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Excerpt from: New Fronteirs of Leadership George B. Graen, University of Louisiana at Lafayette |
ORDER ONLINE This title available for sale online. Click here for more information RELATED TITLES Dealing with Diversity. Edited by George B. Graen, University of Louisiana at Lafayette Global Organizing Designs. Edited by George B. Graen, University of Louisiana at Lafayette Sharing Network Leadership. Edited by George B. Graen, University of Louisiana at Lafayette and Joni A. Graen, Graen & Associates |
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Pages 225-246. Copyright 2004 by Information Age Publishing All rights of reproduction in any form reserved. A NEW APPROACH TO INTERCULTURAL COOPERATION George B. Graen University of Louisiana Chun Hui The Chinese University of Hong Kong Qing Liang Gu Dong Hua University of Shanghai ABSTRACT Organizations that solve the riddle of developing a process to encourage the emergence of flexible organizational structures to successfully integrate two or more strong cultures are needed to cope with the international challenges of the knowledge economy. Asia has been the testing ground for many attempts to find such a process. In this chapter, we review a new approach to this complex mission that we call the "Third Culture Way." Organizational learning is a system-level concept that is useful after its components are employed at the operational level (March, 1991; Pisano, 1989). Unless knowledge is shared, it will have little impact on organizational performance. Organizational learning should be viewed as a process whereby knowledge held by individuals is incorporated into the organization's knowledge base (Yan & Luo, 2001). As individual knowledge is accepted by others and employed in organizational processes, it moves beyond the individual to the organizational perspective. This is how organizations are said to learn and acquire organizational memory. Yan and Luo (2001) suggest the following actions for improving intercultural learning:
Table 9.1. Signals of Potential Problems with Japanese-Asian Ventures
The lawsuit contends that as many as 700 women were subjected to groping and sexual remarks, creating a "hostile and abusive work environment" that went unchecked for years at the Mitsubishi Motor Manufacturing of America Inc. plant. The subsidiary of Tokyo-based Mitsubishi Motors Corp. formerly was known as Diamond-Star Motors. (April 10, 1996) Japanese executives who have managed similar operations in both Japan and the United States complain that they cannot lead the company in the United States in the same way they lead the Japanese plant. They go on to explain that their direct reports respond very differently to their leadership attempts (Taga, 1997). In the Japanese plant, direct reports understand the Japanese management systems and are prepared to take an executive's vision for ideal operations and work to make it a reality. In contrast, American direct reports seek detailed instructions and unambiguous and often they lament, what gets lost is a sense of the process, and the opportunity to find things of value on the road to Oz. Table 9.2. Global Strategy Matrix
What also gets lost in all this for Japanese executives was a sense of real teamwork at the top level with the Japanese playing a leadership role. Sadly, the Japanese executive can call the plays for his team, but the American teammate not only doesn't understand the game the Japanese are playing but often are playing a different American game. (Take for example the Japanese CEO of Bridgestone/Firestone apologizing in public and being criticized because Americans understood the apology as a sign of accepting full responsibility.) Both need to be playing the same game. Both should be playing by common rules, but often they are not. The result is feeble teamwork at best and frustration over a lack of competent leadership. Does this explain why Japanese operations, even after this length of time in the United States, seldom cover both their variable and fixed costs? Although most cover their variable costs, this is not tolerated in Japan where fixed costs also must be covered. Clearly, Japanese executives at headquarters need to untie the hands of Japanese CEOs in the United States by making sound investments in new ways. The relationships between these two key local managers and the expatriate managers, however, failed to mature into cross-cultural partnerships. Sure, the Australian managers were "friendly and open" with their Japanese colleagues, but something kept the two cultures apart. The Japanese plant manager complained that he would have long talks with his Australian reports and they would find agreement on all major projects. However, the next day the Australian managers would do things that indicated that they did not really understand. These Japanese and Australian managers never became partners. The Australian managers never developed the same level of interest in the success of the transplant. The Japanese and the Australian partners never developed a "LMX Third Culture Way" together. The consequence of this failure to achieve intercultural partnerships between Japanese and Australians was a major embarrassment for one of the top manufacturing companies in the world. This plant failed to perform at the average of the Australian industrial park and was plagued by wildcat strikes, grievances, and low quality. This last point was a severe blow to a company that had earned the Emperor's prize for quality in Japan. This would not be allowed to happen again, as it was a major embarrassment in Japan (Sullivan, 1992), where such things can become life or death matters. This organization, requesting our help, carefully selected their managers for compatibility, geocentricity, and empathy, trained them in the "LMX Third Culture Way" including relevant knowledge and skills, and facilitated LMX third culture partnerships between Japanese and American managers before they implemented their plan for Michigan. They did not repeat their earlier mistakes in Michigan, because they developed the "LMX Third Culture Way" in depth-not only with first-line managers, but also with second- and third-line managers. Japanese and American managers developed intercultural partnerships that allowed them to share "insider" hopes, fears, and solutions (Graen & Wakabayashi, 1994). They achieved real understanding and developed appropriate decision-making procedures. As miserable as the Australian plant's performance was, the Michigan plant's performance was outstanding. In fact, the Michigan plant outperformed the ambitious projections of the parent company. Although they built a physical plant large enough to house the operations for the first 2 years, it was outgrown within 6 months. As hoped, it was a plant worthy of a top 10 manufacturing parent and a source of pride for all involved. The above was an illustration of the importance of LMX intercultural partnership at key interfaces-where trust, respect, and mutual commitment must be exchanged. Other examples could be given involving Japanese transplants in North America and Europe (Alston, 1986; Graen, 1996a; Wakabayashi & Graen, 1991). Suffice to note that third cultures are an important concept in cross-cultural management nowadays (Graen & Hui, 1999). A key issue in intercultural management in these Asian countries is the increasing partnerships between business with their European and American counterparts and the growing World Trade Organization (WTO) membership. Such increasing partnerships have created tremendous opportunities for global collaboration. Such partnerships and the World Trade Organization memberships, however, also created a unique set of problems and issues relating to the effective management of intercultural partnerships with different traditions, values, practices, and objectives. As there are many intercultural business partnerships that succeed, and many that fail, understanding successful intercultural partnerships can contribute to both academic theorizing and actual business practices (Bartlett & Ghoshal, 1989; Beamish, 1988; Bleeke & Ernst, 1993; Child, Markoczy, & Cheung; 1995; Cullen, Johnson, & Sakano, 1995; Daniels, Krug, & Nigh, 1985; Davidson, 1987; Glaister & Wang, 1993). More interestingly, management of intercultural partnerships is relevant not only to these Asian countries, but also to their American, Arabic, African, European, and Australian partners. Thus, we present an approach to building partnerships between different nationalities and cultures based on making LMX workplace leadership globally portable. Specifically, we use the establishment of LMX third cultures as the foundation upon which successful intercultural partnerships are constructed and maintained. To successfully build third cultures, one must first understand cultural differences. Some recent efforts have been devoted to understanding cultural differences in terms of how collective actions are regulated (Hui & Lin, 1996). Hui and Lin (1996) defined collective actions as a behavior by members of a collective for the sake of the common good. A key characteristic of collective action is that it will be better for the collective if some members do them than if no one does them, but better for the individual members not major systems of regulating collective action: relationship based and procedure based. A relationship-based regulatory system relies on the relational networks of the system, whereas a procedure-based regulatory system relies on the formalization and institutionalization of procedures. Some cultures rely more on relational means to regulate collective actions, while others rely on procedural means. For example, the Chinese culture regulates a good portion of its collective actions using relational mechanisms such as "face" and "familial sanctions" (Ho, 1976), while the American culture relies more on formal, enforceable agreements such as contracts and other legal agreements. Both the study of cultural values and regulatory systems for collective actions are attempts to understand the systematic differences across cultures. Table 9.3. Management Skills Needed
Graen, Wakabayashi, and Hui (2003) summarized their findings using the Management Efficacy Profile (MEP), as shown in Figure 9.1. As can be seen, the Chinese both inside and outside of China (N = 1,065) show one pattern, the Asean-India (N = 433) show a pattern similar to the Chinese, the Japanese (382) show a pattern different from the above two, and the Western manager's (N = 90) pattern is quite different from the other three. The Western manager's pattern was the result of the perceptions of 90 graduate-level Chinese managers working for Sino-Western ventures in the Shanghai area. 
Figure 9.1. Management Efficacy Profiles (MEP) in Asia.
As shown in Figure 9.1, three distinct patterns of management activities vary by level in the hierarchy and by functional area. The Japanese profile was very low #3, average #4, average #1, and high #2. The two similar patterns were average #3, very high #4, low #1, and average to very low #2. Finally, the Western manager's profile was average #3, very low #4, high #1, and low #2. Western managers thus are seen as emphasizing customer responsiveness and structuring of teams in Sino-Western joint ventures. These different managerial profiles suggest areas of potential conflict. For example, the Chinese profile suggests that a good deal of managers' activity should focus on fair treatment, proper use of people, and workgroup inclusion. However, the Western managers' profile suggests that this emphasis on people management expected by Chinese direct reports may not be forthcoming. Rather, Chinese direct reports should expect a strong emphasis on quality, profit, and customer needs. The "LMX Third Culture Way" is constructed by carefully focusing on the volatile areas of cross-cultural ambiguity and conflict with a top-level cross-functional and cross-cultural team. These teams are to creatively investigate and map the cross-cultural "black holes" and make the recommendations for organizational changes that will serve to create the "LMX Third Culture Way." With such a plant design, managers from both cultures can monitor and take appropriate and timely actions to correct any incidents of inappropriate, company-relevant behavior without undo fear of crossing the "culture" line. This organizational design team should include all cultures, the various functions (e.g., production, HRM, marketing, sales and distribution, engineering, the union, etc.), the various levels (e.g., shop floor, supervision, managers, and executives), and include some "transculturals" from all cultures at least at the "insider" level and a consultant at the "judge" level (Graen, Hui, Wakabayashi, & Wang, 1997). A transcultural is a person who can transcend one's own culture into understanding and see the merits of another culture. This team should enjoy strong top management support and involvement throughout the project. Their mission is to discover the cultural conflicts between two or more cultures and develop new procedures that can deal effectively with both cultures. In short, the mission is to design a third culture in the plant. Two Cultures We illustrate the "LMX Third Culture Way" (Graen et al., 1997) by contrasting it with the two cultures-the traditional form of cross-cultural business relationship. The "LMX Third Culture Way" and the "Two Cultures" are two different approaches to business ventures across cultures. Two cultures occur when the two cross-cultural business partners remain "strangers" to each other in the business relationship. Stranger in this context does not necessarily mean that these business partners do not know each other. They may or may not know each other personally. Instead, what it really means is that these business partners do not have an LMX-quality relationship with each other. In two cultures, members of each culture may deny or accept cultural differences between the two partners. In denying cultural differences, members of a culture would refuse to recognize possible cultural problems. Consequently, it is typical for management of the controlling culture to impose their values on their organization and hence on members of the other culture. It is also possible that members of both cultures would struggle to impose their own cultural values on each other. This kind of cross-cultural management is typified by corporations that impose their entire system on their cross-cultural partners with little regard to either nominal or systematic cultural differences (Anderson, 1990; Baba, Granrose, & Bird, 1995; Child, 1994; Geringer, 1991; Hamel, 1991; Harrigan, 1986; Tung, 1993). In accepting cultural differences, members of each culture would recognize that there are differences and accept the differences. However, each party may maintain their distinct cultural identity and practices without regard to accommodating the other culture (Hamel, Doz, & Prahalad, 1989; Leong & Chin, 1993; Lyles & Reger, 1993). In this case, even though nominal differences may be honored, there is little attempt to understand the systematic differences. For example, a Japanese corporation may recognize that families are important to their Chinese workers. Thus, this corporation would organize family picnics and family company visits for their Chinese workers. However, this corporation may still use its Japanese values to judge these Chinese practices. The "LMX Third Culture Way," on the other hand, involves the bridging and transcending of the two cultures (Graen & Wakabayashi, 1994). In bridging cultural differences, the "LMX Third Culture Way" begins with genuine mutual trust, respect, and commitment for the cultural parties involved. Each party, or at least one of the parties, should examine differences in terms of relationship and procedure between them. After examining the kind of differences to be reconciled, cultural leaders may then utilize tools such as the creation of transcending organizational values and norms to guide the behaviors of all members in the organization. Rationale of the decisions and new ways of doing things should be clearly communicated to all members to ensure acceptance. In essence, the third-culture way involves procedures to bring creative solutions to the different cultural practices. In this case, not only those nominal differences must be recognized, but also systematic differences must be noted. When bridging cultural differences, cross-cultural partners find ways to come up with organizational practices and management techniques and programs that are acceptable to members of both cultures. For example, when managing in collective cultures, members of an individualistic culture may try to build in some collectivistic components in work structure and leader-member relationship. In transcending the cultures, the "LMX Third Culture Way" can be created in a manner that reflects fundamental objectives of both of the cultures, but avoids the conflicts. To create it, systematic differences must be understood, reconciled, and transcended. Comparison of the Two The major characteristics of the two and the third culture are portrayed as follows. In two-culture business relationships, business dealings are characterized by mutual disinterest and a "cover-your-ass" (CYA) kind of attitude. There is only a short-term focus, thus leading to competition and confrontation even within the business partnership. Business partners have to rely on legal contracts, and yet suffer from a relatively high probability of contract breach. Business partners, in this case, are involved in a win-lose situation, in which each partner thinks that in order to gain in the business deal, the other partner must lose, or at least not gain as much. Modern cross-cultural business dealings are replete with this kind of partnership. The "LMX Third Culture Way," on the other hand, is characterized by becoming cultural "insiders," in contrast to "outsiders." A cultural insider appreciates other people's cultural values and refrains from judging another culture in terms of one's own values. Instead of mutual distrust and a "cover-your-ass" attitude, it involves mutual respect and trust. Because now these are genuine business partners, they can share a long-term focus in their business dealings, thus leading to cooperation and accommodation. These business partners can rely on handshakes and mutual commitment when doing business. They can actually be involved in a win-win situation, in which both partners can grow and make a profit by collaborating with each other. It is our contention that the "LMX Third Culture Way" is essential to the ultimate success of cross-cultural business partnerships, as it allows more flexibility in business dealings by relying on trust instead of tedious litigation, reduces inefficiencies by lessening external control mechanisms, and maximizes the strengths of each partner. LMX Third Culture Way Issues What are some of the "LMX Third Culture Way" issues in Sino-American joint ventures in PRC? As shown in Table 9.4, the American way is different from the PRC (China) way on each of the eight issues selected for illustrative purposes (Graen, Gu, Hui, & Pan, 2002). The first, for example, is performance appraisal. On this the American managers do their homework in detail and are prepared to argue their case with documentation. In contrast, the Chinese managers present themselves to be judged by their superior. However, they complain to us that this puts them at a distinct disadvantage relative to their American peers. Clearly, the "LMX Third Culture Way" committee would need to find a way to do this that is functionally equivalent, but fair to both cultures. It can be done with the right committee composition and the right direction. Table 9.4. Third Culture Management Issues
Find a New Way These eight functions can be sources of weaknesses and problems or strengths and opportunities, depending on how they are approached and led. Several of my executive friends in China report gratifying turnarounds employing our "LMX Third Culture Way" programs (Graen, 1996b). One, a Sino-Dutch pharmaceutical company, based theirs on the "long march." They took their Dutch partners on campouts and sang revolutionary songs with company lyrics around the campfire (Zhang, 1996). Such cultural bonding is necessary. Another Sino-British joint venture turned around a failing company by pulling themselves out of the swamp by implementing our "LMX Third Culture Way" program. The first company did it on their own; the second company required an entire training program from us spread out over several years. Several other Sino-foreign companies are in the process of building their own "LMX Third Culture Way" (Graen & Hui, 1999). Changing Companies Our 10-year research program on the "LMX Third Culture Way" continues in China. We have restricted our studies in China to the coastal region because this is where the tremendous economic growth has been located. Our latest study looks at the younger generation of Chinese managers in Sino-foreign joint ventures in the Shanghai area and asks questions about their cross-cultural issues. Those issues shown in Table 9.4 came from this study's first wave (1998). As shown in Table 9.4, the American and Chinese ways differ significantly regarding several critical processes including performance appraisal, leadership and followership, participation in decision making, teamwork, documentation and proposals. presentations, organizational citizenship, and work motivation. Our Chinese managers understood the disadvantage relative to their American peers. For example, they felt uncomfortable doing their jobs the American way. When they feel uncomfortable enough, they may leave to find a more compatible Sino-foreign joint venture. These management issues are the grist for third-culture project teams to address. Identification of these issues is a huge step in third-culture development. First, the issues are discovered and documented. Second, alternative flexible structures are investigated. Third, successful flexible structures are implemented and tested. Fourth, the process is periodically updated. Our studies in the Shanghai area of 140 Chinese managers in 45 Sinoforeign joint ventures over the last 5 years demonstrated clearly that "twoculture" organizations can force Chinese managers to change companies (Graen et al., 2002). This, to say the least, is an expensive proposition. These Chinese managers are in tremendous demand and hence are extremely mobile. They typically increase their compensation by 50% with each company change. Consequently, they must be treated properly or they will change companies. Our study showed that company changing was significantly (p<.001) correlated with education, age, and what we call the "foreign manager" scale (shown in Table 9.5). The multiple regression coefficient was .598. Hence, "benign neglect" by foreign bosses can inhibit interpartner learning and expert retention. Clearly, if you don't really listen to your partner, you will learn little, but you will push your good people out of your joint venture. The graph of this interaction on change of company is shown in Figure 9.2. It varies by group from 12% to 48% company changers. Clearly, those who can move easily do move. Table 9.5. Foreign Manager Scale Note: Correlation with turnover is R = .598. Foreigner Manager scale Cronbach alpha is 65%. R, reverse scoring.
Figure 9.2. Interaction of foreign manager LMX, formal education (BA+ or BA-), and generation (younger or older) on change of company (p < .001).
As can be seen in Figure 9.2, the highest turnover rate of 48% was achieved by younger, bachelor degree and above Chinese managers who endorsed the Foreign Manager as an apt description of their boss. Other categories showed turnover rates from 12% to 24%. This turnover can be expensive in terms of lost time, replacement, and training. Moreover, those who can move most readily tend to be those that every company wants-their best. The correction of this dysfunctional system will require that home office procedures be changed to inform potential expatriates that they must do two jobs in Sino-foreign joint ventures in China. Their first job is their specialty (e.g., engineer, accountant, and manager) and their second job is third-culture creation, knowledge acquisition, and incorporation into their multiple-nation corporation network. Those who choose to do the first job will only be in danger of early repatriation and foreign assignment failure. It is time that we took the heart and soul of international joint venture seriously and required our expatriates to do both jobs adequately. This is a headquarters and a plant mission. If problems are found, headquarters should examine its policies and procedures regarding expatriate assignments in terms of both their first job and their second job with appropriate incentives both positive and negative. Moreover, they should seriously consider the alternative most frequently mentioned by Asian employees of Sino-foreign ventures, which is "complete localization" of international ventures with domestic managers. The alternative of a complete process of the "LMX Third Culture Way" program may appear much more attractive compared to complete localization. A word to the wise should be sufficient that a great tidal wave of nationalism is approaching from Asia. We should start building our LMX third-culture bridges. 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