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Comparing capitalisms: understanding institutional diversity and its implications for international business

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Abstract

This paper examines the role of institutional analysis within the field of international business (IB) studies. Within IB, institutions matter, but the view of institutions tends to be “thin”, utilizing summary indicators rather than detailed description, and thus approaches institutions as unidimensional “variables” that impact on particular facets of business activity. This paper argues that IB research would be usefully advanced by greater attention to comparing the topography of institutional landscapes and understanding their diversity. A number of alternative case-based approaches are outlined that draw on a growing “comparative capitalisms” literature in sociology and political science. The paper develops a number of empirical examples to show the utility and limits of these approaches for IB scholars.

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Notes

  1. “Logic” means the typical strategies, routine approaches to problems and shared decision rules that produce predictable patterns of behavior by actors within the system.

  2. While MNEs prefer institutions that are largely stable and pose few hazards for their business activities (Brouthers & Barmossy, 1997), firms may also engage in negotiations between investors and state authorities to change institutions (Henisz, 2000).

  3. For example, Hofstede has stressed five areas: power distance, individualism, masculinity, uncertainty avoidance, and recently long-term orientation. More recently, Schwartz has identified six areas: conservatism, affective and intellectual autonomy, hierarchy, mastery, egalitarian commitment, and harmony.

  4. The authors differentiate only briefly between two subtypes of CME: in industry-coordinated economies, such as Germany, coordination takes place within the industrial sector or branch, whereas in group-coordinated economies, such as Japan or South Korea, coordination takes place across groups of companies. These subgroups mirror a distinction between associations versus networks found in the “governance approach” described below.

  5. Alliance capitalism, such as in Germany and Japan, involves elaborate horizontal linkages between institutional domains, and cooperation across the boundaries of firms. Dirigiste capitalism, as in France and South Korea, has institutional domains connected by the subordination of the private economy to centralized political influence. Finally, family capitalism, such as in Italy or Taiwan, is typified by smaller firms that are strongly segmented across the lines of personalistic family networks.

  6. Some authors in this approach take an even more explicitly constructivist approach to institutional choice and change (Campbell, 2004; Herrigel, 1996; Sabel, 1994).

  7. However, Boyer (1997: 75) argues that “the process of institutionalization reflects the social and political conflict particular to each country” and thereby identifies four major variants of capitalism: market-oriented (Anglo-Saxon countries), Rhineland (Germany, Japan), statist (France, Italy), and social democratic (Sweden, Austria).

  8. For example, German firms tend to specialize in high-quality markets, producing lower volumes of specialized products that are relatively insensitive to small differences in price. This “high-road” niche not only accommodates the constraint of high and uniform wages in Germany, but also makes use of collective inputs such as the broad occupational training of blue-collar workers and cooperative institutions of co-determination (Streeck, 1992).

  9. Institutional diversity has similar impacts on the potential for reverse diffusion, whereby host country practices are imported to the home country by an MNE, often undergoing subsequent adaptation or ineffective implementation owing to lack of institutional support (Edwards & Ferner, 2004).

  10. Schneiberg and Clemens (2006) outline a number of such linkages in organizational sociology, including ties to regulating bodies, certification or legitimation by institutional authorities, conduits for institutional models (e.g., inter-organizational networks), and proximity to institutional pressure (e.g., visibility or resource dependence).

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Acknowledgements

We thank Ruth Aguilera, Keith Brouthers, Tony Edwards, Anthony Ferner, Witold Henisz, Gary Herrigel, Mary O'Sullivan, Richard Whitley, and two anonymous reviewers for comments at various stages.

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Correspondence to Gregory Jackson.

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Accepted by Anand Swaminathan, Special Issue Editor and Witold Henisz, Special Issue Editor and Departmental Editor, 4 December 2007. This paper has been with the authors for two revisions.

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Jackson, G., Deeg, R. Comparing capitalisms: understanding institutional diversity and its implications for international business. J Int Bus Stud 39, 540–561 (2008). https://doi.org/10.1057/palgrave.jibs.8400375

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400375

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