship”, “cultural sensitivity”, “low- and high-context cultures”, and “cross-border buyer-suppler relationships”. The selected articles matched the search criterion the best, other selected articles are suggestions of the search engine based on the article used.

1.6 – Structure of the Thesis
The structure of the thesis is based on three research questions. These questions are formed in a sequential manner in relation to the problem statement. After this first introductory chapter, each subsequent chapter addresses one research question. More specifically; chapter 2 discusses the concept of a relationship, what its main characteristics are, and the influence of culture. Chapter 3 elaborates on culture as a concept and how it is linked to a cross-border buyer-supplier relationship. In addition, Hofstede’s framework is discussed in detail. Subsequently, chapter 4 discusses the appliance of the cultural elements and Hofstede’s typology of culture to Japan and the United States. The last chapter deals with the problem statement, it states recommendations and limitations for future research. At last, this is followed by the reference list and appendices.

Chapter 2 – Cross-border Buyer-Supplier Relationship
This chapter addresses the first research question: ‘What is important in the management of a cross-border buyer-supplier relationship?’. It starts with an explanation of relationship management. Thereafter, the factors that influence the management of a cross-border buyer-supplier relationship are further discussed. Furthermore, the influence of a national culture on a relationship are taken into account together with the impact of cultural sensitivity.

2.1 – Relationship Management
One of the most important trends in the industrial organization of the past 25 years has been the growth of collaboration between independent companies (Grant & Baden-Fuller, 2004). In addition, in these days a highly competitive market place and rapid technological changes let multinational corporations choose to focus on their core competencies and source other activities from external suppliers (Grant & Baden-Fuller, 2004). External parties may play a key role for the firm’s access to specific resources unavailable to a company, which are crucial for its competitive position (Johnson & Ford, 2006). As a result, there is an increasingly stronger need for specialized supplier networks (Dyer & Singh, 1998). The fundamental aim of a relationship is to link a buyer with a supplier. Relationships can be viewed as mutual, two-way, involved exchanges between buyers and suppliers (O’Toole & Donaldson, 2002). A firm’s ability to develop and manage relationships with key suppliers, customers and other organizations is a core competence that will help a firm to achieve competitive advantages (Ritter, Wilkinson, & Johnston, 2002). Therefore, effective relationship management within a buyer-supplier relationship becomes increasingly more important.

2.2 – Foundation of a Relationship
The foundation of a successful relationship is based on three factors: trust, commitment, and cooperation. In order to establish these three factors, effective communication between partners is crucial. In a cross-border buyer-supplier relationship culture might influence these factors and the communication process (Mehta et al., 2006). Therefore, cultural sensitivity is important in the management of a cross-border buyer-supplier relationship.

2.2.1 – Trust
Trust is the willingness to rely on an exchange partner in whom one has confidence. It involves the believe of one partner in the other, with expertise, to perform a task effectively, and the believe that a partner will act in a way that is beneficial for both parties. Relational trust is developed between exchange partners through repeated interactions over time. As in this process a partner is regarded to be reliable and dependable, the other partner will generate positive expectations regarding that partner’s intentions and reduce the fear of opportunistic behaviour (Mehta et al, 2006). Usually, a relationship cannot be legally defined. Therefore, trust can operate as some type of control mechanism to facilitate the functioning of relationships (Dyer & Singh, 1998). As a result, in the situation of high levels of trust, companies do not need any safeguard mechanisms, which will lower their cost. Besides, high levels of trust will encourage information sharing between partners, and therefore reduce misunderstandings and conflicts (Liu, 2012).

2.2.2 – Commitment
Commitment in a relationship is about the expectations that partners have of each other, that both partners will jointly exploit the opportunities and solve the problems in the best interest of both parties. So, commitment refers to the engagement in the relationship based on a partner’s own self-interest stake in the relationship, i.e. the partner shows more than only a promise. In addition, commitment is about the intentions of both parties to develop and maintain a stable, long-term relationship. Thus, in the situation of high levels of commitment, partners are able to achieve individual and joint goals without raising the fear of opportunistic behaviour (Mehta et al., 2006). However, the concept of commitment is perceived differently across cultures. For example, in Japan commitment is very important, as they often forgo better deals with new partners in order to maintain long-term relations with loyal partners. Whereas the U.S. is less committed to relationships as they would easily switch to partners who offer better deals (Yamagishi & Yamagishi, 1994).

2.2.3 – Cooperation
Cooperation can be defined in multiple ways, for example as ‘joint accomplishment’, or as ‘joint striving towards individual and mutual goals’, or as ‘partners working together to achieve mutual goals’. Therefore, the general concept of cooperation is the following: cooperation requires interrelated behaviour by two or more parties, these parties perform this behaviour voluntarily. In addition, cooperation is motivated by the desire to achieve both individual and joint objectives. Cooperation is necessary in order to collectively pursue independent and mutual goals, because partners may have the skills and knowledge that the others need in order to accomplish their goals and vice versa (Mehta et al., 2006).

2.2.4 – Communication
Effective communication between partners is necessary to establish trust, commitment, and cooperation. Communication is influenced by culture and is, therefore, different across countries. Every country has its own ways of expressing oneself and its own communication patterns, that can be regarded as typical for a country (Nishimura, Nevgi & Tella, 2008). If an individual is to communicate effectively with someone from another culture, he must – if not understand the hidden codes in communication – at least have a code breaker (Mehta, 2006). Hall and Hall (1995) developed a framework for the translation of behaviour across cultures based on communication styles. He divided cultures into low and high-context cultures. This framework has been further discussed in Chapter 3.1.3. However, in a long-term relationship, once achieved a certain level of trust, firms are able to predict a partners’ behaviour and performance. Consequently, effective communication becomes less necessary as partners know what they can expect from each other and how they conduct business (Liu, 2012).

2.3 – National Culture
Culture is a broad construct on which researchers of different background developed various definitions and frameworks. Hofstede (2011) defines culture as ‘the collective programming of the mind that distinguishes the members of one group or category of people from others’. Hall and Hall (1995) state ‘culture is communication’. Ralston et al. (1993) describe culture as ‘those beliefs and values that are widely shared in a specific society at a particular point in time’. Whereas Schwartz (2006) views culture as ‘the rich complex of meanings, beliefs, practices, symbols, norms, and values prevalent among people in a society.’ Because of culture’s wide range of definitions, this thesis focuses only on the ideas of Hofstede and, Hall and Hall.

Culture is considered to influence all human activity (Pressey & Selassie, 2003). Conducting business is regarded as a human activity and is therefore influenced by culture. Nowadays, in our globalizing economy culture plays an important role, as more and more companies are collaborating across borders. It can be stated that not every country has the same culture. As a result, each party involved in a relationship has developed beliefs related to common frames of reference, norms, and symbols or other elements of their culture (MacNeil, 1980). These elements of culture determine the rules that govern how firms operate in society. Therefore, partners need to consider those cross-cultural differences in order to create the best business environment.
Cross-cultural differences may raise difficulties and challenges concerning how to communicate, interact, manage, and evaluate processes in the buyer-supplier relationships, because of the different mental maps and interpretive approaches of different nationalities (Liu, 2012). In conclusion, culture asymmetry may obstruct the development of an effective relationship. Therefore, it is crucial to understand the cultures you are conducting business with, this concept is known as cultural sensitivity. This understanding will be reflected in your success in the global market (Lohtia, Bello & Porter, 2009).

2.4 – Culture Sensitivity
There are several concepts that explain a country’s view with regard to other cultures, such as psychic distance, openness to other countries and cultural sensitivity. The latter one is discussed in this thesis because of its relevance to the problem statement. Cultural sensitivity is the awareness of a firm’s differences between the domestic and the foreign market business practices and its willingness to address and manage these differences (Lohtia, Bello & Porter, 2009). Hence, cultural sensitivity is essential in a cross-border buyer-supplier relationship. Cultural sensitivity is important to successfully manage cultural differences. Therefore, a firm must develop a deep understanding of the partner’s culture. Cultural sensitive partners are strongly appreciated by foreign partners. This will reduce the barrier to communication, and that will, in turn, increase the levels of trust between partners (Johnson et al., 1996).

2.5 – Conclusion
The foundation of a relationship is based upon trust, commitment, and cooperation. These three factors are facilitated by communication in order for a relationship to function successfully. Countries can be regarded as having either a low-context culture or a high-context culture, depending on their communication style. Moreover, a relationship is often affected by cultural differences. Therefore, cultural sensitivity is essential for the success of a cross-border buyer-supplier relationship.

Chapter 3 – Culture in Business
This chapter deals with the second research question: ‘What aspects of culture relate to a cross-border buyer-supplier relationship?’. National culture has been defined in the preceding chapter (Chapter 2), this chapter elaborates on the elements of culture that can affect a cross-border buyer-supplier relationship, including Hofstede’s typology of culture. Thereafter, the concept of cultural sensitivity is introduced and its influence on a cross-border buyer-supplier relationship.

3.1 – Elements of Culture
A society’s culture determines how its members communicate and interact with each other and how the international business environment of a country is structured. The following elements are fundamental for the formation of a culture. Since these elements are different across cultures, they carefully need to be taken into account when engaging in a cross-border buyer-supplier relationship. All these cultural elements result from the values and attitudes members in a society have. Values are standards accepted by all the members of a society and attitudes are the actions, feelings, and thoughts that result from those values (Hofstede, 1980).

3.1.1 – Social Structure
First of all, the social structure, which are all the social relations that affect behaviour and institutions (Granovetter, 2005). This concept is related to the institutional theory, in which institutions are defined as shared rules and typifications that identify categories of social actors and their appropriate activities or relationships. These institutions are created on the basis of a history of negotiations that lead to shared interpretations of behaviour (Barley & Tolbert, 1997).

The social structure of a culture can either be vertically structured, which indicates that the people in a country are ranked in a hierarchy. Vertical social networks are typically formal with clearly indicated boundaries. Or, it can also be horizontally structured. This underlines equality between group members. Horizontal social networks are characterised by informal social fields without permanent well-defined boundaries (Lomnitz, 1982).

In addition, cultures differ, for example, with regard to their social attitudes towards the importance they place on the individual relative to the group. In the U.S. individualism plays a central role, whereas in Japan serving the group is much more valued. Social structure also affects economic outcomes. People tend to rely rather on people they know than on people they do not know. Therefore, in a relationship in which people know each other, the flow and quality of information are better transferred, rewarding and punishing is more effective, and people are more likely to trust each other (Granovetter, 2005).

3.1.2 – Communication
Secondly, communication, whether verbally or nonverbally, is an important skill for international managers. A culture of communication refers to expected ways of communicating and of interpreting others’ communication in a cultural group. It is important to note that participants in a communication process do not only carry cultural behaviour and concepts into it, but also use their culture to interpret and assess other people’s words and actions (Harris & McNamara, 2002).

As noted in the preceding chapter (chapter 2), Hall and Hall (1995) developed a framework of context cultures. They defined two types of context cultures: low-context cultures and high-context cultures. This concept tries to explain how cultural context influences the communication between two different cultures. Context is defined as the information that surrounds an event, it is inextricably bound up with the meaning of that event (Nishimura, Nevgi & Tella, 2008).

On the one hand, low-context cultures can be characterized by communication between parties, in which the message is explicit and detailed. So, most of the information is contained in the message itself. On the other hand, high-context cultures’ communication can be defined as less explicit and detailed information carried in the message itself. Thus, the receiver has to understand the context of the message (Mehta, 2006). It is, therefore, crucial to understand what kind of culture you are working with in order to prevent miscommunications.

Consequently, cultural sensitivity competence is especially important in order to prevent misunderstandings which could result in accelerating conflict between partners and thus minimizing flows of information and learning (Lyles & Salk, 1996). However, the concept of conflict itself can also be experienced differently in cultures. For instance, in the American culture it can be viewed as an inevitable part of a relationship, which will eventually result in a better strategic decision, however, in the Japanese cultures an intense conflict or discussion are regarded as a loss of face (Parkhe, 1991).

Additionally, as mentioned before, in the communication process people do not only communicate by words, but also by body language (LaFrance & Mayo, 1978). Non-verbal communication includes facial expressions, hand gestures, intonation, eye contact, body positioning, and body posture. Members of a society quickly understand nonverbal forms of communication common to their society, whereas outsiders may find the nonverbal communication difficult to comprehend. The use of the head nod is a good example to illustrate how it varies across cultures. When listening to an American presentation a Japanese head nod only means continued attention whereas an American head nod means assent. So, disagreement at the end of the presentation would come as a surprise to an American businessman as he assumed that the Japanese businessman agreed throughout the whole presentation (LaFrance & Mayo, 1978).

3.1.3 – Language
A third element that needs to be considered is language. Worldwide it has been estimated that there are up to 7,000 different languages spoken. However, 90% of these languages are spoken by less than 100,000 people (BBC, 2016). As there are so many different languages and international business people must be able to communicate, English has emerged as a lingua franca. A lingua franca refers to the communication in English between people with different first languages (Seidlhofer, 2005).

Language also organizes the way people within a culture think about the world. This cultural accommodation proposes that individuals will respond in a manner that favours or accommodates the culture associated with the language of presentation. So, when bilingual people use their second language, they may develop a mind-set influenced by the values associated with the culture of that second language. Therefore, English as a lingua franca accommodates the mind-set of non-English companies to the English culture (Ralston et al., 1995).

This has been shown by a study of Harzing (2005). He found in his research that a language of a questionnaire influences the responses across countries. If the questionnaire was distributed in one common language (English), the responses were more homogenized than when the questionnaire was distributed in a country’s native language. Hence, in the English version the differences between the countries became less clear. As a result, management might incorrectly conclude that differences between countries are rather small or non-significant. And therefore, may mistakenly think that concepts developed in one part of the world, will also be effective across borders (Harzing, 2005).
Another study has shown that 57% of the interviewees stated that language acts as a barrier to communication (Marschan-Piekkari, Welch & Welch, 1999). People might develop a sense of frustration when they have no choice than to write and speak in a foreign language. Moreover, people who do not possess the language spoken within a company might feel excluded from the group in day-to-day conversations. In addition, language can increase the time needed for a specific task as individuals might need extra time to translate and rewrite text (Park, Dai Hwang & Harrison, 1996). However, an individual in the possession of relevant language skills often resulted in more power as he can gain access to sensitive information (Marschan-Piekkari, Welch & Welch, 1999).

Furthermore, language provides an important indication of the cultural values within a society. Some languages have informal and formal forms of the word ‘you,’ the use of which depends on the relationship between the speaker and the person addressed. This needs especially to be taken into account when dealing with businesspeople from countries in which this is applicable (Yum, 1988).

3.2 – Hofstede’s Four Dimensions
Next to these cultural elements, Geert Hofstede developed four dimensions by which a culture of a country can be categorized. These dimensions further clarify the characteristics of a country’s culture. Hofstede, a Dutch researcher, is the most influential researcher in the area of cultural differences and similarities. He performed a study on 116,000 people working for IBM in a lot of different countries and thus with many different cultures. Hofstede wanted to develop a commonly acceptable, well-defined, and empirically based terminology to describe cultures (Hofstede, 1983).

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