The importance of national culture in the design of and preference for management controls for multi-national operations

This study investigates the e€ects of national culture on ®rms' design of and employees' preference for management controls. Data for testing two hypotheses are collected from 159 Taiwanese managers working in six each of Japanese-, Taiwanese-, and U.S.-owned, size-matched, computers/electronics ®rms in Taiwan. Overall, the results are consistent with national culture a€ecting these ®rms' design of and employees' preference for seven management controls, though there also are anomalies. These ®ndings are combined with prior research for identifying desirable improvements in research design and method, variable measurement and selection, and, most important, the theoretical foundation for culture-based research on management controls. # 1999 Elsevier Science Ltd. All rights reserved. Management control systems (MCSs) help organizations to increase the probability that employees make decisions and take actions which are in the organizations' best interest. Prior research on the determinants of MCS design has reported that MCSs are contingent on technology, competition, environmental uncertainty, and organizational size (Otley & Wilkinson, 1988; Fisher, 1995). Extant research also has reported that organizational structures are contingent on these variables (Hall, 1987; Lincoln & Kalleberg, 1990). However, while similarities exist across countries in the relationship between organizational context (e.g. technology, size, uncertainty) and organizational design (e.g. formalization, standardization, decentralization), considerable variation remains across countries which these contingency variables do not explain (Child, 1981; Lincoln&Kalleberg, 1990). In addition, extant research on the preferences for and design of MCSs has reported cross-national di€erences. (Examples of such research will be presented later.) Together, these latter ®ndings are consistent with the existence of nation-speci®c factors which a€ect the design of and preference for controls within a country. The purpose of this study is to advance understanding of how national culture a€ects preferences for and the design of MCSs. This is an important topic in the current era of global operations, as companies increasingly need to know whether management controls that are e€ective in one national setting will have alternate levels of e€ectiveness if used in a di€erent national setting. A number of prior studies have investigated this issue (Birnberg & Snodgrass, 1988; Harrison, 1992, 1993; Ueno & Wu, 1993; Chow et Accounting, Organizations and Society 24 (1999) 441±461 0361-3682/99/$ see front matter # 1999 Elsevier Science Ltd. All rights reserved. PII: S0361-3682(99)00047-0 * Corresponding author. al., 1994, 1996; Harrison et al., 1994; Merchant et al., 1995; O'Connor, 1995). While some support has been found for the predicted e€ects of national culture on MCS preference and design, the results of many tests have been either nonsigni®cant, or signi®cant but either the sign of the mean di€erence or the form of the detected interaction was opposite to prediction. An important cause of these mixed within-study results may be ine€ective control for the e€ects of contingency variables. For example, many prior studies have used samples of managers who work for ®rms in di€erent countries. But there can be great variation in such ®rms' technology, uncertainty and size, which could drive or confound the test results. In addition, ®rms that operate in di€erent national settings may be subject to di€erent laws, regulations and local competitive factors (e.g. labor supply) which can impact their MCS design. Thus, while it seems appropriate to test for the e€ects of national culture on MCSs by comparing samples from di€erent national cultures, not controlling for other factors, such as ®rm size and industry, can signi®cantly reduce the reliability of the results. A consideration in the design of the current study was to preserve comparability to prior studies in order to facilitate an integrative evaluation of these studies. Thus, we retained Hofstede's taxonomy of national cultureÐwhich all of the prior related studies (except Birnberg & Snodgrass, 1988) had used Ðas the basis for deriving predictions. To control for the e€ects of other contingency variables, data are collected from managers of a common ethnicity (Chinese) who are employed by 18 ®rms from the same geographic location (a high-tech industrial park outside Taipei) and industry (electronics and/or computers). Six each of these ®rms are Japanese-, U.S.-, and Taiwanese-owned, and they are matched on size across national ownership. Inferences about the importance of national culture are drawn based on comparing the JapaneseandU. S. -owned ®rms' controls in their Taiwanese operations against those of the local Taiwanese-owned ®rms. The remainder of this paper is organized into ®ve sections. The ®rst section provides a review of prior research on national culture and management control and then develops predictions about Japanese-, US and Taiwanese-owned ®rms' MCSs in their home-country and Taiwanese operations. The second section develops two hypotheses and analyzes issues related to the design of the empirical study. The third and fourth sections describe the empirical method and results. The ®nal section discusses the empirical results and provides suggestions for future research. 1. Literature review This section provides a brief review of theoretical taxonomies of work-related national culture. Then it reviews cross-national studies which have tested predictions based on Hofstede's (1980, 1991) taxonomy concerning either MCS preference or design, or the e€ects of a national culture-by-management control interaction. Next, Hofstede's taxonomy is used to develop predictions about the design of and preference for seven management controls in Japaneseand US-owned ®rms' home-country operations as well as the controls they and Taiwanese-owned ®rms use in their Taiwanese operations. Predicted Japan±US home-country di€erences are compared to extant research ®ndings to shed further light on the ecacy of Hofstede's taxonomy and to provide a basis for inferring culture-driven changes that Japanese and U. S. ®rms need to make to their domestic MCSs for transfer to their Taiwanese operations. (Only minimal comparative ®ndings for Taiwan are available.) 1.1. Theoretical taxonomies of national culture Several taxonomies exist that identify and operationalize components of national culture (Hellriegel et al., 1992; Smith, 1992; Adler, 1996; Hodgetts & Luthans, 1997). The initial appearance of these taxonomies spans a considerable time period, with two recent additions being those of Schwartz (1994) and Trompenaars (1994). Schwartz (1994) has 10 national culture typesÐ Achievement, Benevolence, Conformity, Hedonism, Power, Security, Self-Direction, Stimulation, Tradition, and UniversalismÐwhich have a two442 C.W. Chow et al. / Accounting, Organizations and Society 24 (1999) 441±461