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The Influence of Trust on Leader-Member Exchange in Culturally Diverse Leader-Member Dyads

Rahel Rüth

THE INFLUENCE OF TRUST ON LEADER-MEMBER EXCHANGE IN CULTURALLY DIVERSE LEADER-MEMBER DYADS

Rahel Rüth

THE INFLUENCE OF TRUST ON LEADER-MEMBER EXCHANGE IN CULTURALLY DIVERSE LEADER-MEMBER DYADS

I      Abstract

Due to the increased need of multinational companies to manage business activities abroad, this study examines the influence of trust on culturally diverse Leader-Member Dyads. By interviewing both leaders and members of nine German-Chinese dyads employed in German multinational enterprises in mainland China, the study finds that trust is a necessary precondition for establishing high-quality exchange between culturally diverse co-workers. However, quality of exchange is valued differently across cultures. Moreover, cultural and linguistic hindrances to the formation of trust particular to the German-Chinese context are identified. After having established a trustful relationship, co-workers can capitalize on the cultural diversity of their partner in order to accomplish common objectives and increase work efficiency. It is finally found, that a process of cultural approximation exists, that simplifies the formation of trust and high-quality Leader-Member Exchange (LMX).

Findings contribute to LMX theory by putting culturally diverse Leader-Member Dyads to the focus of attention. Furthermore they extend upon culture specific management and leadership research by highlighting differences inherent to German and Chinese management practices.

II   Table of Contents

I      Abstract

II     Table of Contents

III    Table of Figures

IV    Table of Abbreviations

1      Introduction

2      Theoretical Framework

2.1    LMX Theory: Evolution and Conceptual Discrepancies

2.2    Trust: Models and Forms

2.3    Culture: Comparability Along Dimensions

2.4    Integration: How the Concepts of LMX, Trust and Culture Relate

2.4.1  LMX and Trust

2.4.2  The Component of Culture

2.5    Evidence from China and Germany

2.5.1  The Concept of Trust in China and in Germany

2.5.2  The Concept of LMX in China and in Germany

2.6    Research Objectives

3      Methodology

3.1    Research Design

3.2    Research Setting

3.3    Data Collection

3.4    Data Analysis

4      Findings and Propositions

4.1    The Importance of Trust in Cross-Cultural LM-Dyads

4.2    The Influence of Culture on Trust and LMX

4.3    The Process of Cultural Convergence

5      Discussion

5.1    Theoretical Significance

5.2    Managerial Implications

5.3    Limitations

6      Conclusion

V      References

VI     Appendix – Interview Outline

III   Table of Figures

Figure 1: Integrative Model of Trust

Figure 2: Different Forms of Trust

Figure 3: Classification of Culture According to Triandis

Figure 4: Model of Relational Leadership

Figure 5: Overview of Investigated LM-Dyads

Figure 6: Importance of LMX in China and in Germany

IV   Table of Abbreviations

ALS

-

Average Leadership Style

CBT

-

Calculus-Based Trust

EU

-

European Union

FDI

-

Foreign Direct Investment

GDP

-

Gross Domestic Product

H-I

-

Horizontal-Individualist

IBT

-

Identification-Based Trust

LM-Dyad

-

Leader Member Dyad

LMX

-

Leader-Member Exchange

MNC

-

Multinational Company

MNE

-

Multinational Enterprise

MNT

-

Multinational Team

PPP

-

Purchasing Power Parity

PRC

-

People’ s Republic of China

SET

-

Social Exchange Theory

US

-

United States

USA

-

United States of America

V-C

-

Vertical-Collectivist

VDL

-

Vertical Dyad Linkage

WVS

-

World Values Survey

1      Introduction

“To an ever-increasing extent, ‘work’ involves close interaction and cooperation with people who come from a national-societal cultural background different from one’s own”. Ferrin and Gillespie (2010, p. 42) trace this emerging condition back to an increasingly globalized world, in which multinational enterprises (MNE) operate on intertwined international markets, occupy a culturally diverse workforce and due to the rise of new communication technologies consider it a matter of course to work in global virtual teams (Ferrin & Gillespie, 2010). Along with the relentless advance of globalization and its worldwide consequences, managers and employees are increasingly confronted with the challenge of managing “unfamiliar relationships with unfamiliar parties” (Saunders et al., 2010, p. i).

It was in the early 1970s that Graen and colleagues introduced a new approach to leadership in organizations (e.g. Graen et al., 1972; Dansereau et al., 1975), claiming that “leadership can only occur in the vertical dyad” (Dansereau et al., 1975, p. 76). By shifting the focus of leadership research on the dyadic work relationship between a superior leader and a subordinate member, Graen and fellow scholars enabled management researchers to take a closer look at how leadership dynamics evolve in particular work relationships. The focus on dyadic relationships between a superior and a subordinate proved to become the cornerstone of modern-day Leader-Member Exchange (LMX) theory, a construct that measures the quality of the exchange between leader and member in a vertical dyad.

In a globalized and interrelated world however, LMX theory needs to keep pace and evolve along with the changing realities of our time. When work involves the interaction and cooperation with people from diverse cultural backgrounds, LMX theory needs to put focus on the dyadic work relationships between leaders and members from different cultures. Following the dyadic leadership approach, it is thus the aim of this study to contribute to the challenges modern-day management is facing in a globalized world.

Researchers have indeed dealt extensively with LMX theory ever since it’s introduction, and scholars have acknowledged the importance of integrating the construct of culture with LMX (Hiller & Day, 2003). However, even though integrating the component of culture to their research, the vast majority of studies addresses LMX in LM-Dyads to which both partners bring the same cultural background, while no influential works focusing on culturally diverse LM-Dyads can be detected. Scandura and Lankau (1996) noted the absence of LMX research focused on culturally diverse LM-Dyads early on and called for research directed to this niche. However, their call remained largely unheard, which is why a research gap is evolving that this study is aiming to address.

Since trust is described as being “essential for stable social relationships” (Blau, 1964, p. 99), the concept takes a prominent place in LMX literature. Scholars agree that trust positively influences LMX (e.g. Gómez & Rosen, 2001; Dirks & Ferrin, 2001; Ferris et al., 2009), but debate lengthily over the exact nature of the relationship (Scandura & Pelligrini, 2008). The element of trust has even been considered in studies addressing LMX in a cross-cultural context (e.g. Dulebohn et al., 2012; Rockstuhl et al., 2012), but although a clear connection is drawn between trust and LMX in an intercultural context, focus is continuously laid on mono-cultural LM-Dyads.

By aiming at addressing the emergent research gap, this study puts focus on two specific cultural backgrounds, namely that of the People’s Republic of China (PRC) and that of Federal Republic of Germany. The economy of the PRC has gained significant importance during the last two decades, evolving from a third world country to one of the world’s most powerful economies of the 21st century (IMF, 2015). It is tied to Germany by strong economic bonds, mutual trade and a considerable amount of reciprocal FDI (Foreign Direct Investment) (OECD, 2014). From a managerial point of view China and Germany therefore represent an interesting example for the challenges of modern-day management. However, from a researcher’s point of view the opposing cultural backgrounds of the two countries in various cultural classifications (e.g. Hofstede, 1980, Triandis, 1995, Hall, 1976) render the two distinct cultural contexts even more promising as object of research.

By qualitatively interviewing leaders and members of nine German-Chinese Leader-Member Dyads (LM-Dyads), all of them employed in German MNEs but stationed in Mainland China, this study is examining how trust is built up between them and how it influences the quality of their exchange. It is thereby answering the need of both Chinese and German managers to understand their partners’ leadership practices and to establish efficient work relationships with them. Furthermore in concentrating research on culturally diverse LM-Dyads, the study addresses the identified research gap. Thereby the main focus of interest always lies on the importance of trust for cross-cultural LMX. The study addresses the importance of trust for both members of culturally diverse LM-Dyads, questioning whether differences can be detected across cultures. Hereby the process of trust formation and the generation of high-quality LMX across cultures are highlighted further. Finally the process of cultural approximation is investigated and conclusions on its relevance for LMX in culturally diverse LM-Dyads are drawn.

In order to address the research objectives, first a comprehensive literature review is conducted, thus providing a theoretical framework for the study. In a second step the applied methodology is presented and the choice of the research setting thereby explained in depth. Findings are derived subsequently, followed by a discussion that puts them in the perspective of existent theories. Finally managerial implications will be summarized and limitations of the study outlined.

2      Theoretical Framework

The following section gives an overview of the development and current state of research in LMX and trust literature, presenting seminal works, pointing out central debates and explaining important concepts. Established links between both areas are pointed out and tied to findings of the field of intercultural studies. By contrasting the concepts’ state of research in a German and a Chinese context the starting point for further research is identified and the research questions of the study derived.

2.1    LMX Theory: Evolution and Conceptual Discrepancies

In 1972 Graen and colleagues first directed the attention of the field of leadership research to the dyadic work relationship between supervisors (leaders) and their subordinates (members). They argued that an Average Leadership Style (ALS), which is the general leadership style of a supervisor towards the group of his subordinates, could not sufficiently explain variations in leader behavior. Building on their observations, Danserau and colleagues (1973) proposed the Vertical Dyad Linkage (VDL) model, thus shifting focus from the behavior of a leader towards his “members-in-general” (Dansereau et al., 1973, p. 187), to the behavior of a leader towards a member-in-particular. The concept stresses that the individual personality and situation of members significantly influences the relationship between leader and member. From then on the particular relationships between a leader and each of his assigned members became the basic unit of analysis. The vertical dyad is thereby composed of three defining elements: First, a superior, second, a subordinate and third, a set of exchange relationships between the two (Graen et al., 1977). Focusing on the latter, VDL theory was developed further and emerged to be known as “Leader-Member Exchange” (LMX) theory (Graen & Cashman, 1975). As LMX literature thus studies the exchange relationship between leader and member, the theory is rooted in Social Exchange Theory (SET) (Settoon et al., 1996), which examines social exchanges in various contexts.

Although much research has been conducted on LMX since the construct’s development in the 1970s (Graen & Uhl-Bien, 1995; Rockstuhl et al., 2012), scholars criticize that little theorizing groundwork has been presented, research has not been consolidated and literature is discordant even about the construct’s basic definition (Schriesheim et al., 1999). However, the majority of studies on LMX agree that the nature of the construct can be described as the quality of the exchange relationship between supervisors and subordinates (Graen & Scandura, 1987; Schriesheim et al., 1999). Furthermore, consistency among researchers is found in the construct’s basic assumptions. As the theory is rooted in SET, scholars agree that the interactions between leaders and members are interdependent and contingent on the actions of the respective partner (Blau, 1964; Cropanzo & Mitchell, 2005). This implicates that LMX can be measured along a continuum reaching from high-quality exchange towards low-quality exchange (Dienesch & Liden, 1986). High-quality exchange is thereby marked by feelings of mutual obligation and reciprocity (Gouldner, 1960; Liden et al., 1997) whereas low-quality relationships are defined by a mere economic, formally agreed upon exchange (Blau, 1964). Although researchers agree that high-quality LMX contains reciprocity (Brower et al., 2000), this reciprocity is not necessarily a balanced one. Research states that the assessment of LMX quality can vary between members of a LM-Dyad, with one partner rating it very high while the other partner is considering it to be low (Gerstner & Day, 1997).

Due to discrepancies in the conceptualization, the measurement of LMX remains inconsistent as well. Various scales were proposed, with most of them lacking proper justification by their authors (Schriesheim et al., 1999). Furthermore, scholars question the emergence of a one-dimensional LMX construct (ibid.), suggesting that in line with its theoretical underpinnings of SET, LMX was much more to be seen as a multidimensional construct (Dienesch & Liden, 1986, Liden et al., 1997).

Dienesch and Liden (1986) suggested a three-dimensional model of LMX, proposing the dimensions of “Contribution”, “Loyalty” and “Affect” (Dienesch & Liden, 1986, pp. 624). Their approach was validated in various quantitative studies (e.g. Phillips et al., 1993; Liden & Maslyn, 1998; Greguras & Ford, 2006) and further enhanced by Liden and Maslyn (1998), who built upon their dimensions and identified an additional one: “Professional Respect”. The dimension of Contribution thereby points to the respective efforts each co-worker contributes in order to reach the mutual goals of the dyad. Loyalty is the public support for the co-worker and his or her goals, Affect relates to the mutual liking both coworkers have for each other and Professional Respect means the perception of the partner’s excellence in his or her work. Although later studies identified additional dimensions (Schriesheim et al., 1999; Brower et al., 2000), the proposal of Liden and Maslyn (1998) has been widely accepted as the conceptual basis of multidimensionality in LMX research (Schriesheim et al, 1999; Greguras & Ford, 2006).

However, discordance among scholars and conceptual ambiguity of the construct reaches even further. Scholars have tested various antecedents and consequences of LMX, with no one aiming at inductively deriving a complete set that would contribute to the theorizing groundwork of the LMX construct. Thus, tested antecedents as well as outcomes are manifold but seemingly unstructured. Brower and colleagues (2000) even point out that the dimensions identified earlier by Liden and Maslyn (1998) could as well be interpreted as antecedents of LMX, as none of them is a necessary condition for LMX but they rather “contribute to the level of LMX in an additive fashion” (Brower et al., 2000, p. 235). Dulebohn and colleagues (2012) realized the absence of a comprehensive empirical examination of antecedents and outcomes of LMX and in addressing the research gap conducted a meta-analysis, uniting 247 studies, examining 21 distinct antecedents and 16 consequences of high-quality LMX.

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