Practice standardization in cross-border activities of multinational corporations: a resource dependence perspective.
| Verfasser | Jun, Xia |
| Posten | RESEARCH ARTICLE - Report |
Abstract This study examines the relationship between power dependence and practice standardization in the context of cross-border alliances. Existing studies have typically assumed that standardization or adaptation is a unilateral decision made by multinational corporations (MNCs) but ignored the influence of the relative power of multinational and local partners under conditions of government influence. Drawing on resource dependence theory (RDT), we argue that the power imbalance between multinational and local firms may shape the standardization of practices in their established alliances. The results, based on a sample of 243 Fortune 500 US companies, indicate that when the level of government influence is high, the positive effect of MNCs' resource importance on practice standardization diminishes and the negative effect of local firms' alternative resources becomes stronger. These findings suggest that RDT has important implications for understanding standardization versus adaptation in cross-border alliances.
Keywords Standardization * Adaptation * Power dependence * Government influence * Cross-border alliance
1 Introduction
One of the important challenges faced by firms operating in foreign countries is whether and how much to adapt to the needs of local markets. Accordingly, there is a strong tradition within the international business research community to understand both the drivers and performance consequences of standardization I versus adaptation (Gupta and Govindarajan 2001). Building on the core mechanism that firms need to balance cost efficiency with local responsiveness in making strategic decisions (Bartlett and Ghoshal 1989), existing studies have identified numerous contingencies that influence the relationship between multinational corporations' (MNCs) adaptation and standardization strategies in a variety of functional domains (Schmid and Kotulla 2011). Research has shown how institutional, stakeholder, and customer pressures (Christmann 2004) influence MNCs to adopt standardized practices in global operations related to organizational practices (Jensen and Szulanski 2004; Kostova and Roth 2002), marketing activities (Jain 1989), and human resource management (Bjorkman and Lu 2001), among others.
While the existing research has provided important insights on balancing standardization and adaptation along various activities, much of the research is based on the assumption that the degree of standardization (or adaptation) is at the sole discretion of the MNCs (e.g., Dow 2006; Jensen and Szulanski 2004; Katsikeas et al. 2006). Increasingly, foreign activities of MNCs are performed through crossborder alliance partners (e.g., distributors, contract manufacturers, co-development members), which necessitates close cooperation and collaboration between MNCs and local firms. Alliances, however, are typically characterized by a power imbalance between partners in terms of their transactional exchanges (Bae and Gargiulo 2004; Das and Teng 2002; Inkpen and Beamish 1997; Yan and Gray 1994). The unequal distribution of power between multinational and local firms is likely to affect the extent to which alliances adopt the MNC's practices. Thus, the assumption that the degree of standardization of programs and practices is a unilateral decision made by MNCs may not be realistic in the case of cross-border alliances because it ignores local partners' power and the role of host governments that may also shape the practice in the established alliances.
In our view, a resource dependence approach that highlights the power imbalance between multinational and local firms can further understanding of standardization-adaptation decisions in the context of cross-border alliances. Moreover, their power imbalance can be shifted by host government influence. For these reasons, we draw on resource dependence theory (RDT) (Pfeffer and Salancik 1978) to analyze power imbalance between alliance partners. The central idea of the theory is that organizational strategy, structure, or practice is shaped by powerful actors who control critical resources needed by others such as exchange partners (Nienhuser 2008; Pfeffer and Salancik 1978). From this perspective, alliance activities are defined by partners' mutual dependence and power imbalance (Casciaro and Piskorski 2005; Pfeffer and Nowak 1976). We argue that the power dependence relationship between multinational and local firms may affect the MNC's practice standardization in their cross-border alliances conditional upon host government influence.
Our study makes two main contributions to the international strategy literature on standardization versus adaptation. First, we develop a power dependence logic to address the conditions under which MNCs standardize or adapt their practices in cross-border inter-organizational relationships. Drawing on the RDT logic, we examine three power dependence structures--discretion, resource importance, and alternative resource (Pfeffer and Salancik 1978)--to develop a systematic understanding of their influences on practice standardization. We conceptualize that MNCs' discretionary power and resource importance to local firms increase the likelihood that MNCs will utilize practice standardization, whereas local firms' alternative resources available from other MNCs reduce the likelihood.
Second, the organization-government relationship has been a central focus of RDT (Bimbaum 1985; Hillman et al. 2009; Pfeffer and Salancik 1978), but host government influence has been rarely studied in the cross-border alliance literature. Practice standardization is embedded in a larger political, social, economic, institutional, and cultural environment of the host country, which has been extensively studied in the international strategy literature (Birnik and Bowman 2007; Cavusgil et al. 1993; Theodosiou and Leonidou 2003). To further integrate RDT and international strategy in our effort to sort out the standardization versus adaptation puzzle, we introduce host government influence (e.g., state ownership, interference, constraint, and control) as a moderator to the RDT logic of standardization because the influence of government in local business operations may substantially shift the power imbalance between multinational and local partners (Steensma and Lyles 2000). We argue that strong host government influence may reduce the power advantage of MNCs to standardize, whereas enhance the power effect of local firms to defy MNCs' practice standardization in their established alliances. A set of hypotheses are tested using a sample of US Fortune 500 companies regarding their alliances with local partners in a large number of foreign countries.
2 Theory and Hypotheses
The standardization of practices, strategies, processes, products, or services has long concerned scholars in international business, marketing, strategy, and management areas (Schmid and Kotulla 2011). Nevertheless, the standardization versus adaptation issue has not been adequately addressed in the context of interorganizational relationships such as cross-border alliances (see Birnik and Bowman 2007; Schmid and Kotulla 2011; Theodosiou and Leonidou 2003, for reviews of the literature). Much traditional multinational's tension on this issue can be traced to the conflict inherent in the simultaneous pursuit of global efficiency (through standardization of products, practices, and programs) and local contextualization (through adaptation to individual market needs) (Thompson 1967), a difficulty that is echoed in earlier work on organizational adaptation (March 1991; Pfeffer and Salancik 1978).
Despite the salience of partner power to alliance practice, a more comprehensive explanation that incorporates the power dependence logic into the debate between standardization and adaptation in alliance practice has yet to be fully realized. RDT is one of the dominant theoretical perspectives that explain inter-organizational relationships such as strategic alliances (Barringer and Harrison 2000; Child and Faulkner 1998; Hillman et al. 2009). In our view, the theory may also shed light on whether firms are able to standardize practices in their established alliances.
2.1 A Power Dependence Logic of Practice Standardization
A fundamental argument of RDT is that alliances are mutually dependent and involve a power imbalance (Casciaro and Piskorski 2005; Pfeffer and Nowak 1976). Without mutual dependence, or if actor A depends on actor B for resources but B does not depend on A at all, or vice versa, no alliance will be formed as only one potential partner would benefit (Das and Teng 2002, p. 732). The need for each other's resources, however, may not be equivalent for each partner in an interorganizational relationship. Mutual dependence can be asymmetric in the exchange relationship between two partners. Building on Emerson's (1962) study on power-dependence relationships in a dyad, critics argue that the original RDT formulation failed to capture the potential power imbalance (i.e., the power differential between two firms) between two mutually dependent actors (Casciaro and Piskorski 2005). Empirical evidence further indicates that power imbalance between exchange partners have important organizational outcomes (Casciaro and Piskorski 2005; Gulati and Sytch 2007; Xia 2011; Xia and Li 2013).
Building on this insight, we develop a logic that deepens the current understanding of practice standardization given that a power imbalance commonly exists between multinational and local partners (Hamel 1991; Inkpen and Beamish 1997; Yan and Gray 1994). From a RDT perspective, firms that control critical resources needed by others will have power and this power will influence the practice of those dependent others (Nienhuser 2008; Pfeffer and Salancik 1978). Resource-rich firms are likely to attract other firms to form inter-organizational relationships, but they also tend to...
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