Russian Strategic Investment Decision Practices Compared to Those of Great Britain, Germany, the United States, and Japan: Diversity, Convergence, and Short-Termism Author(s): Chris Carr Source: International Studies of Management & Organization, Vol. 36, No. 4, International Strategy and Cross-Cultural Management (Winter, 2006/2007), pp. 82-110 Published by: M.E. Sharpe, Inc. Stable URL: http://www.jstor.org/stable/40397681 . Accessed: 15/06/2014 06:33 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . M.E. Sharpe, Inc. is collaborating with JSTOR to digitize, preserve and extend access to International Studies of Management &Organization. http://www.jstor.org This content downloaded from 185.2.32.89 on Sun, 15 Jun 2014 06:33:27 AM All use subject to JSTOR Terms and Conditions
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Russian Strategic Investment Decision Practices Compared to Those of Great Britain,Germany, the United States, and Japan: Diversity, Convergence, and Short-TermismAuthor(s): Chris CarrSource: International Studies of Management & Organization, Vol. 36, No. 4, InternationalStrategy and Cross-Cultural Management (Winter, 2006/2007), pp. 82-110Published by: M.E. Sharpe, Inc.Stable URL: http://www.jstor.org/stable/40397681 .
Accessed: 15/06/2014 06:33
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp
.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].
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Russian Strategic Investment Decision Practices Compared to Those of Great Britain, Germany, the United States, and Japan Diversity, Convergence, and Short-Termism
Abstract: At the strategic level, international differences have proved important, especially during international collaborations. Since Dore' s classic "British Factory: Japanese Factory/' comparative values, behavior, and institutional settings have been extensively investigated, though atten- tion has only recently switched to emerging markets such as that of Russia, which was not covered by Hof stede' s comparative values study. Harvard's matched comparison of Soviet and U.S. decision making by Lawrence and Vlachoutsicos (around 1988) provided a classic study portraying behavioral differences just prior to transition. Coincidentally, my matched comparisons between the United States, Great Britain, Germany, and Japan involved the same U.S. company investigated by Harvard, aiding comparisons in all five countries.
Chris Carr is professor of corporate strategy at the University of Edinburgh Management School, 50 George Square, Edinburgh EH8 9JY, UK (tel.: +44 (0) 131 650 6307; fax: +44 (0) 1316683053; e-mail: [email protected]). The author ac- knowledges the contribution of his colleague Dr. Markus Pudelko, who updated two U.S. and Japanese longitudinal case studies in 2002 and 2003 on the author's behalf while visiting these countries. The author also acknowledges the assistance of Sally Stewart, formerly head of the Department of Management Studies at the University of Hong Kong, for proofreading the first draft of this paper. Any remaining errors are those of the author.
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This article compares strategic investment decision (SID) practices over time, first in advanced triad countries and second in Russia, although on a more limited basis (just between 1988 and 1998). I focus on strategy formulation (how companies reposition vis-à-vis global competitors and their formal strategic-planning practices); finance (particularly in relation to target set- ting); and on whether any differences reflect national values (as suggested by other studies). Addressed in this paper is the controversial issue of whether management styles remain highly diverse or whether they show signs of convergence, particularly in respect to short-termism (relating to strategic versus short-term financial orientations). To assess this, Harvard's U.S. and Russian case companies in 1988 are compared against about 100 interviewed in the same sector in the United States as well as in Great Britain, Germany, and Japan (both before and after). Four other Russian companies interviewed ten years later in 1998 are then compared to gain some sense of continuity and change.
Findings suggest substantial convergence within the advanced triad coun- tries, apart from Japan and smaller, family-owned German companies that remain less financially oriented. U.S. strategic decisions have, though, become somewhat more short-term and financially oriented in the last ten years. Rus- sian companies interviewed in 1998 had moved away from their heritage of top-down state planning and Party influences, but older cultural influences lived on. Top executives were no longer disempowered by Party instructions, yet appeared bewildered and directionless in the context of financial crisis, chaos, and emerging international competition. They operated hand to mouth, exhibiting even greater financial short-termism than their U.S. counterparts, while ignoring financial and strategic planning techniques. Their heritage of long-term economic planning still showed no signs of transforming into Western corporate notions of strategic or financial planning.
While scholars still debate cultural differences among advanced Western countries, business opportunities are opening up even more globally. Com- bined annual economic output from the United States, Japan, Great Britain, Germany, France, and Italy is expected to grow gradually to $54 trillion by 2050; but by then, faster-growing BRIC (Brazil, Russia, India, and China) countries should reach $84 trillion. Russia lies at an extreme in terms of its history of state planning and in having made less progress than other Eastern European countries (Lewis 2005). Even so, Russia's economic output is ex- pected to reach $5.9 trillion by 2050, compared with Japan's projected at $6.7 trillion, and comfortably relegating the United Kingdom and Germany to the seventh and eighth places in the world in economic output. ' Key remaining obstacles in Russia, such as corruption, the legal system, bureaucracy, the lack of transparency, and the inconsistent tax system, are well documented from
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the stance of international investors (PBN 2005; Rogers 2004). It is necessary to gain a greater understanding of differences in managerial behavior, perhaps influenced by deep-seated contextual and cultural factors, in the advanced "triad" of the United States, Europe, and Japan, and also in emerging regions such as Russia. Of particular importance are strategic and financial behavioral differences for companies competing or collaborating internationally (Brock, Barry, and Thomas 2000).
Lawrence and Vlachoutsicos's carefully matched comparisons highlighted differences with the United States, just as the Soviet era was ending (1990, 273-285):
• In making strategic decisions, Russian executives, though socially oriented, may be more top-down and bureaucratic, with less participation at lower levels.
• They may rely more heavily on rules and regulations (sticking more rigidly to plans even in the face of changing market circumstances) but may also be more manipulative in getting around them.
• They may be more "silo-ed" (implying less cooperation and teamwork between different functional departments), having been able to rely on third-party official mechanisms in the past. Discontinuance of these former mechanisms could cause some lack of direction.
• Accustomed to longer tenures, they may be less willing to commit to "deliverables" or time scales.
• Accustomed to managing external shortages and disruptions, they may be less comfortable using market-based external relationships with suppliers or customers.
• Their financial and accounting systems may be less oriented toward forward-looking managerial decisions.
Which traits will prove more enduring under changed circumstances, and how do they compare in other key triad countries? Some clues are provided by other comparative studies from several countries, probing differences in managerial behavior and underlying influences, such as country-governance procedures, "national systems,"2 and cultural values in several countries.3 Hofstede's (1980, 1991, 2002) well-corroborated work on cultural values was recently followed up on by House et al. (2002), comprehensively enough as to include Russia for the first time. Trompenaar and Hampden-Turner's (1997) values studies, based on executive training program data, also include Russia.
Their findings (summarized for all five countries in Table 1) suggest that the United States is potentially the most profit and performance oriented, and Russia is the least (or Japan within just triad countries). Short tenures, attitudes to individual responsibility, and performance incentives might accentuate any
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contrast in the United States. The strongest support for "individualist" values, for attitudes reflecting "limited commitment to organizations," and for task (versus social) orientation have been found in the United States, followed by Great Britain, with Germany and then Japan rating such values considerably lower. The same pattern occurred with "individuals being credited and held responsible for jobs done." Surprisingly though, Russians appear to stress these values even more than Americans.
U.S. self-assurance in terms of enjoying a sense of control, especially compared with Russians at the opposite pole, might lead to bolder strategic goals and profit targets. This, in turn, may be linked to attitudes toward autonomy or simply uncertainty avoidance. Russians stress attitudes that "Managers should be left free to get the job done," as compared with the United States, Great Britain, and Germany. Strangely, House et al.'s (2002) Wharton results suggest greater emphasis on autonomous leadership styles in Russia. Russians emerge as the least uncertainty avoiding, with Germany and particularly Japan the opposite extreme. Increased caution might also be influenced by any sense of collectivism or strong social groups, but some of the resulting values here seem a little inconsistent. Thus, faith in "universalist" principles appears uniquely high in the United States, which could encourage an emphasis on universally applicable strategic and financial techniques. However, Russians do not appear to share these values and may be far less culturally disposed to such techniques. Some recent Wharton survey findings, shown here, are inconsistent with those of Hofs tede and other researchers. Expectations depend to some extent on which values are emphasized.
Different policies may also reflect several contextual differences as high- lighted in Table 2, although it is beyond the scope of this paper to discuss all of them. Executives in wealthier, highly competitive economies may set more ambitious strategic goals (such as capturing higher market shares). On the other hand, countries such as the United States and Great Britain characterized by higher costs of capital or more aggressive financial markets may pressure companies into demanding higher shorter-term profit returns, a phenomenon referred to as short-termism.4
Drawing these points together, we need to investigate any continued dif- ferences between Russian strategic and financial practices and those of other triad countries. Are there signs of any earlier Russian differences proving sustained due to intransigent national values? Are their practices converging toward the United States or toward some subtle mix encompassing other triad models? Or will we see differences such as short-termism, traditionally associated with Anglo-Saxon models, dictated by harsh uncertainties and financial realities as much as by cultural inclinations?
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Careful investigation of differences in strategic and financial practices calls for matched company cases, ideally of strategic investment decisions (SIDs) entailing both. I therefore interviewed companies in the same industry (vehicle components), generally focusing on just single SID cases, given their complex- ity and the requirement for robustness (Barwise et al. 1986; Rajagopalan et al. 1993). SIDs were selected on the basis of three criteria. Size was of most importance. Ideally, the investment was one of the company's largest over the previous five years; if not, its value needed to be high relative to typical annual investment levels. Second, executives needed to have reliable knowledge and a willingness to share this in spite of sensitivities. Third, SIDs ideally needed to have contributed to any shift of overall strategic direction. Commercial sensitivity precluded arms-length or survey methods.
Germany, the United States, and Japan were chosen initially for comparison with Great Britain (G.B.) as exemplars of alternative paradigms, as the most competitive countries in this sector (Lamming 1993; Nishiguchi 1994), and to draw on previous strategic research in the same four countries (Carr 1990).5 All major companies were approached based on industry trade lists.6 In every case, access to the chief executive or a senior executive knowledgeable about the strategic aspects of the decision was requested, and also to the finance director or a senior finance representative strong on the financial aspects and techniques employed. Most companies complied, although in Germany and Japan, chief executives and senior executives frequently omitted finance execu- tives on the basis that they had minimal impact on such strategic decisions. Interviews were typically limited to between two and three hours, being taped and transcribed. Many companies also allowed factory visits entailing further supplementary interviews. A few provided more extensive interviews, over considerable periods of time, allowing for better longitudinal perspectives.7
A skeletal questionnaire was constructed, based on published pilot studies (Carr, Tomkins, and Bayliss, 1991) in Great Britain and Germany, covering the SID "story." This comprised the roles of key actors (particularly those of the chief executive, strategic planners, and finance directors), techniques of formal strategic and financial analysis, the underlying strategies involved, subsequent control systems, decision-making processes, and drawing out their own perceptions, including any experiences in relation to different international practices.
Twenty-four component companies in Great Britain and 25 in Germany were interviewed around 1990, providing 56 SIDs for detailed investigation (seven companies provided second SID cases in sufficient depth to justify their inclu- sion).8 Eleven component companies were visited in the United States in 1994,
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followed by 1 1 in Japan in 1995, yielding 14 and 1 3 further cases, respectively (five companies being able to provide two SIDs in sufficient depth to justify their inclusion).9 Another 19 component companies were visited between 1996 and 1998 - six in Great Britain and 13 in Germany - and these yielded 22 SID cases. By country of ownership, five were British and 12 German, but five were multinationals (three U.S. and two Japanese), affording some insight into more recent American and Japanese practices.
Three fairly comparable suppliers10 from Great Britain (pseudonym Britcom), Japan (pseudonym Japcom), and the United States (pseudonym Amcom), also interviewed in the early 1980s, were again interviewed in 1997 and again at head offices between 2002 and 2004. n Such matched longitu- dinal cases facilitate triad comparisons with Russia because, coincidentally, Amcom was also the U.S. company in Lawrence and Vlachoutsicos's (1990) study, matched against a Soviet company. (For consistency, in this paper, the pseudonyms Amcom and Sovcom are used in place of the pseudonyms Amtruck and Sovtruck). Their Sovcom/Amcom comparison (just prior to transition) can thus be extended to my longitudinal cases Britcom and Japcom, and also to my other SID cases investigated in G.B. and Germany at almost the same time.
Unfortunately, it has not been possible to update "Sovcom," alongside Amcom. What has been possible has been further field research conducted in 1998 into other Russian companies, matched as closely as possible in terms of the same industry, and analyzed with the same set of semistructured SID questionnaires (plus initial results presented from all four triad countries). Only four companies interviewed in Russia were really "matchable," and one had so little interest in strategic issues as to scarcely merit reporting. All interviews were conducted through a professional translator, taped, and fully transcribed. Interviews generally lasted about two hours. Executives interviewed in Russia involved primarily CEOs and strategic planning and finance directors, as in all four other countries.
We now first compare Harvard's U.S. and Russian case companies in 1988 against about 100 companies interviewed in the same sector in the United States, Great Britain, Germany, and Japan (both before and after 1988). Four other Russian companies interviewed ten years later in 1998 are then compared to gain some sense of continuity and change and of influences from national values, leading to discussion and conclusions.
Western practices in comparison with Sovcom
As shown in Table 3, between 1988 and 2003, Amcom conformed to discount- ed cash flow12 (DCF) approaches, characteristic of most recent Anglo-Saxon styles observed, including Britcom in 2002. While undergoing retrenchment
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most recently, it has shifted back to prioritizing payback on roughly 30 percent of major investments. Sovcom in 1988 and Russian companies interviewed in 1998 all prioritized payback13 methods, reminiscent of many British com- panies in the 1980s.
Internal rate of return (IRR) hurdle rate targets, shown in Table 4, were identical for Amcom in 2003 and Britcom in 2002, again conforming to pat- terns of G.B./U.S. convergence suggested by most extensive samples. Where set, G.B. payback targets had lengthened to four years by 1 996-98, still shorter than German and Japanese companies at that time, but only slightly shorter than Japcom in 2002. Amcom in 2003 did not prioritize payback targets on the particular SIDs discussed, but it was now sometimes specifying payback periods of just two to three years. This target is inconsistent with their normal IRR targets and is of shorter-term duration than for other Western countries, but this situation partly reflects recent financial difficulties.
Russian companies interviewed in 1998 set payback targets averaging one year, though one felt it could go to five to seven years for a SID considered sufficiently strategic. This compares with under one year for Sovcom's one investment project (between 1979 and 1980) that actually specified the pay- back achieved.
Table 5 scores SIDs investigated on the relative influences attributed to financial analysis (in terms of capital-budgeting techniques), as compared with other more strategic considerations. The latter were further subdivided into the influences from value-chain relationships14 (principally those determined by the desire to support close customer relationships); assessments of relative cost positions vis-à-vis competitors; assessments of competitive advantage, as determined by other strategic-planning techniques; and with a final column reflecting more miscellaneous factors, such as emotional factors or internal politics.15 Financial influences on U.S. and G.B. companies' SIDs were mark- edly greater than in Germany or Japan between 1989 and 1998. Britcom's financial orientation in 2002 was similar to that of the U.S. companies inter- viewed earlier and was slightly greater than that for typical G.B. companies. Financial influences on SIDs at Amcom appear to have been slightly greater than for other U.S. companies interviewed in 1994 or at U.S. subsidiaries in 1 996-98. 16 Interestingly, Amcom had become yet more financially orientated by 2003, accentuating any contrast with German or Japanese practices.
Sovcom compared to its U.S. counterpart
Comparing Amcom and Sovcom in terms of financial versus strategic influ- ences is difficult utilizing the model by Lawrence and Vlachoutsicos (1990). Both case reports were well detailed (see, in particular, pp. 92-97, 101-1 10,
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1 1 8-1 2 1 , 1 35-1 50, 1 96-202, 2 1 3-226), but they were not designed to uncover such specific relative influences, so that any inferences are highly tentative. Table 5 provides much better data for Amcom after 1988, though no further data on Sovcom are provided.
Sovcom's strategic decisions in 1988 were still heavily influenced by externally determined economic planning. These influences arose in two ways in a manner not observed in "Western" companies. State planning was still highly influential, as plans and capital budgets were still determined by and processed through Gosplan and the Ministry of Finance (Lawrence and Vlachoutsicos 1990, 136). "Planning in the U.S.S.R. is linked to a national five-year plan" (ibid., 144). Such controls were still exercised, even for min- ute details: "For example, when Sovcom sought a new rubber part and the rubber suppliers had all their output spoken for, the plant found it could not 'step outside' the bureaucracy and find a supplier with excess capacity" (ibid., 146). Even at plant level, in the case of plant X's major investment, the head of their planning department (supported by no less than six economists) and the newly elected17 plant manager reported to and directly interacted with the company's khozrashchet [economic accounting]) commission as well as with the chief economic planning director (ibid., 141-144), who in turn had to work to plans agreed nationally.
In terms of influences at the company level, the cases studies indicated some attention to cost analysis relative to rivals at Amcom but not at Sov- com. Amcom had a five-year goal (set in 1983) for reducing unit costs by 30 percent, aimed at limiting Japanese competition (ibid,, 92) and 3 percent per annum cost reductions remained an important target (ibid., 119). "We spent months trying to figure out how to get 50 cents out of the cam-shaft cost. And this year, our scrap costs went up by five dollars. We had no way to anticipate that. It has had a major impact on our cost profile and makes the 50 cents seem trivial." Rather less influence was attributed to such cost driver considerations in Amcom's SIDs investigated in 1994 and 1997, but its executives attributed between 20 and 25 percent to these influences in 2003. Sovcom in 1988 was still virtually in a monopoly position, whereas Amcom perceived cutthroat competition and commoditization and thought that it now had to compete on the basis of achieving cost leadership, relative to other players. Such scope as did exist for differentiation advantages in the 1990s is considered to have virtually disappeared.
The Sovcom/Amcom cases gave little indication of close customer rela- tionships directly impinging on SIDs although, for Sovcom, Gosplan, and national planning coordination created strong indirect linkages (ibid., 146). Amcom interviews in 1994 and 1997, attributed respectively 15 percent and 22.5 percent to such influences, compared with scores of around 50 percent
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for German and Japanese SIDs. By 2003, Amcom executives regarded such market relationships as "hands-ofP ' to the point of downscoring such influ- ences to zero. U.S. companies interviewed in 1994 were similar to Amcom in this respect, and so may perhaps have changed in the same manner.
The main nonfinancial influence at Amcom in 1988 seems to have been sys- tematic strategic planning, utilizing traditional strategic-planning techniques designed to ensure that SIDs deliver real competitive advantages. Details of strategic-planning procedures and techniques were similar and appeared to have been just as influential as in SIDs investigated in 1994 when these influences were assessed at 30 percent. Strategic-planning procedures were just as sophisticated, serious, and well integrated in terms of SID financial calculations in 1997 and 2003, but the influence relative to financial targets and assessments is now considered to be far lower.18 It should be noted that although in Table 5 similar relative influences are attributed with respect to strategic-planning influences for Sovcom in 1998 (at around 12 percent), as compared with Amcom, these procedures were nowhere near as sophisticated in terms of competitive analysis.
In respect to the influence of "other factors," the Amcom 1988 case study suggested relatively little mistrust and internal politicking: "At Amcom there is less mistrust in the soundness of plant plans than there is at AmElectric" (ibid., 121). "Headquarters isn't so much interested in the precise figures as in understanding the process. If they know you are doing your best and fol- lowing the right procedures, they'll accept negative deviations" (ibid., 120). This suggestion of good teamwork to avoid undue manipulation of analysis to suit internal political manipulation was also very much evident in subsequent interviews right up to 2003, though increased emphasis on financial targets probably rendered negative deviations far less acceptable. By comparison, external and internal political influences at Sovcom were quite visible, as already discussed.
Detailed discussion of strategic themes and strategic-planning techniques lies beyond the scope of this paper. There were clear indications of the degree of predeliberation and thoroughness on SIDs at Amcom from interviews in 1988 and 1994, though the 1988 case provided only patchy indications on most of these more specific questions. At Sovcom, information was limited, but there was certainly no indication of any strategy aimed at worldwide market leadership, as there was at Amcom in 1994. There is some indication of thorough planning, but almost none in respect to strategic-planning tech- niques taught (or in respect to Porter 1980 or 1985) in U.S. or U.K. business schools - again in contrast to Amcom in 1994. Such contrasts are perhaps not altogether surprising, given the relative lack of exposure to competition by Sovcom even by 1988.
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Overall, the thorough competitive strategy orientation in the United States appears in sharp contrast to Sovcom. But how far had things changed ten years later following the abandonment of state planning in Russia?
Other Russian companies interviewed in 1998
All Russian companies interviewed in 1 998 still prioritized payback as the main financial appraisal technique on SIDs, just as Sovcom did in 1988. Average payback targets have slightly increased to just one year, although one company claimed it could look to five or even seven years if necessary should an invest- ment be strategically crucial. The effect is short-termism. As one CEO put it: "We take the view that the most important thing we can do is just to survive. So the prompt payback is a major issue." Internal rate of return and payback targets, now used in most U.S., U.K., German, and Japanese companies, would typi- cally be effective for four years (or even slightly more in some cases), although Amcom is now bringing in shorter two to three year targets on about 30 percent of its major investment decisions. Widespread financial difficulties, even more extreme than those faced by Amcom more recently, clearly contributed to such short-term perspectives in Russia in 1988. As a top finance executive put it: "In Russia it can be 180 percent interest, [i.e., on loan finance]. That figure is still lower than it used to be. But the risk of making an investment in industry is very high, so financial institutions raise the interest to cover this risk."
In one of three Russian SIDs, the influence of outside political influences was strongly evident, just as seems to have been the case for Sovcom ten years earlier. In 1998, this influence was still so powerful as to override any more systematic approach to strategic planning or even the most basic financial analysis on strategic investments. The same CEO stated: "We had to find a legal and bureaucratic way of doing this. This caused great delays, was problematic, and this environmental context had a big influence on how we did things. We believe that the most important thing for today is to decide how we are doing things. What we are doing in terms of strategy is not so important." "Do you have a financial target for the investment?" "No!"
Another CEO argued: "There is so much uncertainty regarding the future that strategy studies are not of much use." Another pointed to the effects of uncertainty in respect to the market, further exacerbated by organized crime: "The Russian market is very unpredictable ... It can be very dangerous if you move in on someone else's market!" "Is this due to Mafia type problems?" "Everything together!"
For the other two companies, the relative influence of financial calculations (as compared with more strategic considerations) in SIDs was not out of line with U.S. or U.K. practices, being much greater than in Germany and Japan. No
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Russian companies (including Sovcom) emphasized close customer linkages, and here, they are more in tune with recent Anglo-Saxon practices at Amcom or Britcom. They were also more similar to U.K. and U.S. (rather than Ger- man) companies in taking serious steps to improve their relative cost positions. Again, this may have reflected Russia's harsh financial conditions.
Russian SIDs still seemed oriented toward fairly monopolistic domestic markets and conveyed little sense of competitive urgency. Attitudes bordered on sheer frustration and almost apathy. There was a defensive concern about international companies now encroaching on their home markets, adding further to severe commercial problems, but little interest in strategic plans to secure more positive outcomes internationally. One CEO lamented the contrast as compared with the centralized planning context of the past:
I've been here for over 20 years. We had very details manuals, which were called plans, but the last one was just 30 pages But the goals nowadays are only about how we will get out of the crisis Under so many changes of tax, inflation etc, it is impossible for us to talk about planning. All we have today is day-to-day planning.
Russia's approach to both strategic and financial decisions has clearly changed substantially since the days of long-term Soviet planning but remains in considerable contrast to almost any of the observed triad countries. Most striking is their short-term survival orientation, but before reaching an overall conclusion, three issues are discussed in the next section. First, it sets findings in light of directly related findings by other researchers; second, it examines limitations in terms of how well questions posed in the introduction have re- ally been addressed; and third, it reflects on causal explanations potentially offered by studies of comparative national values.
Discussion and conclusion
Carr and Tomkins ( 1 998) contrasted the theoretically consistent model in- creasingly being adopted by U.S. companies, entailing best-practice capital budgeting and integrated strategic/financial approaches, with more tradi- tional models used in Germany and especially Japan, involving simple but relatively long-term payback targets. In 1990, Great Britain had conformed to a traditional (though more short-term) model but has since shifted much closer to the U.S. model.
Findings in this study showed that the United States remains unmatched in terms of the seriousness with which financial analysis is taken on SIDs. Discounted cash flow capital budgeting methods remained predominant, with IRR hurdle rates based on cost of capital calculations plus "risk" markups of
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roughly one-third of this figure. Amcom in 2003 indicated that cost analysis relative to rivals is also becoming accentuated in the context of global con- centration and commoditization.19 Compared to a decade earlier, most U.K. companies and several German companies were quickly converging on similar DCF approaches. However, two more traditional capital-budgeting models re- mained worldwide, both generally prioritizing simpler payback approaches to the extent that capital budgeting is carried out at all. The first one, characterizing a substantial proportion of German and almost all Japanese SIDs, entailed much longer payback periods (either explicitly or implicitly) than would be allowed for in the U.S. model. For these companies, convergence has been slight during the past decade, and they remained long-termist in orientation.
The second type of traditional model, shared by a substantial proportion of U.K. companies experiencing turnaround conditions in 1989 and Russian companies experiencing even more extreme conditions in 1998, also entailed simpler payback targets. These were sometimes so short (particularly in Rus- sia) as to be scarcely worth calculating. Such targets bore virtually no rela- tionship with any calculable cost of capital, because of capital rationing and perceived requirements for "immediate deliverables," at peril of survival. These calculations were taken extremely seriously in Great Britain SIDs (just as at Amcom on some recent occasions) as part of a culture of financial control20 orientating executives toward short-term results - typically their paybacks were two to three years. In Russia, calculations excited less interest because paybacks were only a matter of one year, and the issue was simply limited cash flow. If Anglo-Saxon companies have sometimes resorted to extreme short-term profit orientation, the issue in Russia was survival rather than any matter of profit calculation.
Britcom's approach was little different from that of U.S. companies, while Japcom has converged only slightly in terms of greater financial orientation and shorter payback targets, and little in terms of techniques adopted or underlying attitudes toward them. Ironically, as Amcom has encountered turnaround conditions more recently, it has occasionally reverted to the more "traditional" payback-based model. Broadly, however, these companies have become increasingly formal in terms of their strategic-planning practices and financial target setting. In these terms, Russian companies have moved a little forward, as against former national planning approaches, but they remain squarely in the "traditional" mode. Financial and strategic-planning approaches appear crude, short-termist, and opportunistic, with many events perceived to be beyond their control. Summarized in Figure 1 are the posi- tions of all five countries in terms of more formal, deliberated strategic and financial planning techniques, providing some indication of shifts over time for matched U.S., British, and Japanese longitudinal case studies.
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These results have to be interpreted cautiously. Sticking to a single broad industry for greater comparability clearly jeopardizes generalization to other sectors. Also, while good longitudinal matched cases have been achieved in triad countries, complemented by some 90 further SID case studies, the sample from Russia involved just four companies in 1998 plus an external assessment of one of the best earliest comparative studies involving Russia and the United States. The Russian data are far more limited and less up to date than the data for triad countries. Much will also have changed since 1998, when conditions were especially harsh for virtually all East European countries and members of the Commonwealth of Independent States (Lewis 2005).
My comparison, however, afforded an interesting opportunity, for the very first time, to compare Russia over some ten years, against detailed and matched comparisons from the United States, Great Britain, Germany, and Japan. Few researchers have had such access to comparable SIDs world- wide. Gaining access to the original Russian company from Lawrence and Vlachoutsicos's (1990) study has proved difficult under the circumstances but remains a clear research priority so that the longitudinal dimension af- forded here can be updated to assess more recent changes. The emphasis in this paper has to be on sustained behavioral differences as among countries. We must be clear that the Russian data cover only the period 1988 to 1998, whereas for triad countries, it is both longer term and more reliable in terms of sample sizes.
We should recognize some progress since 1998 as charted by Lewis (2005), though this account highlights that this has been far more modest than in other East European countries such as the Czech Republic, Poland, and Hungary. Yet, many factors, such as organized crime, the capricious governmental, regulatory, legal environment, and elements of the "casino capitalism" that followed the scramble for assets are still very much in evi- dence (PBN 2005; Rogers 2004, 35-38, 1 15). Lewis concluded his study of Eastern Europe and the former Soviet Union by citing Vaclav Havel's (for- mer president of the Czech Republic) speech to the International Monetary Fund (IMF): "But I deem it even more important . . . that we should begin to think about another restructuring - a restructuring of the entire system of values which forms the basis of our civilisation today. This, indeed, is a common task for all." (Lewis 2005, 204)21
Few looking at Russia's relatively poor performance in foreign direct in- vestment, as compared with China for example, could doubt the importance of understanding this longer-term cultural issue.
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Figure 1. Strategic investment decision processes in the five countries (*refer to more recent studies)
■a
§ä ^ Caí) g (A) v -
a ri) H _
v/J
I ® Low High
Financial Planning
Causal explanations provided by comparative national values studies?
Do any of these findings in relation to SIDs reinforce/contradict stereotypical cultural/attitudinal differences reported by others, or do they suggest signifi- cant change? An obvious problem is that although cultural differences are said to be relatively stable if not intransigent, SID practices have changed to some extent, and perhaps nowhere more than in posttransitional Russia. Sovcom in 1988 still reflected its heritage of national economic planning and a shortage of investment funds. Russian companies by 1998 may have shifted to profit goals, but cash-flow considerations and such severe turnaround conditions and uncertainty precluded sophisticated strategic or financial analysis.
In terms of cultural dispositions toward long-term versus short-term per- formance orientation, Trompenaars and Hampden-Turner's (1997) scores (included in Table 1) suggested that Russia was the most long-termist, com- pared with all four other countries. Reported observations suggested quite the opposite, because Russian companies emerged as the most short-term in respect to SIDs, though this is perhaps unsurprising given conditions in 1988 and even in 1998. Wharton's more recent survey results for "future orienta- tion" (also included in Table 1) seem closer to the mark. They would seem to predict Russia as the least long-term, as was observed in this study. Wharton
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results for "performance orientation" would, however, suggest Russia as the least "performance oriented," but short-term orientation and short payback targets (as were observed) would usually be perceived as implying greater performance orientation. Predictions based on several, subtly different national value scores can easily prove ambivalent.
Wharton results indicated less uncertainty avoidance in Russia as compared with the West. This might imply greater rashness, strategic opportunism, and less concern with strategic-planning methods aimed at ensuring thorough (if perhaps more bureaucratic and formalistic) decision processes. My observa- tions would bear out this prediction, but again it could equally be explained by difficult and unstable economic conditions. Wharton's uncertainty scores relating to Great Britain, Germany, the United States, and Japan are, moreover, inconsistent with Hofstede's scores (2001) and would not anticipate the heavier emphasis on formal strategic planning observed in the United States.
Values inclined toward "universalist systems" as opposed to the "social groups" identified by Trompenaars and Hampden-Turner's (1997) (again in- cluded in Table 1) provide perhaps more consistent explanations across all five countries. If it is recognized that formal strategic and financial techniques are all predicated upon "universalist" principles, their usage would be much higher in the United States, as, in fact, was observed. Commensurately, less attention in Germany, but especially Japan, would be correctly anticipated.
Process differences in respect to teamwork observed may also partly re- flect cultural values in Table 1 . Wharton scores place Russia high on "power distance" values, while the United States registers the lowest score. U.S. com- panies such as Amcom certainly seemed to place a markedly heavy emphasis on teamwork in their SIDs (see also the teamwork value scores in Table 1). To go further with cultural- values explanations creates considerable difficulties when dealing with all five countries. Wharton scores are the most compre- hensive, up-to-date, and supported in terms of data sets. However, numerical score differences are often tiny so that reshuffling rankings among countries quite radically on one subtly different aspect or another creates internal in- consistencies in addition to those arising from other value studies.
Overall conclusion
Overall, the classic difference historically was a politically determined Soviet national planning system, in contrast to the competitive free market favored by the West. Strong external political orientation was still evident even in 1998 Russian SIDs. Acute financial orientation made up for any reduced political influences, so that there was still very little emphasis either on customer re-
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lationships (as stressed in Germany and Japan) or on competitive strategies and formal strategic-planning methods (as pioneered in the United States, and utilized in Great Britain). Whereas Anglo-Saxon models of strategic decision making were once regarded as "short-termist," as compared with Germany and Japan, the much starker contrast in recent years has been with Russia. Ironically, former Soviet approaches based on the most rigid and detailed five-year centralized planning regimes, have spawned (so far at least) styles of strategic decisions that have proved the most "short-termist" of all countries studied. The most significant research finding in terms of convergence is that, even by 1998, there were still virtually no signs in Russia of any interest in strategic or financial planning techniques pioneered by the West.
Notes
1. Business Week, October 27, 2003: 53, from Goldman Sachs. 2. This term covers a country's more extensive "system" of innovation, including
supportive networks between companies, government, and other institutions support- ing research and development.
3. See Djelic (1998), Dore (1973, 2000), Gatley et al. (1996), Hall and Soskice (2001), Hampden-Turner and Trompenaars (1994), Hickson (1993, 1997), Hickson and Pugh (1995), Hofstede (1980, 1991), Hollingsworth and Boyer (1997), Hoshi and Kashyap (2001), Lawrence (1980, 1996), Lawrence and Edwards (2000), Locke (1996), Meyer-Larsen (2000), O' Sullivan (2000), Ouchi (1984), Randlesome et al. (1993), Thomas and Waring (1999), Whitley (1992, 1996, 1999), and Williams (2000).
4. See Ball (1991), Barwise et al. (1989), Carr (1994a), Hayes and Abernathy (1980), Hayes and Garvin (1982), Jacobs (1991), Marsh (1990), and Porter (1992).
5. Kvalshaugen's (2000) critique of Djelic's (1998) study, "Exporting the Ameri- can Model," makes a strong case for the inclusion of Great Britain and Germany in any consideration of Europe.
6. Representation of smaller companies was also achieved apart from the United States, where even additional mail-shots failed to secure representation.
7. Access to one UK component manufacturer was greater, dating back to pertinent work experiences between 1974 and 1980, including projects taking the company global. Subsequent longitudinal research entailed SID studies up to 2002. Confiden- tiality precludes identification and more complete reporting.
8. Carr et al. (1994b) provides systematic cross-sectional analysis and 15 more detailed case studies.
9. Timings of interviews were restricted by schedules. The U.S. 1994 interviews, for example, entailed 10 weeks of full-time field research in the United States, but such long periods had to be preplanned, given other commitments, and could typically be carried out only once or twice a year.
10. Comparable in terms of size, ownership, and world market positions within the vehicle components industry; world concentration has been such that major vehicle component companies around the world can no longer be "matched" component by component, as was done satisfactorily in the early 1980s.
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1 1 . Funds were not available to revisit German companies in 2002-4. Inter- views were conducted with Britcom's Head of Strategic Planning in 2003 and 2004, Japcom's Strategic Planning team in 2002, and Amcom's Vice President Finance, Strategic Planning Director, and Operations Director in 2003.
12. All cash flows are normally "discounted" back to "present values" (i.e., what they would be worth right now) by dividing by (1 + r)n, where r is the interest rate and n is the number of years time in which we are to receive that cash effect. With the net present value (NPV) method, projects are generally accepted only where these net cash flows (taking investment outlays as negative) prove positive based on taking the company's cost of capital as the interest rate. The internal rate of return (IRR) is the rate of interest that would yield an NPV of exactly zero. It can be used to compare investments, one with another, or with the opportunity cost of, say, just leaving the money in the bank. Generally, therefore, only IRRs above the company's cost of capital would be accepted.
13. The more traditional payback approach to investment appraisal dispenses with any discounting as happens with DCF methods. It simply determines how many years it will take for the investment funds (including any interest payments) to be repaid out of subsequent benefits. The investment target is then generally set in terms of how many years are acceptable.
14. The "value chain" (as developed by Porter, 1985) refers to the chain of process stages by all players (included suppliers and their suppliers) culminating in "value creation" in terms of benefits to the ultimate customer. Relationships between com- panies making up the value chain are closer in some countries than in others. Shank (1996) argues that value chain analysis, aimed at establishing competitive advantages, should be part of any investment appraisal.
15. This scoring system is based on Shank (1996) and is elaborated on in Can* and Tomkins (1998).
16. Influence scores from 1996 onward were corroborated by executives, but other scores relating to earlier periods were based on the researcher's own judgments from transcript analyses.
17. These elections, as well as more detailed decision making, also illustrated an important secondary influence from Party arrangements, via their Works Councils.
18. Amcom attributed a little less emphasis to formal assessments of competitive advantage as compared with other U.S. companies interviewed in 1994, so other U.S. companies may also perhaps now be downplaying strategic-planning influences as a result of increasing financial orientation.
19. Commoditization is the situation akin to perfectly competitive commodity markets, where it is almost impossible to command any profit premium beyond the cost of capital.
20. See Goold and Campbell (1987) for a description of financial control-style companies, their systems, controls, and overall corporate cultures.
21. V. Havel, Speech to the IMF Conference, Prague, September 26, 2000 (avail- able at www.vaclavhavel.cz).
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