Thursday, May 10, 2007

Market, Culture, and Authority: A Comparative Analysis of Management and Organization in the Far East

Market, Culture, and Authority: A Comparative Analysis of Management and Organization in the Far East

The purpose of this paper is to examine the economic organizational structures of three Far East nations (Taiwan, South Korea, and Japan) in light of three theoretical frameworks: the market approach, the culture approach, and the authority approach. It is the opinion of the authors that, although both the market and culture approaches are important, they are both insufficient for explaining the development of the economic organizational structures of these three nations. Their position is that the authority approach is the best method for examining and explaining these structures.

The authors begin by introducing the first two approaches, and then explaining why they are inadequate. Basically, the market approach cannot explain why the three subject nations developed different structures, and the cultural approach does not take into account market forces that are necessary for shaping business organizations. The authority approach, they contend, allows for elements of both culture and market, but do so in the framework of historical authority relations in each society.

After the theoretical introduction, the paper is divided into sections.

RECENT ECONOMIC DEVELOPMENT IN JAPAN, TAIWAN, AND SOUTH KOREA
The first section gives a brief history of the rapid economic growth that each country experienced in the second half of the twentieth century. Each country is shown to have risen from the ashes of war and occupation or colonization and to have experienced phenomenal rates of economic growth. This unprecedented growth has given rise to the expression, the “Asian Miracle.”

The section also points out some of the historical and cultural ties that the three countries have with each other. Japan colonized both of the other two countries, all three are closely tied to China through their histories, and all three have Buddhist and Confucian elements that inform their societies. The similarities are so important that their meteoric growth trends have been referred to as a regional phenomenon rather than as individual country phenomena. A quote from Bruce Cumings states that, “When one is compared to another the differences will also be salient, but when all three are compared to the rest of the world the similarities are remarkable.”

The authors of the paper then point out that despite their similarities, each of the three countries has developed substantially different forms of economic organizations. They argue that the firms in each country are “‘embedded’ in networks of institutionalized relationships, and that these networks, which are different in each society, have a direct effect on the types of firms that develop, on the management of firms, and on organizational strategies more generally.”

THREE PATTERNS OF INDUSTRIAL ORGANIZATION
The next section of the paper addresses three patterns of industrial organization as practiced by each of the three subject nations. In Japan, there are two types of networks of firms, or “enterprise groups.” One type consists of linkages among large firms, and the other involves linking small and medium-sized firms to larger firms. These networks are large, powerful, and relatively stable. In South Korea, there are also networks, but they are much more monolithic, and there is a lot more state control. These networks are made up of large firms which are controlled by central holding companies which are in turn managed by the state. Taiwan differs from the first two in that there is little vertical or horizontal integration, and the basic unit of organization is the family firm and the business group. In contrast to Japan and South Korea, Taiwan’s business networks are much smaller.

THE MARKET EXPLANATION
From this point the authors move to a more detailed description of each of the theoretical approaches, starting with the market approach, which is associated most importantly with the work of Alfred D. Chandler. Chandler’s analysis focuses mostly on market forces and changes in technology (especially transportation). The idea is that organizations develop under the market pressure to increase efficiency and to prevent some parties from taking unfair advantage of a system in which profit is the only driving force. Organization, in short, helps to prevent uncertainty, as well as to increase efficiency and profits.

The problem with this approach in explaining the economic organizational structures of the three Far East countries in question is that, despite having the conditions and similarities to fulfill the requirements to fit into the theoretical framework of the market approach, each country has developed substantially different structures. The market approach fails to explain these differences, and also fails to adequately explain any of the structures of the three countries, though Japan comes closest to fitting this explanation. In the Korean situation, the state is too active and powerful an actor, and in Taiwan the situation is very different from what the market approach would expect, and in fact the Taiwanese business structures often work in opposition to what the market approach predicts.

Another problem with the market approach is that it suggests that the structures come about as the result of market forces, but in Korea and Japan, many of the structures pre-date industrialization. Businesses eventually adopted these pre-existing structures, rather than creating them.

Though the authors go on to say that the market is obviously important in shaping the economic structures, it is a fallacy to attribute all of organizational structure simply to market forces, just as it is inappropriate to trace any complex situation back to a single cause.


THE CULTURE EXPLANATION
“While the market explanation sees organizations striving toward maximum efficiency, cultural theorists probe the nonrational, subjective aspects of organizational life.” The authors suggest in this section that the cultural theorists have the exact opposite problem that the market theorists do: where the market theorists emphasize causes that are too specific, cultural theorists emphasize causes that are too general. They point out that, though the three countries have different cultures, they belong to the same cultural complex—that of Eastern civilization. Because of this, the cultural explanation is not sufficient to explain the differing organizational structures.

As an example, the Japanese concept of wa, or social harmony (in which the individual is subjugated to the group) and nenko (the seniority system) are often pointed out by cultural theorists as explaining Japanese organizational structure and business practices. However, the authors point out that these practices have changed over time, and the cultural explanation falls short in explaining how these changes came about.

They also point out the flaw in using the Confucian culture argument in explaining organizational structure. They say that the culture is a “broadly based underlying cognitive factor that affects the society in general and for that reason explains nothing in particular.”

AUTHORITY STRUCTURE AND ORGANIZATIONAL PRACTICE
The approach that the authors contend is the best for explaining the economic organizational structures of the three countries is a political economy one in which actors play out certain roles according to principals of domination. Basically these principals provide the framework for actors to understand who will give orders and who will follow them. They also ensure that actors will adhere to their roles. So, management practices are adopted not necessarily just to promote efficiency, but rather to legitimize the relations of domination.

The distinction between market and cultural approaches and the authority approach is summed up in the following paragraph:

The market explanation concentrates on immediate factors and the culture explanation on distant ones. Both explanations are obviously important, but neither deals directly with organizations themselves; although both claim to account for organizations, they make organizations appear rather mysteriously out of a mix of economic variables or a brew of cultural beliefs. The authority explanation deals with organizations themselves and conceptualizes them broadly as patterned interactions among people, that is, as structures of authority. It aims at understanding how these structures come into being, how they are maintained, and to what consequence. As such, it attempts historically adequate explanations and therefore differs from both general cultural theories and specified, predictive economic models.

The two important issues regarding the authority relations in each of the societies are the relationship between the state and enterprise, and given that, the structures of authority within each type of business network.

In S. Korea, there is the strong state model, in which the state essentially sets up the parameters for doing business through extensive planning and aggressive implementation procedures. The central role of the government is seen as steering the economy. It keeps firms in line by controlling banking and finance, which it can use to extend or withhold credit to firms depending on their compliance with state directives.

In Japan, the relationship between the state and enterprise is different. It is referred to by the authors as a “strong intermediate powers” model. Rather than controlling the economy, it promotes intermediate powers (the business networks) and gives them autonomy to act as they see fit. The state acts as a mediator, not a controller. The firms are more free than their Korean counterparts to act in their own interests, but they usually opt to work in a cooperative manner with the state and other firms in the interest of harmony and long-term economic well-being.

Finally, Taiwan follows the “strong society” model in which the state, although strong, takes a hands off approach to business. This has led to the development of decentralized industrialization a low level of firm concentration, and a predominance of small and medium-sized firms.

One of the main differences between Taiwan and the other models is that state planning is relatively unimportant. The state may make plans, but there is no enforcement mechanism in place to make anyone follow the plans. Nevertheless, Taiwan has experienced one of the fastest growth rates in the world.

In each society, certain choices were made that determined the relationships between the state and business. As the authors point out, the choices were neither random or inevitable. It is the contention of the authors that the key decisions about state/business relations were made by political leaders trying to legitimize a system of rule by a regime at a crucial point in time. All three based their relations of power on a system of power that existed before industrialization. In Japan, it was based on the Emperor system, in which the Emperor provided a symbol of unity, but who passed operational authority to intermediate powers (such as the shogun). In Korea, the model was a strong Confucian state: strong ruler, bureaucracy, weak intermediate leaders, and a direct relationship between ruler and subjects. Taiwan also followed the Confucian example, but with a softer touch: benevolent ruler, the state upholding moral principal, no corruption or unfair wealth, and the people left at rest.

CONCLUSION
The main issue addressed is, What level of analysis best explains organizational structure? The authors contend that the market explanation is too narrow to account for differences between the three subject countries, and cultural arguments are too general to account for the variations in the same cultural area. Instead, because it takes historical situations into account, the authors favor the authority model. Both market and cultural factors are important in understanding economic growth, but the economic structures are best understood by examining the relations of authority in the society.

QUESTIONS
How do the three approaches examined in this paper correspond with the contending approaches from our text? It seems that the market approach is liberal, and the cultural and authority approaches are conservative. Is there any element of the radical approach in this paper?

What can cause the authority relations to change in a society? How can those changes affect the society’s organizational structures? For example, did the lifting of martial law in Taiwan change the nature of authority relations? If so, how? What affect did this change have on Taiwan’s economic organizational structures?

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