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Cross Cultural Management: An International Journal Vol. 17 No. 2, 2010 pp. 154-169 # Emerald Group Publishing Limited 1352-7606 DOI 10.1108/13527601011038723

Received February 2009 Revised June 2009 Accepted August 2009

Interpretive schemes in cross-national alliances

Managing conflicts and discrepancies

T.K. Das Department of Management, Zicklin School of Business, Baruch College,

City University of New York, New York, USA, and

Rajesh Kumar Division of Strategy, Nottingham Business School,

University of Nottingham, Nottingham, UK

Abstract

Purpose – The purpose of this paper is to propose a framework for understanding how alliance partners interpret alliance functioning and how these interpretations shape their subsequent behaviors. Also, to discuss how interpretive schemes in cross-national strategic alliances impact upon the management of the problems arising from the cultural conflicts and discrepancies inherent in such alliances. Design/methodology/approach – Proceeding from the notion that interpretive schemes have important implications for the evolution of cross-national alliances, the paper describes the two fundamental interpretive schemes that relate to sensemaking – that of sensemaking of and in chaos, and examines how an appreciation of these interpretive schemes enable us to better manage cultural conflicts and discrepancies that inevitably arise in cross-national alliances. Findings – The framework makes clear that the two types of interpretive schemes � ‘‘sensemaking of chaos’’ and ‘‘sensemaking in chaos’’ � need to be appreciated as interpretive frames that are present among the alliance managers to effectively interact and influence partner firms. Practical implications – Briefly, the two types of the interpretive schemes call for different strategies for developing them. Alliance partners embedded in different national cultures rely on interpretive schemes to make sense of the conflicts and discrepancies that emerge in cross-national alliances. Originality/value – The paper responds to the need of managers with alliance responsibilities for a framework to help develop the most effective ways of managing interpretive schemes in alliances for productive interactions and performance.

Keywords Conflict management, Strategic alliances, Cross-cultural management

Paper type Conceptual paper

Introduction In this article we analyze the impact of national culture on the dynamics of cross- national strategic alliances. In recent years alliances have become an important tool in a firm’s competitive strategy. A large number of these alliances bring together companies that have been exposed to different institutional environments. These differences are particularly salient in alliances that have been formed between Western and Asian companies. In a landmark study, Hamel (1991) observed that Asian firms out-learned their Western counterparts, and, in the process, strengthened their competitive position. A classic example of this dynamic is represented by the failure of the long-standing alliance between Borden and Meiji Milk (Cauley de la Sierra, 1995). Borden sought an alliance with Meiji Milk to penetrate the Japanese market. The alliance broke up when Meiji Milk sought to introduce products that were in direct competition with Borden. It appears that the alliance was a learning experience for the Japanese company. When they had achieved their objective, they sought to restructure their relationship. The case raises a number of key questions, namely – is this interpretation of alliance failure culturally neutral, i.e. does it provide an explanation

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that transcends the cultural boundedness of either party? If it is not culturally neutral, then how is this failure to be interpreted from the Japanese standpoint? Furthermore, even if the Japanese sought to introduce products in the marketplace that were directly competitive with those of Borden, was this intentional or was it unintentional? Did Borden accidentally, or otherwise, act in ways that led the Japanese to lessen their commitment to the venture? In what way, and to what extent, did the actors’ coping ability influence their interpretation of the alliance dynamics?

Another well-publicized alliance which experienced difficulty is the alliance between KLM and Northwest Airlines (Tully, 1996). Although the alliance had been making money, the personal chemistry among the top-level Dutch and American executives was less than optimal. As the President of KLM remarked, ‘‘The European way of doing business is very different from the American way.’’ It is not surprising alliance managers who have been socialized in different institutional environments interpreted alliance dynamics in radically different ways. There is, after all, no one objective reality; there are multiple realities with each reality being constructed from the standpoint of a particular alliance partner. The idea that reality is socially constructed (Berger and Luckmann, 1966) and that it is subject to multiple interpretations is widely accepted in organizational theory (Morgan, 1979).

In this article, we attempt to analyze the impact of national culture on how alliance partners interpret alliance functioning, and furthermore, how these interpretations shape their subsequent behaviors. In recent years the concept of culture (both national and organizational) has come to acquire an increasing prominence in organizational studies (Hofstede, 1980; Schein, 1996). Debate has also centered on the relative importance of national and organizational culture in explaining organizational behavior. Without entering into the merits of this debate it is important to recognize that conflicts among alliance partners may stem from, or be exacerbated by, differences in both organizational and national cultures. Some scholars stress the importance of corporate and professional cultures whereas others highlight the ever-salient influence of national culture, even as they acknowledge the importance of corporate culture (Sirmon and Lane, 2004; Kumar and Das, 2010; Kumar and Nti, 2004). This article takes as its focus national culture as the dominant unit of analysis. In drawing upon the insights emanating from national cultural differences, we adopt a micro behavioral view for studying alliance evolution, as proposed recently by Kumar and Das (2010). The essence of this view is the recognition that micro behavioral processes critically determine how alliance partners manage the tensions arising from their conflicting expectations. Micro behavioral processes in alliances, as Kumar and Das (2010) note, revolve around ‘‘issues of commitment, restructuring the alliance, governance structures, and the decision to continue or exit the alliance.’’

The path-breaking work of Hofstede (1980) has sensitized researchers to the importance of national culture, notwithstanding the complexity that is inherent in conceptualizing and operationalizing this variable. Scholars have studied the impact of national culture on cultural value orientations (Woldu et al., 2006), the dynamics of multicultural teams (Von Glinow et al., 2004), and international negotiations (Lee et al., 2006). This is by no means an exhaustive list; it is only meant to be suggestive of the kind of work that has been done using national culture as a central explanatory variable. The article begins by outlining a model of alliance functioning and then proceeds to discuss how alliance functioning is impacted by national culture.

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A model of alliance functioning The academic and professional literature on strategic alliances is proliferating at an ever-increasing rate. The number of times alliances have emerged as a topic of discussion in the popular literature has also grown tremendously. Numerous examples of successful and unsuccessful alliances are cited in the literature, and yet the explanation for success and failure in terms of an a priori theoretical framework is rare. Culture as an explanatory variable has for the most part been neglected, except in anecdotal accounts which appear in newspapers and trade journals. (Some recent exceptions include Delerue and Simon, 2009; Dong and Glaister, 2009; Kauser and Shaw, 2004; Kumar and Das, 2010; Kumar and Nti, 2004; Meschi and Riccio, 2008; Sirmon and Lane, 2004). This relative neglect is regrettable because culture strongly conditions managerial responses to the ambiguity and uncertainty inherent in alliance functioning (Kumar and Das, 2010).

We adopt a developmental model of alliance functioning that highlights the notion that firms enter into alliances with different aspirations for learning and knowledge acquisition (Das and Kumar, 2007; Das and Teng, 2002; Kumar and Nti, 1998). Alliance functioning is analyzed at two levels, namely, a process and an outcome level. By process we mean the mode of interaction within the alliance, i.e. whether it is facilitative of, or detracts from, building trust and commitment among the alliance partners. Outcome defines the tangible achievements of an alliance, i.e. the development of a new product, market penetration, and alliance profitability. Alliance functioning may exceed, match, or fall below the alliance partners’ expectations. Alliances are thus subject to or experience unfavorable discrepancies at process and outcome levels.

In cross-national alliances, culture has an integral role to play (Kumar and Das, 2010; Kumar and Nti, 2004). Culture affects the operational or the day-to-day functioning of an alliance. Most significantly, it also affects the functioning of the alliance at a more strategic level, i.e. the critical choices or decisions made by alliance managers. Culture undoubtedly is not the only element influencing the operational and the strategic functioning of an alliance. The corporate cultures of the partner firms, the context of cooperation, and the prior experience of firms in managing alliances, may also play a role. While perhaps not all powerful, culture is certainly important, and in this article we are primarily concerned with elucidating that importance.

The impact of culture on alliance functioning Alliances are cooperative endeavors that bring together partner firms for a wide variety of objectives. The goal could be to develop a new product, such as a new generation of memory chips that was involved in the alliance between IBM, Siemens, and Toshiba. Or the partner firms might be interested in producing and marketing a new product, for example a small car, as in the alliance between General Motors and Isuzu. The viability of any cooperative endeavor is dependent on: congruence among the alliance partners concerning the evaluation of process and outcome discrepancies that affect the strategic dimension of an alliance; and the ease with which the partner firms are able to manage the coordination of routine and non-routine activities on an ongoing basis, constituting the operational dimension of an alliance.

Conflicts among alliance partners may arise at both the strategic and operational levels, and may be cognitive or behavioral in character. An example of a strategic level conflict can be found in the alliance between AT&T and Olivetti. This alliance was formed in 1983 with the expectation that each company would market the other’s

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products in their own respective territories. As it happened, neither company was happy with the other’s marketing efforts. It also turned out that Olivetti developed a minicomputer that competed directly with that of AT&T’s. The alliance was eventually terminated. An example of an operational level conflict involves an alliance between a USA and a Korean company mentioned in Yoshino and Rangan (1995). The former had entered into a sourcing arrangement with the Koreans. The Korean company was surprised to learn that the American firm changed certain specifications of the product at the last minute. The US firm was willing to supply technical and market information crucial for the Korean company in formulating its strategy, but felt that the Koreans were overly aggressive in seeking such information. They were also not terribly flexible in responding to changing market needs. As the authors report, it was the timely intervention of the US company that led to a speedy resolution of the conflict.

It is worth bearing in mind that strategic and operational level conflicts are not entirely independent of each other. Unresolved operational level conflicts may evolve into strategic level conflicts and vice versa. An illustration of the former type is provided by Doz (1996). The case involved an alliance between Ciba Geigy (CG), a major pharmaceutical firm, and Alza, a smaller entrepreneurial company that had developed an advanced drug delivery system. Alza was to undertake basic research and development while CG was responsible for drug development and marketing. The expectations of both the partners were very high when the alliance was initiated. As the case study reveals, one of the projects that the alliance partners were working on did not proceed smoothly due to operational difficulties. As Doz (1996, p. 67) observes, ‘‘while the ‘top’ and the ‘bottom’ of the CG research organization were actively working with AZ, middle management ranks were not involved.’’ The net result was that product introductions were delayed. This led managers at Alza to question the commitment of CG to the venture. Likewise, Alza’s desire to obtain third party research contracts was perceived by CG as an attempt to break loose from the relationship. Unresolved operational level conflicts created more consequential strategic level conflicts.

The impact of culture on operational level conflicts Operational conflicts stem from the failure of alliance partners to coordinate their routine activities on a day-to-day basis. Implicated in this conflict are middle level managers in charge of the operational activities of the alliance. Routine coordination is dependent on information exchange and joint decision making. Insofar as alliance partners differ in their mode of information exchange and in their decision making styles, coordination will be impeded. These information flows among alliance partners are shaped by culture in a number of different ways.

Culture and information flows Culture affects the pattern, the timeliness, and the evaluation of information. Whether information is communicated in an ‘‘explicit’’ or in an ‘‘implicit’’ form is influenced by culture (Hall, 1976). Hall (1976) makes a distinction between ‘‘high context’’ and ‘‘low context’’ cultures. In a ‘‘high context’’ culture information is communicated in a codified form. The burden of interpretation is placed upon the receiver. In a ‘‘low context’’ culture information is not codified. Most Asian cultures fall on the ‘‘high context’’ end of the continuum while the North American culture falls on the ‘‘low context’’ end.

The timeliness with which information is communicated is also culturally variable. In the North American culture, where the motto is ‘‘time is money,’’ information is likely

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to be communicated in a timely way. Many developing societies, by contrast, do not subscribe to that motto (Triandis, 1995), as information transmission does not attract the same sense of urgency. The evaluation of information is also culturally variable. For example, Schneider and De Meyer (1991) demonstrated that Latin and European managers relative to managers from other countries were more likely to perceive strategic issues as a form of threat.

What are the implications of differences in information flows for alliance functioning? When alliance partners differ in the pattern, the timeliness, and the evaluation of information, their ability to manage uncertainty and equivocality will be compromised. Uncertainty means that sufficient information is not available for achieving effective control. Equivocality implies the existence of multiple and conflicting interpretations. Thomas and Trevino (1993) suggest that the management of uncertainty and equivocality is crucial in explaining alliance success. When alliance partners differ in their interpretation concerning any aspect of alliance functioning, their ability to act effectively will be compromised. Likewise, in the absence of sufficient information, the ability of the alliance to make the best possible decisions will be brought into question.

Culture and decision making The decision making process may be looked at from two perspectives, namely, the style of decision making and the locus of decision making (i.e. where in the organization the decisions are made). Casse (1995) distinguishes between factual, intuitive, analytical, and normative styles of decision making. Managers having a factual style make the assumption that the facts have an objective reality. Empiricism is the dominant mode of analysis. In making decisions, managers ought to gather data, and let the data speak for itself. Intuitive decision making relies on creativity. Managers do not act in a programmed way. Every situation is unique and needs to be analyzed on its own terms. Normative decision making implies that managers use their own personal conceptions of what is appropriate in making a decision. Affective rationality supersedes instrumental rationality. An analytical mode of decision making relies on logic and on logic alone in arriving at decisions. A derivative implication is that there is one best decision.

Cultures differ in terms of the emphasis that they give to each of these decision making modes. The French, for example, are viewed as being very analytical (see, e.g., Barsoux and Lawrence, 1990). The Anglo Saxon cultures tend to be factual. It is hoped and expected that empirical data will resolve any decision dilemmas confronting the managers. An intuitive mode of decision making is likely to be prevalent in cultures where predictability in transactions among entities is lacking, or is present to a far lesser degree. Consistent with this conceptualization, Abramson et al. (1996) demonstrated the differences in the decision making styles of Canadians, Americans, and the Japanese. The Canadians were much more analytically oriented compared to their American counterparts. However, when compared with the Japanese the Canadians and the Americans were both much more analytical. The Japanese tended to conceptualize problems in human terms and were more sensitive to the need for maintaining group harmony. What implications do differences in decision making styles have on the functioning of an alliance? Consider for example, an alliance between a French and an American company. In joint decision making, the French manager and the American manager will be using different approaches. The former will emphasize logic, the latter facts. These differences may lead to a suboptimal decision, no decision,

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or a delayed decision. Furthermore, neither manager will be aware of the degree to which their decision making styles are affecting the outcomes. Thus, alliance functioning is likely to be impaired with managers developing negative impressions about their counterparts.

Cultures also have an impact in terms of the locus of decision making, i.e. the organizational level at which decisions are made. In Japan the system of decision

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