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Headquarters Resource Allocation for Inter-Subsidiary Innovation Transfer: The Effect of Within-Country and Cross-Country Cultural Differences

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Abstract

Although the importance of cross-country cultural distance is widely acknowledged in the international business literature, we have limited understanding about how culture distance at different levels influences multinational corporations’ (MNCs’) subsidiary management. This paper contributes to culture-related research by stressing cultural differences at the sub-national level by examining how cultural distances at both the within- and cross-country levels simultaneously influence headquarters resource allocations for innovation transfer projects between subsidiaries. We find that the within-country cultural distance between subsidiaries is positively related to headquarters resource allocation for innovation transfer projects based on 1439 dyadic innovation transfer projects between Korean MNC subsidiaries located in China, and this relationship is strengthened when the cross-country cultural distance between headquarters and the sending subsidiary increases.

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Notes

  1. We thank an anonymous reviewer for his/her comment on the two possibilities.

  2. We chose to interview managers in both headquarters and subsidiaries since South Korean headquarters usually retain tight control over their subsidiaries, particularly in the area of innovation transfer. Managers at both headquarters and subsidiaries were therefore expected to be knowledgeable enough to answer the questions.

  3. In our sampling design we included only domestic Chinese firms. We deliberately excluded foreign MNCs, “as their members would be from multiple cultures and therefore responses would not be indicative of the societal culture in which these organizations functioned” (House et al. 2004, p. 96). We additionally limited our sample to the manufacturing sector because it is commonly present in all 24 regions surveyed.

  4. We used a stratified sampling strategy with four different strata, included only domestic South Korean firms and deliberately excluded foreign MNCs due to foreign MNCs’ diverse cultural backgrounds of their members. We also limited our sample to the manufacturing sector as the same as measuring regional cultures in China.

  5. As a robustness check, we conducted ANOVA (analysis of variance) for the responses from managers at the headquarters, sending subsidiaries, and receiving subsidiaries and did not find significant differences in the four variables measured using the survey data across these three groups of respondents.

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Authors and Affiliations

  1. Graduate School of China, Sungkyunkwan University, Seoul, Republic of Korea

    Yuzhe Miao

  2. School of Business, Southern Illinois University Edwardsville, Edwardsville, IL, USA

    Yuping Zeng

  3. College of Business Management, Hongik University, Sejong, Republic of Korea

    Jeoung Yul Lee

  4. Leeds University Business School, The University of Leeds, Leeds, UK

    Jeoung Yul Lee

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  1. Yuzhe Miao
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  2. Yuping Zeng
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Correspondence to Jeoung Yul Lee.

Appendix: Formulas for calculating Hofstede’s (1994) five cultural dimensions

Appendix: Formulas for calculating Hofstede’s (1994) five cultural dimensions

  1. 1.

    How to calculate power distance index (PDI):

    $$ \begin{aligned} {\text{PDI }} = & - 35 \, \times \, \left( {\text{mean of manager performance}} \right) + 35 \\ & \quad \times \, \left( {\text{mean of importance of consultation}} \right) + 25 \\ & \quad \times \, \left( {\text{mean of subordinates are fearful}} \right) - 20 \\ & \quad \times \, \left( {\text{mean of employees having two bosses}} \right) - 20 \\ \end{aligned} $$
  2. 2.

    How to calculate individualism index (IDV):

    $$ \begin{aligned} {\text{IDV}} = & - 50 \, \times \, \left( {\text{mean of personal time}} \right) + 30 \\ & \quad \times \left( {\text{mean of physical workplace conditions}} \right) + 20 \\ & \quad \times \left( {\text{mean of employees security}} \right){-} 2 5\\ & \quad \times \left( {\text{mean of variety}} \right) + 1 30 \\ \end{aligned} $$
  3. 3.

    How to calculate masculinity index (MAS):

    $$ \begin{aligned} {\text{MAS}} &= 60 \, \times \, \left( {\text{mean of cooperation}} \right){-}20 \\ & \quad \times \, \left( {\text{mean of advancement}} \right) + 20 \\ & \quad \times \, \left( {\text{mean of trust}} \right){-}70 \\ & \quad \times \, \left( {\text{mean of fail}} \right) + 100 \\ \end{aligned} $$
  4. 4.

    How to calculate uncertainty avoidance index (UAI):

    $$ \begin{aligned} {\text{UAI}} = & + 25 \, \times \, \left( {\text{mean of stress}} \right) + 20 \\ & \quad \times \, \left( {\text{mean of good manager}} \right){-}50 \\ & \quad \times \, \left( {\text{mean of competition}} \right){-}15 \\ & \quad \times \, \left( {\text{mean of rule orientation}} \right) + 120 \\ \end{aligned} $$
  5. 5.

    How to calculate long-term orientation index (LTO):

    $$ \begin{aligned} {\text{LTO }} = & + 45 \, \times \, \left( {\text{mean of personal steadiness}} \right){-}30 \\ & \quad \times \, \left( {\text{mean of thrift}} \right){-}35 \\ & \quad \times \, \left( {\text{mean of persistence}} \right) + 15 \\ & \quad \times \, \left( {\text{mean of tradition}} \right) + 67 \\ \end{aligned} $$

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Miao, Y., Zeng, Y. & Lee, J.Y. Headquarters Resource Allocation for Inter-Subsidiary Innovation Transfer: The Effect of Within-Country and Cross-Country Cultural Differences. Manag Int Rev 56, 665–698 (2016). https://doi.org/10.1007/s11575-015-0266-3

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