Answer key to Chapter 1: The Business Systems of Asia
Review questions
1. What are the main business systems of the region?
Answer
In a broad sense business systems (or systems of capitalism) fall into two main categories:
those that are shaped mainly by market forces, and those shaped mainly by state influences.
The former are known as liberal market economies, the latter as coordinated market
economies because these latter have their market behaviour shaped (or coordinated) by
other powers than just competition. The variety occurs in the second category because
there are choices about how to coordinate economic behaviour, there are political
philosophies about what to give priority to, and there are sometimes dominant elites that
want to hold onto power. It is also necessary to see that hybrids can emerge in which two or
more systems can flow together and be made to work effectively, as for instance in the case
of Hong Kong and Britain.
There is no absolute rule about clusters of countries, but although some countries are
clearly distinct others can be put together in groups, as follows:
 Japan: a coordinated market economy based on an alliance between big business
and government under an ideology of national progress and of protection of
employment. Strong government support of technology and encouragement of
stability and cooperation.
 China: a state-controlled economy with a vibrant but controlled private sector and
the early stages of a free market. State control of finance, land-holding, and much
licensing is counterbalanced by decentralized decision-making to the regions, and by
heavy investment in infrastructure. Three systems of capitalism exist inside: private;
state; and local corporate.
 South Korea: now a liberal market economy after earlier development as a
coordinated form. Still dependent on large firms supported earlier by government.
 Overseas Chinese: (or Greater China) in various forms in Hong Kong, Taiwan,
Singapore, and parts of SE Asian economies. In Hong Kong, liberal market with
dominance by Chinese family business. In Taiwan transition away from earlier
coordinated market, but also reliant on private business. In Singapore, always
coordinated by government, with heavy reliance of foreign multinationals and
government-influenced local conglomerates and banks. In SE Asia ethnic Chinese
family business usually influential after co-opting political support, this formula now
declining, but foothold still strong of free-market competitiveness when allowed.
2. What are the principal components of a business system?
Answer
1
A business system is usually distinct to a society. It exists at three levels. The first is the level
of Coordination. At the surface it is a pattern in the way three things happen: units of
economic action are formed, such as firms, and come to be owned and controlled in certain
ways; these units relate to each other across an economy in particular ways such as alliances
or perhaps by alliances being forbidden; inside the units people cooperate in different ways,
in some cases just by following orders, in other cases by being involved in deciding.
The second level is Order. Its workings are below the surface. Here the society evolves ways
of making behaviour fit into predictable patterns, so that people can proceed knowing what
others are likely to do. Institutions such a law, taxation, professional conduct, education,
norms of behaviour, serve this purpose. They can be analysed as three main forms of capital:
financial, human, and social; so the rules affecting finance and capital; the rules affecting
education, skill, knowledge, and the labour market; and the ways in which trust works, with
whom and on what basis.
The third level is Meaning, or culture. This can be seen as: Rationale, or the reason why
people in that society behave as they do; Identity, or how they establish themselves
horizontally in their social surroundings; and Authority, or how they establish their place
vertically in their surroundings.
All of these nine features are in constant interaction and evolution. They are in addition
influenced by the society’s history, and by its current receipt of external influences.
3. Give examples of how culture (i.e. meaning) affects institutions (i.e. forms of order)
in different societies.
Answer
i)
In the case of Chinese culture, the Confucian cultural tradition stresses the
significance of the central authority as father-figure. The Chinese political structure
has always been built around a dominant father-like leader, and is resistant to that
being dismantled and replaced by an alternative. Most Chinese firms exhibit the
same pattern of central control and paternalistic behaviour.
ii) In the case of Japan, the cultural ideal of iemoto stresses the importance for the
individual of membership in a work-related group. Such groupism is visible in most
Japanese organizations.
4. What are the most representative forms of enterprise in Japan, China, and
South Korea?
Answer
Japan:
i) The keiretsu or large industrial alliances
ii) The sogo shosha or large trading company alliances
iii) There is also in Japan a large body of small and medium size enterprises
2
China:
i) The private sector firm, usually small or medium in scale and owned by individuals or
partnerships.
ii) The local corporates, often industrial and founded when the earlier communes were
opened to market forces, then added to with local government access to capital,
with local entrepreneurship, and often with foreign technology.
iii) State-owned enterprises.
South Korea:
i) The chaebol, in transition from earlier family domination to professional control
ii) A large body of small firms often reliant on relations to chaebol as suppliers.
5. What explains the slower growth of Indonesia and the Philippines, compared to
Korea, China, and Singapore?
Answer
Societal economic progress will only take place to high levels when there are high levels of
cooperativeness across the society and high levels of innovativeness/adaptiveness. These
features only emerge historically when (a) the institutions of the society that create its order
are in tune with the society’s system of meaning, and (b) when these together support a
system of coordination that results in cooperativeness and adaptiveness. In different ways
these connections work very well in Korea and Singapore, and so far at least reasonably in
China.
In the Philippines and Indonesia the main institutions of order are disconnected from the
local systems of meaning by two handicaps: firstly the institutions were designed under
colonial exploitation: secondly the societies had never unified culturally into stable total
systems, being made up of many varied subcultures. So the chances of achieving a high level
of social capital (trust) are limited. Under conditions of widespread mistrust, firms have
limits to growth, the risks of corruption are high, and good quality government
administration is limited. The range of competitive industry is then restricted and
dependence on foreign direct investment rises.
Learning activities
1. Draw a picture like Fig 1.1 containing the nine boxes, three at each level, the two
external boxes at the sides, plus two new boxes between the lower and middle
levels. These latter two are to contain information on The State and on History.
2. Choose a business system to describe. This can be either a national system, such as
the South Korean or Singaporean, or it could be a subsystem within a complex
society, such as the State-Owned Enterprise system inside China. Fill in the boxes
with at least one item describing what is in that box.
3. Add also key features for the State and History boxes.
3
4. Draw lines between the items to connect as many of the boxes as you can, showing
how one item varies with another across the total system.
5. Consider what kind of firm is likely to be successful in that environment and explain
why you think so.
Here is an example using the State-Owned Enterprise business system within China. The
number of features given in this example is limited to only one per box. Much more detail
could be added as understanding grows.
Practice using the complete explanation to compare with other complete explanations of
different business systems. Learn how total systems have their own internal dynamics and
histories, and that these are as important for understanding as are the comparisons of
specific features across systems.
THE BUSINESS SYSTEM (Coordination)
OWNERSHIP
NETWORKS
 State ownership and
party control
 Look upwards, not
sideways
MANAGEMENT
 Autocratic tradition
leaves weak middle
management
INSTITUTIONS (Order)
CAPITAL
HUMAN CAPITAL
 Tradition of cheap
money, badly
managed
EXTERNALMATERIAL
 The ICT
 Low skill levels
SOCIAL CAPITAL
 Endemic mistrust except
for personalism
THE STATE
 Radical transition from planning to
market
revolution
EXTERNALIDEAS
 Market-based
capitalism
HISTORY
 Always totalitarian
CULTURE (Meaning)
RATIONALE
 Major transition from
communism to
market
IDENTITY
 Return of the family
AUTHORITY
 Paternalism
Fig 1.2 The Chinese State-owned enterprise sector as a complex adaptive system
4