Impact of national origin and entry mode on trust and organizational commitment

Multinational Business Review, Fall 2002 by Park, Hoon, Gowan, Mary, Hwang, Sun Dai

This study examines the level of interpersonal trust and organizational commitment of PCN (parent country national) and HCN (Host Country national) managers in two different international business modes (wholly-owned subsidiaries and international joint ventures) in Korea. We found that the level of interpersonal trust toward peers and the level of organizational commitment in terms of loyalty were greater for PCNs and for HCNs working in wholly-owned subsidiaries than for PCNs and HCNs working in international joint ventures. The result suggests that choice of entry mode rather than national origin may have the greater impact on organizational commitment and trust of managers.

Cross-border M & A activity has continued to increase at a rapid pace during the past decade and a half. In fact, after a brief slowdown during the early 1990s, the value of cross-border M & As has increased dramatically. According to Andersen Consulting, alliances will represent $25 to $40 trillion in value within five years. They conclude the question is no longer whether to form an alliance, but who will be the appropriate partner. Recently, many troubled Asian MNCs have had to make this decision as they have tried to ease their liquidity problems by selling a portion of their equity to foreign firms.

However, at an operational level, one of the crucial questions to be answered immediately after MNCs make a cross-border alliance decision is who will run the newlycreated foreign unit. Specifically, choices have to be made about whether or not to retain host country national (HCN) managers from the acquired or joint venture local firm or to dispatch parent country national (PCN) managers. One concern in the decision to retain HCN managers versus sending more expensive PCN managers is the degree of commitment and interpersonal trust that can be counted on from these managers. Trust and commitment are two vital elements needed for the cohesiveness and stability of any business unit (e.g., Doney et al., 1998); therefore, the concern is whether PCN managers will be more committed and trustworthy than HCN managers or vice versa.

The level of interpersonal trust and commitment of managers working for a newlymerged or acquired company can be significantly influenced by their national origin (Doney et al., 1998). In fact, many researchers point out that a large proportion of international joint ventures fail because of "cultural factors," not financial or technical problems. These failures may result, at least in part, from problems in M & As with managers having strong subgroup identification as opposed to identifying with the new entity.

Further, different business entry modes (i.e., wholly-owned foreign subsidiary, international joint venture) also have the potential to significantly influence the degree of commitment and interpersonal trust of managers due to the degree of identification, or lack thereof, of the managers with the organizational parents (Turner, 1987). Therefore, an additional concern in staffing M & As is what kind of entry mode arrangement will ensure a maximum level of managerial commitment and trust. For instance, we don't know if PCN or HCN managers will be more committed and trustworthy in wholly-owned subsidiaries than they will be in joint ventures.

A fair amount of international human resources research has been dedicated to factors that impact the success (or failure) of expatriates (e.g., Tung, 1998). This research has focused on the knowledge, skills, abilities and other characteristics needed to ensure the success of the expatriate in the assignment. Only minimal attention has been given to type of entry mode relative to staffing issues. Further, little research has addressed the level of organizational commitment and interpersonal trust of PCN versus HCN managers, especially relative to the different types of entry mode. Given the significance of trust and organizational commitment in the success of a M & A, this paucity of research of the trust and organizational commitment levels of HCN versus PCN managers in different entry modes is surprising.

The main thrust of this study, therefore, is to examine the relationships among the nationality of managers and cross-border entry mode with the level of organizational commitment and interpersonal trust of HCN and PCN managers.

THEORETICAL BACKGROUND AND HYPOTHESES

Much research has been conducted domestically relative to interpersonal trust and organizational commitment. Recent research has also begun to examine cultural differences relative to these constructs (e.g., Chen and Francesco, 2000; Doney et al., 1998; Sommer et al., 1996).

Cultural Differences

Hofstede (1984) have determined that Korea's culture is one of the most dissimilar cultures from that of the U.S. According to Hofstede, Korea can be characterized as follows: large power distance, authoritarian, collectivistic, and strong uncertainty avoidance. The U.S. is, basically, at opposite ends of the continuums associated with each of these characteristics. The U.S. has low power distance, is more participatory, is individualistic, and has low uncertainty avoidance. These types of differences have the potential to create conflict and, consequently, impact the level of trust and organizational commitment of managers confronted with situations involving managers from another culture. In the context of U.S. companies doing business in Korea, conflict may occur over such issues as how decisions are made, perceptions of what makes for appropriate relationships, and how authority is to be handled (Chung and Lee, 1989). These conflicts can, consequently, result in lowered trust and less organizational commitment.