The Impact of National and Cultural Context on Collaboration across Borders in Multinational Enterprises. A Case Study of Glamox’ Headquar- ters in Norway and Glamox HE AS in Estonia. Kaarina Ritson University of Oslo/University of Oslo Globalisation, Innovation and Policy 2000/2002 21254 Words 1 Abstract This paper draws on the assumption that there may be major differences between norms and values of managers in different countries as a result of their national and cultural backgrounds. One would therefore expect tensions to appear in a co-operation situation between an ex-Soviet country such as Estonia and a capitalist country such as Norway. Drawing on an empirical study of the Norwegian light-fitting producer Glamox and its Estonian subsidiary, this master thesis serves two functions. Using Hofstede’s cultural dimensions as a theoretical framework, the thesis will illuminate the rela- tionship between cultural and national factors and management practices and working methods in firms. The thesis also includes a discussion of how findings on micro and macro levels affect the collaboration between the headquarters and the subsidiary in the Glamox’ case. In addition to the pressures from the local environment, subsidiaries face pressures in terms of consistency within the organisation. Managing cross-cultural differences in such a case is crucial, as it may influence the success or failure of a collaboration project. Keywords: Estonia, Norway, Hofstede’s cultural dimensions, cross-cultural business cooperation, cross-national management 2 Table of contents ABSTRACT........................................................................................................................1 TABLE OF CONTENTS.....................................................................................................3 CHAPTER 1 – INTRODUCTION........................................................................................5 1.1 The Focus of the Research.....................................................................................................5 1.2 Estonia and Norway: A Brief Overview...............................................................................6 1.3 Theoretical Framework and Research Questions................................................................9 1.4 Methodology and Outline of the Thesis..............................................................................11 CHAPTER 2 - THE CONTEXT OF A FIRM......................................................................14 2.1 The Societal Level.....................................................................................................................15 2.1.1 The Concept of Culture........................................................................................................15 2.1.2 Hofstede's Cultural Dimensions...........................................................................................18 2.2 The National Level....................................................................................................................21 2.3 The Organisational Level.........................................................................................................22 2.4 The Operating Level.................................................................................................................23 CHAPTER 3 - MNE: AN ACTOR OPERATING CROSS-NATIONALLY.........................25 3.1 Standardisation versus Local Tailoring of Organisation in MNEs......................................26 3.2 Pressures a Subsidiary Faces from its Headquarters............................................................28 3.3 Variables that Affect Subsidiary Structure and Processes...................................................29 CHAPTER 4 - ESTONIA AND NORWAY AS BUSINESS LOCATIONS.........................30 4.1 National Level Influences in Norway and Estonia.................................................................30 4.2 Norwegian versus Estonian Culture........................................................................................34 4.2.1 The Individualism and Power Distance Index in Estonia and Norway................................36 CHAPTER 5 – THE GLAMOX CASE: THE FINDINGS AND THE MICRO LEVEL 3 DISCOURSE.....................................................................................................................39 5.1 Background of Glamox and Glamox HE................................................................................40 5.2 Reasons for Collaboration........................................................................................................42 5.3 Pressures on Glamox HE from the Headquarters.................................................................44 5.4 Recruitment Practices..............................................................................................................47 5.5 Competence and the Educational Level..................................................................................49 5.6 The Cultural Context of Glamox’ Collaboration...................................................................50 5.7 Management and Decision-Making Style...............................................................................54 5.8 Teamwork and Meetings..........................................................................................................59 5.9 Organisational Culture.............................................................................................................62 5.10 Transfer of Technology and Knowledge...............................................................................64 5.11 Problems and Points of Friction............................................................................................68 CHAPTER 6 – CONCLUSIONS.......................................................................................70 4 CHAPTER 1 – INTRODUCTION 1.1 The Focus of the Research In this study, I will discuss how the national and cultural background of managers shape their norms and values, and consequently, the management practices, and working methods in firms. MNEs play an increasingly important role in the global world, and subsidiaries of MNEs are inter- esting objects of study in the field of organisational theory as the home country, the international world of business and finance as well as the local cultural- and professional contexts influence, affect, and motivate their work. The structure of subsidiaries and management and decision-making styles in a MNE are thus restricted and influenced by the cultural and national backgrounds of managers and entrepreneurs, by global development, and by local contexts. Empirically, the thesis draws on a case study of the Norwegian light-fitting producer Glamox and its wholly owned subsidiary Glamox HE in Estonia. My main focus will be on the Estonian sub- sidiary, since analyses of Norwegian management style and working methods have already been discussed in a number of studies of Western-European business culture. Being cut off from the West during five decades of Soviet occupation, Estonia is a relatively "new" business nation, and not much is known about Estonian management styles, working methods, or cultural backgrounds. The empirical data have been collected through in-depth interviews with nine top and middle man- agers in Glamox and Glamox HE, and one retired Chief Executive Officer, in June - July 2001. 5 1.2 Estonia and Norway: A Brief Overview The thesis will describe Norwegian-Estonian business collaboration in 2001, ten years after Estonia regained independence. This was a time when Estonia was "returning to Europe" after more than 50 years of Soviet occupation, and was negotiating with both the European Union and NATO. It was also a time when Scandinavian businesses were expanding into Estonian markets. Scandina- vian companies, especially from Finland and Sweden, have played a leading role in making direct investments in the Baltic countries after the Baltic independence in 1991. According to the Esto- nian Ministry of Foreign Affairs, Norway was the fifth largest direct foreign investor in Estonia, in 2000. At the end of 2000, there were 20 fully owned Norwegian firms in Estonia, and 40 firms with Norwegian shareholders (Estonia’s Official State Web Centre). Due to its geographical location, Estonia has served as a link between Eastern and Western Europe for centuries. The Estonian capi- tal, Tallinn, was an important town in the Hanseatic League in the 13th and 14th century, and served as a northern Hansa port. Today, Estonia is rapidly regaining its position as an important transit country for trade between Russia and Western Europe. Being a small country (45 227 sq. km, population 1.4 million), strategically located on the coast of the Baltic Sea between Russia and Western Europe, Estonia has almost always been ruled by larger surrounding powers. Germans started to populate the Baltic area in the beginning of the 1200s. From 1219 to 1346, Estonia was part of Denmark, and after the Danish period Estonia came under the rule of the German Order. In 1645 the country was forced under the rule of the Swedes, and it was taken over by Russians in 1710. The first period of independence in Estonia occurred from 1918 to 1940. World War II brought this short period of independence to an end, and from 1940 to 1991 Estonia was occupied by the Soviet Union (Eesti Entsüklopeediakirjastus 2001). This meant 6 strong ideological control by the state, mass deportations of Estonians to Siberia, and mass immi- gration to Estonia from other parts of the Soviet Union. As a result, Estonia today has a Russian- speaking minority that constitutes around one-third of the country’s population.1 Compared to other former Soviet republics, the Baltic countries held a favourable economic position during the occu- pation period (Lauristin et al 1997:73). Partly because of the relatively good economy, and partly because of their greater openness to cultural influences from Western and Northern Europe (ibid: 76), the Baltic republics were considered the “Soviet West” in the Soviet Union (ibid: 35). Never- theless, many of Estonia’s ties with Western European countries were broken during the Soviet occupation. As a result of political changes in the Soviet Union and Central and Eastern Europe in the 1980s, Estonia regained its independence on August 20, 1991. Since 1918 Estonia has been independent for about 30 years. Trying to open the window of opportunity after a long period of isolation, the Estonian government chose the path of maximum liberalisation. Compared to other countries in the former Soviet Republics, Estonia has rapidly and successfully carried out and implemented eco- nomic reforms. In less than one year, a new Parliament was elected, a new democratic constitution adopted, and a monetary reform implemented (OECD 1996). Since 1992, Estonia has been ruled by business-friendly centre-right governments and has largely adhered to a free market philosophy. Estonia has a stable monetary system, the Estonian kroon is pegged to the euro, Estonian salaries are low, and the work force is skilled and well educated (Statistical Office of Estonia). Foreign 1The culture of the Russian-speaking minority will not be discussed in this thesis, as all the key persons in the Estonian subsidiary at the time of the fieldwork were Estonians. I do not regard the culture and collective identity of the Russian minority as a possible explanation to the research question. 7 businesses have been attracted by the country’s economic growth, the potential of new markets, low production costs, and a favourable investment climate. Foreign investments in Estonia have grown rapidly since 1991, reaching one of the highest levels in Eastern Europe. In 2000, Estonia held the second place for direct investments per capita in Central and Eastern Europe, after the Czech republic (UNCTAD). To mark its wish to be part of the West, Estonia has started member- ship negotiations with the European Union and NATO. In November 2001, the European Commis- sion reported that Estonia could be ready to join the EU by 2004. Comparing Estonia to Norway, we see a number of differences but also some similarities. Norway, with an area of 323, 760 sq. km, and a population of 4.5 million, is also a small country in the out- skirts of Europe. Similarly to Estonia, Norway has borders with Sweden, Finland and Russia, and has been under foreign rule for centuries. From 1536 to 1814, Norway was an integral part of the Danish realm. In 1814, it was forced into a union with Sweden. Norway gained independence in 1905. Since 1905, only the German occupation from 1940 to 1945 has interrupted Norway's sover- eignty (Eesti Entsüklopeediakirjastus 2001). Despite long-lasting foreign rule and immigration from foreign countries in recent years, Norway still maintains a high degree of cultural homogene- ity. As far back as in the Viking times, Norway has depended heavily on its economic relations with foreign countries. In modern times, Norway has emerged as an important maritime transporter and one of the world’s leaders in shipbuilding. After the discovery of oil deposits in the North Sea at the end of the 1960s, Norway has become one of the richest countries in the world. The country’s new-won wealth is often offered as an explanation as to why Norway, as one of the few Western- European countries, has chosen to stay out of the European Union (ibid.). Norway has a tradition of 8 high governmental spending, protection of national industries and commerce, and subsidies to the farming industry. An extensive welfare system takes care of the needs of the citizens 1.3 Theoretical Framework and Research Questions With the Glamox case as my empirical base, I will discuss how the national and cultural back- ground of managers shapes their norms and values, and consequently, the management practices, and working methods in firms. In order to fully understand organisational behaviour, it is necessary to consider the societal and cultural background of the members of an organisation. As a major determinant of organisational culture, national cultures influence people’s way of doing business. Culture is a concept with several definitions, interpretations, and connotations, and can be studied at different levels. In general terms it can be defined as the "human-made part of the environment", consisting of objective and subjective culture (Herskovits & Triandis, in Triandis 1994:16). Ac- cording to an alternative definition, culture is the “‘mental programming’ of people, i.e. patterns of feeling, thinking and acting, and their sources within the social environments in which they have grown up and collected their life's experiences" (Hofstede 1991:4). Geert Hofstede (1980) has stud- ied the values of people working for IBM in over 50 countries around the world. He defines four dimensions of national cultural differences that correspond to basic problem areas and can be used to analyse the work of organisations (see below). These cultural dimensions show that an individ- ual’s behaviour in an organisation is connected to and affected by the surrounding society. Culture can be studied on different levels, and in the present analysis I will deal with both macro and micro levels. To be able to explain possible micro-level differences between the headquarters and the subsidiary, I will explore the macro level of historical, societal, and cultural factors in Nor- 9 way and Estonia. The strong ideological control of individuals by the state during the Soviet occu- pation and the communist system has influenced Estonians’ 'mental programming', their ideas of society, and their work routines in many ways. Similarly, Estonia's extensive historic contacts with Germany, Scandinavia, and Russia play a significant role in modern Estonians’ sense of identity. Estonia’s Soviet past, the free market philosophy, and the aim of joining the EU are in stark con- trast with Norway, which is a country with long capitalist traditions, and simultaneously, extensive governmental control of the country’s economy. Issues related to the preservation of Norwegian identity and culture, have dominated the Norwegian EU debate, and Norwegians have twice voted against EU membership. Considering the cultural and historical differences between Norway and Estonia, one would expect to find micro-level differences between the two countries. The empirical findings of my fieldwork reveal tensions and discrepancies rooted in different values and beliefs among Norwegians and Estonians. On the organisational level, these discrepancies manifest them- selves in management practices and working methods. With the Glamox case as a point of departure, my research goal is as follows: •To explain, through an analysis of the developments on societal, national, organisational, and operational levels, the points of friction and /or ease of collaboration in a MNE. More precisely, I will try to identify and explain: •Differences in management practices and working methods in firms in Estonia and Norway, through an analysis of cultural and national factors; •Points of friction or ease in cross-national collaboration within the Glamox Group, through an analysis of macro-level contra micro-level factors. 10