Economic Culture Impacts On Knowledge Flows And Knowledge Sharing
Within Selected EU Countries
Rune Gulev,
ABSTRACT:
This study systematically
investigates two dimensions through which economic culture can be measured and
compared between four EU countries: Slovenia, a new Central European entrant
into the EU, and Germany, Austria and Denmark, three longstanding EU members,
and projects their respective impacts onto knowledge flows and knowledge
sharing within MNCs. The results confirm
that there exists considerable differences in economic cultures between the
four countries and that the differences have a direct impact on knowledge flows
and knowledge sharing. Most notably, a
strong positive correlation was found between highly interpersonal and
institutional driven cultures to promote knowledge sharing on a horizontal
level. Further evidence was found that
highly subordinate economic cultures have a bias towards two-way knowledge
flows on a vertical level.
Introduction
An expected repercussion of
the generally accepted globalization phenomenon occurring throughout the world
is a rise in the activity of national firms in foreign markets. As the world decreases in size and borders,
the desire and ability of firms to go international increase. Consequently we observe a rise in the number
of firms taking on the status of a Multi-National-Corporation (MNC) (Bhagwati,
2004; Lechner & Boli, 2004) and venturing abroad in the attempt to reap
profits peripheral to their home market.
This is especially true for
countries within free trade arenas like the European Union (EU), where the
conditions for local companies to expand internationally are vast and often
encouraged through foreign direct investment (FDI) incentives and a lessening
of visible trade barriers. However, as
is evident from the countless number of failed international ventures
throughout
A large number of survey
projects and research of a multicultural nature address these issues and have
been published throughout the recent past (e.g. Trompenaars &
Hampden-Turner, 2004; Trompenaars & Woolliams, 2003; Throsby, 2001;
Schneider & Barsoux, 1999; Sachs, 2000; Mattock, 1999; Martin, 1992;
Inglehart, 1997; Holden, 2002; Hofstede & Hofstede, 2005; Hofstede, 2001)
which suggests that the topic is recognized as being of major importance to the
success of international business.
The present study attempts
to build on the work of these authors by systematically linking variances in
economic culture across four EU countries to respective variances in knowledge
flows and knowledge sharing.
Specifically, the economic cultures of three longstanding EU members:
The Economic Culture Perspective
Upon the enlargement of the
EU with ten new members in 2004, the multitude of cultural variances within the
union increased by roughly the same amount, with each new country bringing its
own specific set of cultural and business intricacies that further extended the
cultural variance spectrum within the common market. Zver et al (2004) propose that there now
exists a significant economic culture gap within the EU between Central and
Eastern European Countries (CEECs) that have recently joined the EU and
longstanding EU members.
In an effort to depict this
gap, two dimensions through which economic culture can be measured have been
assembled in order to portray variances, pertinent to economic culture, between
the four analyzed countries. The rationale
is to understand how these variances influence the management of the HSR and in
the end, the effectiveness of knowledge sharing and knowledge flows within the
multinational organization.
The two dimensions absorb
economic and business values that exist within the national culture of a
country and represent values germane to
The two drivers measure the
extent to which the workforce of a country is inclined to be biased towards a
specific preference of economic cultural values and probe specifically into
cultural particularities germane to European countries. Polarities within each driver and their
interpretation are as follows:
1. Authority driven vs.
subordinate driven - the extent to which
employees revere their superiors opposed to revering co-workers
2. High vs. low levels of
Interpersonal trust driven and institutional trust driven - the
extent to which employees are receptive to inputs stemming from people and from
institutions or systems
To quantify the degree to which the sample countries are polarized within each driver, numerous sources of differing data from the European Values Study (EVS) provided reliable indicators on several comparable and related themes within economic culture. The European Values Study is a large-scale, cross-national and longitudinal survey of moral, religious, political and social values. The survey was designed to investigate the nature and inter-relationship of value systems, their degree of homogeneity, and the extent to which they are subject to change across time.
The first driver draws
heavily from the power distance theories of Hofstede & Hofstede (2005) and
Hofstede (2001; 1997; 1984) and strives to examine the variances in boss
– subordinate and subordinate – subordinate relationships that
exist in various cultures and organizations.
Viewed as a spectrum on which a culture is either authority driven or
subordinate driven, authority driven employees tend to greatly revere their
managers who consequently have a great impact on the actions of their
subordinates. In comparison, subordinate
driven employees, who revere managers and co-workers equally, do not give a
special bias towards the inputs stemming from managerial sources and
consequently do not automatically comply with managers orders but retain the
ability to question the logic or motives behind a particular action. In essence, this implies that subordinate
driven employees are affected by their managers and the managers are affected
by the subordinates, whereas authority driven employees are mainly affected by
their superiors but the superiors are only mildly affected by the inputs
generated by the subordinates.
This driver is marked by
interdependency between managers and subordinates; if managers act in a
particular way, the subordinate will react accordingly. Consequently, the extent to which an
organization is authority driven or subordinate driven depends on the
interactions between managerial and subordinate parties from the outset and on
the values brought into the organization from the start.
Distinctive features of
authority driven cultures are centralization of power, hierarchical and tall
organizational pyramids, little questioning of authority, inequality being
accepted, diminutive levels of trust and a comparatively low qualification of
the lower strata of employees.
Contrarily, subordinate driven cultures are based on equal rights and a
high level of cooperativeness, less centralization of power and flatter
organizational pyramids, low levels of supervisions and a comparatively high
qualification of the lower strata of employees.
The following EVS statistics
have been utilized to measure the extent to which the sample countries are
biased towards authority driven cultures or subordinate driven cultures:
¨
The extent to which an increase in respect for authority would be viewed
positively
¨
The extent to which employees are free to make decisions at work without
consulting with their managers
¨
The extent to which a manager’s orders must always be followed
The results indicate that
Germany and Slovenia are the two most authority driven cultures with scores of
7.23 and 6.03 respectively, while Denmark and Austria are the least
capitalistic driven cultures, or most subordinate driven cultures, with scores
of 5.27 and 4.6 respectively (see Figure 1).
Figure 1. Authority Driven Levels For The Four Sample Countries
The second driver
differentiates itself from the previous driver as it does not measure the
extent to which there is a bias towards interpersonal trust opposed to
institutional trust. The reasoning for
this is that there may be a causal relationship between institutional trust and
generalized trust in people which implies that this driver cannot be measured
along an interpersonal trust – institutional trust continuum as the two
variables can be, and most likely are, interdependent. Consequently, a decrease in institutional
trust would not necessarily induce an increase in interpersonal trust thus
thwarting the ability to contest these two variables against each other. To overcome this predicament, the two
variables are measured independently on a high – low spectrum to yield
impartial results about employee receptiveness towards interpersonal and
institutional inputs.
The driver components are
based on Hardin’s (2002) and Levi’s (1996) contemplations about the
levels of trust that may be sustained and fostered within certain institutions
and within people. As such, it seeks to
measure the amount of confidence employees retain towards their fellow
employees and the magnitude of confidence allocated to institutions or
systems. Interpersonal trust is grounded
in the experiences employees have with each other and the familiarity that has
been built. However, employees high on
interpersonal trust will extend this mindset to encompass trusting strangers as
well because the belief that people in general can be trusted is strong. Institutional trust is based on the theory
that institutions provide reliable sources of input that are less likely to be
tainted by individual motivations or perceptions which therefore increase its
credibility and allow for deeper allocated levels of trust.
Interpersonal trust driven
characteristics include having assurance and conviction along with high levels
of confidence and loyalty in fellow employees.
Institutional trust characteristics also bear remnants of high levels of
assurance and confidence but are directed towards institutional sources that
are less likely to be biased.
To quantify the extent to
which the sample countries rank high or low on institutional trust and
interpersonal trust, one EVS statistic that directly measures the intensity of
interpersonal confidence has been utilized and three EVS statistics have been
applied to measure the intensity of institutional confidence in three different
systems:
¨
The extent to which employees feel that other people can be trusted
(interpersonal)
¨
The extent to which employees trust parliamentary systems
(institutional)
¨
The extent to which employees trust the social security system
(institutional)
¨
The extent to which employees trust the justice system (institutional)
The weighted scores expose
that
Figure 2. Interpersonal And Institutional Driven Levels For The Four
Sample Countries
It is rewarding to view
this particular graph along another dimension as these two aspects, institutional
and interpersonal confidence, work in conjunction with another opposed to
contesting each other as the previous driver does. As such, they can be plotted on a
scatter-gram (see Figure 3).
Figure 3. Interpersonal And Institutional Driven Levels For The Four
Sample Countries With Trend Line
The International HSR
Management Perspective
A further source of
research helps explore aspects of vertical knowledge flows (those occurring
between Headquarters and its subsidiaries) and horizontal knowledge sharing
(that which occurs between co-workers of similar status) within the HSR. The rationale is to prepare these knowledge
aspects to be linked with variances in economic culture.
A key aspect of promoting
knowledge flows within MNCs is to foster an environment of openness and support
for cross-fertilization of ideas and implementation of best practices (Dowling
& Welsch, 2004). The obstacles to
achieving this are manifold and relate mainly to cognitive (thinking,
reasoning, remembering) and motivational challenges that inherently hamper key
elements crucial in the empirical development of an integrated understanding of
knowledge dispersement within the MNC (Mahnke & Pedersen, 2004).
Consequently, the extent to
which the cognitive and motivational challenges negatively impact vertical
knowledge flows is dependant on the qualifications of the employees within the
organization and the pro-knowledge sharing environment established among the
co-workers. As previously established,
the upper and especially lower strata of employees within subordinate driven
organizations tend to be highly qualified and retain the ability to dispute
managerial decisions while simultaneously harbouring a pro-knowledge sharing
environment based on equal rights and a high level of cooperativeness between
administrative levels. This positively
impacts the extent to which organizational members can and will influence the
actions and thoughts of their superiors.
Thus, a prediction towards a positive relation in Austrian, and in part,
Danish MNCs to foster two-way vertical knowledge flows (as a result of being
subordinate driven) and a prediction in German and, in part, Slovenian MNCs to
create one-way vertical knowledge flows (as a result of being authority
driven).
Hypothesis 1: Vertical knowledge flows in Austrian and, in part,
Danish MNCs are predominantly two-way, from headquarters to the subsidiaries
and vice versa, whereas German and, in part, Slovenian MNCs have comparatively
greater extents of one-way knowledge flows from headquarters to the
subsidiaries.
The knowledge sharing
disposition on a horizontal level is fundamentally a property of the
composition of individualistic employee traits as individuals embody the
behavioural rudiments associated with knowledge sharing. These inherent rudiments vary in accordance
to interpersonal and institutional driven preferences and influence the
deployment levels of tacit and explicit knowledge. Therefore, it is expected that organizational
compositions of highly interpersonal trust driven employees intrinsically
maintain a tacit knowledge flow predisposition whereas institutionally driven
employees sustain explicit knowledge inclinations. This prediction is based on the former
involving higher levels of unconscious knowledge transfer that act as tacit
knowledge breeding grounds and the latter being the result of repetitive and
systematic knowledge transfer situations.
However, since these two drivers are not mutually exclusive, it is
conceivable to have simultaneous high levels of institutional and interpersonal
trust driven employees in one organization and simultaneous low levels of
institutional and interpersonal trust driven employees in another which would
induce high and low levels of horizontal knowledge sharing, respectively as high
levels of interpersonal and institutional trust act as knowledge sharing
catalysts, albeit in two different forms.
Hypothesis 2: Horizontal knowledge sharing will occur to a lesser extent
in Slovenian MNCs compared to German, Austrian and especially Danish MNCs as a
result of lower levels of institutional and interpersonal trust within the
Slovenian economic culture.
The Study
The empirical data for this
research was collected as a part of a larger project researching a total of 4
economic cultural drivers and five management aspects. The data was extracted from 54 subsidiary
managers from 10 MNCs which were taken to typify large (over 300 employees) and
successful (at least 10 years of profitability) companies. The MNCs were spread over two industries,
pharmaceutical and manufacturing, with 40% of the MNCs being Slovenian, and the
remaining 60% roughly equally distributed between the German, Austrian and
Danish MNCs. Each country had at least
one representative MNC in each industry.
Data collection was mainly conducted through questionnaires although
follow up interviews via telephone and in person were conducted in a select
number of MNCs. The questionnaires and
interviews probed the intricacies of the subsidiary’s perception of
knowledge flows and knowledge sharing, and economic culture aspects.
The questions pertaining to
vertical knowledge flows pivoted around the extent to which strategic
information streamed vertically between Headquarters and its subsidiaries and
between subsidiaries and the Headquarters.
The respondents were also given the opportunity to directly express
whether they felt knowledge was flowing one-way opposed to two-ways within
their organization. The questions
related to horizontal knowledge sharing focused on the extent to which sharing
of knowledge occurred horizontally, between intra-co-worker and intra-manager
environments. These questions also
probed the extent to which the respondents were biased towards explicit and
tacit knowledge sharing means by questioning their regular knowledge sharing
methods. The respondent’s answers
to the questions were scaled against each other for ease of comparison.
In order to gauge the
actual respondent’s economic culture fit with the predictions of the EVS,
the questionnaire first sought to identify how he or she valued certain
characteristics pertinent to the economic culture drivers that this study
pivots around. This was necessary as it
verified that the underlying premises from which the hypotheses were made were
still valid. Succeeding questions probed
the perceptions of the HSR along management dimensions within the realm of
horizontal knowledge sharing and vertical knowledge flows that the economic
culture influences. The questionnaire
consisted of multiple-choice closed-ended questions, five point Likert scale
questions and normalized 10 point preference scaling questions. These facilitated point accumulation methods,
which made it possible to compare stances on the different aspects of the HSR.
Two separate methods of
empirical data analysis were utilized in order to validate the results.
Spearman rank correlation tests were used to determine the direction and
strength of the individual relationships between economic culture and vertical
knowledge flows and horizontal knowledge sharing found at each surveyed
MNC. Standard linear correlation tests
were used to directly quantify the association levels between economic culture
and knowledge variables without assigning rank values (as Spearman Rank
Correlation tests do) but by using weighted averages. Together, they provide compared and direct
correlation results, respectively.
Finaly, in a survey of this
nature that gauges soft values and perceptions among several countries, it is
not rewarding to regard the data from each country on various subjects as the
decisive truth – the data does not permit for such a degree of
precision. It is the broad contrast
between high and low scores that ultimately validate connections between
economic culture and HSR management. Consequently,
in situations where one or two of the survey countries is not polarized at an
economic culture extreme, it was omitted from the standard linear correlation
hypothesis testing as its economic culture score was too neutral to justify any
predictions. The omitted country data is
however considered further on during Spearman rank correlation tests and when
attempting to build credibility to the trends emerging from the hypothesis.
Results and Analysis
Results regarding the fit
of the respondents’ economic culture with that of the EVS revealed
similar, although not identical, patterns.
Most notably, the Danish respondents’ economic culture pertaining
to being interpersonal and institutional driven dropped 4.6% from the EVS
forecast whereas all other countries increased by an average of 13.6% (see
Figure 4). However, the country
rankings are nevertheless in completely accordance with the EVS as Denmark
still ranks most interpersonal and institutional driven followed by Austria,
Germany and finally, Slovenia.
Furthermore, the Danish and German respondents’ scored
considerably less authority driven, or more subordinate driven, than the EVS
indicated while the Slovenian and Austrian authority driven scores were almost
identical to the EVS. However, it is not
the exact values of each countries’ economic culture score that is of
cardinal importance but rather their comparative standings as only those
validate the sought for knowledge sharing and knowledge flow connections.
Accordingly, although the exact
values of the economic culture scores vary from the EVS predictions it is not
to a detrimental extent as the comparative standings are still remarkably
similar. In fact, because the patterns
of the comparative standings are so similar, it actually reaffirms the
alignment of the respondents’ stances on economic culture to that of the
EVS, thus providing an even stronger base for HSR knowledge sharing and
knowledge flows connections to be made.
The slight alterations do therefore not have a significant bearing on
the premises from which this study begins and the validity of the hypotheses
remains.
Figure 4. Comparison Of Authority
Driven And Interpersonal & Institutional Driven Stances Of Surveyed Mncs
With EVS.
Results regarding
hypothesis 1 provide support, although not overwhelmingly strong, for the
theory. All countries’ MNCs ranked
as having a predominant use of two-way vertical knowledge flows between
Headquarters and its subsidiaries (all MNCs averaged above mean score of 5:
The spearman rank
correlation test reveals a weak negative correlation (-0.38) between the level
of authority driven economic culture and two-way knowledge flow levels tested
at a 95% confidence interval for all the countries’ MNCs. Accordingly, the hypothesis is confirmed as
there does appear to be an association between high levels of subordinate
driven preferences and greater inducement of vertical two-way communication and
vice versa. This insinuates the more
autonomy an employee feels she is empowered with, the more likely she is to
communicate in various directions, including upwards.
Authority driven Level
of two way knowledge flows 7.23 (6,04) 5,214 6.03 (5,87) 6,384 5.24
(3,90) 7,458 4.6 (4,58) 6,5
Table 1. Authority Driven Levels In Relation To
Knowledge Flows
Results in ( ) represent the empirical equivalent
Results regarding
hypothesis 2 provide strong, unanimous support for the theory. The standard direct linear correlation tests
reveal a uniform pattern for all the analyzed countries’ MNCs using the
EVS data and the empirical economic culture data. As interpersonal and institutional levels
decrease, there is a corresponding decrease in horizontal knowledge sharing
levels (see Table 2). However, it is
noteworthy to recognize that when using a trend line as an indicator of
economic cultural alignment with aptness to knowledge sharing, it appears that
the Austrian data does not fully comply with the theory (see Figure 5). The Austrian MNC’s knowledge sharing
levels are almost as high as the Danish MNCs despite
Level of int. & inst.
trust Knowledge
sharing 6.93 (6.47) 8,595238095 4.87 (6.18) 8,55 4.25 (5.25) 7,40625 3.17 (4.95) 6,1875
Results in ( ) represent the empirical equivalent
Figure 5. Knowledge Sharing In Relation To
Trust
The four surveyed
countries’ MNC’s utilization of tacit and explicit knowledge sharing
methods also reveal interesting insight.
Although it is not possible to gauge the extent to which the respondents
are either interpersonal or institutional trust driven (since they complement
instead of contest each other), it is possible to project high and low levels
of interpersonal and institutional trust driven stances against explicit and
tacit knowledge form usages. In doing
so, a strong pattern emerges that suggests that explicit knowledge forms go in
accordance with highly interpersonal and institutional trust driven economic
cultures and tacit knowledge forms correlate to low levels of interpersonal and
institutional trust (see Table 3). This
lends support to the theory that the higher the levels of interpersonal and
institutional trust driven an organization is at, the more likely it is to be
biased towards explicit, rather than tacit, knowledge forms.
Table 3. Correlation Between Interpersonal & Institutional Trust And
Explicit & Tacit Knowledge
Level of int. & inst.
trust Knowledge
sharing expressed in terms of explicit (E) and tacit (T) percentages 6.93 (6.47) E=77%,
T=23% 4.87 (6.18) E=71%,
T=29% 4.25 (5.25) E=45%,
T=55% 3.17 (4.95) E=42%,
T=58%
Results in ( ) represent the empirical equivalent
Conclusion
The study shows that there
are some direct linkages between authoritarian and interpersonal &
institutional economic cultures on vertical knowledge flows and horizontal
knowledge sharing within MNCs. Evidence,
although not pristine, was found that vertical knowledge flows are influenced
by the extent to which MNCs are authority vs. subordinate driven. Highly subordinate driven MNCs tend to have a
bias towards two-way knowledge flows and highly authority driven MNCs utilize
smaller extents of two-way knowledge flows.
Further strong evidence was found that supports that the level of
knowledge sharing has a positive correlation to the MNCs interpersonal and institutional
economic cultural stance; high levels of interpersonal and institutional driven
preferences induce more horizontal knowledge sharing.
The results of this study
provide further nourishment for researchers and practitioners who subscribe to
the notion that national management models do persist in
The purpose of this
research is not to suggest that an increase in knowledge flows and knowledge
sharing would gain MNCs across EU countries; the benefits to non-knowledge
intensive MNCs would not outweigh the costs thereby making increases
unproductive, but rather to allow for alignment of knowledge sharing and
knowledge flows with the mindset of the employees’ economic culture
within each EU country. The various
levels of intensity at which knowledge flows and knowledge sharing can be
successfully practiced are numerous.
Thus, it is advisable for the international MNC manager to acknowledge
the intricacies of the various economic cultures within the operations of the
MNC so to stay abreast with the knowledge flows and sharing methods that best
conform to the mentality and economic culture of the employees.
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About the Author:
Rune Gulev is a Danish PhD
candidate currently conducting research in international management and
cultural variances between European countries at the
Contact: Rune Gulev,
Velusckova 6, 6310