Political Embeddedness in the New Triad: Implications for Emerging Economies
Choi, Chong Ju, Manoj, Raman, Usoltseva, Olga, Lee, Soo Hee, Management International Review
In spite of the dominant rhetoric of interlinked economy and global market homogenisation, the compelling need to explain the differential rates of organisational performance on the basis of different modes of co-ordination and transaction governance over the past two decades has prompted many strands of international and comparative research on national business systems (Olson 1991, 1992, Boisot/Child 1988, Choi et al. 1996, Choi 1994, North 1990). According to Nelson (1992), there are three clusters of analysis concerning the determinants of "national competitiveness". Firstly, viewing firms as the main competitive unit; secondly, the macroeconomic performance of national economies; thirdly, microeconomic policies at the level of industries. Research in comparative governance and business systems needs of course needs to take into account all three levels of analysis and also include the importance of the interactions between institutions and organisations.
Dunning (1996), in his reexamination of the eclectic paradigm, recognizes that the socio-institutional structure of market-based capitalism is undergoing changes characterized principally by innovation-led growth, a "voice" (Hirschman 1970) reaction to market failure, and cooperation as competitiveness enhancing measure. These catalysts for the structural economic changes and the blurring of national boundaries as well as their various consequences on firm activities and performance have led to an urgent need to reassess the traditional frameworks of international business and strategy for global competition. A key issue is the role of political, social, institutional factors driving today's successful business system, and how such systems can be emulated by other countries. Roe (1994, 1997), Boddewyn and Brewer (1994), Kogut (1993), Albert (1991), and Toyne (1988), have analyzed in depth the importance of the socio-economic environments of firms' home environment, or home market constraints on their competitiveness, which other researchers have generally treated as exogenous to the autonomous market system. In this paper, we develop this approach by showing the importance of the governance systems within countries, especially the political embeddedness (Zubkin/DiMaggio 1990), or the nonmarket effects on national competitiveness. We extend the various works of Boddewyn and Brewer (1994), Kogut (1993), which have shown the importance of the political dimension and its interactions in international business research, to include various noneconomic aspects of a national business system. This article proposes that groupings of countries can share such "non-economic", social, political foundations and that the borders across countries within the same grouping or business system.
In terms of research on comparative management and societal institutions, one area that has received vast academic attention in recent years, has been in the area of comparative corporate governance; corporate governance has been defined as, "the relationship among a firm's shareholders, its board of directors, and its senior managers" (Roe 1994, p. 1).
The growing literature on comparative corporate governance provides important preliminary comparisons between successful business systems. Comparative successful business systems research needs to take into account the nature of corporate governance, as well as the broader social, cultural, political issues such as the relationships between business and government, an issue that has been highlighted in international business research (Lenway/Murtha 1991, Hill 1995, Shan/Hamilton 1991, Choi 1994, Choi/Lee 1997, Kogut 1993, Brewer 1993, Buckley 1996). We believe that the vast amount of academic research recently undertaken within comparative corporate governance highlights the importance of studying national business systems and the role of social and political aspects of capitalism (Dunning 1996, Boddewyn/Brewer 1994).
In terms of recent comparative corporate governance research, recent works such as Gerlach (1992), Franks and Mayer (1997), and Roe (1994, 1997) compare the legalistic, stock market driven approaches of the United States and the United Kingdom with the more informal cross share holding system adopted in Japan and Germany. Legal contracts with ultimate redress to courts is fundamental to the operation of Anglo-Saxon business culture, especially in providing protection to widely dispersed minority shareholders (Roe 1994, 1997); this shows the general importance of the formal, legal institutions in Anglo-Saxon countries such as the United States and United Kingdom. In contrast, in countries such as Japan and Germany, major banks and insurance companies, act as external stakeholders by holding major shares in firms, exercising governance and control over internal management, through a more informal, relationship based exchange. This "communitarian" approach is also evident in other continental European countries such as Holland, Belgium, and the Scandinavian countries (Sorge 1991, Lenway/Murtha 1991, Nooteboom 1996, Noorderhaven 1995, Albert 1991). The contrast between these groups of country is also reflected in the political dimension (Sorge 1991, Kogut 1993), for example between United States system and the parliamentary system in European countries such as Germany.
Although the United States continues to be the dominant capitalist system, there are several countries with highly successful governance systems, or systems of exchange with structures of corporate governance and relationships distinct from Anglo-Saxon countries (Albert 1991, Franks/Mayer 1997) such as the United States or United Kingdom. This difference, with its apparently concomitant success, raises important issues for comparative governance research (North 1990, Kaplan 1997, Franks/Mayer 1997, Nooteboom 1996), but also provides important hints for the newly emerging market economies of Eastern Europe and Asia which are in the process of determining their governance systems. Should countries emulate systems-driven by the dynamic but short term requirements of efficient stock markets as is the case in the United States and United Kingdom or should they look to the apparently more stable bank financed systems prevalent in the communitarian countries such as Germany and Japan. The fact that the success of Germany and Japan in the 1980's and early 1990's seems to have been replaced by slow growth, and the renewed economic success of the United States and United Kingdom in the latter 1990's (Roe 1994, 1997) has created a continuing academic and policy debate concerning the relative merits and weaknesses of the two systems.
This article has two major objectives. The first is to use the above range of concepts and frameworks to analyse and compare the different approaches to governance and national business systems, that exist successfully today in the broader context of political embeddedness (Zubkin/DiMaggio 1990) and the important interaction between institutions and organisations (North 1990). We are thus further extending the earlier research of Roe (1994, 1997), Albert (1991), Whitley (1990), and Brewer (1993), who helped to show the importance of the political and the firm's environmental dimension in comparative business system research. It is a relatively simple, and broad generalisation to category various countries into such two groupings, however, we believe this helps emerging economies to clarify which broad aspects of these two systems can be incorporated into their own economies.
The second is to analyse what implications and lessons there are from the highly successful systems of the United States and United Kingdom and the equally successful but different business systems of Germany and Japan. Many of the emerging economies of the world, especially in Asia and Eastern Europe are developing and refining the nature of governance in their business systems (Olson 1991, 1992, Lecraw 1989, Elster 1989, Madhok 1995, Choi 1994, Choi et al. 1996, Buckley 1990), requiring further research of their national business systems from international business researchers; the Asian economic and business crisis that began in 1997 has shown the further need to study the workings of national business systems. Our approach in this article is to analyse broad social, economic, political, international business trends which seem to categorise certain groupings of countries, and which can in turn provide guidelines for emerging economies in the global environment.
International Business and Society
In the public policy domain, there has also been an intense debate on the role of state and national competitiveness in the age of global competition. Acknowledging the growing force of globalization, Reich (1991) discusses the reduced role of the state in enhancing the competitiveness of national industries. But more importantly, as discussed by various researchers such as Boddewyn (1988), Choi (1994), Choi et al. (1996), Kogut (1993), Yarborough and Yarborough (1992), and Hill (1995), there is an increasing movement towards the appreciation of political, cultural and socio-institutions aspects of capitalism. In contrast to the purely neoclassical driven economics models of markets, there is an important need to analyze the role of business in society and the role of politics in international business (Boddewyn/Brewer 1994, Kogut 1993):
"... political behavior does not develop in a vacuum; it is conditioned by firm, industry and environmental factors -particularly those found in the nonmarket environment that includes government." (Boddewyn/Brewer 1994, p. 121)
In recent years, there has also been an increased interest in broader models of corporate social performance, social control of business and stakeholders (Freeman 1984) within domestic settings, due to the growth in appreciation of more than one successful business system model. Such models have tried to go beyond the traditional narrow, efficient capital markets and shareholder driven approach to business and economics success. As quoted in Donaldson and Preston (1995), the diversity of global business systems was highlighted in the Economist (1993, p. 52):
In America, for instance, shareholders have a comparatively big say in the running of the enterprise they own; workers ... have much less influence. In many European countries, shareholders have less say and workers more ... in Japan managers have been let alone to run their companies as they see fit - namely for the benefit of employees and of allied companies, as much as for shareholders.
Roe (1994, 1997) and Easterbrook (1997) make the point that corporate governance needs to be seen in a broader context than that normally used, taking into account the political processes. For example, Roe (1994, 1997) in his in depth study has shown that the relative weaknesses of banks in the United States was due to political considerations and regulations which prohibited the formation of bank concentration. This thesis has been further substantiated by Buckley (1997), who has shown that in Canada, a country with very similar background and culture as the United States, a much more important role is played by the banking sector, in a way similar to Germany and Japan; Buckley (1997), in a similar way to Roe's (1994, 1997) works show that the highly successful US business system may not be simply due to evolutionary processes and superiority over other systems, but due to historical and political events. In this sense, we agree with Roe (1994, 1997) who sees corporate governance and ownership as part of a broader set of corporate relationships fundamental to industrial organisation within societies and the national business systems, what we believe are the political embeddedness aspects of national business systems. Zubkin and DiMaggio (1990) define "political embeddedness" as the following:
"By political embeddedness, we refer to the manner in which economic institutions and decisions are shaped by a struggle for power that involves economic actors and nonmarket institutions ..." (Zubkin/DiMaggio 1990, p. 20).
Global competition can also be seen from the viewpoint of the domestic organizations and institutions (North 1990, 1994) that motivate and constrain firm strategy and behavior. Such factors include national culture, legal and regulatory environment, business-government relationship, the role of financial institutions, and corporate governance system in the home market as well as host countries of multinational firms. The importance of the national business environment in influencing the organizing principles and competitive strategies of firms has been analyzed in Kogut (1993), Gomes-Cassseres (1990), Uzzi (1997), Fruin (1992), and Albert (1991). According to their analysis, domestic institutions play as important a role in determining corporate behavior as the pressures of globalization. For example, in many parts of Asia, it is not financial markets but various government ministries that monitor corporate performance and control financial allocation. In many continental European countries such as Germany and Switzerland, the banking sector as institutional shareholders monitors corporate performance and investment decisions. Firm behavior and strategy, especially investment decisions such as new market entry, diversification, and innovation and new product development can be significantly constrained by the differences of home market institutions while at the same time providing sources of competitive advantages that may or may not be transferred across national boundaries. Thus, the following is proposed:
Proposition 1. In spite of the global nature of today's competition, the political, economic, and socio-cultural effects of home market institutions can have both positive and negative influence on firm capabilities and competitive advantages.
Institutions versus Organisations
Following the distinction made by North (1990, 1994), we believe there is a need to distinguish between institutions and organisations when analysing national business systems. Institutions are the rules of a business system. North (1990) distinguishes between two types of institutions. The formal institutions such as common law, and market regulations are very important in Anglo-Saxon countries such as the United States, United Kingdom, Australia, Canada (Roe 1994, 1997, Ellickson 1991, Albert 1991). Informal institutions include codes of conduct, social norms, conventions, and other rules that society has developed over time. Such informal institutions which are closely linked to aspects of collectivism and personal exchange, are crucial for communitarian countries such as Germany and Japan (Fruin 1992, Choi 1994, Choi et al. 1996, Orru, Biggart/Hamilton 1997). As North (1990, 1994) points out, the existence of either or both formal and informal institutions is no guarantee of economic efficiency.
Organisations are the players within a business system that take advantage of the formal and informal institutions (North 1990, 1994). There are four major types of organisations. Economic organisations, such as firms, co-operatives, stockmarkets, banks, trade unions; political organisations such as political parties, city councils; social organisations such as clubs, churches, sporting groups; educational organisations such as universities, vocational training. Members of organisations, the players in a business system, have common objectives. In turn, these are driven by beliefs and ideologies, within the national business systems, which can change the formal and informal institutions, or the rules in a business system.
The importance of national business systems has been raised recently in various works such as Hill (1995), Choi (1994), Choi et al. (1996), Albert (1991), and Kogut (1993). These researchers, however do not make a clear distinction between institutions and organisations. We believe that this distinction is crucial for understanding why the mere adaptation of certain formal institutions such as common or statute law, or regulation that help business systems to be successful in Anglo-Saxon countries such as the United States and United Kingdom is not necessarily sufficient for helping other countries to emerge and succeed in global competition. This is because they need to take into account the governance of the whole business system and the dynamic interaction between formal and informal institutions. Figure 1 is a conceptualisation of North's (1990, 1994) ideas which make a clear distinction between institutions or rules versus organisations or players in a business system.
As analysed by Boddewyn (1988), firms compete in the environment, which includes various nonmarket, noneconomic values such as the polity, community, public opinion makers such as media. North's (1990, 1994) structure of institutions and organisations helps to show the richness and realities of national business systems, much beyond the traditional, narrow neo-classical economic market paradigm. As discussed by Kogut (1993), countries' competitiveness can be attributed to the interaction of their particular organisational and institutional capabilities.
We believe this interaction between formal and informal institutions, and in turn their interactions with the four types of organisations fundamentally determine the success of business systems. In individualist business systems, such as in the Anglo-Saxon countries of the United States and the United Kingdom, there is a relatively weaker connection across the four types of organisations. There is also a relatively larger proportion and importance placed on formal relative to informal institutions. Thus the economic organisations such as firms, stockmarkets, and in the US the Federal Reserve, are quite separate from the political organisations of political parties and city councils (Boddewyn 1988, Roe 1994, 1997, Kogut 1993). In turn, working for an economic organisation, such as a firm, is seen as the public aspect of life, and separated from the private activities such as the social organisations of clubs, church. Figure 2 shows the relatively strong linkages among organisations and institutions in collective business systems, and the relatively weak linkages within individualist business systems.
In collectivist business societies, such as Germany or Japan, there are strong linkages across the four organisations: economic, political, social and educational. The linkage across these organisations is very strong, "communitarian" (Choi et al. 1996, Albert 1991, Sorge 1991, Lenway/Murtha 1991), as in most continental European countries and Japan. In such countries, there is also a larger proportion of informal institutions relative to formal institutions. As discussed in the in depth review of governance systems, Roe (1994, 1997) hints that the emerging economies in Eastern Europe are also adapting the communitarian system more characteristic of Germany and many continental European countries.
Anglo-Saxon versus Communitarian Business Systems
Since the late 1980's, Anglo-Saxon societies, such as the United States, United Kingdom, Canada and Australia have had their economies driven by the short termism of the stock market (Choi 1994, Bowman/Useem 1995, Lenway/Murtha 1991, Choi et al. 1996). Although the stock market undergoes a certain amount of government regulation and supervision, in general, the stock market is seen as an example of an efficient institution driven by market forces; as analysed by Easterbrook (1997), efficient capital markets require much less regulation and supervision. This stock market driven short-termism limits US and UK companies' capacity to make highly profitable long term investments with long pay-back period; no such restrictions seem to apply to their Japanese or German rivals (Fruin 1992). Decision makers in these countries have in consequence been rethinking the values of their business system and its appropriateness for the global competition of the 1990's.
A key benefit of such a style could be obtained by sharing information between corporations and their investors. The takeovers of the 1980's which were a sign of the market determining relationships, are now being displaced by co-operative agreements and strategic alliances, leading to an alliance based capitalism (Dunning 1996, Gerlach 1992). These bypass the traditional competitive model of markets and lay open the possibility of further sources of added value. As quoted in Watanabe and Yamamoto (1993), a German company manager once said that companies in the United States work for their shareholders, those in Germany for customers, and those in Japan for employees. The Anglo-Saxon governance system has been criticised in recent years as disenfranchising individual shareholder, distorting stock prices due to the thinness of the market and limiting the control that can be exercised over the activities of executive management (Roe 1994, 1997).
The literature has compared as extremes the communitarian German and the apparently networked Japanese systems of governance, with the impersonal stock market driven systems of the United States and the United Kingdom (Franks/Mayer 1997, Roe 1994, 1997, Fruin 1992). In general, the Japanese and German approach is to build trust between all the parties involved in a particular value chain and use group loyalty and understanding to build an informal system of network control rather that one that could be described to achieve governance of a particular legal corporate entity within the network. As noted in works such as Fruin (1992), Albert (1991), Choi et al. (1996), and Whitley (1990), they rely upon several non-contractual mechanisms to reduce the possibilities of opportunism. This contrasts with the Anglo-Saxon, approach based on the rule of law and contracts. The differences in approaches of Japan and Germany, versus the Anglo-Saxon countries such as the United States or the United Kingdom have led to researchers contrasting the difference as one of personal trust versus legal contracts systems. This leads to the following propositions:
Proposition 2. The relative superiority of either the Anglo-Saxon or the Communitarian business systems can depend on the nature of political embeddedness and the interactions within the systems between market and nonmarket forces.
Proposition 3. Emerging economies that are in the process of forming business systems need to assess the relative strengths and weaknesses of both Anglo-Saxon and Communitarian business systems.
Markets and Governance
These are the systems prevalent in Anglo-Saxon Societies which first seek to de-personalise social interactions by mediating them through arms length competitive trading and abhor the hegemony of any ideology as anathema to free-thinking, liberty and creativity. It hardly needs to be said that loyalty is not necessarily absent in the operations of Anglo-Saxon systems but in many ways the supreme loyalty is to a system which collectively transcends individuals, groups and ideas allowing the individuals right to pursue his own interests within a framework or law and contract. These systems have access to what we believe Williamson (1985) has called the high powered incentives of the market. In fact elsewhere, following, through on Williamson (1985) idea of a hybrid system between markets and hierarchies we have suggested that what is perhaps emerging are more complex hybrids based on a more complex vision of the world than that available. Earlier work by Etzioni (1988) has suggested a compromise way forward that permitted both perspectives to have their place however we feel for corporations the requirement is for a synthesis of these perspectives to emerge not for their simultaneous mutually antagonistic sustenance.
What is available both in terms of insights and responses seems to be a function of the situation and is something organisations must consciously act to design for if they wish to have some control over their survival prospects in the global market place. For example will it be possible for German and Japanese corporations faced with a significant downturn in the world economy or increasingly effective competition from both new and old players to manage downsizing successfully (Fruin 1992). The downsizing of organisations based on strong group or ideological loyalty suggests significant difficulties. The commodities traded in return for loyalty, such as long term stability of employment with gradual progression through a hierarchy, will increasingly not be open for an internationally competitive company to offer. On the other hand, flatter organisations with shorter chains of command may allow less scope for noisy or biased loyalties to develop. Rather than disappear, company loyalty may just be replaced by loyalty to individuals, at least those well placed to monitor disloyal acts. While person mediated bonding in groups is strong its flexibility is suspect over the full range of imaginable trading conditions. Its weakness is its instability when people are forced out and the deep internal antagonism that can develop within an organisation when group loyalties are betrayed. Structuring the environment for senior managers in changing time may thus involve finding new ways to incorporate elements of the market, loyalty hierarchies and perhaps even familial loyalty. The longer time scales on which the later are based may provide stability in the face of otherwise impossible to manage adjustment tensions.
The emerging market business system refers to certain regions of the world that seem to be rapidly entering the world business system and includes most of the Asian countries, some of the Eastern European countries such as Hungary, Czech Republic, and some of the Latin American countries such as Mexico, Chile, Brazil. Due to their phenomenal economic growth, large populations, and increasing corporate success in the global environment, the emerging markets have become a key focus for personal and institutional investors as well as for international corporations. At the same time, the nature of society, business exchange, legal systems, consumer demand, public policy in these emerging markets which are often very different from the more mature economies have provided difficult dilemmas for North American and Western European government and corporations (Olson 1991, 1992, Choi et al. 1996). But there is also a need to appreciate the differences even among the mature economies of the world, especially between the Anglo-Saxon business system versus the Communitarian business system of the world. Figure 3 summarises some of the key distinctions among the three major types of governance systems, the "new triad".
Figure 3. Three Major Governance, Business Systems Type of governance system Key characteristics ANGLO-SAXON GOVERNANCE Strong legal system, reliance on contracts; importance of the individual; belief in free markets and trade; support of major innovations and entrepreneurship; separation of financial markets from banking and industries COMMUNITARIAN GO VERNANCE Importance of social groups and laws for communities; importance of banking relative to financial markets; government intervention in industry; managed trade rather than free trade; overlap among banking, industry, financial markets EMERGING MARKET GOVERNANCE High levels of uncertainty in business environment; volatility and rapid developments in consumer demand,' not always stable political systems; legal systems relatively weak; important role of trust based types of exchange.
Emerging Business Systems
It is beyond the scope of this paper to conclude whether the whole of the Anglo-Saxon, individualist system is superior or inferior to the Communitarian, collectivist system; both mature business systems have been successful for at least the latter half of the 20th century. The relative success of these two systems in terms of the overall global political economy, could be determined by various factors such as the types of industries, the level of the business cycle, the importance of the political system (Choi 1994, Choi et al. 1996, Whitley 1990, Orru et al. 1997). Nevertheless, there may be lessons and guidelines from these two systems for the emerging economies that are establishing appropriate governance in their national business system. In order to understand which aspects of the systems are of relevance, it is important to understand the major characteristics of emerging economies. They can be characterized as the following:
* High economic growth rates,
* High overlap within and between institutions and organizations,
* Relatively weak legal system for the enforcement of contracts;
* High uncertainty and turbulence, due to rapid change;
* Lack of development of financial services industries, such as stock markets and investment banking.
Some of these characteristics have similarities to new, emerging industries, especially in high technology industries.
The "emerging" regions of the world, especially Asia and Eastern Europe provide a potentially important area of research in terms of the rapid development of institutions and organisations and the difficulties of combining them, as shown by the economic crisis in various Asian countries in 1997. As these emerging societies which operate under greater uncertainty and fewer institutional and legal structures become more mature, and developed, it is important to see the differences between these emerging regions and other regions of the world. Other recent works that have addressed related issues of enforcement, co-operation, in different business systems include Noorderhaven (1992), Choi (1994), Olson (1991, 1992), Choi et al. (1996), and Besley (1995). In general, in emerging economies, the enforcement of agreements or co-operation in general, becomes problematic, because of the lack of laws, high uncertainties in the legal system, difficulties in communication and infrastructure. Including the emerging business systems to the better established Anglo-Saxon and Communitarian systems leads to a "new triad" of global competition that complements the traditional economic triad of United States, Europe and Japan. Under this new triad, some of the developing countries will advance and enter the emerging market business systems. This is shown in the figure below.
In many parts of Asia and in Eastern Europe it has traditionally been the state and other types of "nonmarket" institutions (Besley 1995, Arnott/Stiglitz 1990) which has taken responsibility for individual welfare. In the current economic crisis climate in Asia, this clearly buttresses the desire of entrepreneurs to move in a legal and contracting rather than trusting direction. For example, in many emerging Asian countries, informal credit and insurance arrangements are often used instead banking and insurance services linked to formal legal contracts; such nonmarket institutions require nonanonymous peer reviews and monitoring based on trust. This has many similarities with the overlapping and intertwined organisations and institutions we see in the communitarian business systems of Germany and Japan.
The implication of this analysis can be explored a little in the context of the developing market economies in Eastern Europe which has a history saturated with collectivist, or absolutists, who controlled affairs of states with very dynamic boundaries. We might be led to assert, then, that the absence of individualism would promote a high trust form of society. In the familial sense that is probably true. However, the experience of enforced collectivisation has now led to a pervasive, if not universal, reaction against it, such that individualism and individual rights against the state, are now firmly on several national agendas. This suggests a desire for a transition direct from one form of society, collectivist to another, individualist. However this is unlikely to be possible as the "rule of law" is a pre-requisite for this and this requires a great deal of certainty in the conduct and regulation of commercial affairs (Olson 1991, 1992). Hence, just as the lawlessness of the American Wild West may be helpful in explaining the popularity of legally enforced contacts in contemporary America, so the newly forming "Emerging East" may end up similarly replete with legal support for contract enforcement.
The increasing prevalence of emerging markets, countries and regions have led to increased social science and management research on the different institutions, corporate strategies, organisational structures that exist in these areas relative to the more mature and developed parts of the world such as North America and Western Europe. The importance of understanding some of the fundamental differences in these emerging societies has led to research on various types of "nonmarket" or what could be called, non-standard customs and practices of transactions, business, exchange in these emerging societies. Recent works highlighting such differences include Choi et al. (1996), Choi (1994), Arnott and Stiglitz (1990), and Yarbrough and Yarbrough (1992).
Combining Business Systems
As analysed in depth by North (1990, 1994), there is no guarantee that a success national business system, whether Anglo-Saxon or Communitarian can be successfully transferred to other parts of the world, such as emerging economies (Olson 1991, 1992). The economic crisis of 1997 in various Asian countries such as Indonesia, Thailand, South Korea, Malaysia has shown the difficulties these various countries have experienced in combining these aspects of Anglo-Saxon (individualist) and Communitarian (collectivist) business systems into a mature business system such as in the United States, United Kingdom, and Continental Europe. For example, as shown in figures 1 and 2, what should be the relative ratio of formal, legal mechanisms to informal, societal norms in a national business system. Was the Asian economic crisis that began in 1997, due to an insufficient level of formal, legal exchange mechanisms, or were they due to the fundamental difficulties of adjusting to globalization, emergence, and the combining of individualist and collectivist business system characteristics.
In countries such as South Korea, the economic crisis that began in 1997 were fundamentally due to the difficulties in an insufficient banking sector, that has misallocated funds to certain inefficient, government supported corporations. In other Asian countries such as Malaysia, the economic difficulties were due to the greater exposure of a recently developed stock market that was over-capitalised by foreign investment relative to the size of the domestic economy. The complexities of national business systems as shown in figures 1 and 2, would imply that the realities of the Asian economic crisis that began in 1997 were due to the difficulties of the relationship not only between the "institutions" or formal and informal ratio within the national business system, but also the relationship among the "organisations", the economic, political, social and educational. Both institutions and organisations need to reach a mature and appropriate balance for a national business system; globalisation, and other dramatic changes in the global political economy have made such balances more difficult to achieve as shown by the Asian business system crisis that began in 1997.
As analysed by North (1990, 1994), the relationship between institutions and organisations need to be analysed as a whole in order to fully appreciate the complexities of successful economic performance. Traditional research has tended to generalise the success of mature economies in Western Europe and North America and what hints they can provide to new emerging and still developing economies. The purpose of this paper was to develop the general frameworks of North (1990, 1994) further, to show the difference between the Anglo-Saxon (individualist) and Communitarian (collectivist) business systems, within the successful mature economies of Western Europe and North America. We also took into account in our analysis, the role of "political embeddedness" or the interaction between economic and non-economic or nonmarket actors (Zubkin/DiMaggio 1990, Boddewyn/Brewer 1994, Choi 1994, Olson 1991, 1992), in determining the success of national business systems. The Anglo-Saxon and Communitarian business systems have a different emphasis on the relationship between organisations, the relative importance of formal versus informal institutions, and the overall interconnections between organisations and institutions within a national business system. In this sense, this has provided an even more complex national objective for emerging business systems such as in Asia, that have tried to combine elements of both business systems:
"... it is the mixture of formal rules, informal norms and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually ... The implication is that transferring the formal political and economic rules of successful Western market economies to third-world and Eastern European economies is not a sufficient condition for good performance." (North 1994, p. 366)
Conclusions and Further Research
The purpose of this article was to analyze the role of political embeddedness in comparative business systems research and its potential implications for the governance systems of emerging economies. We believe our preliminary research and framework takes into account the reality of the local, non-economic (Whitley 1990, Olson 1991, 1992, Choi 1994, Boddewyn 1988, Toyne 1988, Zubkin/DiMaggio 1990) forces that influence firm capabilities and behaviors. It is beyond the scope of this article to conclude whether the Anglo-Saxon individualist system is always superior or inferior to the Communitarian collectivist system. Our purpose was to analyze their relative strengths and weaknesses, especially the relationship between institutions and organizations (North 1990) so that they can serve as potential guidelines for emerging economies that are in the process of establishing a governance system; emerging economies have a choice either between the two systems, or a combination of both systems. But such analysis also shows the crucial importance of analysis that goes beyond, pure market and economic factors, that takes into account the nonmarket actors and factors that influence the success of national business systems. Emerging market business systems add an additional generic complexity due to rapid growth, lack of various institutions, and the general level of uncertainty in their business environment.
The research in this article could be developed in at least the following two ways. Firstly, there is a requirement for further elaboration of key concepts and for empirical works to test the validity of the typologies, especially between Anglo-Saxon and Communitarian business systems suggested in this article. It is possible that the Anglo-Saxon business system may be especially advantageous in certain industries, such as high technology, which have a high intangibility and need to raise capital rapidly factor; in the sense that we have shown how national institutions and the role of domestic stakeholders (Freeman 1984) can provide strategic constraints and advantages on firm performance in the global political economy. Secondly, this type of dual grouping of business systems could be the starting point of research on the Asian economic, business crisis. At present, the analysis of the Asian crisis has tended to focus on broad, macroeconomic issues such as exchange rates; comparative business system and governance approach could yield further insights into this continuing global problem.
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Chong Ju Choi, Professorial Fellow and Director of the MBA programme, Judge Institute of Management, Cambridge University, Cambridge, UK.
Manoj Raman, Research Associate, Judge Institute of Management, Cambridge University, Cambridge, U.K. and PhD candidate at City University Business School, London, UK.
Olga Usoltseva, ESRC (Economic and Social Research Council) Research Fellow, Judge Institute of Management, Cambridge University, Cambridge, UK.
Soo Hee Lee, News International Lecturer in International Management, Birkbeck College, University of London, London, UK.…
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Publication information: Article title: Political Embeddedness in the New Triad: Implications for Emerging Economies. Contributors: Choi, Chong Ju - Author, Manoj, Raman - Author, Usoltseva, Olga - Author, Lee, Soo Hee - Author. Journal title: Management International Review. Volume: 39. Issue: 3 Publication date: July 1999. Page number: 257. © 1999 Gabler Verlag. COPYRIGHT 1999 Gale Group.
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