Understanding the Role of Power Distance in Global Outsourcing Relationships (2013)

[Abstract]A theoretical framework for understanding the influence of power on the effectiveness of global outsourcing relationships is presented in this article. Following a review of the research on inter-organizational relationships and the literature on Hofstede's cultural measure of power distance, I propose that the differences in the levels of power distance create particular intra-organizational dynamics by influencing trust, status competition, and role ambiguity within the organization. These variables are subsequently argued to impact the inter-organizational relationship by acting as a mediating mechanism between power distance across levels of analysis and outsourcing effectiveness. Lastly, the moderating role of the type of knowledge outsourced is considered. The relationship between power and inter-organizational effectiveness is argued to be weaker when tacit knowledge is outsourced than when knowledge is explicit. The implications of this model to research on cultural values and the effective management of global outsourcing relationships are discussed.[Keywords] cultural values; power distance; global outsourcing relationshipsIntroductionIn the last two decades, a number of environmental shifts have led to new opportunities for inter-firm cooperation. The globalization of markets and rapid shifts in technologies has fostered greater trade and collaboration between organizations around the globe (Gulati, 1995). Indeed, researchers across varied disciplines from economics to information systems have described a global economy where knowledge and information are seamlessly transferred between organizations, and individuals openly collaborate across geographic distance and national borders. However, researchers in organizational behavior and theory have recently questioned this idea by pointing to structural and cultural factors that can limit the effectiveness of inter-organizational collaborations. In this article, I theoretically address this issue, which is central to an understanding of globalization, by asking whether differences in status and authority are impediments to cross-cultural collaborations between individuals and organizations.I particularly focus on outsourcing - a form of collaboration that has been argued by researchers, such as Lacity and Willcocks (2001), to be prevalent in the heightened level of globalization in today's economy. The outsourcing of products and services to developing countries, like India and China, has lead to significant cost-savings (Dibbern, Goles, Hirschheim, & Jayatilaka, 2004), spurring even greater collaboration of knowledge and services across the globe. I propose that the effectiveness of these outsourcing relationships is largely impacted by the culturally influenced distribution of status and authority within organizations, and examine its manifestation as the cultural dimension of power distance.To study the influence of power distance on the effectiveness of outsourcing relationships, I first review the relevant literature on outsourcing relationships, as well as the research on Hofstede's (1980) cultural dimension. I then propose that the interaction between levels of power distance impacts intraorganizational dynamics by influencing trust, status competition, and role ambiguity within the organization. These variables are subsequently argued to influence the inter-organizational relationship by acting as a mediating mechanism between power distance (at proximal and distal levels) and outsourcing effectiveness. Lastly, I examine the moderating role of the type of knowledge outsourced on the relationship between power distance and inter-organizational effectiveness. Through these propositions, I consider how cultural differences in authority and status limit cross-cultural collaborations and the process of globalization.OutsourcingOutsourcing has been the focus of considerable research in the strategic management literature. …