The International Headquarters-Subsidiary
Relationship: Projecting Economic Cultural
Influences on Management within
Selected eu Countries
Rune Gulev
Through the recent European Union (eu) enlargement it is now
supposed that there exists significant divergence within European
economic cultures that can negatively impact international manage-
rial functions. This article systematically investigates two dimensions
through which economic culture can be measured and compared be-
tween four eu countries: Slovenia, a new Central European entrant
into the eu, and Germany, Austria and Denmark, three westernized
eu members, and projects their respective impacts onto several inter-
national management functions. The findings suggest that there exists a
strong link between highly interpersonal and institutional trust driven
economic cultures (iitdec) to induce increased horizontal knowledge
sharing. Further evidence was found, although statistically weaker, that
iitdec is negatively correlated to expatriate utilization. Results were
also obtained regarding authority driven economic cultures (adec).
A negative correlation between adec and decentralization was estab-
lished as well as a negative correlation between adec and vertical
knowledge flows.
Key Words: economic culture, headquarter-subsidiary relationship,
international management
jel Classification: zio, F23
Introduction
A cardinal purpose of the European Union (eu) is to facilitate the work-
ings of international business within a community of countries that are
similar enough to agree upon certain trade conformities and harmoniza-
tion. Although the essence of this purpose is irrefutable on a macro level,
it raises the question of whether the multinational companies (mncs)
within the eu are indeed similar enough to arrive at a consensus regard-
ing the fundaments of international business and management across
borders on a micro level. This question gains in merit considering the
Rune Gulev is a Lecturer at the Reutlingen Fachhochschule, Germany.
Managing Global Transitions 5 (1): 63-83
recent eu enlargement that engulfed a further 10 countries, each with a
score of companies with new and unique sets of differences and opinions
concerning the method and tone with which international management
should occur.
Addressing the inherent differences between management methodolo-
gies of the eu member countries and understanding the rudiments from
which the differences stem are thus key to successfully managing interna-
tional business across a multitude of imperceptible barriers that require
international managers of multinational corporations to adhere to sev-
eral simultaneous, yet conflicting, demands relating to cross-market in-
tegration, national responsiveness and worldwide learning (Bartlett et al.
2004). A large number of survey projects and research of a multicultural
nature address these issues and have been published throughout the re-
cent past (e. g. Trompenaars and Hampden-Turner 2004; Trompenaars
and Woolliams 2003; Throsby 2001; Schneider and Barsoux 1999; Sachs
2000; Mattock 1999; Martin 1992; Inglehart 1997; Holden 2002; Hofstede
and Hofstede 2005; Hofstede 2001) which suggests that the topic of na-
tional differences and management variances is recognized as being of
major importance to the success of international business.
The present article builds on the work of these authors by system-
atically linking variances in economic culture across four eu coun-
tries to respective variances in the management of an international
headquarters-subsidiary relationship (hsr). Specifically, the economic
cultures of three elder eu members: Germany, Austria and Denmark, are
projected against the economic culture of a new eu entrant, Slovenia,
which has long been recognized as being one of the most economically
advanced transition economies and has displayed significant growth in
the recent years (Jaklic and Svetlicic 2003; Novak 2003).
The Economic Culture Perspective
The concept of economic culture is derived as a variance, or subunit, of
national culture and addresses the economic and business facets related
to that culture. It is within these facets that the four focus countries of
this study drastically differ, thus making them worthy of analysis to ex-
plain how their economic culture differences impact the management
of an international hsr. Particularly, the economic culture of the new
eu entrant, Slovenia, is of interest as its membership extended the cul-
tural variance spectrum within the common market to encompass an ex-
socialist business culture. Zver et al. (2004) propose that through the eu
enlargement there now exists a significant economic culture gap within
the eu between Central and Eastern European Countries (ceec) that
have recently joined the eu and elder eu members.
In an effort to depict this gap, two dimensions through which eco-
nomic culture can be measured have been assembled in order to por-
tray variances, pertinent to economic culture, between the four analyzed
countries. The rationale is to understand how these variances influence
the management of the hsr, specifically, decentralization levels, knowl-
edge flows, knowledge sharing and expatriate utilization.
The two dimensions absorb economic and business values that exist
within the national culture of a country and represent values germane to
Slovenia's, Germany's, Austria's and Denmark's economic cultures. They
build on the work of several authors' (Hall 1981; Hofstede 1984; 1997;
2001; 2005; Herzberg et al. 1993; Hardin 2002; Levi 1996) contributions to
variances in, and definitions of, national culture. The usefulness of the
two economic cultural dimensions (termed drivers from here on) be-
comes apparent when benchmarking an individual country's economic
culture against that of the others. This allows for comparisons between
countries and for visible results to be ascertained, which in turn sets the
stage for succeeding arguments to emerge concerning the hsr manage-
ment pillars.
The two drivers measure the extent to which the workforce of a coun-
try is inclined to be biased towards a specific preference of economic cul-
tural values and probe specifically into cultural particularities germane
to European countries. They consist of:
•	Authority driven economic culture (adec) - the extent to which em-
ployees revere their superiors.
•	Interpersonal and institutional trust driven economic culture ( iitdec)
- the extent to which employees are receptive to inputs stemming
from people and from institutions or systems.
To quantify the degree to which the sample countries are polarized
within each driver, numerous sources of composite data from the Euro-
pean Values Study (evs1) provided reliable indicators on several compa-
rable and related themes within economic culture.
The first driver draws heavily from Hofstede's (1984; 1997; 2001; 2005)
power distance theories and strives to examine the variances in boss-
subordinate and subordinate-subordinate relationships that exist in var-
ious cultures and organizations. Viewed as a spectrum on which a culture
is either authority driven or subordinate driven, authority driven em-
ployees tend to greatly revere their managers who consequently have a
great impact on the actions of their subordinates. In comparison, subor-
dinate driven employees, who revere managers and co-workers equally,
are not especially biased towards the inputs stemming from managerial
sources and consequently do not automatically comply with managerial
orders but retain the ability to question the logic or motives behind a par-
ticular action. In essence, this implies that subordinate driven employ-
ees are affected by their managers and the managers are affected by the
subordinates, whereas authority driven employees are mainly affected by
their superiors but the superiors are only mildly affected by the inputs
generated by the subordinates.
Distinctive features of a highly adec are centralization of power, hi-
erarchical and tall organizational pyramids, little questioning of author-
ity, acceptation of inequality, diminutive levels of trust and a compar-
atively low qualification of the lower strata of employees. Contrarily, a
low adec, or highly subordinate driven economic culture, is based on
equal rights and a high level of cooperativeness, less centralization of
power and flatter organizational pyramids, low levels of supervisions and
a comparatively high qualification of the lower strata of employees.
The following evs data have been utilized to measure the extent to
which the sample countries are biased towards a highly adec or, con-
versely, biased towards a subordinate driven economic culture:
•	The extent to which an increase in respect for authority would be
viewed positively.
•	The extent to which employees are free to make decisions at work
without consulting with their managers.
•	The extent to which a manager's orders must always be followed.
The evs data provided a detailed, numerical breakdown of country
biases within each dimension through 5 point Likert scaling, normalized
agreement scaling and dichotomous responses that subsequently were
successfully standardized into a ten point referencing scale by comput-
ing each dimension separately and setting its lower and upper bound-
aries equivalent to 0% and 100%, respectively. This was beneficial as it
distributed equal weight to all five dimensions and, more importantly,
maintained a uniform multivariate measuring standard that ensured
fixed and accurate dimensional representation for each country's eco-
nomic culture. Proceeding in this manner, the results indicate that Ger-
figure 1 adec levels for the four sample countries
i i respect authority, 1 i no decision making freedom, 1 1 always follow orders,
•—• level of authority driven. Source: own creation based on composite evs data.
many and Slovenia are the two most adecs with scores of 7.23 and 6.03
respectively, while Denmark and Austria are the least adecs, or most
subordinate driven economic cultures, with scores of 5.27 and 4.60, re-
spectively (see figure 1).
The second driver differentiates itself from the previous driver as it
does not measure the extent to which there is a bias towards interper-
sonal trust opposed to institutional trust. The reasoning for this is that
there may be a causal relationship between institutional trust and gener-
alized trust in people, which implies that this driver cannot be measured
along an interpersonal trust - institutional trust continuum as the two
variables can be, and most likely are, interdependent. Consequently, a
decrease in institutional trust would not necessarily induce an increase
in interpersonal trust thus thwarting the ability to contest these two vari-
ables against each other. To overcome this predicament, the two variables
are measured independently on a high-low spectrum to yield impartial
results about employee receptiveness towards interpersonal and institu-
tional inputs.
The driver components are based on Hardin's (2002) and Levi's (1996)
findings on the levels of trust that may be sustained and fostered within
certain institutions and within people. As such, it seeks to measure the
amount of confidence employees retain towards their fellow employees
and the magnitude of confidence allocated to institutions or systems.
Interpersonal trust is grounded in the experiences employees have with
each other and the familiarity that has been built. However, employees
high on interpersonal trust will extend this mindset to encompass trust-
ing strangers, as well because the belief that people in general can be
trusted is strong. Institutional trust is based on the theory that institu-
tions provide reliable sources of input that are less likely to be tainted by
individual motivations or perceptions which therefore increase its cred-
ibility and allow for deeper allocated levels of trust.
Interpersonal trust driven characteristics include having assurance
and conviction along with high levels of confidence and loyalty in fellow
employees. Institutional trust characteristics also bear remnants of high
levels of assurance and confidence but are directed towards institutional
sources that are less likely to be biased. To quantify the extent to which
the sample countries rank high or low on institutional trust and inter-
personal trust, one evs statistic that directly measures the intensity of
interpersonal confidence has been utilized and three evs statistics have
been applied to measure the intensity of institutional confidence in three
different systems.
•	The extent to which employees feel that other people can be trusted
(interpersonal).
•	The extent to which employees trust parliamentary systems (insti-
tutional).
•	The extent to which employees trust the social security system (in-
stitutional).
•	The extent to which employees trust the justice system (institu-
tional).
The weighted scores, calculated in the same manner as the previous
driver, expose that Denmark is the most iitdec (6.93) followed by Aus-
tria (4.87) and Germany (4.25). Slovenia ranks as the least iitdec (3.17;
see figure 2).
The International hsr Management Perspective
A further source of research helps explore the management aspects per-
tinent to this study. The rationale is to prepare the variances within the
management aspects of decentralization and vertical knowledge flows
(those occurring between headquarters and its subsidiaries) to be linked
with variances in adec, and horizontal knowledge sharing (that which
figure 2 Interpersonal and institutional driven levels for the four sample countries
i i institutional - trust in parliament, 1 1 institutional - trust in social security
system, 1=1 institutional - trust in justice system, interpersonal - trust in people,
•—• level of interpersonal and institutional trust. Source: own creation based on
composite evs data.
occurs between co-workers of similar status) and expatriate utilization
to be linked with variances in iitdec.
In relation to the evs based adec scores, the German and, to a lesser
extent, Slovenian mnc employees favour organizational structures that
bear remnants of an authoritative nature; namely tall organizational
pyramids, high levels of respect and reverence for their superiors and
limited questioning of authority compared to their subordinate driven
counterparts. Such a structure is aided through centralized and concen-
trated decision making conducted by a few select groups of managers
who maintain focused overviews and thwart the ability and need for de-
cision making to trickle down throughout the organization. In compar-
ison, subordinate driven employees, in their extreme, respect managers,
co-workers and subordinates equally and thus are likely to absorb inputs
from local, host country environments as frequently as from the home
country or headquarters; a trait generally conducive to decentralization.
Hence, taking into account the focus countries' adec scores, a predic-
tion towards higher levels of centralization in German and Slovenian
mncs emerges compared to Austrian and Danish mncs.
hypothesis 1a: German and Slovenian mncs will be comparatively
more centrally run with less authority and trust delegated downwards
compared to Austrian and Danish mncs that will be relatively more
decentralized as a result of the former countries having a compara-
tively higher adec than the latter countries.
A key aspect of promoting knowledge flows within mncs is to foster
an environment of openness and support for cross-fertilization of ideas
and implementation of best practices (Dowling and Welsch 2004). The
obstacles to achieving this are manifold and relate mainly to cognitive
(thinking, reasoning, remembering) and motivational challenges that in-
herently hamper key elements crucial in the empirical development of an
integrated understanding of knowledge dissemination within the mnc
(Mahnke and Pedersen 2004).
Consequently, the extent to which the cognitive and motivational
challenges negatively impact vertical knowledge flows is dependent on
the qualifications of the employees within the organization and the pro-
knowledge sharing environment established among the co-workers. As
previously established, the upper and especially lower strata of employees
within subordinate driven economic cultures tend to be highly qualified
and retain the ability to dispute managerial decisions while simultane-
ously harbouring a pro-knowledge sharing environment based on equal
rights and a high level of cooperativeness between administrative levels.
This positively impacts the extent to which organizational members can
and will influence the actions and thoughts of their superiors. Thus, a
prediction towards a positive relation in Austrian, and in part, Danish
mncs to foster two-way vertical knowledge flows (as a result of being
subordinate driven) and a prediction in German and, in part, Slovenian
mncs to create one-way vertical knowledge flows (as a result of being
authority driven).
hypothesis ib: Vertical knowledge flows in Austrian and, in part,
Danish mncs are predominantly two-way, from headquarters to the
subsidiaries and vice versa, whereas German and, in part, Slovenian
mncs have comparatively greater extents of one-way knowledge flows
from headquarters to the subsidiaries.
The knowledge sharing disposition on a horizontal level is fundamen-
tally a property of the composition of individualistic employee traits as
individuals embody the behavioural rudiments associated with knowl-
edge sharing. These inherent rudiments vary in accordance to interper-
sonal and institutional trust driven preferences and influence the de-
ployment levels of tacit and explicit knowledge. Therefore, it is expected
that organizational compositions of highly interpersonal trust driven
employees intrinsically maintain a tacit knowledge flow predisposition
whereas institutionally driven employees sustain explicit knowledge in-
clinations. This prediction is based on the former involving higher levels
of unconscious knowledge transfer that act as tacit knowledge breed-
ing grounds and the latter being the result of repetitive and systematic
knowledge transfers. However, since these two components are not mu-
tually exclusive, it is conceivable to have simultaneous high levels of in-
stitutional and interpersonal trust driven employees in one organiza-
tion and simultaneous low levels of institutional and interpersonal trust
driven employees in another which would induce high and low levels
of horizontal knowledge sharing, respectively as high levels of interper-
sonal and institutional trust act as knowledge sharing catalysts, albeit in
two different forms.
hypothesis 2a: Horizontal knowledge sharing will occur to a lesser ex-
tent in Slovenian mncs compared to German, Austrian and especially
Danish mncs as a result of lower levels of iitdec within the Slovenian
mncs.
The interpersonal trust and institutional trust driven orientation of
organizational employees refers to the predisposition of employees to
bond and connect with co-workers and managers and the systematic
results they produce. Consequently, it is assumed that organizational
members high on both interpersonal and institutional trust will place
considerably more confidence in the inputs that stem from their col-
leagues through either personal or systematic based communication
than organizational members that are low on both. This will further
manifest itself in the manner in which the headquarters tries to align its
objectives with its subsidiaries' through its staffing policies; subsidiaries
with highly iitdecs will have lesser levels of personalized headquarter
participation, in the form of a low number of expatriates, compared to
subsidiaries with low iitdecs which rely more on personalized head-
quarter participation. This is a result of the former being more prone
to personally and institutionally trust their subsidiary colleagues, and
do not feel it necessary to personally observe subsidiaries but rather
trust the results they produce, whereas the latter feels that a high level
of headquarter participation is necessary to compensate for low levels of
institutional and interpersonal trust.
hypothesis 2b: Slovenian mncs will utilize a larger proportion of ex-
patriates within their foreign subsidiaries to align goals of the entire
mnc as a result of having low levels of iitdec compared to Danish
mncs that are highly interpersonally and institutionally trust driven.
The Study
The empirical data for the research was collected as part of a larger
project researching a total of 4 economic cultural drivers and five man-
agement aspects. The data was extracted from 103 sources spread over
54 European subsidiaries that typified large (over 300 employees) and
successful (over ten years of international operations with consecutive
positive turnover and a five year averaged positive profitability rating)
companies. Industry specific classifications were limited to the phar-
maceutical and manufacturing industries with 40% of the mncs being
Slovenian, and the remaining 60% roughly equally distributed between
the German, Austrian and Danish mncs. The effects of unequal coun-
try representation in the sample data were discounted during the anal-
ysis and interpretation of the obtained results. Data collection was con-
ducted through a uniquely constructed survey questionnaire that gath-
ered descriptive data along a cross sectional representation of the focus
countries' mncs and specifically probed the intricacies of the hsr man-
agement perception and economic culture aspects.
The questions pertaining to decentralization probed subsidiary auton-
omy levels and subsidiary managers influence levels on the entire mnc.
Questions related to vertical knowledge flows pivoted around the ex-
tent to which strategic information streamed vertically between head-
quarters and its subsidiaries and between subsidiaries and the headquar-
ters. The respondents were also given the opportunity to directly ex-
press whether they felt knowledge was flowing one-way as opposed to
two-ways within their organization. The questions linked to horizontal
knowledge sharing focused on the extent to which sharing of knowledge
occurred horizontally, between intra-co-worker and intra-manager en-
vironments. Finally, the questions concerning expatriate utilization ex-
plored the current number of home country nationals employed within
the foreign subsidiaries. The respondents' answers to the questions were
scaled against each other for ease of comparison.
In order to gauge the actual respondent's economic culture fit with
the predictions of the evs, the questionnaire first sought to identify how
he or she valued certain characteristics pertinent to the economic cul-
ture drivers around which this study pivots. This was necessary as it veri-
fied that the underlying premises from which the hypotheses were made
were still valid. Succeeding questions probed the perceptions of the hsr
along management dimensions within the realm of decentralization, ex-
patriate utilization, horizontal knowledge sharing and vertical knowl-
edge flows that the economic culture influences. The questionnaire con-
sisted of multiple-choice closed-ended questions, five point Likert scale
questions and normalized 10 point preference scaling questions. These
facilitated point accumulation methods, which made it possible to com-
pare stances on the different aspects of the hsr.
Two separate methods of empirical data analysis were utilized in or-
der to validate the results. Spearman rank correlation tests were used to
determine the direction and strength of the individual relationships be-
tween economic culture and the four hsr management aspects within
each surveyed mnc, and standard linear correlation tests were used to
directly quantify the association levels between economic culture and
management without assigning rank values (as Spearman rank corre-
lation tests do) but by using weighted averages. Together, they provide
compared and direct correlation results, respectively.
Finally, in a survey of this nature that gauges soft values and percep-
tions among several countries, it is not rewarding to regard the data from
each country on various subjects as the decisive truth - the data does not
permit for such a degree of precision. It is the broad contrast between
high and low scores that ultimately validates connections between eco-
nomic culture and hsr management. Consequently, in situations where
one or two of the survey countries were not polarized at an economic
culture extreme, it was omitted from the standard linear correlation hy-
pothesis testing as its economic culture score was too neutral to justify
any predictions. The omitted country data is, however, considered anew
during Spearman rank correlation tests and when attempting to build
credibility to the trends emerging from the hypotheses.
Results and Analysis
Results regarding the empirical fit of the respondents' economic culture
with that of the evs data revealed similar, although not identical, pat-
terns. Most notably, the Danish respondents' economic culture pertain-
ing to iitdec dropped 4.6% from the evs forecast whereas all other
countries increased by an average of 13.6% (see figure 3). A further anal-
ogous reduction was apparent mainly as a result of Slovenia's empiri-
cal iitdec score increasing compared to its evs counterpart. Neverthe-
less, the country rankings are in complete accordance with the evs as
8
Interpersonal and institutional
figure 3 Comparison of adec and iitdec stances of surveyed mncs with evs
•—• evs, •—• empirical.
Denmark still ranks as being most interpersonal and institutional trust
driven, followed by Austria, Germany and finally, Slovenia. Concerning
adec, the Danish and German respondents scored as being considerably
less authority driven, or more subordinate driven than the evs indicated,
while the Slovenian and Austrian adec scores were almost identical to
the evs. This divergence causes the Danish adec to fall from a neutral
ranking to being least authority driven. These discrepancies are however
minute and they do not distort the foundations on which the evs based
hypotheses are made.
Consequently, although the exact values of the empirical economic
culture scores vary from the evs predictions it is not to a detrimental
extent, as the comparative standings are still remarkably similar. Here it
is important to remember that it is not the exact values of each coun-
try's economic culture score that is of cardinal importance but rather
their comparative standings, as only those validate the sought for hsr
management connections. The slight alterations do therefore not have a
significant bearing on the premises from which this study begins and the
validity of the hypotheses remains intact.
Results relevant to hypothesis 1a confirm, albeit not pristinely, the the-
ory. The Slovenian and German adec are ranked as being the most au-
thority driven cultures, while united scoring lowest on organizational de-
centralization levels (odl), and the Austrian adec, which scored lowest,
ranked comparably higher on the decentralization scale (see table 1). For
the standard linear correlation tests the Danish mncs' results were omit-
ted, as the country's neutral economic culture score did not allow for
valid knowledge flow pattern predictions. Accordingly, the results of this
test advocate that there is a negative correlation between adec and odl.
Furthermore, the Spearman rank correlation test reveals a strong nega-
tive correlation (0.566/.05) at a 95% confidence interval between the level
of adec and the odl.
Thus, the hypothesis is accepted although the results are not pristine.
The German and Slovenian mncs, when grouped together, score a lower
decentralization score than the Austrian and Danish mncs, as the hy-
pothesis predicts. However, the fact that Slovenia is less authority driven
from an economic culture perspective than Germany, yet has more cen-
tralized mncs, foils any decisive conclusions to be made regarding direct
linkages using the standard linear correlation test. Furthermore, the large
variance spectrum displayed between the German and Austrian adec
scores (2.63) is not reflected by an equally large variance fluctuation in
odl (0.808). This suggests that decentralization levels are not perfectly
correlated to adec levels as the large adec decrease is mirrored only by a
small odl increase. Consequently, it appears that there is a tendency for
high levels of adec to be accompanied by low levels of decentralization,
or high levels of centralization, although it is not a precise relationship.
The empirical economic culture results for all four countries may pro-
vide an understanding of the origins of the small abnormalities from the
otherwise overall negative relationship. The empirical adec score for the
surveyed Danish mncs was substantially lower (3.90) than its evs equiv-
alent and is in fact the lowest adec ranking of both the empirical and
evs findings. It is possible that the surveyed Danish subsidiaries strayed
from the forecasted evs predictions resulting in an artificially high adec
score for the Danish mncs. If this is the case, the corresponding ocl
score displays a perfect positive correlation in accordance with the hy-
pothesis; Denmark's low empirical adec score corresponds faultlessly
to high odls. Similarly, the discrepancy in the German and Slovenian
correlation, which contradicts the general trend, is minimized through
the empirical economic culture data. The evs economic culture data has
the two aforementioned countries' economic culture scores separated by
more than a full point (1.20), a substantial division considering their re-
spective odl scores that oppose the direction of the general correlation
displayed by the overall country and mnc data. However, this divide is
significantly lessened in the empirical adec scores (0.17). The empiri-
cally small adec divide radically condenses the irrationality of the re-
verse correlation between these two country factors and helps explain
how the surveyed German mncs display a higher odc score than the sur-
veyed Slovenian mncs. This still does not align the German and Slove-
nian country data with the direction of the hypothesis correlation but
it does provide counter argumentation for the observed evs correlation
contradiction.
Results regarding hypothesis 1b act in accordance with the theory. All
countries' mncs ranked as having a predominant use of two-way verti-
cal knowledge flows between headquarters and its subsidiaries (all mncs
averaged above-mean score of 5: Germany: 5.21, Slovenia: 6.39, Austria:
6.5, Denmark: 7.46). Again, for the standard linear correlation tests the
Danish mncs' results were omitted, as the country's neutral economic
culture score did not allow for valid knowledge flow pattern predictions.
Testing the three remaining countries' mncs reveal a direct negative lin-
ear correlation between scoring as highly authority driven and having
comparatively lower levels of two-way vertical knowledge flows than the
highly subordinate driven mncs (see table 1). The negative relationship
is most apparent and precise through the German and Slovenian com-
pounded adec scores and corresponding amalgamated two-way vertical
knowledge flow scores. The 1.20 composite downward drop in the Ger-
man to the Slovenian adec score is almost identically inversely repre-
sented with a 1.17 knowledge flow increase. The linearity of this precise
relationship is however not equally reflected by the fused Austrian adec
results. Here the 2.63 adec decrease between the German and Austrian
scores is only marginally represented with a composite 1.286 increase
in knowledge flows. Nevertheless, the sought for negative relationship
between these two variables is ascertained as all three countries' adec
scores and hsr two-way vertical knowledge flow scores display a habit of
dependency, albeit to varying extents.
The Spearman rank correlation test reveals a weak negative correlation
(-0.38/.05) between the level of adec and two-way knowledge flow levels
tested at a 95% confidence interval for all the countries' mncs. Accord-
ingly, the hypothesis is confirmed as there does appear to be an associ-
ation between high levels of subordinate driven preferences and greater
inducement of vertical two-way knowledge flow. This suggests that the
more autonomy an employee feels she is empowered with, the more
table 1 Authority driven levels in relation to decentralization and knowledge flows
	(1)	(2)	(3)
Germany	7.23 (6,04)	3,573	5,214
Slovenia	6.03 (5,87)	3,189	6,384
Denmark - omitted	5.24 (3,90)	6,388 - omitted	7,458 - omitted
Austria	4.6 (4,58)	4,381	6,5
note Column headings are as follows: (1) authority driven; (2) level of decentrali-
zation; (3) level of two way knowledge flows. Results in brackets represent the empirical
equivalent.
likely she is to relay knowledge back in the direction of the headquar-
ters. Hence, where mncs with a high adec might have a high amount of
information flowing from the subsidiaries to the headquarters, it appears
that mncs with a high subordinate driven economic culture have a high
amount of knowledge transmitted back to the headquarters. The empiri-
cal economic culture outcomes lend further support to this negative cor-
relation. The slight variations in the empirically obtained adec results,
compared to the evs adec results, yield an unflawed linear correlation;
incremental increases in empirical adec scores correspond perfectly to
incremental decreases in two-way vertical knowledge flow scores.
Results regarding hypothesis 2a provide strong, unanimous support
for the theory. The standard linear correlation test reveals a direct, al-
though not perfectly uniform, correlation between high iitdec with
high levels of horizontal knowledge sharing; as iitdec levels rise for
the sample countries there is an associated rise in horizontal knowledge
sharing (see table 2). However, the respective upsurges and reductions in
iitdec and horizontal knowledge sharing are not proportionately dis-
tributed in relation to each other. This is most apparent with the Danish
and Austrian economic culture and mnc data. The Danish iitdec ranks
more than a full point ahead of the Austrian economic culture, yet the
horizontal knowledge sharing levels are almost identical, with the excep-
tion that the Danish mnc levels just out-edge the Austrian mnc's knowl-
edge sharing levels by a fraction. Thus, the large gap in economic culture
between these two countries is not represented with an equally large gap
in horizontal knowledge sharing levels. Furthermore, low iitdecs are
accompanied by lesser, but not low, levels of horizontal knowledge shar-
ing. For this realization it is noteworthy to recognize that all countries'
mncs scored a horizontal knowledge sharing grade above 5 and, as such,
are all considered fairly knowledge sharing prone. Consequently, Slove-
nia's very low level of iitdec (3.17) is not reflected in a very low hori-
zontal knowledge sharing score but in actually a fairly high horizontal
knowledge sharing score (6.19).
Furthermore, the Spearman rank correlation test revealed a strong
positive correlation (0.69/.05) between iitdec levels and horizontal
knowledge sharing tested at a 95% confidence interval for all the coun-
tries' mncs. Together, the standard linear correlation tests and the Spear-
man rank correlation tests advocate that there is a direct correlation (al-
though not perfectly linear) between high levels of interpersonal and
institutional trust driven employees and their proneness to share knowl-
edge with their colleagues, which implies that the qualities an individual
with high interpersonal and institutional trust driven tendencies has
promote knowledge sharing within an organization.
Results regarding hypothesis 2b provide support, although weak, for
the theory. As the intensity of iitdec increases, expatriate utilization de-
creases (see table 2). The Spearman rank correlation test reveals a nega-
tive correlation (-0.224/.05) between iitdec and expatriate utilization as
the hypothesis predicted. However, the negative correlation is too weak
to pass the 95% critical confidence interval (r = -0.224 > -0.41 = critical
negative value). Thus, the Spearman rank correlation test does display
the sought for negative relation between iitdec and expatriate utiliza-
tion, albeit at an insignificant intensity level.
The standard linear correlation test reveals a direct, although not per-
fectly uniform, relationship between high levels of iitdec and low ex-
patriate utilization levels; as iitdec levels drop, there is a corresponding
increase in expatriate utilization. Slovenia, ranking lowest with regards
to iitdec, utilizes the highest number of expatriates with an average
of 1.69% expatriate utilization per foreign subsidiary whereas Denmark,
ranking highest with regards to iitdec, utilizes the lowest average num-
ber of expatriates with an average of 0.73% expatriate utilization per for-
eign subsidiary. The German and Austrian mnc and economic culture
data go in exact accordance with the negative relationship between inter-
personal and institutional trust and utilization of expatriates. However,
although the strength of the correlation is strong using the standard lin-
ear correlation test, the difference in expatriate usage between the Dan-
ish foreign subsidiaries and the Slovenian foreign subsidiaries, which are
at opposite extremes, is only 0.96 percentage points per subsidiary. Had
the proportional differences been greater, it would have provided further
table 2 iitdec in relation to horizontal knowledge sharing levels
and expatriate utilization
	(1)	(2)	(3)
Germany	4.25 (5.25)	7.406	1.45%
Austria	4.87 (6.18)	8.550	1.14%
Slovenia	3.17 (4.95)	6.190	1.69%
Denmark	6.93 (6.47)	8.595	0.73%
note Column headings are as follows: (1) iitdec; (2) horizontal knowledge sharing;
(3) average expatriate utilization per subsidiary. Results in brackets represent the
empirical equivalent.
strength to the correlation and provided auxiliary validation to the neg-
ative relationship.
The empirical economic culture data conforms to the evs iitdec
findings and displays proportionately decreasing levels of expatriate uti-
lization with increasing iitdec scores. In large, this strengthens the pro-
posed weak link that the standard linear correlation tests supports. A
surprising revelation of the survey was that a vast amount of the sur-
veyed subsidiaries across all four countries employed zero or only a sin-
gular expatriate at the foreign subsidiary. For the Slovenian subsidiaries,
in order to correspond to the low iitdec score, a much high number
of expatriates was expected. Although the Slovenian composite expatri-
ate score was comparatively higher than the three other focus countries'
mncs, as the hypothesis predicted, it does not fully harmonize with the
underpinning logic that low iitdec will be compensated for with high
expatriate utilization in order to ensure trust and alignment of head-
quarters objectives. However, it would be inappropriate to discredit the
negative iitdec - expatriate utilization correlation as there does seem
to be a connecting factor, but, simultaneously, it is also clear that the
sought for correlation is not as powerful as the theoretical findings pre-
dicted and thus it is conceivable that other factors are likely to have an
inductive persuasion on the relationship.
For international hsr management, these findings have multiple ram-
ifications. The strong evidence of an adec to induce centralization in-
fers that adec prone mncs are at risk of being deprived of decentral-
ization benefits which can promote entrepreneurial skills and attitudes
that can otherwise be difficult to reproduce at the subsidiary manage-
ment level, which, in turn, can lead to subsidiary stagnation and pre-
vent the subsidiary from moving forward in developing its own success
pillars. However, it must simultaneously be respected that the reverse is
equally true; mncs with low adecs may be managed under exaggerated
decentralized operations that inadvertently thwart scale operations and
decreases cost advantages. The extremity of both scenarios would seldom
be the result solely of an adec influence, however the inherent adec
predilection within an mnc certainly can influence where the mnc struc-
ture ultimately ends up on the decentralization-centralization spectrum.
In further accordance, the negative adec - two-way vertical knowledge
flow correlation suggests that mnc managers within highly adec enti-
ties should be aware that knowledge flows may unwittingly be hindered
within the organization and installing measures that boost knowledge
flow levels, if deemed of interest to the mnc, are warranted. As such,
the speed and efficiency with which valuable knowledge can be vertically
transmitted and understood by the receiving partner, be it headquarters
or subsidiaries, can be maintained and overall detriment to the mnc - in
the form of knowledge losses - can be minimized.
The positive iitdec - horizontal knowledge sharing correlation equal-
ly provides insight into optimizing international hsr management for
mnc managers. mncs endowed with a high iitdec appear to be bet-
ter suited to overcome motivational and cognitive horizontal knowl-
edge sharing barriers that pre-empt the effective reuse of organizational
knowledge. Therefore, managers from mncs with a low iitdec should
be aware that the sought for level of knowledge-sharing is contingent
on the inherent human traits that impact the learning intent and learn-
ing capacity of the organization's employees. In the same vein, mnc
managers' utilization of expatriates appears, at least to a small extent,
to be dependent on mnc iitdec levels. Low iitdec levels within the
mnc can induce a greater utilization of expatriates as a suitable conduit
for relaying strategic objectives, and thus compensate for low levels of
interpersonal and institutional trust at the subsidiary level. For mncs
operating with a high iitdec the need for this is alleviated and mnc
managers should remain aware that trust and alignment of headquar-
ters' objectives can be achieved through far more cost efficient methods
than expatriation.
Conclusion
The results of this study provide further nourishment for researchers
and practitioners who subscribe to the notion that national management
models do persist in Europe (see also Klarsfeld and Mabey 2004) and
that hsr management is influenced, in multiple ways, by variances in
economic cultures. Although the results of this research do not provide
indications that ceecs' and westernized European countries' economic
cultures and hsr management are continuously at opposing poles, it
does imply that the Slovenian economic culture and hsr management
in relation to decentralization, two-way vertical knowledge flows, hori-
zontal knowledge sharing and expatriate utilization substantially differ,
in some ways, to the three elder eu members also included in this survey.
This could further complicate the manner in which Slovenian eu inte-
gration occurs, and also the management methodology through which
Slovenian mncs can reap economic gains through the common market.
In an attempt to further divulge complications that can arise from this,
the current article has depicted two dimensions through which economic
culture can vary and impact international management in different ways.
Specifically, the study shows that there are some direct linkages be-
tween adec and iitdec on decentralization, vertical knowledge flows,
horizontal knowledge sharing and expatriate utilization within the hsr
of a mnc. Evidence, although not pristine, was found that highly adecs
are more likely to be prone to centralized mnc structures and lesser ver-
tical knowledge flows compared to highly subordinate driven economic
cultures. Further evidence was found that expatriate utilization is neg-
atively correlated, although only by a weak margin, to highly iitdecs.
However, a very strong positive correlation was detected between hor-
izontal knowledge sharing and highly iitdecs; high levels of interper-
sonal and institutional trust driven preferences induce more horizontal
knowledge sharing.
The purpose of this research is not to suggest an alignment of eco-
nomic cultures across the eu in order to ease international hsr man-
agement variations. In fact, it is the author's strong conviction that eco-
nomic cultural variances, rather than being interpreted as a source of in-
ternational conflict and managerial disagreement, should be utilized as a
managerial asset that can be converted into a resource for underpinning
managerial and mnc core competencies. In purely Ricardian terms, tap-
ping in to differing natural endowments has been the logical foundation
from which comparative advantages have been justified for many years.
The leap from this commonly accepted thought line to gaining com-
parative advantages through differing economic cultural endowments is
small. Differing economic cultures harbour inherent organizational ben-
efits which, when managed correctly, provide an mnc with a compara-
tive advantage. For mncs wanting to obtain a comparative advantage
that is not directly ascertainable through its own economic culture, in-
ternationally merging of the mnc with employees of a foreign economic
culture that harbours the inherent sought for managerial advantage can
be an integral part of achieving such a comparative advantage and bet-
tering the overall construct of the mnc.
Notes
1 The European Values Study is a large-scale, cross-national and lon-
gitudinal survey of moral, religious, political and social values. The
survey was designed to investigate the nature and inter-relationship of
value systems, their degree of homogeneity, and the extent to which
they are subject to change across time.
References
Bartlett, C. A., S. Ghoshal, and J. Birkinshaw. 2004. Transnational manage-
ment. 4th edition. New York: McGraw-Hill.
Bhagwati, J. 2004. In defence of globalization. Oxford: Oxford University
Press.
Dowling, P., and D. E. Welch. 2004. International human resource manage-
ment: Managing people in a multinational context. 4th edition. London:
Thomson.
Hall, E. T. 1981. Beyond culture. New York: Doubleday.
Hardin, R. 2002. Trust and trustworthiness. New York: Russell Sage Foun-
dation.
Herzberg, F., B. Mausner, and B. B. Snyderman. 1993. The motivation to
work. New Brunswick, nj: Transaction Publishers.
Hofstede, G. 1984. Culture's consequences: International differences in work
related values. Beverly Hills, ca: Sage.
-. 1997. Cultures and organizations: Software of the mind. New York:
McGraw-Hill.
-. 2001. Culture's consequences: Comparing values, behaviors, institu-
tions, and organizations across nations. 2nd edition. Thousand Oaks,
ca: Sage.
Hofstede, G., and G. J. Hofstede. 2005. Cultures and organizations: Software
of the mind. 2nd edition. New York: McGraw-Hill.
Holden, N. 2002. Cross cultural management: A knowledge management
perspective. Harlow: Financial Times / Prentice Hall.
Inglehart, R. 1997. Modernization and post-modernization: Cultural, eco-
nomic, and political change in 43 societies. Princeton, nj: Princeton
University Press.
Jaklic, A., in M. Svetlicic. 2003. Enhanced transition through outward inter-
nationalization: Outward fdi by Slovenian firms. London: Ashgate.
Klarsfeld, A., and C. Mabey. 2004. Management development in Europe:
Do national models persist? European Management Journal 22 (6):
649-57.
Lechner, F. J., and J. Boli. 2004. The globalization reader. Malden, ma:
Blackwell.
Levi, M. 1996. A state of trust. eui Working Paper 96/23.
Mahnke, V., and T. Pedersen. 2004. Knowledge governance and value cre-
ation. In Knowledge flows, governance and the multinational enterprise,
ed. V. Mahnke and T. Pedersen. New York: Palgrave MacMillan.
Martin, J. 1992. Cultures in organizations: Three perspectives. New York:
Oxford University Press.
Mattock, J. 1999. International management: An essential guide to cross-
cultural business. 2nd edition. London: Canning.
Novak, M. 2003. Analysis of the nature of economic growth of Slovenian
economy. Managing Global Transitions 1 (2): 153-67.
Sachs, J. 2000. Notes on a new sociology of economic development. In
Culture matters: How values shape human progress, ed. L. E. Harrison
and S. P. Huntington. New York: Basic Books.
Schneider, S. C., and J. Barsoux. 1999. Managing across cultures. London:
Prentice Hall.
Throsby, D. 2001. Economics and culture. Cambridge: Cambridge Univer-
sity Press.
Trompenaars, F., and C. Hampden-Turner. 2004. Riding the waves of cul-
ture: Understanding cultural diversity in business. 2nd edition. London:
Brealey.
Trompenaars, F., and P. Woolliams. 2003. Business across cultures. Chich-
ester: Capstone.
Zver, M., T. Zivko, and V. Bobek. 2004. Is there a gap in economic culture
between eu countries and the transition economies? Managing Global
Transitions 2 (1): 31-40.