In view of these considerations we decided to choose Denmark being the best ranked country for business competitiveness in Europe as per measurements of mainly institutional factors by the independent ranking bodies considered.
Dealing with Institutional and Cultural factors
Cultural factors
The seven dimensions of culture
Based on Edward Hall (1976) and Geert Hofstede (1980) work, Fons Trompenaars further elaborated the dimensions into seven cultural perspectives with some overlapping dimensions.
The dimensions explain the differences in cultural values when conducting business and diverse management practices. These differences may affect the setting up of the South Korean subsidiary from in Denmark.
Table 7
- GLOBE
The GLOBE researchers used a 7-step rating scale where “1” is greatly non-(Cultural dimension), “4” is neither non- / nor (Cultural dimension) and “7” is greatly (Cultural dimension) as shown below using Assertiveness cultural dimension as an example:-
Danish and South Korean scale ratings as per the GLOBE are listed below:-
- Institutional factors
The institutional environment constrains firms’ behaviour and strategic choices (Oliver, 1997). The effects of institutional distance between organizational units are instrumentally significant to international business strategies. Institutional distance captures the differences in the regulative, normative and cultural-cognitive aspects of the institutional environments (Scott, 1995).
Distinguishing between formal and informal aspects of institutional frameworks is vital and the variables have different implications for businesses. Formal (regulatory) differences are generally transparent and require clearly discernable adjustments. In contrast, informal differences are harder to understand and require experiential learning processes.
Table 9 below presents rankings obtained from Wall Street and Heritage Freedom and The World Bank Group Doing Business. Wall Street / Heritage ratings below are given in a percentage form based on a world average. The Doing Business 2009 data table summarize the key indicators for each topic and benchmark against regional and high-income economy (OECD) averages. Doing business ranks Denmark as 5th in The Ease of Doing Business Rank while South Korea is ranked 23rd.
Table 9
- Analysis
Examination of table 1 and 2 suggests there is a significant cultural and institutional distance and differences between the South Korean and Danish cultures. Hence, the successful transfer of strategic organizational practices between them is challenging, as the effectiveness of transfer depends on the adoption of formal and informal rules and procedures, and on institutionalizing these rules and procedures in the subsidiary (Oliver & Wilkinson, 1992).
South Korea has a very traditional culture, steered towards collectivism and their institutions can be characterized by highly hierarchical and centralized systems of making key decisions. Seniority drives the authoritarian relationship between upper and lower levels of management and employees.
South Korean decisions tend to be influenced more by reference groups than the Danish whose culture tends to be steered toward individualism. Building trust and relationships is also a key factor for doing business and establishing rapport to establish a successful business relationship for South Koreans while People from Denmark tend to focus on self-reliance, competition and emotional distance from in-groups.
South Korea is ranked 40th on the Corruption Perceptions Index 2008. The index includes 180 countries, where the country ranked as number 1 has less corruption. In 2008 South Korea has a 5.1 confidence rating on the scale where 10 indicates a highly clean country and 1 a highly corrupt one. Denmark is ranked 1st (least corrupt country) with a 9.1 confidence rating (Transparency international, 2009).
- Advice
Entry mode
Based on the analysis on the culture and institutional differences we found that in Denmark there is:-
- Minimal regulation or policy restrictions on FDIs
- Absence of the use of social capital in business relationships
- Easy to set up business
- Low liability of foreigness.
We recommend that wholly owned subsidiary be the entry mode adopted n setting up the subsidiary in Denmark.
Management System
As countries differ in institutional environments, the ease and success of control, coordination and knowledge transfer is influenced by the degree of institutional similarity between the home country of the parent and the host country of the subsidiary (Kostova, 2001).
Some of the strategies and guidelines that could be adopted towards managing this complex cultural cohesion towards a harmonised and coordinated unit may include:-
- Carefully select and socialize newcomers with workshop programs of intra-cultural cohesion and terminate deviants
- Practice clear and systematic top level management commitment
- Formulate a clear strategic vision for the subsidiary in Denmark
- Adopting an achievable culture change at the highest level
- The organization should be structured to support organizational change with a mix of both cultures
- Organisational Structure and Control strategies
- MNC Strategy
There are typically four types of strategies pursued by MNC’s. The choice of strategy is largely influenced by pressures for cost reduction and pressure for local responsiveness. Fig 1 shows a matrix plot of advisable strategy based on organisational objective and market conditions.
Consumer behaviour towards energy consumption is basically universal worldwide and various government regulations in the energy industries show little variation from country to country. However, fierce competition exists between energy companies. This coupled with low switching cost for consumers, make for considerable high cost pressure. The high cost pressure and low pressure for local responsiveness makes a global standardisation strategy the ideal choice for Conako.
This will allow Conako practise a centralized management style: often centralized decision making, administrative control system, standardization, international committees;. Major functions such as production, marketing, and R&D will be concentrated in few favorable locations. As beneficial as the strategy seems, since it offers considerable gains in economies of scale, there are a few disadvantages such as:
- Need to cross international differences and trade barriers
- Need to overcome political disadvantages of non-local operations
Having a strategy is not sufficient. There is need for organisational structure and control strategies which complement the chosen strategy and enhance efficient realization of organisational objectives.
- Organisational Structure
It is pertinent that the right structure to achieve organisational objective through the global standardisation strategy is put in place.
An adaptation of a worldwide product divisional structure is advised. Each division is self contained and responsible for its value creation. Headquarters is responsible for the overall strategic development and financial control.
There can be many arguments for centralisation / decentralisation of decision making responsibilities, but the fact is in practise no absoluteness. We advise a mix of centralisation and decentralisation. The decisions about location of R&D, production and marketing will be centralised at the headquarters. This will allow for coordination, consistency of decision making with organisational strategy and avoid duplication of activities. Some marketing and sales decisions will be decentralised and local country managers will be responsible. This will allow for flexibility and responsiveness.
This structure helps maximize location and experience curve economies. It also facilitates transfer of core competencies, knowledge and simultaneous implementation of new developments. The success of this structure depends on the degree of coordination. A mix of both formal and informal integrating mechanisms is advised to enhance coordination. Formal integrating mechanisms such as: direct contact between managers and liaison roles when necessary. Knowledge and management networks between country managers will also enhance transfer of core competencies.
- Control systems and Incentives
There are four main types of control systems used by MNC’s.
- Personal Control – personal contact with subordinates
- Bureaucratic control – systems of rules and procedures
- Output control – achievement of goals and targets
- Cultural control – exist in firms with strong culture.
MNC’s often use incentives to reward employee’s appropriate behaviours and they are normally tied to performance / output.
Based on the company objective, strategy and organisational structure chosen, a mix of Bureaucratic, personal and output controls will be advisable. Each control system has its strengths and weaknesses.
The high need for coordination and sensitive nature of the Denmark subsidiary dictates the need for a formal, clear and documented control mechanism (Bureaucratic control). However, the disadvantage of this is a lack of personal touch which is provided in the personal control. A mix of both personal and bureaucratic controls is thus advisable. The personal control may also offer a means for managers to inspire their subordinates.
The output control will serve as a driver for employees to improve efficiency and productivity, leading ultimately to increased productivity for the MNC. Employees could be rewarded with incentives such as bonuses.
- Conclusion
The choice of location of FDI is a complex decision which involves the consideration of various factors. While the analysis adopted are not exhaustive, to a large extent they have sufficiently justified the decision taken considering the fact that the data relied upon were researched by independent reputable organisations. In addition these unrelated organisations gave similar results in their rankings.
Even though it might be argued that cultural differences have not been fully explained by available research, reliance on empirically derived cultural dimensions for analysis would guarantee better decision making than subjective judgements.
To this end the use of the organisational and control systems advised (which are based on acceptable standard business practices) in conjunction with the choice of location would ensure the desired objectives are achieved.
- References
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Hall, E.T. (1976). Beyond Culture.Garden City, NY: Doubleday
Hampden-Turner, C. &Trompenaars, F. 1993, in The Seven Cultures of
Capitalism, London, Piatkus, 1993
Heritage Foundation (2009).2009 Index of Economic Freedom. Available at: [Accessed 02/04/09]
Hofstede, G. (1980).Culture's Consequences: International Differences in Work-Related Values.Beverly Hills, CA: Sage Publications.
IMD.2009.World Competitiveness Yearbook 2008.Available online at: [Accessed 02/04/09]
Javidan,M., Dorfman,P.W, Sully de Luque,M. and House,R.J. (2006). In the Eye of the Beholder: Cross Cultural Lessons in Leadership from Project GLOBE. Academy of Management Perspectives, Vol 20, pp 67-90.
Oliver, C. 1997. Sustainable competitive advantage: combining institutional and resource-based views. Strategic Management Journal, 18: 697-713.
Oliver, N., & Wilkinson, B. 1992. The Japanization of British industry. Oxford: Blackwell.
Pierce, J., Kostova, T. & Dirks, K. 2001. Towards a theory of psychological ownership in organizations. Academy of Management Review, 26: 298-310.
Roads2Hy.com(2008).Wind Energy:Research and Development.Available at: 02/4/09]
Scott, W. R. 1995. Institutions and organizations. Thousand Oaks, CA: Sage.
Transparency International 2009. 2008 Corruption Perception Index. Available online at: [Accessed 02/04/09]
UNCTAD 2009. Inward FDI Performance Index 2005-2007. Available online at: [Accessed 02/04/09]
World Bank Group 2009.Doing Business Measuring Business Regulations. Available at: http://www.doingbusiness.org/EconomyRankings/ [Accessed 02/04/09]
World Economic Forum 2009.Global Competitiveness Report 2008-2009. Available online at: [Accessed 02/04/09]
Appendix 1
Wall Street / Heritage 2009 index of economic freedom
Denmark overview
Background
Denmark’s fundamentally strong economy depends heavily on foreign trade, and the private sector is characterized by many small and medium-size companies.
Business freedom
The overall freedom to start, operate, and close a business is strongly protected by Denmark's regulatory environment. Starting a business takes an average of six days, compared to the world average of 38 days. Obtaining a business license requires much less than the world average of 18 procedures and 225 days.
Trade freedom
These are the policies of trade. Denmark’s trade policies are in line with other members of the European Union.
Fiscal Freedom
High income tax rate and a moderate corporate tax rate. The top income tax rate is 59 percent, and the top corporate tax rate is 25 percent. For independent businesses, income kept in the business is taxed at 25 percent. Other taxes include a value-added tax (VAT) and an inheritance tax.
Investment Freedom
Foreign and domestic investors are subject to the same laws. As a rule, foreign direct investment is not subject to restrictions. The investment code is relatively transparent and in line with international standards. Bureaucratic procedures are streamlined and transparent. Incentive financing, often targeted to preserve the environment, is available to foreign and domestic businesses.
Financial Freedom
Denmark's financial system is competitive. There are no state-owned banks, and the central bank is independent. This intense financial-sector competition is intended to encourage technological advancements and an array of services. Financial supervision and regulation are based on EU legislation, and there is a single regulator.
Property Rights
The judiciary is independent and generally fair and efficient. Commercial and bankruptcy laws are consistently applied, and secured interests in property are recognized and enforced. Denmark adheres to key international conventions and treaties on the protection of intellectual property rights.
Freedom from Corruption
Denmark is perceived as one of the world's least corrupt countries, ranked 1st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007.
Labour Freedom
Flexible labour regulations enhance employment opportunities and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is relatively inexpensive.
South Korea
Background
The South Korean economy, the world's 13th largest economy and one of Asia's most successful, has long benefited from relative openness to global trade and investment. The country has sophisticated electronics, telecommunications, automobiles, and shipbuilding industries.
Business Freedom
The overall freedom to conduct a business is well protected under South Korea's regulatory environment. Starting a business takes an average of 17 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Closing a business is easy.
Trade Freedom
South Korea has prohibitive tariffs, import restrictions, quantitative restrictions, services market access barriers, some import taxes, use of “adjustment” tariffs and taxes to increase import costs, burdensome and non-transparent standards and regulations, weak enforcement of intellectual property rights, and subsidies add to the cost of trade.
Fiscal Freedom
South Korea has a high income tax rate but a moderate corporate tax rate. Other taxes include a value-added tax (VAT), a capital acquisitions tax on certain items, and a property tax
Investment Freedom
Though the investment climate is increasingly open, the media, electric power, newspapers, fishing, power generation, airline transport, certain agricultural sectors, and a few other sectors remain restricted. Payments, transactions, transfers, or repatriation of profits are subject to reporting requirements or restrictions on amounts permitted for specified periods.
Financial Freedom
South Korea's modern financial sector has become more open and competitive, providing positive momentum for reforms in other sectors. The insurance sector is well developed, and foreign insurers are prominent. Capital markets are sophisticated and well developed.
Property Rights
Private property is secure, and expropriation is highly unlikely. The justice system however, can be inefficient and slow. Contracts are often considered a matter of consensus. The protection of intellectual property rights needs to be improved, as piracy of copyrighted material is significant.
Freedom from Corruption
Corruption is perceived as present. South Korea ranks 43rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption is encouraged by non-transparent rulemaking and law formulation; exclusionary social, political, and business structures; and insufficient institutional checks and balances.
Labour Freedom
South Korea's labour regulations hinder employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is costly. The high cost of laying off a worker creates a disincentive for hiring and expansion.
The Doing Business 2009
Denmark
Starting a Business
Doing Business records all procedures that are officially required for an entrepreneur to start up and formally operate an industrial or commercial business. These include obtaining all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities.
Employing Workers
Doing Business measures the regulation of employment, specifically as it affects the hiring and firing of workers and the rigidity of working hours.
Registering Property
Doing Business records the full sequence of procedures necessary when a business purchases land and a building to transfer the property title from another business so that the buyer can use the property for expanding its business, as collateral in taking new loans or, if necessary, to sell to another business.
Getting Credit
Doing Business constructs measures of the legal rights of borrowers and lenders and the sharing of credit information. The first set of indicators describes how well collateral and bankruptcy laws facilitate lending. The second set measures the coverage, scope, quality and accessibility of credit information available through public and private credit registries.
Protecting Investors
Doing Business measures the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain. The indicators distinguish 3 dimensions of investor protection:-
- transparency of related-party transactions
- liability for self-dealing and
- shareholders’ ability to sue officers and directors for misconduct
Paying Taxes
Doing Business records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes and contributions.
Trading Across Borders
Doing Business compiles procedural requirements for exporting and importing a standardized cargo of goods.
Enforcing Contracts
Indicators on enforcing contracts measure the efficiency of the judicial system in resolving a commercial dispute before local courts. The data are collected through study of the codes of civil procedure and other court regulations as well as surveys completed by local litigation lawyers and judges.
The GLOBE Project
9 cultural dimensions
Uncertainty Avoidance is defined as the extent to which members of an organization or society strive to avoid uncertainty by reliance on social norms, rituals and bureaucratic practices to alleviate the unpredictability of future events.
Power Distance is defined as the degree to which members of an organization or society expect and agree that power should be unequally shared.
Collectivism I: Institutional Collectivism reflects the degree to which organizational and societal institutional practices encourage and reward collective distribution of resources and collective action.
Collectivism II: In-Group Collectivism reflects the degree to which individuals express pride, loyalty and cohesiveness in their organizations or families.
Gender Egalitarianism is the extent to which an organization or society minimizes gender role differences and gender discrimination.
Assertiveness is the degree to which individuals in organizations or societies are assertive, confrontational and aggressive in their relations with others.
Future Orientation is the degree to which individuals in organizations or societies engage in future-oriented behaviours such as planning, investing in the future and delaying gratification.
Performance Orientation refers to the extent to which an organization or society encourages and rewards group members for performance improvement and excellence.
Humane Orientation is the degree to which individuals in organizations or societies encourage and reward individuals for being fair, altruistic, friendly, generous, caring and kind to others.
Appendix :2
Appendix 3:
Public R&D budgets of EU countries related to wind energy (1993-2003/2004)
