Special Issue on Knowledge Management in a Local-Global Context

In this paper, the authors explore the influences of two major contextual factors—supplier team members’ cultural understanding and trust relationship—on knowledge processes and performance in global sourcing of IT services. The authors discuss a joint investigation conducted by a cross-cultural research team in China. Cultural understanding is measured by individualism with guanxi and mianzi, two Chinese cultural concepts, and trust relationship is measured by adjusting trust, a notion reflecting the uniqueness of the Chinese people. Knowledge processes are characterized by knowledge sharing. Performance is measured by the outcomes of global sourcing, which is represented by product success and personal satisfaction. Data are collected in 13 companies in Xi’an Software Park, with 200 structured questionnaires distributed to knowledge workers. The results of quantitative data analysis indicate that cultural understanding influences trust relationship greatly, as well as knowledge sharing and performance in global sourcing of IT services. Trust relationship significantly impacts knowledge sharing, whereas trust relationship and knowledge sharing have no impact on performance. This study suggests that special aspects of the Chinese context have significant direct impacts on knowledge processes while no direct and immediate impacts on performance in global sourcing of IT services. capabilities and managing the sourcing process (Willcocks & Lacity, 2007). Also, some research has addressed the soft side of global sourcing, including innovation in relationships, social capital, and knowledge (Oshri, Kotlarsky, & Willcocks, 2008). Further, relevant research has paid special attention to knowledge processes DOI: 10.4018/jgim.2011040101 2 Journal of Global Information Management, 19(2), 1-26, April-June 2011 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. in globally distributed contexts, which typically occurs in the form of knowledge transfer/sharing, knowledge-based coordination, and expertise management (Rottman, 2008; Kotlarsky, Oshri, & Van Fenema, 2008). Research findings show that global sourcing of IT services should be treated as a context-dependent scenario (Oshri, Kotlarsky, & Willcocks, 2008) where country contexts, such as national culture, government policies, political situation, economic conditions, technological environments, firm strategies, etc. should be considered (Seliem et al., 2003; Aharoni & Burton, 1994; Rosenzweig, 1994; Deans et al., 1991; Ein-Dor et al., 1993). These contextual factors contribute greatly to performance in global sourcing by affecting the relationship between supplier’s capabilities and outcome in sourcing processes. Specifically, communication and coordination between supplier and client teams in knowledge processes, such as knowledge transfer/sharing, knowledge-based coordination and expertise management, are influenced by contextual factors, among which cultural understanding often has an intangible but significant impact because partners’ cultural understanding is locally situated, behavioral and embedded in everyday work practices (Weisinger & Trauth, 2002), and trust relationship also has profound impact because partners’ trust is an important aspect of social embeddedness in offshore IS projects (Rai, Maruping, & Venkatesh, 2009). However, few empirical studies are concerned with the impacts of supplier team members’ cultural understanding and trust relationship on knowledge processes or have associated it with performance in global sourcing of IT services. Furthermore, most of extant research has addressed the issues more or less from the perspective of client (e.g., Rai, Maruping, & Venkatesh, 2009) or relied on data gathered from Western cultures (Graf & Mudambi 2005, Heeks & Nicholson 2004, Carmel, 2003). Yet, research findings obtained from firms operating in a Western culture cannot be generalized to other cultures, e.g. the Eastern culture, since global sourcing is country-specific and related to the country’s contexts (Seliem et al., 2003). Moreover, the cultural distance between the West and the East makes the intercultural interaction/trust between them a critical issue different from intra-cultural interaction/trust (Li, 2009), which is usually the research area of extant cross-cultural studies in global sourcing. Investigations of relevant issues in particular areas have emphasized the possible impacts of cultural differences (Straub et al., 2002; Dasgupta et al., 1999; Watson et al., 1997; Al-Khaldi & Wallace, 1999; Hassan, 1994; Wetherbe, Vitalari, & Milner, 1994). In order to strengthen the generalizability of the West-based evidence in global sourcing of IT services, country-specific and intercultural research is imperative. However, very few empirical studies on global sourcing of IT services have explored intercultural issues from the angle of Chinese suppliers, and centered on data collected in China, where the context is socially and culturally different from the usual context, e.g. the Western countries like U.K., U.S, Canada and Ireland, or the countries like India and Philippines which have historical colonial linkages with the West. Therefore, there is a need to broaden the understanding of cultural impact on knowledge processes and performance in global sourcing by conducting investigations in the Chinese context. To address this need, a long-term joint research by the authors of this paper aims to investigate the impacts of cultural differences and test the generalizability of the Westernbased evidence in global sourcing of IT services. This paper will explore the influences of two contextual factors, i.e. supplier team members’ cultural understanding and trust relationship, on knowledge processes and performance in global sourcing of IT services in a Chinese setting. The purpose of this paper is to report on the results of a joint investigation that used questionnaire surveys, and to enhance the understanding of knowledge processes in global sourcing of IT services in a developing country context, i.e., China. For this purpose, first, besides individualism (Hofstede, 2001; Trompenaars, 1994), guanxi and mianzi, and their impacts on knowledge processes in global sourcing Journal of Global Information Management, 19(2), 1-26, April-June 2011 3 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. of IT services will be addressed. In Chinese language, guanxi literally means relationship or connection (Ramasamy, Goh, & Yeung, 2006). Nowadays, it is used to indicate a variety of relationships between people, ranging from family relationships and clan relationships, to collegial relationships resulted from roommates, classmates, schoolmates, or work colleagues in the same company or military troop, etc. Mianzi originally refers to face (Barnes et al. 2010) in Chinese language. It often implies prestige and reputation, and therefore gives rise to expressions like face-giving (Barnes et al. 2010) and face-losing (Bozionelos & Wang, 2007). Guanxi and mianzi are two special aspects that are unique in Chinese culture and widely recognized by most of the Chinese people and some of the Western people (Bozionelos. & Wang, 2007; Keil et al., 2007; Marble & Lu, 2007; Fu, Tsui, & Dess, 2006; Ramasamy, Goh, & Yeung, 2006; Chen & Chen, 2004; Hwang, 1998; Chen & Starosta, 1998; Leung, Koch, & Lu, 2002). Second, trust relationship will be addressed, and a new notion, adjusting trust, will be proposed to highlight the cultural difference in trust relationship. Third, the links among cultural understanding and trust relationship and knowledge process and performance in global sourcing of IT services will be clarified. The differentiation of this work from previously published work is that we will plough deeper along cultural difference between the West and China by using the cultural dimension of individualism (Hofstede, 1980, 2001; Trompenaars, 1994) along with the Chinese cultural constructs, i.e. guanxi and mianzi, that are popular in the social context of China, and we will explore cultural difference between the West and China in trust relationship. The theoretical contribution of this paper may be that it would enrich the theory about cultural difference and its impacts on knowledge processes in global sourcing of IT services by adding new elements to the existing constructs “cultural understanding” and “trust” to extend the existing theoretical model. The findings in this study will have implications to IT services suppliers in both China and other developing countries, to the MNCs/ global corporations who are engaging or wishing to engage with business in China, and to IT services clients all around the world. The implications should enhance the understanding of knowledge processes in global information management in general and in global sourcing of IT services in particular. This paper is organized as follows. First, we briefly introduce the specific context of global sourcing in China. Then, we introduce some constructs, propose a conceptual model, and formulate some hypotheses about contextual factors influencing knowledge processes and performance in global sourcing of IT services. Next, we present the methodology, including sampling, data collection, and data analysis. After that, we show the results of data analysis and explain the findings. Finally, we discuss the theoretical contributions and practical implications of this study, extending the implications of the findings beyond the country boundaries. In the concluding part we give some suggestions for future research. CONTEXT OF GLOBAL SOURCING IN CHINA An increasing number of countries are becoming involved in providing IT and IT-enabled services to meet growing global demand. These services include those related to information systems development, maintenance and operation generally referred to as IT services and those related to IT-enabled non-core business processes. In this paper we use the term global sourcing of IT services to cover all the above areas. Previous research suggests that a number of factors are thought to influence success in global sourcing of IT services in developing countries from both the firm and country levels of analysis. At the firm level, access to location-specific features such as skilled labor, appropriate infrastructure and potential markets seems to influence decisions relating to the location of outsourced and offshored work (Graf & Mudambi, 2005). At the country level successful export strategies 4 Journal of Global Information Management, 19(2), 1-26, April-June 2011 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. may involve interrelated issues such as the local resource base specific to software development, national government investment and incentives, external linkages to other countries including the extended diaspora, local market demand and characteristics of the national software industry (Heeks & Nicholson, 2004). Literature specific to IT outsourcing also echoes these ideas and suggests countries follow a trajectory toward maturity in providing offshore services (Carmel, 2003). The above research findings appear to rely more on the context of the West, which may not be able to address the specificity of the situation in the East, especially in the Chinese context. Therefore, the context of global sourcing in China provides a significant and relevant research platform for both researchers and practitioners to explore these issues further. Global sourcing of IT services provided in China typically includes coding, systems integration, data mining, network management, call centers, back office work and document management, etc. The incidence of large scale outsourced projects is limited, but the growth of global sourcing of IT services activities in China is surprising. India has traditionally led the way in both maturity and breadth of expertise offered in IT outsourcing (ITO) work, with $US40.4 billion/£26 billion in software and services exports in 2008 (NASSCOM, 2008), while the Chinese software outsourcing market was reported to have reached 453 million RMB (£43 million approximately) in the third quarter of 2008, up 8.8% over the last quarter and representing an increase of 19.5% over the same period of the previous year (Analysis International, 2008). However, China is expected to challenge India’s impressive competitive position (Qu & Brocklehurst, 2003) through investment in its skilled human resource capacity and in encouraging foreign direct investment (FDI) in the software development sector, which is the very base of ITO capability. China is thought to be actively addressing areas of weakness such as shortage of skilled labor, quality certification, and fragmentation of the Chinese software industry. This latter aspect is being fortified by boosting the number of software export clusters so as to increase the access to overseas clients seeking global markets for outsourced work. As a result, the Chinese software outsourcing market was reported to have reached 20.1 billion US dollars (ChinaSourcing, 2010) in the year 2009. Furthermore, for years the central government and local governments of China have successively issued strategic plans and preferential policies to encourage the service outsourcing industry. Consequently, a number of cities, e.g. Beijing, Shanghai, Shenzheng, and Dalian, are developing rapidly in the industry. In 2009, twenty cities were commended as the first batch of service outsourcing demonstration cities by the State Council of China. These activities suggest that the political situation, economic conditions, and government policies in China are providing a facilitating environment for global sourcing of IT services to develop and grow. The country level factors mentioned above may be useful to some degree in establishing broad pre-requisites for potential success in China’s service outsourcing industry, but one area that is often neglected is the influence of social contextual factors such as culture, history and institutional settings in creating an environment that may provide uniquely advantageous aspects that can be exploited. Krishna et al. (2000), for example, demonstrate convincingly how India’s social and historical heritage proved invaluable in providing a basis for their well-documented successes in software export. Compared with India, China is intrinsically more distinct from Western countries in terms of its social contextual factors. Thus, for example, China may not be as competitive as India and other rivals, such as Russia and Brazil, in attracting Western clients due to its significant cultural difference, which is even more pronounced than these rivals, who have had extensive historical linkages with Western countries. For this reason, China’s major client to date is Japan, with a market share of 51.6%, while the EU and USA total 32.1% (ChinaSourcing, 2010). Hence, there is room for China to increase its share of the global sourcing market from Western clients. The challenge involved in this development may Journal of Global Information Management, 19(2), 1-26, April-June 2011 5 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. be Chinese suppliers’ cultural understanding and their trust relationship with clients. Some aspects uniquely existed in Chinese culture, e.g. guanxi and mianzi, should be considered along with cultural dimensions originated in the Western studies, e.g. individualism, and the characteristics uniquely observed in trust relationship in China, e.g. the Chinese “middle way” (Chen, 2002), should be incorporated in the frameworks of trust rooted in the Western studies, e.g. cognitionand affect-based trust (McAllister, 1995). To create a cultural context more suitable for global sourcing of IT services, numerous “Software Colleges” and training institutions are emerging in China. These colleges and institutions emphasize not only language but also cultural knowledge and skills training. Furthermore, the Chinese government offers financial support for more and more postgraduate students to study abroad and attract overseas Chinese students back to start their careers or run their businesses in China after finishing studies abroad. In the above specific context of global sourcing in China, this research aims to investigate two major contextual factors, i.e. cultural understanding and trust relationship, which may influence knowledge processes and performance in global sourcing of IT services. CONSTRUCTS, CONCEPTUAL MODEL, AND HYPOTHESES From the perspective of service providers, factors influencing global sourcing can be classified into two categories: internal factors and contextual factors. Internal factors represent some technological and organizational factors, which were addressed by Kotlarsky et al. (2008) as technology-based mechanisms and organization design mechanisms, and were defined by Levina and Ross (2003) as process capabilities and human resource capabilities. Supplier’s human resources, IT-based skills, communication skills, quality standards, and core knowledge/expertise are some examples of internal factors. Contextual factors roughly correspond to Krishna et al.’s (2000) considerations with regard to social and historical heritage. Rai, Maruping, and Venkatesh (2009), Heeks and Nicholson (2004), and Carmel (2003) have addressed these contextual factors in their studies. History of trade linkages, geographical position to clientele, relational factors, cultural issues and political issues are some examples of contextual factors. All the above factors can affect and be embodied in the two sides’ intercultural understanding and intercultural relationship. Among these contextual factors, from the perspective of service providers, supplier team members’ cultural understanding and their trust relationship with client can be two major factors that are related to the clientspecific capabilities defined by Levina and Ross (2003). In addition to internal and contextual factors, attention should also be paid to other environmental factors, some of which were addressed by Heeks and Nicholson (2004) as local market demand and characteristics of the national software industry, others described by Graf and Mudambi (2005) as appropriate infrastructure and potential markets. But, in this paper the emphasis is placed on contextual factors. To simplify the research model, in this paper we address only two major contextual factors, i.e. supplier team members’ cultural understanding and their trust relationship with client, and their influences on knowledge processes and performance in global sourcing of IT services. Therefore, four constructs, i.e. cultural understanding, trust relationship, knowledge processes, and performance, will be considered. Cultural understanding will be addressed by examining individualism along with guanxi and mianzi, two special aspects in Chinese culture. Trust relationship will be probed into by viewing Chinese relationship style within extant mainstream trust frameworks. We endeavor to add something new to the existing constructs “cultural understanding” and “trust” and thereby to extend the existing theoretical model. 6 Journal of Global Information Management, 19(2), 1-26, April-June 2011 Copyright © 2011, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. Cultural Understanding Although much cultural research has already been undertaken, most of these studies have been based on Western management philosophies and theories. Hofstede (1980) advocates the importance of cultural values in conducting cross-cultural study using social psychological perspectives. Trompenaars and HampdenTurner (1997) adopt social anthropological perspectives to research into culture. Since global sourcing of IT services is a rapidly growing phenomenon of ever increasing importance worldwide and China is not only the world’s most populous nation as well as one of the largest national economies but doubtless will also soon be a substantial player in the provision of IT services. Under this circumstance, research of cultural differences should consider Chinese philosophies, e.g. Confucianism, and their influences, and plough deeper the differences between Western culture and Chinese culture. Therefore, we embarked upon our journey with the intention of exploring the cultural differences between the West and China in a new way by considering two major notions of management rationality underpinned by Confucianism, i.e. guanxi and mianzi, hoping to provide a theoretically rich basis for developing more suitable variables to measure cultural understanding. Hofstede’s (1980, 2001) cultural dimensions originally included four dimensions: power distance, individualism, masculinity and uncertainty avoidance, to which long term orientation was added later. Trompenaars (1994) found five cultural dimensions: universalism vs. particularism, individualism vs. communitarianism, neutral vs. emotional, specific vs. diffuse, achievement vs. ascription. One might ask which aspects of “cultural understanding” are important in the Chinese context and why. Answers to such detailed questions would be very interesting and illuminating, and important for practice in global sourcing of IT services involved in Chinese context. From the pilot interviews conducted in this study we know that among those existed cultural dimensions, individualism seemed to better reveal the cultural difference between Chinese culture and