Unlocking the Role of Language and National Culture: Effects on Supply Chain Operations in a Global Context

Abstract

We investigate how language, an essential part of culture, affects manufacturing firms’ supply chain operations management practices, including the cash conversion cycle and its components. Based on the Sapir–Whorf hypothesis, which theorizes that a language's structure may affect how its speakers think, prior studies have established that using the future tense to describe future events increases one's mental distance from the future, reducing a person's concern about it. Building upon this foundation, we hypothesize that firms in weak future-time reference countries are likely to be better prepared for future volatility in demand for their products and therefore carry higher inventory to avoid potential stockouts. We also hypothesize that firms in weak future-time reference countries are more apprehensive about long-term relationships with their customers and hence extend longer credit terms to them. Finally, we hypothesize that firms in weak future-time reference countries have longer operating and cash conversion cycles due to carrying higher levels of inventory and extending longer credit terms to customers. The empirical results using a large global sample of 193,625 firm-year observations from 45 countries support our hypotheses. In terms of economic significance, on average, the cash conversion cycle of firms in weak future-time reference countries is ∼ 11% longer than that of firms in strong future-time reference countries. We also find that the effect of language is dominant over the influence of traditional cultural dimensions. Together, the results suggest that time encoding in the language of a firm is a determining factor in its supply chain operations.