Culture and Innovation in Peru from a Management Perspective

Political stability, macro-economic caution and the aggressive pursuit of free trade have enabled Peru to emerge as one of the fastest growing economies in Latin America. This economic expansion has created heightened interest in the evolution of corporate culture and its influence on firm performance. This paper examines organizational performance in relation to the influence of cultural values on innovation by means of a survey of upper level managers. Involvement in innovation did not assist sales growth whereas involvement in open innovation did. There was a positive relation between open innovation and power distance and uncertainty. No relationship was identified for individualism and masculinity. Practical implications are open innovation may enhance business performance while declining power distance and lower aversion to uncertainty can have a positive impact as well.


Introduction
The global banking crisis triggered by massive defaults in the sub-prime mortgage market in the United States followed by the emergence of the sovereign debt crisis in the European Union have combined to result in the longest economic downturn since the Great Depression of the 1930s.Although the adverse impact of this recession has been greatest in the industrialized nations, many emerging economies have also been affected by the global downturn.In the case of Latin America, these developments come in the wake of massive privatization schemes, domestic market liberalization, and free trade agreements (Reficco & Ogliastri, 2009) all designed to make their respective societies more competitive now and in the years ahead.evertheless, many countries in the region and their respective firms have had difficulty in sustaining economic growth in the face of declining demand for goods and services in their key markets in Europe and North America.Drucker (1985) posited that post-war business survival rates were likely to be highest among firms which engaged in innovation.Other studies have also concluded that innovation focusing upon creating new products and services during a recession will assist firms to emerge from an economic downturn in a much stronger position (Trott, 1998).Most organizations engaged in developing new products traditionally maintain a relatively "closed" system in order to retain ownership of proprietary knowledge.Chesbrough (2003) posited "open innovation" is more effective because it provides access to new knowledge .Brettel, Engelson, and Heinemann (2008) concluded that the success of innovation will be influenced by how national cultures impact the internal behavior of organizations.
The vast majority of management research has focused on firms located in industrialized economies such as the United Kingdom or United States.Hence the question arises whether theories concerning innovation and the influence of cultural values on the innovation process are as equally applicable to firms based in an emerging economy.The purpose of this study is to examine this question in the context of the recent performance of companies in Peru.

Recent Trends in Peru
Few nations have experienced the extreme changes in government economic policy, social, and political upheaval, and shifts in business environment that Peru has witnessed over the last four decades (Jaramillo & Silva-Jauregui, 2011) .The country transitioned from military dictatorship in the 1970s to nearly 15 years of terrorist activity beginning in the early 1980s accompanied by hyperinflation that reached over 7000% in the early 1990s (Murakami, 2007).In 1991, these developments gave way to a government policy of aggressive privatization and the pursuit of free trade (ADEX, 2005;Gonzalez Vigil, 2009).A wave of-foreign investment followed and has continued up to the present (de Althaus, 2007;Dube, 2011).In the new millennium political stability, macro-economic caution and the aggressive pursuit of free trade enabled Peru to emerge as one of the fastest growing economies in Latin America (Tello & Tavara,201 0).This economic expansion has created heightened interest in the evolution of corporate culture and its influence on firm performance (de Althaus, 2007;Flores & Ickis, 2007;Quiroz, 2008;Gil, 2009;Jaramillo & Silva-Jauregui, 2011).

Different Dimensions to Culture
Culture influences peoples ' attitudes, beliefs, and decision making (Aycan, 2000).Several taxonomies exist in relation to measuring culture but possibly the most common taxonomy used in marketing is that of Hofstede (Coviello & Jones, 2004).Hofstede (2001 ) posited that culture has four critical dimensions, namely, power distance, uncertainty avoidance, individualism-collectivism, and masculinity-femininity.Power distance refers to the degree of centralized decision structures and the use of formal rules (Trianus, 1994).Uncertainty avoidance looks at whether difficult situations are to be engaged, tolerated, or avoided.The individualism-collectivism dimension reflects the extent to which the interests of an individual or a group are afforded more importance.Masculinity-femininity defines the degree to which a society is dominated by such masculine values as achievement and self-assertiveness versus feminine values such as discretion, modesty, and tolerance.
There is significant variation in national cultures across the world.As illustrated in Table 1, Peru, similar to other South American countries, has a high score for power, low scores for uncertainty and individualism, and a high score for masculinity.This contrasts with the relatively low scores for power, high scores for uncertainty and individualism, and a low score for masculinity in Western industrial democracies.Inglehart and Abramson (1 999) posited that the existence of cultural differences between nations is attributable to the influence of economic development on the priority given certain values.As rising incomes lead to feelings of greater security, for example, a materialist emphasis diminishes to be replaced with more post-materialist goals.Unlike the emerging economies in Asia, however, Peru and other South American countries have a high score for masculinity.Although Peru 's economy has grown in recent years, the prospects for further growth remain less certain in view of the overall state of the world economy.The country remains heavily reliant upon mining and agricultural exports-two sectors which exhibit volatility in both demand and prices (Anonymous, 2009).One of the features of markets during periods of economic uncertainty is that the majority of firms tend to adopt a survival strategy of seeking to reduce operating costs and to compete on the basis of lower prices (Bacot, Hartman, & Lundberg, 1992).Building upon theories generated by the Austrian School of Economics (Schumpeter, 1934), Drucker (1985) posited that successful managers exploit innovation to provide an effective response during periods of economic uncertainty.This viewpoint has been validated by studies of firms which survive a recession (Ghemawat, 1993;Trott, 1998).The importance of innovation has recently been endorsed by a survey of over 1,000 CEOs (IBM, 2008).In the face of the worst recession since the 1930s, their view was that survival and growth are dependent upon sustaining innovation and embedding an entrepreneurial culture across their organizations.
These observations provide the basis for the following hypothesis: H 1: The sales performance of firms in Pen1 will be higher among those manifesting a greater engagement in innovation.Ulijn and Weggeman (2001) and Westwood and Low (2003) demonstrated that successful innovation requires specific antecedents with culture being an important determinant.High power distance is associated with hierarchies and rigid controls.This can reduce the level of information sharing inside the organization (Van Evergingen & Waarts, 2003).In cultures that exhibit lower power distance there tends to be better communication which enhances the sharing of ideas.

Innovation and Culture
These observations provide the basis for the following hypothesis: H2: There is a positive relationship between declining power distance and innovation in firms operating in Peru.
Innovation is associated with greater tolerance of uncertainty.In those cultures which use rules to minimize ambiguity, this value can create barriers in the development of new ideas.An aversion to uncertainty may also mean employees tend to avoid proposing new solutions (Williams & McQuire, 2005).

These observations provide the basis for the following hypothesis:
H3 : There is a positive relationship between decreasing uncertainty aversion and innovation in firms doing business in Peru.
Emphasis on collectivism leads to focus on sustaining group agreement and cohesiveness.In individualistic cultures, greater value is placed on the freedom of the individual (Waarts & Van Everdingen, 2005).Innovation is often associated with the actions of the indi vidual who is prepared to challenge convention (Chaston, 2009).Individualism can also assist radical innovation, as demonstrated by Shane ( 1992) who found a positive correlation between the inventions patented and individualism.

These observations provide the basis for the following hypothesis:
H4: There is a positive relationship between increasing individualism and innovation among firms in Peru.
Highly masculine cultures are dominated by values such as achievement, independence, and personal success.As innovation involves risk, it would seem reasonable to assume high levels of innovation are likely to occur in masculine societies.However, Williams and McQuire (200 5) and Shane (1993) found no correlation between economic creativity and masculinity.One possible reason is that in feminine societies there is a focus on conflict avoidance and trust.Hence Nakata and Sivakumar (1996) proposed feminine societies create environments which assist employees more effectively in coping with the uncertainties associated with innovation.

These observations provide the basis for the following hypothesis:
H5: There is a no relationship between masculinity and innovation in firms operating in Peru.Chesbrough (2003) posited that there are two approaches to the management of innovation; namely, (i) the traditional practice of keeping all information confidential and all activities confined to staff inside the organization, and (ii) an emerging new philos-

1:
ophy which he labelled "open innovation" in which the organization shares informatiwith external entities and perceives innovation as a collaborative activity.All inno ation involves generative learning which leads to the acquisition of new knowled (Kuratko, Hornsby, Naffziger, & Montagno, 1993;Lundvall 1998;Oguz, 2001;Popp & Lipshitz, 1998).Huang, Wang, Tseng, and Lee (2010) posited that open innovatioleads to business growth by permitting organizations to leverage more ideas from variety of external sources.Freel (2006) concluded that open innovation enhances the probability that flrrns will achieve business growth by developing new products o production technologies.Christensen, Olesen, and Kj aer ( 2005) concluded open innovation is influenced by (i) firms' position in their market system, (ii) the position o"" products on the Product Life Cycle Curve, and (iii) the potential scale of opportunities for value added.Although open innovation provides access to more ideas, Birkinshaw. Bouquet,and Barsoux (20 11) noted the costs of open innovation can be considerable.Chesbrough (2003) suggested companies' approach to open innovation can be described as existing on a continuum rangi ng from a low to a high degree of "open• ness."Lichtenthaler (2008) concluded that openness seems to rise with the degree o emphasis on radical innovation.Chesbrough (2007) posited that in the current econo mically uncertain world open innovation may foster the evolution of new strategie which are more appropriate for ensuring organizational survival.
Theories concerned with the benefits of open innovation suggest the fo llowing hypothesis: H6: In Pent, the performance of firms will be higher among those engaged in open innovation.Jaworski and Kohli (1966) and Slater and Narver (1995) concluded market-oriented organizations exploit new sources of knowledge to outperform their competitors.Wiklund and Shepherd (2002) proposed participation in business networks offers access to new knowledge .This perspective is shared by Chen, Duan, Edwards, and Lehaney (2006), Niehaves (20 1 0), Mohannak (2007), Moensted (20 1 0), and Ojala and Tyrvained (2009).They posited that the creation of new knowledge from collaborative activities is critical in ensuring an adequate response to changing external environments.Lindsay (2005) and Palacios, Gil, and Garrigos (2009) determined that knowledge acquisition was especially critical in innovation management in knowledgeintensive organizations.Kenworthy (1995) and Lundvall (1998) concluded that national culture and corporate culture may influence the willingness of organizations to collaborate in the development of new products or processes.Tellis, Prabhu, and Chandy (2009) confirmed this perspective in a cross-cultural study of open innovation processes across 17 countries .Wang and Rafiq (2009) noted that in entrepreneurial collaboration, there is a critical need to integrate learning styles such that all participants are able to effectively incorporate new knowledge from external sources.For the process to be effective there is a necessity for a high level of trust between the collaborators (Lundvall, 1998).A hierarchical structure and a rules-based approach is an obstacle to the achievement of trust.

Lowering Power Distance and Uncertainty A voidance
These perspectives lead to the following hypothesis: H7: In Peru, power distance will be lower in firms involved in open innovation.
VanderMeer (2007) concluded that a key reason why many Dutch firms avoided involvement in open innovation was their perception that this was a high-risk activity.Firms felt collaboration increased the probability that confidential information would become known to competitors.Lazzarotti, Manzini, and Pellegrini (2010) reached a similar conclusion in relation to Italian firms.
These perspectives lead to the following hypothesis: H8: In Peru, there is a lower level of uncertainty aversion in firms involved in open innovation.Saussois (2003) suggested that information technology has the potential to greatly assist inter-organizational knowledge sharing.In his view, a critical aspect of process design is to ensure individuals have the freedom to interact with individuals both inside and outside the organization.
This conclusion provides support for the following hypothesis; namely: H9: There is a higher level of individualism in firms in Peru involved in open innovation.
Masculinity is considered to be reflected in a greater emphasis on achievement and personal success whereas in contrast feminism is believed to reflect an orientation towards minimizing conflict and resolving differences of opinion.Chaston (2009) concluded that trust is critically influenced by collaborators achieving consensus m determining appropriate actions.
This perspective provides the basis for the following hypothesis; namely: HlO: There is a lo wer level of masculinity in those firms operating in Peru involved in open innovation.

Capturing the Perceptions of Managers
Commercial databases in Peru tend to be limited in their coverage of certain sectors and firms within sectors.Hence, we decided to survey higher level private and public sector managers emolled at CENTRUM, the Catholic University of Peru's postgraduate school of business administration.To measure cultural values, we used the survey tool developed by Hofstede (2001).It measures power distance, uncertainty avoidance, individualism-collectivism, and masculinity-femininity.In doing so, we assumed respondents' values are a reasonable indication of the values of the organizations where respondents are employed.As the basis of our assumption, we postulated that higher level manager/respondents are at a point in their career where their values are (a) reasonably compatible with their place of employment and (b) have a relatively strong influence over the values of the work force they interact with at the company.
To assess organizational performance, we utilized the technique validated by Chaston and Mangles ( 1997).In doing so, we asked respondents to comment on average sales growth over the last three years on a five-point scale ranging from "sales declined by more than 10%" through to "sales increased by more than 10%."To determine involvement in innovation, we followed Brettel et a!.' s (2008) advice that in international research, the measure of entrepreneurial orientation developed by Covin and Slevin (1998) is an appropriate tool.Respondents are provided with a five-point scale ranging from "very strongly disagree" through to " very strongly agree."This scale assumes a conservative versus an entrepreneurial orientation exists as a continuum.A higher score indicates an entrepreneurial orientation and can be assumed to be more heavily involved in the exploitation of innovation as a strategy for optimizing performance.The scale is not intended to measure absolute values.Instead, strength of entrepreneurial orientation, hence degree of involvement in innovation is assessed in relation to whether an organization has a higher or lower score relative to the mean score for the entire sample.
Most studies of open innovations have been of a qualitative nature (Van de Meer, 2007).This situation creates an obstacle for researchers because there is a lack of accepted survey tools for empirically assessing organizations' involvement in open innovation.An exception to this generalization was a study of Italian firms undertaken by Lazzarotti et a!. 's (20 10).Their measurement of participation in open innovation involved examining the purpose, aims, and rationale for involvement using a five -point scale ranging from "strongly disagree" to "strongly agree."In our study, we used the following questions to provide the basis for calculating the overall mean of the level of open innovation within an organization:

Survey Results
We received usable responses from 239 individuals.Our visual inspection of the data indicated variation between respondents from different sectors of industry.However, we found that an ANOV A to assess variation by sector was not statistically significant at p<0.05 .Hence, we used all of the survey forms in the subsequent analysis.
We also found that Cronbach alpha scores for the variables which constitute the entrepreneurial orientation scale were greater than 0. 7. Hence, we could use all the variables to calculate the overall mean employed in the regression analysis (Hair, Anderson, Tatham, & Black, 1998).The overall mean value for entrepreneurial orientation was 2.84.As shown by the results in Table 2 the regression analysis of sales performance and entrepreneurial orientation was not statistically significant at p=<0.05We then generated Cronbach alpha scores for the variables which constitute Hofstede's four dimensions of culture.They were all greater than 0.7.The overall means for power distance, uncertainty avoidance, individualism-collectivism, and masculinity-femininity were 2.57, 1.157, 2.42 and 1.74, respectively.As summarized in Table 2 the regression analysis of entrepreneurial orientation, power distance, and uncertainty avoidance were both statistically significant at p=< 0.05 In contrast, our regression analysis of entrepreneurial orientation, individualism-collectivism, and masculinitymininity were not statistically significant at p=< 0.05.We next calculated Cronbach alphas to test the reliability of the multiple measurement variables associated with assessing open innovation.All values were greater ilian 0.70 which allowed us to use them in our subsequent regression analysis.The mean scores for purpose, aims, rationale, and behavior were 3.29, 2.82, and 3.08, respectively, yielding an overall mean score for open innovation of3.11.We then carried

13:
out a regression analysis of sales performance in relation to involvement in open inn~ vation and as shown in Table 3.The result turned out to be statistically significant p=< 0.05.The mean value of 3.11 for open innovation provides a mid-point for the degree of involvement in this activity.We assumed that firms with a mean for open innovation of less than 3.11 have a low level of involved collaborative innovation.The means for power distance, uncertainty avoidance, individualism-collectivism, and masculinityfemininity in relation to involvement in open innovation were 2.57, 1.27, 1.91, and 2.63, respectively.As summarized in Table 3, the regression analysis of open innovation, power distance, and uncertainty avoidance were both statistically significant at p=< 0.05 In contrast, our regression analysis of •open innovation and individualismcollectivism and masculinity-femininity were not statistically significant at p=< 0.05.

Discussion and Conclusions
The regression of business performance in relation to entrepreneurial orientation which was used as a measure of innovation was not statistically significant at p=<0.05.Thus, our survey results do not support the hypothesis H1 that the sales performance of firms in Peru will be higher among those manifesting a greater engagement in innovation.Although Georgellis, Joyce, and Woods (2000) posited that entrepreneurship leads to higher business growth, our results were unable to validate this viewpoint in relation to Peruvian firms.Instead, we interpret the implication of our findings to mean that under prevailing circumstances a more conservative managerial orientation in Peru can be just as effective for achieving business growth.Furthermore, we would suggest that one possible explanation for this business behavior that contradicts espoused management theory is that in emerging economies, where export performance is reliant upon the sale of commodities, firms can achieve adequate business growth by focusing on optimizing the effectiveness and efficiency of their current operations.Hence, seeking to enhance the productivity of existing operations has greater appeal than engaging in the inherently more risky activity of innovation (Chaston, 2009).
The results of our regression analysis of entrepreneurial orientation which was used as a measure of innovation in relation to power distance was statistically significant at p=<0.05 .Hence, our survey result appears to support the hypothesis H2 that there is a positive relationship between declining power distance and innovation in firm s operating in Peru.This finding is similar to the results and conclusions of research carried out by Williams and McQuire (2005) and Shane (1993).They posited that as power distance declines, this usually leads to improved communication across functional and hierarchical boundaries which, in turn, enhance innovation activities.
Our regression analysis of entrepreneurial orientation which was used as a measure of innovation in relation to uncertainty avoidance was statistically significant at p=<0.05.Hence, our result appears to support the hypothesis H3 that there is a positive relationship between decreasing uncertainty aversion and entrepreneurial orientation in firms doing business in Peru.In effect, our finding suggests that in Peru, firms ' aversion to uncertainty decreases as organizations become increasing involved in innovation.This outcome is consistent with Herbig and Dunphy 's (1998) perspective that acceptance of uncertainty is necessary in order to undertake the riskier activities associated with developing new products.
Our regression analysis of entrepreneurial orientation, which we used as a measure of innovation, in relation to individualism-collectivism, was not statistically significant at p=<0.05 .Hence, this finding does not support the hypothesis H4 that there is a positive relationship between increasing individualism and innovation among firms in Peru.This result is contrary to Waarts and Van Everdingen 's (2005) suggestion that higher levels of individualism have a positive influence over innovation.Their viewpoint is that as the collectivism declines, employees are more able to propose ideas which are different from the thinking of others.We would suggest that one possible argument to explain the current study's result is that collectivism among firms in Peru assists individuals working with others in their organisations to share, develop and critique new ideas in a supportive environment.
When we regressed entrepreneurial orientation--which we used as a measure of innovation, in relation to masculinity-femininity, the result was not statistically significant at p=<0.05 .This finding would appear to support the hypothesis H5 there is a no relationship between masculinity and innovation in firms operating in Peru.Our finding also concurs with those of Williams and McQuire (2005) and Shane (1993) who found no correlation between economic creativity and masculinity.
The regression of sales performance in relation to open innovation was statistically significant at p<0.05.Thus, our survey results support the hypothesis H6 that in Peru, the performance of firms will be higher among those engaged in open innovation.This conclusion is supportive of Freel's (2006) perspective that open innovation can assist firms achieve business growth by being involved in the collaborative development of new products or services.
The regressions for power distance and uncertainty avoidance in relation to involvement in open innovation were statistically significant at p=<0.05.It seems reasonable to conclude these results support the hypotheses H7 that in Peru, power dis-lance will be lo wer in firms involved in open innovation and H8 that in Peru, there is a lower level of uncertainty aversion in firms involved in open innovation.
Our conclusion concerning hypothesis H7 is consistent with Lundvall's (1 998) perspective that to be effective, there needs to be a high level of trust and commitment between the collaborating organizations.This can only occur where firms have (a) reduced their hierarchical structures and (b) a rules-based approach to defining employee tasks.Our interpretation of the result concerning hypothesis H8 is that it indicates that companies in Peru engaged in open innovation do exhibit lower uncertainty aversion.This outcome supports Chesbro ugh's (2007) perspective that acceptance of uncertainty is necessary because only then will the organization be prepared to engage in the high-risk activity of knowledge sharing.
The regression for individualism in relation to involvement in open innovation was not statistically significant at p=<O.OS .Hence this study cannot support hypothesis H9 that there is a higher level of individualism in firms in Peru involved in open innovation.The inability to validate hypothesis H9 concerning the expectation of higher lev- els of individualism in Peruvian firms involved in open innovation corroborates Wang and Rafiq's (2009) findings.They identified open innovation as being reliant upon both intra-and inter-firm project teams .For these activities to succeed, employees must accept collectivism in order to reach consensus for the resolution of problems.
The regression for masculinity-femininity in relation to involvement in open innovation was not statistically significant at p=<O.OS which means our study's findings could not validate hypothesis H 10 that there is a lo wer level of masculinity in those firms operating in Peru involved in open innovation.
Lazzarotti et a!.(20 1 0) concluded successful open innovation requires fmns to give less priority to their own performance and to adopt an orientation to sustain commitment toward all other organizations.We would contend that this probably explains why in the case of firms in Peru involved in open innovation, our findings do not support hypothesis HlO that a relationship exists between a lower level masculinity and open innovation in these organizations.

Management Implications
Trott ( 1998) concluded that during periods of economic uncertainty, firms would be well-advised to focus on innovation.Firms such as Apple and Google certainly provide strong support for this perspective.However, our current study raises doubts over whether innovation leading to higher business growth in emerging economies is always a valid concept.Rather, our results suggest that for firms located in emerging economies like Peru, focusing on optimizing current operations is equally, if not more appropriate.Hence, when advising on appropriate management practices for firms in emerging economies, perhaps equal emphasis should be given to managing current operations and being engaged in innovation.
Our findings also suggest that managers in emerging economies need to recognize that certain aspects of culture will influence organizations engaged in closed or open innovation.This is because the results further validate that innovation is enhanced in those organizations able to reduce power-distance and accept higher uncertainty.Col-lectivism-individualism and feminine-masculinity can also influence organizational processes.However, our current research findings suggest that in the context of an emerging economy like Peru these values have little influence on open innovation at the current stage of development.
Lastly, our observations are based upon a single study in a single country.Hence, further research is needed in Peru as well as other emerging economies to further determine the validity of the findings from this study and their applicability in other emerging economies.In that regard, one question for future research is as emerging economies like Peru continue to expand, incomes improve, and middle managers gain more training and experience, will their possible desire for greater participation in decision-making translate into a more collectivist approach to management with an associated reduction in power distance and a positive impact on open innovation and business performance?

A:
The purpose of the organization's involvement in open innovation I. Expand skills, competences, or creativity 2. Expand the organization's base of competence 3. Increase the capability to generate ideas 4. Increase the internal flexibility of the organization B: The aims of open innovation involvement I. Reduce or share the risks of innovation 2. Reduce or share the costs of innovation C: The rationale for involvement in open innovation I. Achieve technological leadership 2. Improve performance by means of innovation 3. Refine or revise products/services through innovation 4. Gain access to new expertise 5. Focus greater emphasis on more radical forms of innovationThe scale is not intended to measure absolute values.Instead similar to the entrepreneurial orientation scale, the degree of involvement in open innovation is assessed in relation to whether an organization has a higher or lower score relative to the mean score for the entire sample.Those firms whose score is greater than the overall mean score are assumed to be more involved in open innovation than firms whose score is less than the overall mean score.