Influence of cultural mechanisms on horizontal inter-firm collaborations

Vilana, José R.; Rodríguez Monroy, Carlos Article Influence of cultural mechanisms on horizontal inter-firm collaborations Journal of Industrial Engineering and Management (JIEM) Provided in Cooperation with: The School of Industrial, Aerospace and Audiovisual Engineering of Terrassa (ESEIAAT), Universitat Politècnica de Catalunya (UPC) Suggested Citation: Vilana, José R.; Rodríguez Monroy, Carlos (2010) : Influence of cultural mechanisms on horizontal inter-firm collaborations, Journal of Industrial Engineering and Management (JIEM), ISSN 2013-0953, OmniaScience, Barcelona, Vol. 3, Iss. 1, pp. 138-175, https://doi.org/10.3926/jiem.v3n1.p138-175 This Version is available at: https://hdl.handle.net/10419/188418 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/3.0/ doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 138 J. R. Vilana; C. Rodríguez-Monroy Influence of cultural mechanisms on horizontal inter-firm collaborations José R. Vilana, Carlos Rodríguez-Monroy Universidad Politécnica de Madrid (SPAIN) joseramon.vila[email protected]m; [email protected]m.es Received September 2009 Accepted June 2010 Abstract: The evolution of organizations that work in multinational environments has considerably altered their production strategies. One of the consequences has been the appearance of Horizontal Inter-firm Collaborations (HICs), which include all kinds of enterprises and production centres and establish a new type of horizontal collaborations and relations between independent companies or even competitors who establish occasional collaborations on projects they could not take on individually. HICs are dynamically changing organizations formed by Original Equipment Manufacturers (OEMs), Contract Manufacturers (CMs), turn-key and component suppliers, R+D centres and distributors. The dynamic relations that exist within the HICs allow them a very permeable organization easy to connect and disconnect from one to each other as well as to choose a set of partners with specific attributes. The result is a highly flexible system characterized by low barriers to entry and exit, geographic flexibility, low costs, rapid technological diffusion, high diversification through contract manufacturers and exceptional economies of scale. This study of organizational culture at the network level includes aspects such as cultural similarity among its actors, social embeddedness, tacit knowledge transfer or the importance of trust atinter-firm collaborations. The presence, under a systemic perspective, of homogeneous cultural values and practices in which collaboration actors can be identified may strengthen the group membership or establish a social network that underlies the own HIC and facilitates interactions among its members. The feasibility of this approach would facilitate the formation of new HICsby establishing, ex ante, a cultural prescriptive model at the network level. Finally, to validate the proposed doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 139 J. R. Vilana; C. Rodríguez-Monroy model, the case methodology have been applied to an example within the aeronautical industry that has been one of the most successful relationships within HICs, the collaboration between GE and SNECMA for the CFM 56 engine manufacturing. Keywords: horizontal inter-firm collaborations, aeronautic industry, GE, SNECMA 1 Introduction Today, the concept of plant or production centre is becoming increasingly more ambiguous. In many industries, there is growing collaboration between production centres and manufacturing networks that seek to respond to market demands more efficiently and obtain competitive advantages in an increasingly globalized environment. Horizontal Inter-firm Collaborations (HICs) allow companies to focus on their core competences, maintaining their participation in the design and manufacture of complex integrated systems. These collaborations can be considered as extended manufacturing systems where various companies can co-operate on a specific project whose result is the manufacture of a product or the provision of a service and where each company is expert in one or more of the areas that give the product its value. Although there are hardly any theoretical models or studies on how these networks function, they are known to develop on a large scale and involve a complex number of participants that include enterprises, organizations and institutions covering several countries or even continents. Figure 1. “Theoretical framework of cultural mechanisms in HICs”. This work will analyze the possible existence of an organizational culture at the network level based on some cultural mechanisms acting under a systemic THEORETICAL FRAMEWORK OF CULTURAL MECHANISMS IN HORIZONTAL INTER-FIRM COLLABORATIONS Cultural Mechanisms Cultural Mechanisms Formation of Relationships in Inter-firm Collaborations Formation of Relationships in Inter-firm Collaborations Benefits of Systemic Culture Benefits of Systemic Culture doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 140 J. R. Vilana; C. Rodríguez-Monroy perspective that influence the success or survival of inter-firm collaborations. The hypothesis of the existence of a homogeneous culture in the HIC where actors can be identified would strengthen the group membership, minimize inter-company conflicts or increase the interactions among its members. Figure 1 contains basic aspects of the conceptual model to be developed where some cultural mechanisms influence in the dynamics of HICs. This work will analyze the nature of these mechanisms, their influence on the construction of these networks and their mutual interaction. Albeit true origins of these mechanisms are based on the traditional principles of organizational culture, its dynamics in HICs is considerably different. These mechanisms, in some cases, underlie some organizations even before the formation of relationships (ex ante mechanisms) and, in other cases, arise subsequently to the formation of the relation and exert a considerable influence in it (ex post mechanisms). The effect of these mechanisms, if well managed, can produce significant benefits in their own HIC which will result in an increase on its efficiency. Section 2 of this work includes the most interesting contributions of the literature concerning Horizontal Inter-firm Collaborations (HICs)and corporate culture. Sections 3, 4, 5 and 6 develop the four nominated cultural mechanisms that are similarity of cultural practices, social embeddedness, trust and tacit knowledge transfer. The proposed conceptual model is developed in section 7 as well as the mutual influence of these cultural mechanisms and the benefits of a systemic culture. To validate the model proposed, section 8 applies the case methodology to one of the most successful examples of horizontal cooperation in the aeronautical industry, the CFM 56 engine manufacturing collaboration between GE and SNECMA, where it is analyzed the importance of the four nominated cultural mechanisms. Finally, section 9 summarizes the most relevant contributions of this work as well as some proposals for further developments in this field. 2 Literature review The concept of culture applied to business organizations is not new. Although many authors (e.g. Schein, 1985 and Trice & Drink, 1993) have developed approaches and theories to suit organizational culture to new business environments, the underpinning on which they are based do not seem radically different to those doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 141 J. R. Vilana; C. Rodríguez-Monroy adopted by Mayo (1930) to explain the concept of informal organization with their experiment in the Hawthorne plant. Subsequently, many authors have referred to this concept in the theory of organizations as one of the most relevant ones. Hofstede et al. (1990) argue that organizational culture has acquired a status similar to the structure, strategy and control. Although there is no consensus on a definition of organizational culture, many authors agree that it is a holistic concept, historically determined, related to anthropological aspects, built on social relations, based on soft aspects and it is difficult to change once implemented. The utility or usefulness of organizational culture is one of the most recurrent themes in the theory of organizations. According to several authors (e.g. Pothukuchi et al., 2002 and Trice & Drink, 1993), the need for a corporate culture in an enterprise is evident since facilitates internal cohesion, aligns its members with the mission and objectives of the company, resolve internal conflicts, lead and shape attitudes and behaviours and establish organizational boundaries to differentiate the own organization from others. Figure 2. “Basic aspects of HICs”. Within the context of HICs, the necessity or functionality of a systemic culture presents a more complex dilemma. The heterogeneity of network actors, their •Mutual influence of cultural mechanisms STRATEGY STRUCTURE DYNAMICS CULTURE GMVN •Collaborative Manufacturing •Manufacturing Grid •New non “Porterian” approach based on horizontal collaborations •Network actors (nodes) •Relations among its members •New balance of power among its value chains •Mutual influence of cultural mechanisms STRATEGY STRUCTURE DYNAMICS CULTURE GMVN •Collaborative Manufacturing •Manufacturing Grid •New non “Porterian” approach based on horizontal collaborations •Network actors (nodes) •Relations among its members •New balance of power among its value chains doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 142 J. R. Vilana; C. Rodríguez-Monroy diverse backgrounds and their different roles and interests seem to contradict the fundamentals of the organizational culture. At the same time, it seems plausible the existence of some cultural mechanisms that underlie the network and act as elements that facilitate interactions between enterprises. The effect of organizational culture on enterprise networks performance has been studied by many authors (e.g. Brown et al., 1988; Park & Ungson, 2001; Pothukuchi et al., 2002; Hofstede, 2009) where the vast majority affirms that cultural differences between network actors affects negatively their performance. In the late '80s and early '90s, due to the intense and growing global market demand, many companies seriously considered the benefits of interconnected production networks. In some industries such as aeronautics (Shi et al., 2005), electronics (Shi et al., 2003) or automotive (Sturgeon, 2002), HICs have become a phenomenon of important growth with high potential to meet an ever more demanding and fragmented market (Shi et al., 2003). Many scholars have studied this phenomenon from different perspectives. Under a strategic perspective, HICs follow different patterns to the traditional and endogamic "Porterian" approach (Porter, 1996) based on searching a balance of forces in the sector and on achieving a sustainable competitive advantage over time. Because of the strong component of horizontal relationships between competitors that exists in these networks, researchers have sought new ways of analysis like structural (Chen & Yao, 2003) or emotional mechanisms (Zeng & Chen, 2003; Gulati & Nickerson, 2008). Under a strategic perspective, some authors have analyzed the search of a competitive advantage at the network level based on a global view, where the fit of activities based on the combination of specific skills allow HICs to effectively compete in the market (Hoopes, 2003). A variant of this approach is what Doz and Hamel (1998) called "cospecialization" by proposing that actors should specialize in complementary activities to those of other network members in order to avoid redundancies or excessive overlaps, and thus optimize the value creation in the network (Vilana & Rodríguez-Monroy, 2009a). Other relevant works about these organizations were made by Johansen (2005) who analyzed the production strategy change of the aeronautical manufacturer SAAB AERO to join the Airbus manufacturing network. Meixell (2004) studied the convergence of these organizations with mass customization systems and Williams et al. (2001) doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 143 J. R. Vilana; C. Rodríguez-Monroy surveyed the relations among supply chain members and offset strategies in the global aerospace sector. Also from the perspective of its dynamics, Li et al (2004) analyzed manufacturing grids or collaborative manufacturing networks which have a strong presence in sectors such as computer manufacturing, astronomy and bioinformatics (Liu & Shi , 2008). These works study how to coordinate the use of heterogeneous and independent manufacturing resources distributed throughout the network. Recently, several authors have developed conceptual models referred to the organization of information and communication technologies (ICTs) needed in this type of organization (e.g. Camarinha et al., 2009; Chituc et al., 2008). However, there are still many aspects to develop in this field like the development of a comprehensive ICT prescriptive model that can manage HICs or if it is necessary or not to direct these networks. Anyhow, some research fields need further development like collaborative strategies among network actors or cross-cultural attributes at network level. Future works should also deep into a comprehensive understanding of all HICs features and their interdependence. By understanding the main building blocks of these organizations and their management processes, it will be possible to formulate a strategy and design process for developing effective HICs in the future. The graph in Figure 2 sets out a basic outline that includes the four building blocks that encompass all relevant aspects of HICs: strategy, structure, dynamics and culture. 3 Similarities of cultural practices between network actors It seems that there is a general consensus among most of scholars (e.g. Pothukuchi et al., 2002; Park & Ungson, 2001) about the importance of cultural similarities in inter-firm collaborations to conclude that participants with similar cultural values reach high assessments of satisfaction, learning and collaboration efficiency. While cultural differences among its actors hinder learning, satisfaction and efficiency of collaboration. Culture acts as a "social glue" (Cartwright & Cooper, 1993) that serves as a union between persons of different organizations to create, subsequently, a cohesion between companies. Different types of organizational culture create different psychological environments in alliances so that cultural doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 144 J. R. Vilana; C. Rodríguez-Monroy differences lead them to cause a negative influence on their performance (Beugelsdijk et al., 2009). Therefore, we can affirm that the degree to which fits the organizational culture of the companies forming part of an alliance is directly related to the success of it. Companies participating in a partnership with strong differences in their organizational culture must spend enormous energy and time to establish management practices and organizational routines that facilitate the interaction which can lead to high costs and loss of trust compared to companies similar culturally (Park & Ungson 1997). The problem arises when specifying what cultural similarities are necessary, what mechanisms or aspects of organizational culture are more relevant when measuring the efficiency of collaborations. Besides, cultural values that according to many authors are the essence of organizational culture are not easily discernible in a company and are unlikely to be detected before starting collaboration. Although many authors (e.g. Deal & Kennedy 1982, Schein, 1985) argue that values are the essence of organizational culture and that these can not be known explicitly, Hofstede et al. (1990) argue that cultural practices are as they are perceived in the daily routine, the heart of an organizational culture. That is, the values of the leaders become practices shared by members of the organization transmitted by socialization. Empirical studies conducted by Hofstede et al. (1990) show that cultural values differ more between individuals with different demographic characteristics, age, nationality and education regardless of the organization in which they work. In addition also showed that people who belong to different organizational cultures (different companies) often have different cultural practices but may share similar cultural values. This is because, as Hofstede et al. (1990) argue, cultural values are acquired in the first years of life, in the family and educational environment, while organizational practices acquired in the workplace through socialization. Under this approach, cultural practices are those that determine organizational culture rather than its values. Therefore, it is essential that there is some degree of similarity in these practices when formalizing inter-firm relations. Differences in cultural values related to national culture, education or family background do not pose insurmountable obstacles in the collaboration between companies. Subsequent studies endorsed this new approach as Park and Ungson (1997) who doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 145 J. R. Vilana; C. Rodríguez-Monroy explore how partnerships between companies from different nationalities have no influence with the alliance failure rate. A classification of these cultural practices would be the proposal of Hofstede (2009) who suggest six key practices within an organization that distinguish their management approach. When different companies that must work together show great differences in these practices conflicting behaviours arise and adversely affect the collaboration. These management practices include 1) process-oriented vs. results-oriented, 2) employee-oriented vs. job-oriented, 3) amateur vs. professional; 4) open systems vs. closed systems; 5) loose vs. tight control and 6) pragmatic versus normative. In a HIC, differences in these cultural practices among companies who intensively collaborate can signify an overwhelming obstacle since means an opposite way of looking at activities in an organization such as internal communication, achievement of objectives, career system or formal and informal structure which is a conflict in the performance of the duties, expectations and practices. Therefore, we can affirm that the basis of an organizational culture at a HIC should avoid a high degree of incompatibility in their cultural practices. This fact will make more efficient the cooperation between its members and will avoid losing large amounts of energy and resources to bridge these differences. Although, it is not necessary to prevent these differences in their values that depend more on the type of context the network actors work and develop such as education or national environments. This would ensure the efficiency of interaction among its members or even the survival of the network itself. The problem arises when, once HIC collaboration is formalized, strong inconsistencies are detected in one or more cultural practices described above. In fact, it is exceptional to find a company with which is wished to establish a partnership and there is a strong compatibility and similarity of all cultural practices. Cultural practices do not constitute a cause of such collaboration but are a necessary condition for its success. The collaboration between GE and SNECMA for the aircraft engine manufacturing CFM 56, partially solved this dilemma by constituting, ad hoc, some new departments and internal processes, identical in both companies, exclusively related to the new program for developing the CFM engine. This measure allowed the formation of subcultures in these departments doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 152 J. R. Vilana; C. Rodríguez-Monroy inclusive, easy to communicate and may be inferred through action allowing a wider and deeper understanding of explicit knowledge. Explicit knowledge is encoded and formally standardized in an organization. It is systematic and can be filed, transmitted and acquired through different mechanisms. Knowledge transfer in HICs can be done through various mechanisms from detailed formal contracts that establish conditions for such transfer including technical consulting support, technological transfer contracts, licenses, technical support, specifications, technical documentation or supply of equipment to more informal arrangements where there is no explicit action. For example, GE Energy requires that all its maintenance centres throughout the world use a particular type and model of high-tech equipment for surface coatings. This standard equipment has implicitly embedded GE "know how" through uniform equipment parameterization according to internal developments of the company. In this way, GE ensures a minimal learning curve in using this equipment, an immediate diffusion of recent developments and homogeneity in their work. Another example is the case of Knowledge transfer in HICs is positively associated with motivational willingness to share knowledge, the initial stock of knowledge of the actors, the intensity and fluidity of the transmission and the ability to absorb knowledge (Cohen & Levinthal, 1990). Tacit knowledge transfer is an ex post cultural mechanism that satisfies many of the demands of HICs. One of the reasons to exist these networks is the ability to transfer and make use of knowledge more efficiently in an environment of alliances rather than through external market mechanisms. Anyhow, this argument does not mean that tacit knowledge is easily transferred through the network since this fact will be determined by the collaborative and competitive position of the network actors. In the proposed model, tacit knowledge is an ex post mechanism that appears after the formalization of the relationship and it is largely influenced by the different competitive and collaborative positions that take the HIC participants. Larsson et al. (1998) study this phenomenon in a dyadic collaboration by applying an adaptation of the prisoner's dilemma through the game theory. Depending on the positioning of each network actor before the knowledge transfer in a dyadic context (e.g. compromise, collaboration or competition), each participant can evolve towards collaboration or opportunistic positions. doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 153 J. R. Vilana; C. Rodríguez-Monroy This type of knowledge represents one of the most efficient competitive advantages sustainable over time (Gupta & Govindarajan, 2000). It is also one of the main factors that help to differentiate companies from each other (Trice & Beyer, 1993). There are many possibilities that a strong tacit knowledge transfer between two network actors produce a convergence in their cultural practices and consequently this fact will help to homogenize culturally the network. Thus it can be affirmed that tacit knowledge transfer in a HIC can help to build a systemic culture. When a network actor shares with other participants, a kind of knowledge which is one of its most important assets, what determine its own identity and distinguishes it from other enterprises in the network, when this asset is diluted and expanded through the HIC, a process of cultural homogenization start to occur in the network. Proposition 5: An intense tacit knowledge transfer between HIC actors increases the similarity of cultural practices, helps to homogenize culturally the network and builds a systemic culture. 7 Conceptual framework of cultural mechanisms in HICs Figure 5 shows the conceptual framework that integrates the cultural mechanisms seen previously between whom there is a constant interaction both before the formalization of the partnership and after forming a continuous process where these mechanisms are mutually reinforcing. Although they come from the discipline of organizational culture, they have a different meaning within HICs. They are divided according to their influence on the formalization of the relationship in mechanisms ex ante and ex post. The ex ante mechanisms condition the formation of the HIC by determining the energy that will be necessary for establishing that relationship. These mechanisms are the similarities of cultural practices and social embeddedness. Ex post mechanisms facilitate and enhance the interaction of actors in the network once the relationship is formed and they are tacit knowledge transfer and trust. doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 154 J. R. Vilana; C. Rodríguez-Monroy Figure 5. “Cultural mechanisms in horizontal inter-firm collaborations”. 7.1 Mutual influence of cultural mechanisms These four cultural mechanisms should not be seen as something static and independent but as dynamic mechanisms that continuously influence each other throughout the duration of the collaboration in an evolving process where they can go strengthening the relationship. For example, social embededness accelerates the exchange of tacit knowledge to improve the understanding, assimilation and cooperation (Uzzi, 1997). This mechanism facilitates the proper interpretation of knowledge, provides feedback means that ensure that the procedures have been interpreted correctly and that it is properly transferred. Tacit knowledge transfer in HICs is facilitated in many cases through strong relationships or social ties that promote a mutual learning process because it requires not only adequate absorption capacity but ability to overcome social barriers in the organization. The interaction and influence between cultural similarities and tacit knowledge transfer is also a notorious in a HIC. Very large cultural differences between network actors can undermine the relationships and impede learning and knowledge transfer. The transfer of competencies and skills is more complex when cultural barriers are greater (Kogut, 1988). People with very different cultures have more trouble communicating, sharing their experiences and relying on each other •Structural and social dimension •Slow evolution over time •The higher trust within collaboration the higher degree of virtualization in relationships •Absorptive Capacity •Driving force of homogeneous systemic culture Relationships Formation among Collaboration actors •Identification of cultural practices with organizational culture •Strong influence in collaboration efficiency Cultural Practices Similarities Social Embeddedness •Social Network Embedded in collaboration •Time factor to consolidate social relationships •Importance of previous relations Ex ante Mechanisms Ex post Mechanisms Tacit Knowledge Transfer Trust doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 155 J. R. Vilana; C. Rodríguez-Monroy (Carroll & Teo, 1996). Also Cohen and Levinthal (1990) argue that absorptive capacity may differ among different actors in a network due to the different degree of cultural homogeneity among them. Dieter (2002) argues that knowledge transfer is inculcated within organizations through their organizational culture. It is therefore important that when two players interact they share a mutual understanding, a similar culture language and their social and personal characteristics are similar. Although trust begins once the relationship is established (ex post mechanism) and develops over time, in many cases, social embeddedness underlying the business relationship tends to accelerate this process. An exception to this influence where high levels of trust may occur in the network without an intense process of socialization is the case of network actors with high reputation. Typically, managers of enterprises involved in an inter-firm collaboration will not transfer, unilaterally or bilaterally, individual tacit knowledge to other parties until a minimum level of trust has been reached. Trust also facilitates this process of sharing knowledge by creating a sense of security that knowledge will not be used beyond its primary objective (Fichman & Levinthal, 1991). Similarities in cultural practices between HIC actors accelerate a rapid growth of social relations at both interpersonal and later at enterprise level and will be the perfect breeding ground for budding social network on which to base further business relations. 7.2 Benefits of cultural mechanisms Cultural mechanisms greatly influence the formation and survival of HICs by exercising a number of cultural benefits seen before. A summary of these benefits are 1) easy integration of new members or collaborators in a HIC based primarily on social embeddedness, i.e. references or past experiences of one or more actors in the network, 2) increase of a homogeneous culture increasingly strengthened due mainly to the social network of relationships that were established, similarity of cultural practices and tacit knowledge transfer and 3) reduced transaction costs caused mainly by increased trust between network actors. First steps in the formation of a HIC are complex. Network actors have great difficulty in obtaining information on needs and skills of potential new participants. This information is often confidential and not generally disclosed to anyone outside the organization. Social embeddedness of the companies involved in this process doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 156 J. R. Vilana; C. Rodríguez-Monroy accelerates HIC mutual understanding by reducing the ambiguity in the information, also reducing the fear of opportunistic behaviour of potential partners. The implicit assumption that large enterprise corporations or even external collaborations with capital participation (joint ventures) are more efficient than virtual collaborations is not necessarily true. Depending on the complementarity of resources, the initial stock of social commitment and trust, these virtual collaborations can become more efficient. Thus, the assumption of some authors (e.g. Williamson, 1985) that the degree of virtualization and monitoring costs are directly proportional is questionable. The incremental cost of managing a virtual collaboration increases partly due to the costs of supervision to avoid opportunistic behaviour. But an environment with intense activity of the four cultural mechanisms can significantly reduce transaction costs. Following the approach of Williamson's transaction costs (1985), HICs emerge as a hybrid system where such costs are not high enough to justify the internalization of activities but, at the same time, they are not low enough to be subcontracted in the market. Throughout this work, we have seen how some cultural mechanisms such as social embeddedness or trust that can exert a very sensitive influence in reducing these costs. In fact, it might be the case that an activity is not profitable to outsource through a HIC because of its high transaction costs; it is so over time due to the effects of these cultural mechanisms by reducing transaction costs. In fact, under this approach, it should be reviewed the possibility of outsourcing to HICs most of the activities taking place internally. Proposition 6: The degree of virtualization in HICs with strong activity of the four cultural mechanisms and transaction costs are not directly correlated. Proposition 7: Under the perspective of transaction cost theory, non profitable collaborations with other HIC actors can become profitable due to the influence of cultural mechanisms. Figure 6 represents the proposed conceptual model where the four cultural mechanisms interact with each other and influence the relations of the actors in HICs before and after the formalization of the collaboration. For the success of the relationship, from this cultural perspective, it is not necessary that all mechanisms have a strong activity but there is some harmony or synchronization between doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 157 J. R. Vilana; C. Rodríguez-Monroy them. For example, a relationship between two actors with strong differences in their cultural practices can be successful if previously there is an intense activity of social relations between them. Or tacit knowledge transfer may be minimal in a successful relationship because the other mechanisms are intensively active. In the collaboration between GE and SNEMCA, cultural similarities are minimal but the intense activity of the other three cultural mechanisms supplied that lack. Figure 6. “Conceptual framework of systemic culture in HICs”. 8 Model validation 8.1 Methodology In order to validate the proposed framework of systemic culture, the case methodology will be applied to one of the most successful examples in the aeronautical industry on inter-firm collaboration between competing enterprises. This is the alliance between General Electric and SNECMA, a classical example of horizontal relationship, to manufacture the aircraft engine CFM 56. Since little is known about how cultural mechanisms work in HICs with a comprehensive perspective, methodology used, according to Yin (1994), has been exploratory and descriptive based on a case study with qualitative approach. Exploratory studies are appropriate when the research problem is difficult to delimit, the problem is not well known and the available knowledge is not absolute. A qualitative case study approach has a distinct advantage when how or why Reduction of transaction costs Relationships Formation among Collaboration actors Cultural Practices Similarities Social Embeddedness Increase of Collaboration identity and cohesion Increase of new trustworthy network actors Benefits of systemic culture in Horizontal Interfirm Collaborations Tacit Knowledge Transfer Trust P6,P7 P3, P4 P5 P1 P2 Ex ante Mechanisms Ex post Mechanisms doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 158 J. R. Vilana; C. Rodríguez-Monroy questions is being asked about a contemporary set of events over which the researcher has little or no control. This qualitative approach based on a case study has been applied to the collaboration between GE and SNECMA due to the holistic character of systemic culture. Thus, it will permit to study this HICs phenomenon from the inside and gain a deeper understanding rather than a quantitative approach more convenient when clearly stated hypothesis can be tested on welldefined narrow studies (Yin, 1994). Therefore, this approach using the case method to the collaboration between GE and SNECMA will allow a detailed analysis of its culture through a real case for better understanding of the proposed model. Data collected for this research work has been through interviews, literature review, documentation studies and on-site observations to achieve relatively high construct validity. Data were obtained through a number of visits, during six years (1999-2005), to the engine manufacturing plants of SNECMA (Evry-Corbeil, France) and GE Aero (Eskiseir, Turkey) , where open interviews were carried out to relevant executives of these facilities. Additional methods of data collection were used to triangulate the data obtained from the interviews and on-site observation. These sources of data were a review of company documentation (annual reports, key financial data, shareholders information, catalogues and company web page), professional market reviews, specialized internet sites and literature reviewto achieve a high construct validity (Yin, 1994). Although this author also states that since case studies rely on analytical generalizations, which should try to generalize findings to theory, external validity should be high. However since this work only involves one case study, the ability to generalize is rather low. Thus more extensive case studies to other similar collaborations or to another industrial sectors where HICs are starting to grow to a great extent (e.g.: automotive or electronics industries) might stress the findings of this work in the future. Williamson (1991), among others, argues that alliances between competitors are inherently temporary and unstable. These collaborations are doomed to fail in the long term especially with the risk of opportunistic behaviour by actors in search of short-term results without having to deal with expected long term uncertain returns. However, GE-SNECMA collaboration is a contradiction to this approach and a model in cooperation between direct competitors. Although the reasons for this strategic partnership were obvious, besides the technological, commercial and operational complementarities there were also many cultural aspects that strongly doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 159 J. R. Vilana; C. Rodríguez-Monroy influenced the success of this relationship. This case is about the well known collaboration between GE and SNECMA under a new perspective based on the proposed systemic culture framework; a cultural perspective. 8.2 GE-SNECMA collaboration General Electric (GE) and SNECMA are two of the largest aircraft engine manufacturers within the global market and although they are direct competitors, from the beginning, they clearly had a strategy of collaboration in manufacturing a mid-range engine in civilian industry to enter a promising market segment in which they were no present. Both partners had convergent strategic interests: competing with their common "enemy", Pratt & Whitney, that for decades it was the leader of this market with its JT8D model and enter mid-range engine civilian market due to its enormous potential. GE was very interested in this collaboration because it represented a good opportunity to penetrate into the European market where he barely had any presence. In addition, he could avoid the strong competitive position that Pratt & Whitney hold in the U.S. market. It also counteracted any European alliance around another major manufacturer, Rolls Royce, and took advantage of good relations of SNECMA with the European consortium Airbus, one its best potential customers. SNECMA also looked forward to this collaboration since it allowed him to acquire knowledge and experience in manufacturing, marketing and service in the civil aeronautical industry (Doz and Hamel 1998). In addition, there were strong technological complementarities; GE owned an important know-how in high-pressure components and engine combustion chamber while SNECMA had more experience in the compressor and low pressure turbine. There was also a strong commercial complementarity for GE and SNECMA since they had strong presence in North American and European markets and very weak in the other respectively. The beginnings of the collaboration between General Electric, through its aeronautical subsidiary GE Aviation, and SNECMA started in 1960 and continue today. The first steps began with SNECMA minority participation in a program led by GE for the CF6 engine manufacturing. Subsequently, the collaboration continued in 1973 with the joint manufacture of the CFM56 engine, which has meant the most successful engine in the aeronautical industry for mid-range aircrafts. Contractual relations that were established with the joint manufacturing of CF6 doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 160 J. R. Vilana; C. Rodríguez-Monroy engine to power Douglas DC10 and Boeing 747 aircrafts was an opportunity for both sides to know each other, to share reasonable risks and evolve over time to a more personal or emotional context based on trust developed during those years. In the early stages, this collaboration did not need much interaction from the two companies because of experience, knowledge and capacity of both partners enabled them to develop jointly the engine without high mutual dependency between the parties. The heart of the new CFM 56 engine would be based on the F101 engine developed by GE for the B1 bomber from the U.S. Air Force. SNECMA would provide the low-pressure system to convert the F101 in a new engine well adapted to the civilian industry. GE provided expertise in designing and manufacturing high-pressure compressor, high-pressure turbine and the combustion chamber while SNECMA was responsible for the low-pressure turbine, low-pressure compressor, lubrication systems, fuel and fan. Moreover, in order to avoid opportunistic behaviours, typical in the early stages of a collaboration when trust is not well developed yet, it was adopted a mechanism called "black box approach” whereby the contributions of intermediate products or subassemblies are brought into the alliance without disclosing the "know how" itself that contains the product (Zeng & Chen, 2003). Therefore, to avoid any undesirable technology transfer, the main engine manufactured by GE, which covered much of the F101 military engine development was sealed before being sent to SNECMA for final adjustment (Dussauge & Garret, 1999). Then, once they started testing the engine and began to be in service, it required a greater mutual interaction to optimize its performance but by then the participants had learned to trust each other. The fact of not having to establish at the beginning a strong collaboration when trust between the two sides had not yet been consolidated, permitted to perfectly fit the growing need for interdependence with the growth of mutual trust through daily work and socialization. Moreover, instead of approaching the alliance as a highly formalized process tightly regulated by a contract with strict clauses that controlled all processes, which was very normal in the military industry where GE and SNECMA were more focused, both parties understood to define new processes more responsive to the new spirit of collaboration within the civil industry. This collaboration was based from the beginning in a flexibility that allowed them to resolve incidents or resistance that arose over time. For example, GE and SNECMA periodically readjusted its profit- doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 161 J. R. Vilana; C. Rodríguez-Monroy sharing formula because of unexpected changes in currency exchange or inflation, though they were not explicitly formalized in the contract (Lewis, 1990). Furthermore, in a first phase, both companies created new departments and new internal processes, identical in both companies, exclusively dedicated to the new program for developing the CFM engine. This measure allowed the formation of subcultures in these departments with high degree of cultural practices similarity between the two companies. Subsequently, it was created a 50-50% joint venture based in the United States at the headquarters of GE, but led by a French executive with a council made up of staff and directors of both companies. The president and Vice President were from SNECMA and the CFO and another executive Vice President were from GE. The staff team of directors of both companies should ratify all major decisions. This hierarchical management system allowed the alliance to control any type of contingency when it occurred and avoid opportunistic behaviour in a natural way. Figure 7. “Schematic of CFM 56 engine collaborative manufacturing between SNECMA and GE”. Since the beginning of the partnership, the senior management of GE and SNECMA showed a high commitment to the alliance so when more operational staff showed signs of resistance or potential opportunistic behaviour this tendency was soon interrupted by the senior management (Matta, 1992). Although they had moments of tension, structural complementarities and social quality of the relationship has enabled the alliance to survive until today. In fact, these conflicts strengthened the relationship by providing expertise to tackle future situations that were more complex without destroying the commitment in the project. SNECMA: Low pressure turbine, low pressure compressor, lubrication and combustible systems GE Aviation: Combustion chamber, high pressure compressor an high pressure turbine. Combustion Chamber Turbine High Low Compressor Low High Fan Colaboration between GE and SNECMA in the CFM 56 Engine Manufacturing doi:10.3926/jiem.2010.v3n1.p138-175 JIEM, 2010 – 3(1): 138-175 – Online ISSN: 2013-0953 Print ISSN: 2013-8423 Influence of cultural mechanisms on horizontal inter-firm collaborations 168 J. R. Vilana; C. Rodríguez-Monroy P6 and P7, which should be validated through quantitative methods. 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