International Comparative
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International comparative
management
Lecture 1 (August 27, 2014)
Chapter 1: Introduction to the approaches in comparative
international management
Why is nationality important to people?
 There are real and perceived differences between countries, particularly
when countries do not have a common history.
 Social identity formation is important, which consists of three processes:
- Social categorization
- Social comparison
- Social identification
Why is international management different from just management?
 Cultural, institutional and language differences persist, and these
differences are leading to differences in management and organization.
 Nationality forms an important basis for social categorization processes.
 International management is leading to cognitive shortcuts like cultural
attribution and stereotyping.
What is international comparative management (ICM)?
 It studies differences in management styles and organizational approaches
between countries.
 It explains these differences from societal characteristics.
 It studies ways in which companies can deal with these differences.
Liability of foreignness is caused by distance:
 Countries are separated by geographical distance and time zones.
 Countries differ in language, culture, institutions, religions, economic
systems, levels of development, etc.
Two major sets of theories:
 Universalistic theories: pretend that management and organization are
subject to the same universal laws everywhere in the world.
- The contingency perspective
 Particularistic theories: posit that organization and management in
different countries differ fundamentally, and that different explanations are
necessary of different countries.
- The cultural approach
- The institutional approach
- Globalization
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Contingency theory: posits that, given similar circumstances, the structure of an
organization – that is, the basic patterns of control, coordination and
communication – can be expected to be very much the same wherever it is
located.
Different organization structures:
 Mechanistic structure: hierarchical, centralized, formalized
 Organic structure: participatory, decentralized, unformalized
Mechanistic versus organic structure:
Mechanistic
Environment
Stable
Technology
Mass production
Size
Tasks
Work description
Decision-making
Hierarchy
Organic
Turbulent
Single product and
process
Small(er)
Broad, enriched
Indicative, results
Decentralized
Flat, few layers
Large
Narrow, specialized
Precise, procedures
Centralized, detailed
Steep, many layers
Culturalist approach:
 Characteristics of management and organization are influenced by basic
values, norms and beliefs which differ between social groups.
 Social groups can be defined by nations, ethnicities, professions,
organizations, etc.
 Like institutions, cultures change only slowly.
In social science there are two long-standing approaches to understanding the
role of culture:
 Emic perspective: the inside perspective of ethnographers, who strive to
describe a particular culture in its own terms. They look at dimensions, so
it is quantitative.
 Etic perspective: the outside perspective of comparativist researchers, who
attempt to describe differences across cultures in terms of a general,
external standard. They look at unique characteristics, so it is qualitative.
Emic versus etic view:
Emic, or inside, view
Assumptions and -Behaviour described as
goals
seen from the perspective
of cultural insiders, in
constructs drawn from
their self-understandings.
-Describes the cultural
system as a working
whole.
Typical features
-Observations recorded in
Etic, or outside, view
-Behaviour described from a
vantage point external to the
culture, in constructs that
apply equally well to other
cultures.
-Describes the way in which
cultural variables fit into
general causal models of a
particular behaviour.
-Focus on external,
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of methods
associated with
this view
a rich qualitative form that
avoids imposition of the
researchers’ constructs.
-Long-standing, wideranging observation of one
or a few settings.
Examples of
typical study
types
-Ethnographic fieldwork:
participant observation
along with interviews.
measurable features that can
be assessed by parallel
procedures at different
cultural sites.
-Brief, narrow observation of
more than one setting, often
a large number of settings.
-Comparative experiment
treating culture as a quasiexperimental manipulation to
assess whether the impact of
particular factors varies
across cultures.
Institutions: the humanly devised constraints that structure political, economic
and social interaction. They consist of both informal constraints (sanctions,
taboos, customs, traditions, and codes of conduct), and formal rules
(constitutions, laws, property rights).
There are three types of institutional support:
 Regulative: formal rules and incentives constructed by the state and other
empowered agents of the collective good.
 Normative: informal rules associated with values and explicit moral
commitments.
 Cognitive: abstract rules associated with the structure of cognitive
distinctions and taken-for-granted understandings.
Institutional analysis emphasizes that different sets of institutions result in
divergent organization and management practices, and different advantages and
disadvantages for engaging in specific types of activity.
Different definitions of globalization:
 The production and distribution of products and services of a homogenous
type and quality on a worldwide basis. Simply put: providing the same
output to countries everywhere.
 All those processes by which the peoples of the world are incorporated into
a single world society, a global society.
 The worldwide interconnection at the cultural, political and economic level
resulting from the elimination of communication and trade barriers.
The divergent opinions on the consequences of globalization can be summarized
in four possible scenarios:
 Convergence towards the Anglo-American neoliberal market system.
 Greater specialization of national models in accordance with domestic
institutional and cultural characteristics.
 Greater specialization of national models in accordance with domestic
institutional and cultural characteristics.
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
Hybridization with change in a path-deviant manner.
Recursiveness: actors on the one hand 'make' or change institutions and culture,
consciously or unconsciously, and on the other, they are orientated by culture
and institutions. To understand or to explain the disposition of actors, one has to
'go back' to culture and institutions.
An integrative approach should embrace two major sorts of recursiveness:
 A cross-referencing between what actors have in mind and the more
systemic or structural settings they take for granted: relate more
institutionalist explanations to culturalist explanations; sometimes they
complement each other, but sometimes they also may compete or
contradict each other.
 Societies are integrated by a continuous cross-referencing between what
we call “spaces”, which are imagined spaces, differentiated and
demarcated around a central meaning, purpose or function addressed by
actors, within a space.
Lecture 2 (September 3, 2014)
Chapter 4: Institutional diversity and management
Institutions: the humanly devised constraints that structure political, economic
and social interaction. It is a behavioural regularity, including mental behaviour,
which suggests what to think or do under which circumstances, and which is
attributed a meaning under the circumstances in question.
Formal versus informal institutions:
 Formal institutions: constitutions, laws, property rights
- Hard institutions: consist of binding norms about patterns of behaviour
and regularities
- Proximate institutions: are tangible and concrete; they can be defined,
either in writing or less formally
 Informal institutions: sanctions, taboos, customs, traditions
- Soft institutions: are more pliable, open to negotiation between
contracting or interacting people or corporations
- Background institutions: are ‘in the back of people’s minds’ and less
tangible, but they may very well be fundamental
Examples of institutions:
 Property law
 Works councils
 European Central Bank
 Marriage
 Romantic love
Foundations of institutionalist organization theory:
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Organizations need to be technically efficient and socially accepted to
survive.
Organizations comply because they are obliged (coercive process), it’s the
right thing to do (normative process) and they see it as the self-evident
thing to do (mimetic process).
Institutional pressure leads to isomorphism (similarity).
Types of institutions (Scott):
 Regulative: formal rules and regulations
 Normative: informal norms, values, conventions, practices, customs,
taboos
 Cultural-cognitive: shared beliefs, scripts, heuristics and mental models
Characteristics of regulative, normative and cultural-cognitive institutions:
Regulative
Normative
Culturalcognitive
Formal/informal
Formal
Informal
Informal
Basis of
Expedience
Social obligation
Taken-forcompliance
grantedness
Mechanisms
Coercive
Normative
Mimetic
Logic
Instrumentality
Appropriateness
Orthodoxy
Basis of
Legally sanctioned Morally governed
Comprehensible,
legitimacy
recognizable,
culturally
supported
How do institutions arise?
 They are negotiated between powerful factions (regulative).
 They consist of the creation of shared definitions of social reality through
interactions (cultural-cognitive).
 They arise if patterns of behavior are infused with value beyond the
technical requirements at hand (normative).
Institutions inherited from colonial rulers may have long-lasting effects:
 British colonies:
- Indirect rule
- Indigenous power structures as conduits of colonial policies
- Emphasis on fiscal self-reliance
 French colonies:
- Direct rule
- Centralized from Paris
- Integrated into French economy, including subsidies
Typological versus dimensional approach:
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Typological approach: assumes that institutional systems are integrated
wholes. Institutional systems can be compared and contrasted, but not
measured.
Dimensional approach: assumes that the characteristics of institutional
systems can be described using a small number of underlying dimensions.
It allows for positioning institutional systems in a multidimensional space
and measuring the distance between two systems.
Varieties of capitalism approach: liberal market versus coordinated market
economies:
Liberal market
Coordinated market
Countries
Anglo-American countries
Northern European
countries and Japan
Financial system
-Short-term horizons
-Long-term horizons
-High-risk taking
Industrial relations
-Deregulated labour
-Regulated labour market
system
market
-Unions are important
-Weak unions
-Cooperation and
coordination
Education and
-General education
-Serious vocational
training system
-No long-term vocational
training
training
-Involvement of
-Bit-by-bit skill acquisition
companies
Inter-company
-Strong competition
-Substantial technology
system
requirements
-Standard-setting
-Limited cooperation
cooperation
Sub-branches of the coordinated market economies:
 Industry-coordinated (northern European) market economies: the primary
locus for coordination of activities is at the industry level.
 Group-coordinated (Japanese) market economies: the primary locus of
inter-company coordination takes place within across-industry groupings of
large companies, to which the great majority of very large companies
belong.
Business systems (Whitley): particular ways of organizing, controlling, and
directing business enterprises that become established as the dominant forms of
business organization in different societies.
The main features of business systems that the approach seeks to explain are:
 The nature of firms as economic actors.
 The nature of authoritative coordination and control systems within firms.
 The nature of market organization.
Differences in the nature of relationships between five broad kinds of economic
actors are particularly important in contrasting business systems:
 The providers and users of capital
 Customers and suppliers
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Competitors
Firms in different sectors
Employers and different kinds of employee
Background versus proximate institutions:
 Background institutions: related to trust relations, collective loyalties
toward non-kin, individualism and authority relations (culture).
 Proximate institutions: related to access to financial and labor resources,
system of property rights and political control (more formal institutions).
Key institutional features structuring business systems:
Six major ideal types of business systems based on two dimensions:
Fragmented systems, compartmentalized business systems, and coordinated
industrial districts are a liberal cluster. Coordinated industrial districts, stateorganized business systems, collaborative business systems, and highly
coordinated business systems are a coordinated cluster.
The postwar business systems of Korea and Taiwan:
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Dominant institutional influences on the postwar Korean business system:
Dominant institutional influences on the postwar Taiwanese business system:
Societal effect analysis: an approach that is open to further development. It
works with a classification of spaces, which is filled by institutions that may
change over time. It offers a balance between structure, action and actor-centric
elements.
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Actor-structure relationship: there is an interactive relationship between actor,
structure and process, which can be characterized by correspondence and
opposition, and can produce institutional change.
Spaces of action can be subdivided into a structure and a process aspect:
 Structural aspect: the ‘stocks’ and properties that characterize the
composition of an aggregate of people or of a system.
 Process aspect: the changes that occur with regard to a space, over a
certain period of time.
Types





of spaces:
Organizational space
Competence generation space
Industrial space
Employment relations space
Technical space
Causes of institutional change:
 Functional pressures: those that arise from perceived problems in
performance levels associated with institutionalized practices.
 Political pressures: result from shifts in interests or underlying power
distributions that provided support for existing institutional arrangements.
 Social pressures: are associated with differentiation of groups, and the
existence of heterogeneous divergent or discordant beliefs, interests and
practices.
Kostova argues that in the dimensional approach comparison needs to be domain
specific. You can for example develop institutional dimensions specific to
entrepreneurship:
 Regulatory dimension: laws, regulations and policies that provide support
for new business.
 Cognitive dimension: knowledge and skills pertaining to establishing a new
business.
 Normative dimension: degree to which entrepreneurial activity and
creative and innovative thinking are valued.
Conclusions of a research of Busenitz, Gómez and Spencer:
 Institutions are the humanly devised constraints and enablers that
structure interaction.
 Institutions influence the particular way of doing business in a country.
 National institutional setups can be described using a typological or a
dimensional approach.
 The way in which a particular practice is adopted depends strongly on the
national institutions.
Lecture 3 (September 10, 2014)
Chapter 2: National cultures and management – the etic approach
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Different definitions of culture:
 Kroeber and Kluckhohn: ‘Culture consists of patterns, explicit and implicit,
of and for behavior acquired and transmitted by symbols, constituting the
distinctive achievements of human groups, including their embodiments in
artifacts; the essential core of culture consists of traditional ideas and
especially their attached values; culture systems may, on the one hand, be
considered as products of action, and on the other hand as conditioning
elements of further action.’
 Geert Hofstede: ‘Culture is the collective programming of the mind which
distinguished the members of one group or category of people from those
of another.’
Three levels of factors influencing values and beliefs:
Elements of culture:
 Values: what someone desires or regards to be important
 Norms: what others see as important or desirable
 Beliefs: what someone considers to be true or false
 Attitudes: positive and negative judgments with regard to a specific thing
 Self-perceptions
 Cognitive abilities
 Behaviors
 Stereotypes
Levels of culture:
Layers of culture (Hofstede, Schein):
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An important point is that the level of the culture is not the same as the level of
the individual.
Why is culture important to people?
 It is important for self-categorization, which can lead to positive
stereotyping of ‘in-group’ and negative stereotyping of ‘out-group’.
 There exists real differences between cultures.
Why is national culture important to people?
 Nations have well-defined boundaries
 Nations define many institutions
 Nations form a salient target of identification
Where does culture come from?
 Adaptive system view: cultures are responses to environmental conditions
and have ‘survival value’.
 Ideational system view: cultures are shared symbolic systems that are
cumulative creations of the mind, and may be functional or detrimental.
Adaptive view of the origin of cultures (Hofstede):
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Self-construal: how do we define ourselves?
 Independence: the capacity of exerting power
- Autonomy versus heteronomy
 Interdependence: the degree of connectedness with others
- Relatedness versus separateness
Independent versus interdependent parenting/child training (Markus and
Kitayama):
Independent
Interdependent
More face-to-face-contact
Less face-to-face-contact
More object stimulation
Less object stimulation
Less body contact and body
More body contact and body
stimulation
stimulation
Baby is treated as individual
Tight social network
Dimensions of child training practices:
 Obedience: to what extent are children expected to obey their parents.
 Responsibility: emphasis on effortful or time-consuming behavior to the
benefit of the family or community.
 Achievement: emphasis on attaining a high standard of performance.
Adaptive culture and behavior in ultimatum game:
 The ultimatum game probes norms of selfishness and altruism
 The stronger the market integration, the larger the general payoffs to
cooperation
The ideational view is a cognitive view: a society’s culture consists of whatever
one has to know or believe in order to operate in a manner acceptable to its
members.
Some

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
hardwired human traits:
In-group versus out-group distinction
Theory of mind
Assumption of agency
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Lecture 4 (September 17, 2014)
Chapter 2: National cultures and management – the etic approach
Etic versus emic statements:
 Etic statements refer to distinctions judged appropriate by the community
of scientific observers.
 Emic statements refer to distinctions that are significant, meaningful, real,
accurate, or in some other fashion regarded as appropriate by the actors
themselves.
Phonetic versus phonemic:
 Etic comes from phonetics, which is the study of sound and sound changes
in human speech.
 Emic comes from phonemics, which is the study of sound units in
languages, and can only be studied within the context of a given language.
Etic versus emic research:
 Data collected in etic research are shallow but reliable.
 Data collected in emic research are rich but less reliable.
Boundaries of cultures:
 Etic research concentrates on the more homogenous societies, which are
defined by national boundaries.
 Emic research has traditionally had a tendency to focus on cultural groups
that are not defined by national boundaries.
Hofstede suggests that three basic societal problems underlie cultural value
dimensions:
 The relationship to authority.
 The conception of self, including the individual’s concept of masculinity
and femininity.
 Primary dilemmas or conflicts, and ways of dealing with them, including
the control of aggression and the expression versus inhibition of affect.
Hofstede distinguished five cultural value dimensions:
 Power distance: the extent to which the less powerful members of
institutions and organizations within a country expect and accept that
power is distributed unequally.
 Uncertainty avoidance: the extent to which the members of a culture feel
threatened by uncertain or unknown situations.
 Individualism versus collectivism: whether the ties between individuals are
loose, with everyone being expected to look after himself or herself and his
or her immediate family only (individualism) or whether people from birth
onward are integrated into strong, cohesive ingroups, which throughout
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people’s lifetime continue to protect them in exchange for unquestioning
loyalty.
Masculinity versus femininity: whether social gender roles are clearly
distinct: men are supposed to be assertive, tough, and focused on material
success; women are supposed to be modest, tender, and concentrated
with the quality of life, or whether social gender roles overlap; both men
and women are supposed to be modest, tender, and concerned with the
quality of life.
Long-term versus short-term orientation: the fostering of virtues oriented
toward future rewards, in particular perseverance and thrift (long-term
orientation) versus the fostering of virtues related to the past and the
present, in particular respect for tradition, preservation of ‘face’, and
fulfilling social obligations (short-term orientation).
The world according to Hofstede:
Criticism on Hofstede:
 The sample is atypical, because all the respondents are IBM employees.
 There is an inherent limitation of the use of the survey method in
identifying characteristics of cultures.
 Questions have been raised about the suitability of the items used to
establish the dimensions of culture.
 A question has raised whether national culture may be expected to exist –
that is, whether the country is an appropriate level of analysis for cultures.
 It is questionable whether Hofstede’s findings are applicable to the present
situation.
Schwartz also recognizes three basic societal problems, but they are slightly
different from Hofstede’s:
 The nature of relations and boundaries between the person and the group
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How to make sure people behave in responsible manner that preserves
social fabric of the group.
How to regulate how people treat human and natural resources.
The theoretical structure of Schwartz’s value orientations:
Schwartz’s dimensions:
 Embeddedness versus autonomy: in embedded cultures, people are
viewed as entities embedded in the collectivity, who find meaning in life
largely through social relationships. In autonomy cultures, people are
viewed as autonomous, bounded entities who find meaning in their own
uniqueness and who are encouraged to express their preferences, feelings
and motives. Schwartz distinguishes two types of autonomy: intellectual
autonomy encourages individuals to pursue their own ideas and
intellectual directions independently; affective autonomy encourages
individuals to pursue actively positive experiences for themselves.
 Hierarchy versus egalitarianism: in hierarchical cultures, the unequal
distribution of power, roles and resources is seen as legitimate. Cultural
egalitarianism seeks to induce people to recognize one another as moral
equals who share basic interests as human beings.
 Mastery versus harmony: mastery-oriented cultures encourage active selfassertion in order to master, change and exploit the natural and social
environment to attain personal or group goals. Harmony-oriented cultures
accept the world as it is, trying to comprehend and fit in rather than to
change or exploit.
Values that belong to the seven dimensions:
 Embeddedness: social order, respect for tradition, security, wisdom.
 Intellectual autonomy: curiosity, broadmindedness, creativity.
 Affective autonomy: pleasure, an exciting and varied life.
 Hierarchy: social power, authority, humility, wealth.
 Egalitarianism: equality, social justice, responsibility, honesty.
 Mastery: ambition, success, daring, competence.
 Harmony: unity with nature, protecting the environment, world peace.
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Lecture 5 (September 24, 2014)
Chapter 2: National cultures and management – the etic approach
The world value survey (WVS) has two very broad dimensions:
 Traditional versus rational-secular authority: in traditional authority
societies God plays an important role in peoples’ lifes, children are taught
to be obedient and maintain the religious faith, citizens have a strong
sense of national pride and favor respect for authority, and abortion is
regarded to be never justifiable. In rational-secular authority cultures the
values are just the opposite.
 Survival versus self-expression values: survival values emphasize
economic and physical security above other goals, and in culture scoring
high on this dimension people feel threatened by foreigner, by ethnic
diversity and by culture change. At the other pole in cultures characterized
by self-expression values people are more trusting and tolerant and
express higher levels of subjective well-being.
Culture clusters in the WVS:
Inglehart suggests two trends that the successive waves of the WVS make visible:
 Modernization: the shift from traditional to rational-secular authority
values. This shift is associated with the change from an economy
dominated by agriculture to an industrial economy, as well as the increase
in income caused by that.
 Postmodernization: the shift from an emphasis on survival values to an
emphasis on self-expression values. This shift is associated with the
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change from an industrial economy to an economy based on services, and
typically a further increase in income per capita.
Traditional versus modern versus postmodern (Inglehart):
Traditional
Modern
Core societal
Survival in a
Maximize
project
steady-state
economic growth
economy
Individual value Traditional
Achievement
religious and
motivation
communal norms
Authority
Traditional
Rational-legal
system
authority
authority
Drivers of modernization:
 Industrialization
 Mass education and literacy
 Urbanization
 Form extended to nuclear family
 Mass media
 Division of church and state
 Entry more women into paid workforce
Drivers of postmodernization:
 Servitization of the economy
 Flexibilization of employment
 Suburbanization
 Market liberalization
 Growth of non-traditional households
 Increasing equality of the sexes
Culture change in countries based on two dimensions:
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Postmodern
Maximize
subjective
wellbeing
Postmodern
values
De-emphasis of
both
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Visualization of the similarities between Hofstede, Schwartz and WVS:
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Hofstede’s onion
diagram:
Robert House did a study (GLOBE study) including the Hofstede dimensions plus a
number of others. For each dimension he used a ‘as is’ and a ‘should be’
question.
GLOBE dimensions:
 Power distance
 Uncertainty avoidance
 Humane orientation
 Institutional collectivism
 In-group collectivism
 Assertiveness
 Gender egalitarianism
 Future orientation
 Performance orientation
Linking the dimensions of Hofstede to management and organization:
 Power distance is related to the importance and degree of centralization of
power.
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Uncertainty avoidance is linked to the importance of rules and procedures
in organizations, and the importance attached to the formal organizational
structure.
Individualism-collectivism affects the relationship between the employee
and the organization, as well as factors that motivate the employee.
Masculinity-femininity is related to work centrality and to behaviors
expected form managers.
Influences of culture on negotiations:
Cultural influences can work out on:
 The social situation in which the negotiations take place
 The way in which this social situation influences the perceptions,
judgments, motives, goals, and so on, of the negotiators
 Directly on these perceptions, and so on
 The way in which these perceptions and so on influence the behaviour of
the negotiators
Why does development strengthen self-expression values?
 Socio-economic development leads to income and wealth increases,
access to information and education increases, and social capital
increases.
 This reduces constraints and widens capacity of people to act according to
their own choices.
Self-expression values, development and democracy:
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Traditional/secular-rational values by year of birth for four types of societies:
Maturation effect:
Generation effect:
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Zeitgeist effect:
Lecture 6 (October 1, 2014)
Chapter 2: National cultures and management – the etic approach
Chapter 3: National cultures and management – the emic
approach
Steps
1.
2.
3.
4.
5.
in etic culture research:
What is the purpose of the study?
What data to collect? Archival data versus survey data
What kind of survey? Established scales versus new items
What kind of controls are necessary?
Which statistical analysis to use? Confirmatory versus explorative
Methodological issues of etic research:
 Content validity: extent to which instrument reflects entire domain of
culture studied. What is actually measured?
 Construct validity: extent to which instruments measures intended
constructs.
- Convergent construct validity: do all items indeed measure the same
underlying construct?
- Discriminant construct validity: are the items really tapping different
underlying constructs?
 Reliability: consistency, repeatability and reproducibility of empirical
measurements (mostly higher in etic than in emic studies). If the research
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
would be replicated at another time or by someone else, would it yield the
same results?
Equivalence: extent to which instrument measures the same phenomena
in the same way in different cultures.
Cultural distance: a single yardstick of cultural differences between countries is
used.
The Kogut & Singh index of cultural distance:
4
CD xy =∑ {( Six −Siy )2 /V i }/4
i=l
Examples of psychic distance stimuli:
 Distance between major languages
 Distance between major religions
Criticisms of the cultural distance concept:
 Distance is a symmetric concept, but differences between cultures are
often perceived as asymmetrically.
 Distance is a linear concept, but effect of cultural differences may be
nonlinear, and depend on the issue.
 The importance of distances in different dimensions may vary, some
differences may be unimportant or even positive.
From etic to emic research: trust within and between nations:
 Etic research: political and social trust in countries.
 Etic/semi-emic research: Eurobarometer study into trust patterns between
European nations.
 Emic research: meanings related to trust and collaboration in different
countries.
Etic versus emic studies:
 Etic study: general categories or dimensions can be used to describe all
cultures.
- Logical empiricism; empirical cycle
 Emic study: cultures are systems of meaning, and can only be understood
from within.
- Hermeneutics; interpretative cycle
Logical empiricism: valid scientific knowledge is based on statements that are
logically true and empirically falsifiable. Science progresses through the empirical
cycle. On the basis of earlier studies and logical inferences hypotheses are
developed. These hypotheses are subsequently confronted with data, and if they
are not refuted they are provisionally accepted as true, and as a contribution of
the slowly accumulating body of scientific knowledge.
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Empirical cycle:
Logical empiricism:
Clifford Geertz: man is an animal suspended in webs of significance he himself
has spun, I take culture to be those webs, and the analysis of it to be therefore
not an experimental science in search of law but an interpretative one in search
of meaning.
Semiotics: the study of signs. A sign is something that refers to, or stands for
something else. This relationship between the sign as a physical, visible
phenomenon and that to what it refers makes meaning. Thus, a sign consists of
two elements: a signifier, the form of the sign, and a signified, that to which the
signifier refers.
Hermeneutics: the researcher needs to put him- or herself in the shoes of the
creator of the phenomenon studied, and imagine the mindset or motivation that
could have led to its creation. This is the act of interpretation. Hermeneutics
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refers to the interpretation of phenomena as signs. Interpretation is an act of
understanding in which phenomena are taken to be signs referring to a meaning.
We try to integrate the signs we aim to interpret into the more or less coherent
system of signs that forms our worldview.
Hermeneutics:
If successful, a hermeneutical dialogue leads to a ‘fusion of horizons’, in that the
original worldview of the researcher has been broadened to also encompass the
possible meanings of the culture studied.
Ethnography: a method mostly adopted by emic culture studies. It is a naturalistic
mode of inquiry, indicating that unnatural forms of behavior, like responding to a
questionnaire, or even answering questions in a formal interview, are to be
avoided. Instead, less obtrusive data collection methods like observation and
informal conversations are privileged. The goal of ethnographic studies is to
describe all relevant aspects of a cultural system.
Methodological issues in emic research:
 Acquiring access poses problems, because many business firms are not
eager to be object of an emic study. First because it occupies time of
managers and employees, and second because it might give away
strategic information to competitors, or damage the reputation.
 The outcomes of an emic study of a firm may be influenced by the identity
of the researcher. Characteristics of the researcher that can influence this
are for example age, gender, nationality or language abilities.
 The selection of key informants may introduce bias to ethnographic
studies. These are rarely randomly drawn from the population
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
Disclosure can be a problem, because the researcher studying a company
from the inside almost always has to strike a deal that includes some
restrictions regarding publication.
Philippe d’Iribarne: like Geertz, culture for him is essentially a system of
references that enables actors to make sense of both the world in which they live
and of their own actions. He calls for an idiographic approach, using ethnographic
methodology.
Philipp d’Iribarne uncovers the internal logic of three national systems:
 France: logic of honor. In France there is a large symbolic distance between
different levels of hierarchy, but this decreases the effective power of the
boss. Direct face-to-face authority relationships are avoided by making
them impersonal through rules and bureaucracy.
 USA: logic of contract. In the USA the link between the individual employee
and the organization, as well as between the subordinate and the superior,
is an agreement specifying what the parties may expect of each other.
Every subordinate has a face-to-face relationship with a superior.
 The Netherlands: logic of consensus. In the Netherlands there are
processes of discussion and argument between equals and between
superiors and subordinates to settle disputes, which were reopened as
soon as the conditions of the environment changed.
Three models for hierarchical relations in the French logic of honor:
Lecture 7 (October 8, 2014)
Chapter 3: National cultures and management – the emic
approach
Chapter 11: Interdependencies, harmonization and societal
specifi city
Characteristics of human resource management in Japan:
 Career employment: regular employees at large firms stay long with their
company. They make a career within one firm.
 Seniority system: older people has higher positions and have a higher
wage. However, at age 55 employees have to retire and then they accept
another job for a lower salary. This is the case for white-collar (office) and
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
blue-collar (production) workers. In Europe this is only the case for whitecollar workers.
Overwork and retirement policies: overwork is a consequence of the
Japanese system, because employers are careful in hiring people, because
they stay long. Early retirement makes the system manageable, because
older people are expensive.
Age-wage profiles in Japan (purple and dark blue) and Europe for male whitecollar (left) and blue-collar (right) workers:
Characteristics of decision making in Japan:
 Wa: in the Japanese society is a strong preference for consensus and
harmony. That is why clearly visible decisions and decision makers are
absent. Conflicts and discussions are avoided if possible. Nemawashi and
ringiseido are two consensus procedures.
 Nemawashi: the literal translation refers to the method of transplanting a
tree by first cutting the roots of the tree. In the context of organizational
decision making it refers to a process in which affected parties are
cautiously sounded and consulted, and in which negotiations are held
behind the scenes and not in open for a.
 Ringiseido: a formal document (ringi) is circulated among all the relevant
organization members, often heads of departments. Recipients indicate
their approval of the proposal in the document by affixing their personal
seal (hanko) on it.
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Research model of Noorderhaven, Benders & Keizer (2007):
Findings of Nooderhaven, Benders & Keizer (2007):
 Japanese consensus process is sequential, with formal meeting at the and.
Consensus is based on harmony and there is a strong sense of hierarchy. It
is more comprehensive than Dutch consensus.
 Dutch consensus is synchronic and iterative, including formal meetings.
Consensus is a pragmatic meeting of particularistic minds. It lacks in detail
in comparison with Japanese consensus.
 Both groups (Japanese and Dutch) see the other as more hierarchical.
Enterprise groups in Japan:
 Kigyō keiretsu: vertical group consisting of core firms and subsidiaries. You
only do business within your own keiretsu.
 Kigyō shudan: horizontal groups around a bank and/or trading company.
Japanese management as an integrated system:
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Amae: an indigenous Japanese concept of relatedness which cannot easily be
translated in English, but has been describes as ‘indulgent dependency’. Amae
implies that a person who is in a superior position of authority or power, will
accept behavior from a subordinate that is normally seen as inappropriate if his
or her relation with the subordinate is close.
Lecture 8 (October 22, 2014)
Chapter 3: National cultures and management – the emic
approach
Chapter 11: Interdependencies, harmonization and societal
specifi city
Japan is a highly coordinated market economy:
 Keiretsu/Shudan:
- Ownership control through alliances
- Some vertical integration
- Limited horizontal integration
- Strong alliance coordination of production chains
 High collaboration between competitors
 HRM/decision making:
- Some coordination of sectors
- High employee-employer interdependence
- Considerable delegation to employees
The Meiji restoration: in 1867 was the fall of the last shogun (dictator) in Japan, it
was the end of the middle ages. Japan turned into the modern world, which was a
huge change. The industrialization went very fast in the cities/urban areas.
However, there was a dual economy, because there were still traditional rural
areas.
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Japanese culture according to Hofstede:
 High power distance  hierarchy
 Low individualism  conformity
 Very high uncertainty avoidance  diffuse responsibility
 Very high masculinity  achievement
Culture of Japanese management from an emic perspective:
 Gaman: enduring the seemingly unbearable with patience and dignity
 Giri: social obligation; serving one’s superiors with a self-sacrificing
devotion
 Amae: desire to be indulged as a dependent
 Wa: harmony
 Ninjō: human feeling
Characteristics of the collective capitalism in South Korea:
 Centralized business conglomerates (chaebol)
 Family ownership (male line); integration ownership-management
 Strong influence of government
 Predatory relations between chaebol and subcontractors
 Limited employer-employee commitment
 Authoritarian/paternalistic management style
 Tall hierarchy
Characteristics of the collective capitalism in Taiwan:
 Networks of family-owned small and medium-sized enterprises
 Personal control limits growth of any single firm
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



Horizontal coordination through guanxi
Strongly entrepreneurship-driven
Employer-employee commitment only where personal obligations exist
Management is informal and centralized
Explaining Dutch management
Origins of Dutch culture and institutions:
 Early ‘self-help’ organizations to fight the water  consensus necessary
 The Dutch revolt and eighty years’ war (1568-1648)  no strong central
power  consensus, compromises
 The golden age (1585-1700)  pragmatism, compromise
 Pillarization and compromise (1900-1960)  pragmatism, compromise
Management in the Netherlands:
Dutch




culture according to Hofstede:
Rather low on power distance
High on individualism
Extremely feminine
Moderate on uncertainty avoidance
Dutch culture according to Inglehart: the Netherlands is high on both secularrational authority and on self-expression values.
Studies of management in the Netherland consistently mention the following
characteristics:
 Strong emphasis on consensus decision making
- Commitment to equality
- Negotiation, but with respect for harmony
- Compromise
- Highly structured meetings
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
Pragmatic (not driven by theory or doctrine) stance of both managers and
employees
- Restraint, avoiding strong emotions
- Directness, but avoiding personal attacks
- Loss of face is of little concern
- Informal relations important
Important aspects of the institutional environment of Dutch firms:
 Very limited direct state involvement
 Systems of labor relations
 Corporation government
 Legislation regarding permits
 Educational system
Lecture 9 (October 29, 2014)
Chapter 9: Multinational corporations: structural, cultural and
strategic issues
International collaborative relationship: a formal agreement between two or more
firms form different countries to pursue a set of interests through the sharing of
resources a context involving uncertainty over outcomes.
Foreign market entry modes of multinational corporations (cooperative
strategies):
 Licensing: contractual agreement to use a process technology.
 Franchising: contractual agreement to use a trademark or brand.
 Strategic alliances: contractual cooperation between independent
companies in order to realize common goals.
 Joint venture: equity-based cooperation between independent companies
in order to realize common goals on the basis of common ownership and
contract.
 Greenfield: a wholly owned local subsidiary, where a multinational
corporation starts up a new facility from scratch.
 Acquisition: a wholly owned local subsidiary, where a multinational
corporation buys an existing local firm, so the local firm loses
independence.
Alternative modes of (collaborative) internationalization:
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Internal versus external uncertainty:
 Internal (or behavioral) uncertainty: refers to expected or experienced
difficulties in dealing with a partner in a foreign country.
 External uncertainty: is associated with the environment in which a
company is doing business.

Cultural distance and interorganizational collaboration:
How does cultural distance influence collaborative mode choice?
Basic assumptions:
 Equity joint ventures offer more control (less uncertainty), but also expose
company to more risk.
 Contractual alliances reduce risk exposure, but offer less control (more
uncertainty).
Conclusion: tradeoff between risk and uncertainty varies along the continuum
between alliance and equity forms of collaboration.
Effects of cultural differences:
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Factors influencing international mergers and acquisitions:
Multinational corporation (MNC): enterprises that own or control production or
service faciliites outside the country in which they are based.
Most multinational corporation activity can be classified into two major
categories:
 Trade
 Foreign direct investment (FDI)
Why do multinational corporations exist?
 Firm-specific advantages
 Location-specific advantages
 Internalization advantages
Structural development of MNCs (Stopford & Wells, 1972): most MNCs start with
an international unit (a department or a division) taking care of all overseas
activities. The direction in which MNCs develop depends on what becomes the
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most pressing issue first: the sheer volume of foreign sales or the product
diversity of international sales and production. In the first case, the solution is
typically to base the orgnization on geographical divisions. In the second case,
the organization will be structured into product divisions, each of which has a
worldwide mandate. If both foreign sales and foreign product diversity continue
to increase, MNCs need a matrix structure, in which all major activities are
coordinated by both product and area-related managers.
Four possible MNC strategies proposed by Bartlett and Ghoshal (2000):
Explanation of the MNC strategies:
 International: the traditional form of MNCs based in large domestic
markets. Products are typically developed for the domestic market and
sold overseas with little or no adaption.
 Multidomestic: the most fitting strategy in consumer markets, in particular
for products that need to be adapted to local tastes. The focus lies on the
own geographical market, and the firm has almost complete freedom in
determining their local strategies.
 Global: when there are strong forces for globalization and weak forces for
local adaption. This form is most likely where economies of scale are
intensely imporant.
 Transnational: companies that have the mentality that enables them to
simultaneously adapt to local circumstances and to integrate activities
across borders.
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Coordination versus control:
 Control: the regulation of activities within an organization so that they are
in accord with the expectations established in policies and targets.
 Coordination: an enabling process to bring about the appropriate linkages
between tasks.
Thompson (1967) distinguished between three types of interdependency:
 Pooled interdependence: two units depend on the inputs from a third unit
for their own tasks. However, the two units can function independently
from each other.
 Sequential interdependence: one unit depends on the inputs form a second
unit for the fulfilment of its task, and a third unit in turn in dependent on its
own output.
 Reciprocal interdependence: is used for situations in which units depend on
each other’s outputs in complex and unpredictable ways.
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Interdependence
Pooled
Sequential
Reciprocal
Coordination mechanisms
Planning, budgetting, control
Formal hierarchy, grouping of
tasks within units, input/output
specifications
Integrator roles, task forces,
teams, matrix structure
Type of MNC
Multidomestic
International, global
Transnational
Headquarters-subsidiary relationships:
Bartlett and Ghoshal (1986) observe two dysfunctional ‘syndromes’ in
headquarters-subsidiary relationships in MNCs:
 The ‘UN model’ syndrome: implies that MNC headquarters’ relationships
with subsidiaries are based on the assumption that these shoud be treated
in a uniform manner.
 The ‘headquarters hierarchy’ syndrome: points at the tendency in many
MNC headquarters to keep all key decisions centralized.
Cultural distance and multinational corporation entry mode:
How does cultural distance influence the choice between joint venture and wholly
owned subsidiary? (Brouthers & Brouthers):
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Lecture 10 (November 5, 2014)
Washington’s blog: Top economists: trust is necessary for a stable
economy … but trust won’t be restored until we prosecute Wall
Street fraud
Model of a country’s economy:


Y =f ( K , L)
Where: Y = national income, K = capital input, L = labor input
Model of a country’s economy according to Robert Solow:



Y = A∗f (K , L)
Where: A = technical knowledge
Solow found that from 1909 to 1949 1/8 of the total economic growth in
the US was attributed to increased capital and labor inputs, and 7/8 to
increased technical knowledge.
Douglass North about institutions:
 Institutions: the humanly devised constraints that structure political,
economic, and social interaction.
 Institutions shape a country’s economy in a fundamental way.
 Institutions are not merely created for economic efficiency. They may be
created to serve the interests of those in power.
North & Weingast (1989) found evidence that institutions may be created to
serve the interests of those in power:
 In the industrial revolution Britain had well-defined private property rights,
less arbitrary courts and police, and institutions that limited confiscatory
taxation. Many European nations were hobbled with feudal customary
rights.
 Britain’s patent law dates form 1624. Most European countries did not
have patent laws until the end of the 18 th century.
Keefer & Knack (1997) and Hall & Jones (1999) found evidence that institutions
shape a country’s economy in a fundamental way:
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

The quality of property rights institutions is strongly and positively
correlated with a nation’s economic growth rate.
This is because property rights influence one’s incentive to invest in
tangible and intangible assets or adopt more advanced technology.
Institutions are in fact a liberating force:
 The only way individual freedom can be obtained is through a collective
adherence to ‘duties’ that define and protect individual ‘rights’ for
everyone.
 Institutions free organizations and individuals from the need to contrive
new patterns of acting in each situation they encounter.
 The game has rules that must be obeyed, but within the rules, several
different strategies are always possible.
Institutions and legitimacy:
 Suchman (1995): legitimacy is a general perception that the actions of an
entity are desirable, proper, or appropriate within some socially
constructed system of norms, values, beliefs and definitions.
Organizational legitimacy is vital for organizational survival and success.
 Organizations attain legitimacy by conforming to formal/informal
institutions. The appearance rather than the fact of conformity is often
sufficient for the attainment of legitimacy.
 Foreign subsidiaries face dual pressures for legitimacy. Institutions of the
host country and institutions of the home country or parent company may
be incompatible.
Institutions define how the game should be played:
 Institutions create order, reduce uncertainty, and facilitate coordination.
 Complex economic activities have to be supported by sophisticated
insitutions.
 Institutions influence management styles and organizational approaches.
 Institutions influence a country’s economy.
Crucial institutions of publicly-held corporations are an example of ‘sophisticated’
institutions:
 There is separation of ownership and management.
 There is limited liability up to the extent of the price per share.
 A shareholder may sell his shares without first obtaining the permission of
fellow shareholders.
 It has a disclosure requirement.
Different forms of trust:
 Personal/micro-level/conctrete/thick trust: trust in a specific person based
on personal relations and prior interactions.
 Social/macro-level/abstract/thin trust: general trust in people. This kind of
trust arises from the institutional environment of laws, norms and
standards.
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
Institutional trust: the trust people have in institutional systems.
The economic function of trust:
 It reduces transaction costs and the need for monitoring. It does not only
reduce the cost of striking a deal but also the cost of enforcing any deal
that is made.
 Social trust and its associated institutions are indispensable to a vibrant
market economy.
 When institutions are weak, people have to rely more on personal trust.
Kenneth Arrow: ‘Virtually every commercial transaction has within itself an
element of trust.’
Social trust and GDP per capita in Europe
Social trust and corruption
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Joseph Stiglitz: ‘People have an incentive sometimes to behave badly, because
they can make more money if they can cheat. If our economic system is going to
work then we have to make sure that what they gain when they cheat is offset by
a system of penalties.’
Zak and Knack: they showed that strengthening the rule of law, reducing
inequality, and facilitating interpersonal understanding all increase trust.
Hofstede about culture:
 Culture: ‘collective programming of the mind which distinguishes the
members of one human group from another.’
 Culture is similar to Norths informal institutions.
 Culture influences your behaviour and your interpretation of others’
behaviour.
 Culture changes only slowly.
Culture exists at different levels:
 Country
 Region
 Religion
 Ethnicity
 Organization
In East Asia economic growth is associated with attitudes toward work, saving,
and education.
According to Max Weber the protestant reformation contributed to the rise of
capitalism:
 Protestants work hard and are honest, serious and thrifty.
 The pursuit of wealth should be regarded not merely as an advantage but
as a duty.
 Three historical facts:
- Protestants were expected to read the Bible themselves
- Protestants accorded a high importance to time
- The protestant reformation led to a significant reduction of holy days
How Karl Marx thinks economy influences culture:
 The hand-mill produces feudal society.
 The steam-mill produces capitalism.
Modernization theory borrows heavily from Marxism:
 Cultures change is a function of increasing wealth and economic
development; rich countries show poorer countries an image of the future.
 As a result of economic development and globalization, each country’s
traditional values will be replaced by a set of modern values.
The ‘convergence’ school (McDonaldization):
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

Man is fundamentally an economic creature.
Countries that have succeeded in achieving a high level of economic
development have come to look increasingly similar to each other.
The ‘persistence’ school:
 Country-specific traditional values will persist and cross-country cultural
differences will not disappear.
 Traditional values will continue to exert an independent influence on the
cultural changes cauded by economic development.
According to Inglehart and Baker (2000) both schools are partly right:
 Economic development brings about similar cultural changes, like
secularization and individualization.
 But each country’s cultural heritage has enduring effects. Rather than
converging, they seem to move on parallel trajectories shaped by their
cultural heritages.
Cultural differences in Europe:
There are large differences in European morals and values. The most remarkable
difference is the one between Eastern and Western Europe. West Europeans are
richer, more modern, have a more tolerant way of thinking, are happier and have
more faith in fellow-man, etc.
Herman van Rompuy (president of EU council): ‘I will consider everyone’s interest
and sensitivities. Even if our unity is our strength, our diversity remains our
wealth. Every country has its own history, its own culture, its own way of doing
things. Our journey may be towards a common destination, but we will all bring
along different luggage. Denying this would be counterproductive. Without
respect for our diversity, we will never build our unity.’
David Landis: ‘If we learn anything from the history of economic development, it
is that culture makes all the difference.’
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Lecture 11 (November 13, 2014)
Paper: Toward an economic model of the Japanese fi rm (Aoki,
1990)
CNN money: CEOs earn 343 times more than typical workers
(Liberto, 2011)
Two definitions of corporate governance:
 The study of power and influence over decision making within the
corporation.
 The ways in which suppliers of finance to corporations assure themselves
of getting a return on their investment.
Agency theory:
 The principal engages the agent to perform some service which involves
delegating some decision making authority to the agent, but the agent,
who often has superior on-site information, may not act in the best
interests of the principal.
 The principal can limit divergences from his interest by establishing
approriate incentives for the agent and by incurring monitoring costs to
limit the aberrant behaviors of the agent.
Shareholder approach:
 Shareholders own the firm; managers are the agent and are held
accountable to shareholders.
 The goal of the firm is to maximize shareholder value. However, managers
may act in their own self-interest.
Corporate governance is designed to protect shareholders’ interest:
 Incentive alignment
 Internal control
 External control
The agency chain of a typical American/British listed company
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Aoki (1990): ‘Management is conceived to operate hierarchically through a chain
of incentive contracts, with management of the higher level acting as the
surrogate for the ultimate principal and that of the lower level as the agents of
higher-level management.’
Stakeholders: any group or individual who can affect or is affected by the
achievement of the firm’s objectives. For example: creditors, investors,
employees/unions, customers, suppliers, managers, local communities, etc.
Stakeholder approach:
 A firm should balance and take into account the legitimate interests of
stakeholders.
 A firm should be profitable as well as socially and environmentally
responsible.
Freeman, Wicks & Parmar (2004): ‘Business is about putting together a deal so
that suppliers, customers, employees, communities, managers and shareholders
all win continuously over time.’
Drucker (2001): ‘Top management of the future will need to balance three
dimensions of corporation: as an economic organisation, as a human
organisation, and as a social organisation.’
Shareholder versus stakeholder approach:
Shareholder approach
Stakeholder approach
Focus on negatives: managers may not Look at positives: joint value creation
behave
with stakeholders
Keep managers in check
Help managers articulate the shared
purpose of the firm
Single-minded and ‘scientific’
Pluralistic and practical
(grounded in agency theory)
Shareholder are held accountable
Stakeholders take into account
However, both approaches agree that to build a successful business, you must
satisfy your customers, get on with your suppliers, motivate your employees and
make your company welcome by local communities.
Two most researched archetypes of international comparison:
 The Anglo-Saxon model: liberal business system/market-based capitalism.
 The Rhineland model: coordinated business system/relational capitalism.
Anglo-Saxon versus Rhineland
Anglo-Saxon
Finance
More equity finane
Ownership
-Dispersed
structure
-More ownership by
investment funds
Rhineland
More bank/debt finance
-Concentrated
-More cross-shareholding
with other companies
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Relationship
between
stakeholders and
management
-Arm’s length relationships
-Management maximizes
shareholder value
-Short-term relationships
Governance
structure
-Unitary board: board of
directors
-Shares and share options to
motivate managers
Corporate
restructuring
-Takeover as a credible
threat
-Takeover to rescue a failing
company
-As a result, more mergers
and acquisitions
-More ownership by banks/
government/founding
families
-Close relationships
-Management balances the
interests of stakeholders
-Stable and long-term
relationships
-Dual board: supervisory
board (50% employees, 50%
shareholders)
-Managers are not paid as
high as in Anglo-Saxon
-Hostile takeovers are less
common
-Strong employee opposition
to takeover
-When in crisis, assisted by
major shareholders, banks
and sometimes the
government
The Japanese model (Aoki, 1990):
 Finance: bank-oriented finance.
 Ownership structure: cross-shareholding with affiliated companies.
 Relationships: the main bank monitors the company closely as the main
cash manager, as the main creditor or manager of a loan consortium and
as a major shareholder.
 Governance structure: unitary board, with few outside directors. Decision
making is consensus-based and they board is promoted from within. Top
management enjoys a high degree of autonomy as long as the company is
doing well.
 Corporate restructuring: the main bank becomes the lead rescuer when
the company suffers a business crisis. Companies are almost insulated
from takeover threats.
The second duality principle (Aoki, 1990): the internal organization and financial
control of the Japanese firm are dually characterized by weak-decision hierarchy
and incentive-ranking hierarchy.
Lecture 12 (November 19, 2014)
Paper: Star scientists, institutions, and the entry of Japanese
biotechnology enterprises (Darby & Zucker, 1996)
Innovation is:
 Invention: coming up with something new.
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
Commercialization: making a market for it.
Measuring innovation with inputs versus outputs:
 Inputs: R&D expenditure, R&D labor force
 Outputs: new products/processes/services, patents
Innovation versus imitation:
 Innovation expands a firm’s existing knowledge set and the world’s
existing knowledge set.
 Imitation expands a firm’s existing knowledge set but not the world’s
existing knowledge set.
Imitation through the adoption of exisitng technology is an effective learning
mechanism that paves the way for innovation. However, both imitation and
innovation is costly, takes time, and involves uncertainty.
Example of duplicative imitation versus creative imitation:
 Duplicative imitation: Hyundai learned how to assemble cars for Ford in the
late 1960s.
 Creative imitation: Hyundai developed its first model with foreign
technologies in 1975.
Stages of economic development:
There are two criteria for in which stage an economy is:
 GDP per capita at market exchange rates
 Share of exports of mineral goods in total exports
Stage of development
Stage 1: factor-driven
Transition from 1 to 2
Stage 2: efficiency-driven
Transition from 2 to 3
Stage 3: innovation-driven
Characteristics of the different stages:
Factor-driven
Efficiency-driven
Rely on basic
factors (unskilled
labor or natural
resources) to
Rely on heavy
capital investment
to make more
advanced
GDP per capita (US$)
<2,000
2,000 – 2,999
3,000 – 8,999
9,000 – 17,000
>17,000
Innovationdriven
Rely on advanced
factors (highly
skilled labor and
cutting-edge
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Wealth-driven
Shift from wealth
criterion to wealth
redistribution
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make simple
goods/services
Compete on price
goods/services
technology)
Compete on
quality
Use technology
from other
countries
Use and improve
foreign technology
Compete on
innovative
products/services
Create new
technology
Excessive
demands for
social welfare
Little motivation
to compete and
innovate
The 12 pillars of competitiveness:
Weights of the three groups of pillars (%):
Factor-driven
Effiency-driven
Basic
requirements
Efficiency
enhancers
Innovation and
sophistication
factors
60
40
Innovationdriven
20
35
50
50
5
10
30
The resource curse (‘the Dutch disease’): a negative relationship between natural
resource abundance and long-term economic development.
Reasons for the recourse curse:
 Revenues from natural resource exports lead to an appreciation of the real
exchange rate. This diverts factors of production from manufacturing into
other activities such as retailing and real estate.
 Natural resource abundance leads to a reduced ugency and incentive to
invest in efficiency enhancers and innovation.
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National innovation system: a system of actors and relationships that shape a
country’s innovation patterns.
 Main actors: firms, banks, venture capitalists, universities, research
institutes, government agencies, etc.
 Interdependent relationships: the contribution of one actor depends on
properties/actions of other actors.
The national innovation system can be seen as having two layers:
 The core: firms innovate in complex interactions with other firm and nonfirm actors.
 The wider setting: education systems, labor markets, financial markets,
intellectual property protection, national technology policy, etc.
Main observations in the literature according to the national innovation system:
 A one-time historical event may have a long-lasting impact on a country’s
national innovation system.
 The interplay between firms and the scientific infrastructure is perhaps the
most crucial link.
The role of the government in technology development:
 During the catch-up stage the government takes a more active and even
leadership role in technology development.
 As a country approaches the technological frontier, it’s time for the
government to take a back seat and play a merely facilitating role.
The role of intellectual property protection in technology development:
 A weak intellectual property regime is beneficial in the early phase of
catch-up.
 When the country comes near the frontier, a strong intellectual property
regime becomes advantageous.
Features of the American national innovation system:
 Enormous scales
 Big innovative companies
 A large trade surplus in intangible assets
 Strong intellectual property protection
 Research-intensive universities
 Strong government support for basic research
 Large military R&D and procurement
Darby & Zucker (1996): Japan’s bioscience is second only to the US, but American
firms are far ahead in commercialization. Reasons for this:
 The Japanes patent law prior to 1975 excluded food, beverage,
pharmaceutical products, and chemical compounds from being protected
by a patent.
 ‘Star’ scientists in Japan induced significantly fewer entries of new
biotechnology enterprises.
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
Japanese universities had little incentive to transfer technology to industry,
and intermediating organizations were not doing a good job.
US acts about technology:
 The Stevenson-Wydler technology innovation act of 1980: explicitly made
technology transfer a mission of all federal laboratories and created a
variety of institutional structures to facilitate this mission, e.g. it required
that all major federal labs establish an office of research and technology
applications to undertake technology transfer activities.
 The Bayh-Dole act of 1980: allowed universities and other non-profit
organizations automatically to retain title to patents derived from federally
funded R&D, and explicitly endorsed the principle that exclusive licensing
of publicly funded technology was sometimes necessary to achieve
technology transfer to the private sector.
Development of venture capital in the US:
 The US venture capital developed in part because of restrictions on bank
ownership in companies imposed by the Glass-Steagall act of 1933.
 The US venture capital industry is largely funded through various
investment funds, university and foundation endowments, and wealthy
individuals, who invest as limited partners in venture capital funds
managed by general partners (professional venture capitalists).
Venture capital in the US versus Japan:
 The average age of a company receiving venture capital is 5 years in the
US, compared to 15 years in Japan.
 Initial public offering (a crucial exit vehicle for venture capital) in the USA is
relatively easy, compared to onerous listing requirements in Japan.
Labor mobility in the US versus Japan:
 In the US, stock options are widely used to lure engineers and managers
from established firms. And long-term incentives, such as retirement plans,
are much weaker than in Japan.
 In Japan, there are regulatory restrictions on the use of stock options.
Technical/managerial labor is allocated within the firm of within the
business group (keiretsu). Furthermore, seniority-based incentives also
constrain labor mobility.
Findings of Morris & Leung (2010):
 Eastern collectivistic norm: maintain social harmony  useful/incremental
solutions
 Western individualistic norms: distinguish yourself  novel/radical
solutions
 Low/high power distance and low/high uncertainty avoidance often co-vary
with individualism/collectivism.
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