Economic Globalization in Asia

Manas Chatterji, Partha Gangopadhyay, Partha Gangopadhyay

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351941891
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

This timely volume examines various economic, managerial, social and political aspects of globalization and its impact on local economies. State-of-the-art analytical models and original empirical research is used to understand four key and interrelated facets of globalization; ¢ To understand the prospects and the problems of international business and MNCs in the global economy. ¢ To analyze globalization as a process of change. ¢ To understand the new roles of nation states in light of the above. ¢ To articulate the uneasy idea that globalization has resulted in serious imbalances in the global economy. The collection hosts a list of internationally eminent scholars who explain the implications of globalization for progress, crises and conflicts in South and Southeast Asia.

Chapter 1

The Role of Complexity Theory in International Business Strategy Development: Evidence from East and Southeast Asia

David McHardy Reid and John Walsh

Introduction

Much of the literature on international business development is written from the position that firms are able to determine their policies and organization from a position of sovereignty: they might decide what they wish to do and then go and do it. Although interaction with the environment might have an impact upon their activities, this possibility is often underplayed. However, we have witnessed, especially in the light of the recent Asian economic melt-down is that chaos and complexity can rapidly be introduced into the system or world of any corporate player. This necessitates that new paradigms and structures should emerge from the chaos and, in some cases, crystallize. Catastrophe and chaos theories are sometimes confused. Chaos theory tells us that simple laws can have complicated, even unpredictable consequences, whereas simple causes can produce complex effects. Complexity theory tells us the opposite: that complex causes can bring about simple effects (Cohen and Stewart 1994, p.2). This raises some key questions. For example, can the study of the East and Southeast Asian business environments both before and after the crisis be further illuminated by considering them against a framework that embodies some principles derived from chaos and complexity theory?

Method

The fieldwork carried out in Asia, including Japan, South Korea, Thailand, Indonesia and Malaysia, involved over 300 personal interviews with senior executives of successful multinational enterprises (MNEs) and other foreign affiliated companies (FACs). These firms were primarily consumer-products oriented mainly recognized household brand names. The research, using Grounded Theory (GT), studied a representative sample of enterprises in each market. These companies had successfully developed market positions in their respective markets. GT is inductively derived from the study it represents; that is it is discovered, developed and provisionally verified through systematic data collection and analysis pertaining to a phenomenon. Thus, data collection, analysis and theory stand in reciprocal relationship with each other. One does not begin with a theory, then prove it; rather one begins with an area of study and allows what is relevant to that area to emerge (Strauss and Corbin 1990, p.24). So far, the GT approach is underutilized in the management literature. For example, a search of ABI databases over the last decade uncovered a mere 34 articles dealing with or employing the approach. Nevertheless, the GT methodology has been employed in organizational research by some notable authors (Martin and Turner, 1986; Segev, 1988; Sarros, 1992; Simon, 1993; Linstead, 1997). Adler, Campbell and Laurent (1989) concluded that their Western-biased approach to research in China might have yielded more fruit had they adopted a GT methodology. Using snowball sampling, samples for the study were generated. This involved gathering a sample through chain referral (Burt and Ronchi, 1994). First using the principle of open sampling to uncover as many potentially relevant categories as possible (Strauss and Corbin, 1990, p. 181), the process of selection began with a list of foreign consumer goods companies, industrial companies and financial services providers that had established a presence in each market. The list was developed with the help of major consulting firms like McKinsey and the Boston Consulting Group; major advertising agencies with offices in Tokyo, such as BBDO and McCann Erickson, were also asked to name the most successful foreign players. Major multinational enterprises with long-established positions in Asia, for example Unilever and Johnson & Johnson (J&J), were also consulted. The identified companies were then contacted by telephone and letter, invited to participate in the study and, over the course of a decade some 300 interviews were conducted. They have been supplemented by an extensive consultation of secondary sources and other contextual material.

The individual interviews, on average lasting around two hours, were conducted across a range of executive groups: CEOs (70 percent), vice-presidents (25 percent) and other senior representatives (5 percent). At the end of each interview, respondents were asked to suggest other organizations that, to their knowledge, had developed a presence in the respective markets. As the interviewing program proceeded, it became clear from the extent of duplication of the suggestions received, which of the foreign players were viewed major success stories.

Data was collected in Japan in two phases: initially, during the latter part of 1990, with follow-up by telephone and fax continuing through 1991–1992. A second phase of 24 interviews was conducted in 1995 to examine longitudinal issues. These second-phase interviewees were selected according to the principles of theoretical sampling, ‘sampling on the basis of concepts that have relevance to the evolving theory’ (Strauss and Corbin 1990, p. 176). A telephone follow-up was made in 1996 to keep the research up-to-date. During this second (1995–1996) phase, some of the original companies (1990 fieldwork) were re-interviewed, and some technologically intensive companies were added. In some instances, the same individuals were still occupying the same positions, whereas in others, their replacements were interviewed. The emerging constructs were found to be stable from 1995 to 1996. The Thai data was collected in 1994 and 1998. The South Korean data was collected in 1997 and 1998. The Indonesian and Malaysian data was collected in 1998. The fieldwork followed a list of topics and themes derived from Figure 1.1 but was not confined to them so that ‘grounded theory wisdom’ (Bailey 1987; Glaser and Strauss 1967) could surface. The study was not limited by a priori hypotheses; rather the data was allowed to emerge according to the perceived importance of the interviewees.

Figure 1.1 The Collection of Topics and Themes

The list of topics was committed to memory and each individual was asked the same questions in an identical fashion. However, the sequence was allowed to vary in order to facilitate what was constructed to be a conversational interaction. The interviewees were probed on the difficulties involved in developing their market positions in contrast to other markets. Although respondents were allowed to range broadly, coverage of key topics was ensured. All interviews were taped; in some cases company documents were provided for subsequent analysis. Some interviewees consented to being quoted, others did not. The tape recordings were transcribed and, in so doing, the contents of the interviews were reviewed several times. In this way, not only were the authors’ memories refreshed but also an in-depth contextual understanding of the issues was achieved. The data was then analyzed qualitatively with NUD*IST (Non Numerical Data Indexing Search and Theorizing).

The Nomenclature of Chaos and Complexity

Fractals

In 1963, Mandelbrot introduced the concept of the ‘fractal,’ a geometric form with fine structures on all levels of magnification (Mandelbrot, 1977; Mandelbrot, 1982). The attraction of this concept is that it facilitates unification of hitherto unrelated occurrences. Mandelbrot (1997) broadened his interest to encompass the field of finance.

Attractors

Are there hidden forces that influence the development of broad response patterns? According to chaos theory there is a construct known as attractors. Cohen and Stewart (1994, p.204) depict attractors as a region of phased space that attracts all nearby points as time passes and a repeller as an unstable steady state. In other words, attractors have certain properties that draw other phenomena or behaviors towards them.

Edge of chaos

Eisenhardt and Brown (1998) maintain that while chaos theory helps businesses understand how markets change, they must look to ‘complexity theory’ to manage effectively in a tumultuous environment. ‘Complexity theory says if a company is too tightly structured, it can’t move; and if it’s too chaotic, it can’t move,’ They aver: ‘There is a point called the ‘edge of chaos’ where companies can move.’ At that point, a company has enough structure to hold people and processes together, yet enough flexibility to allow innovation and adaptation. However, the mechanisms by which this state of dynamism may be maintained are not made fully clear.

Complex adaptive systems (CASs)

At the edge of chaos, the military, according to Conner (1998), best exemplifies this model of nimbleness. Military colleges teach principles instead of rules. However, in times of combat, what determines success is an application of those principles which recognize what is occurring in a chaotic environment. It is a balance between the adherence to policy to remain consistent and modifying it to keep it from becoming overly rigid. A classic example of a CAS is the flocking behavior of geese. They appear to follow a few simple rules, such as ‘don’t bump into each other, ‘match up with the speed of other geese flying nearby,’ ‘replace the lead goose when it gets tired’ and ‘always stick with the group.’ The group relies on constant feedback and adaptation to achieve its goal of remaining resilient in the face of changing circumstances. Stacey (1995) enhanced this concept and proposed a framework based on complexity: the study of nonlinear and network feedback systems incorporating theories of chaos, artificial life, self-organization and emergent order. Positive and negative feedback characterize system dynamics as systems co-evolve far from equilibrium, in a self-organizing manner, toward unpredictable long-term outcomes.

The Framework

In the pursuit of theory, it is important to note that when scientists select theories, they do not merely use the criterion of agreement or disagreement with observations, they also have aesthetic principles in mind. These principles help to remove the cloud of trivially competing theories that necessarily surround any theory. Moreover, they want the theory to be universal, not particular to some place or time. The overarching theme in the literature is that through a process of reductionism, complexity on one level is reduced to simplicity on another level. Complexity concerns the amount of information that it is necessary to describe.

Cohen and Stewart (1994, pp.220–225) maintain that scientists have been asking the wrong question, they have focused upon complexity as that which requires explanation. The result has been uninspiring as the interaction between several simple phenomena can indeed produce complexity. The question they failed to consider is what is the source of simplicity? Although chaos theory was discovered decades ago, only in recent years has it emerged as a model for explaining the chaotic business environment. The chaos model introduces the idea that chance, changing conditions and creativity can enter a complex system at any point and alter its course (Wah 1998). Although chaos theory helps businesses to understand how markets change, Eisenhardt and Brown (1998) maintain that they must look to ‘complexity theory’ to manage effectively in a tumultuous environment. Today, most people try to explain a messy, opportunistic global competitive game using mental models that focus on order, stability, cohesion, consistency, and equilibrium. Stacey (1992, p.21) maintains ‘We are not paying enough attention to the irregular, disorderly, chance nature of the game. We do this because it is easier and more comfortable than feeling about the desk for explanations that describe the world in terms of disorder, irregularity, unpredictability, and chance.’

This slant is not too dissimilar to the approach taken by Mintzberg (1972) who argued that one must look at the actual emerging pattern of the enterprise’s goals, policies and major programs to see its true strategy. In other words, one would find it difficult to find an a priori statement of strategy that the passage of time shows is actually followed. Mintzberg (1990) called into question some of the most fundamental beliefs of strategic management by questioning what he refers to as the design school—the approach which advocates a simple model that views the process as one of design to achieve an essential fit between external threats and opportunities and internal distinctive competence. He systematically attempts to demolish the essential premises upon which this mode of thinking was built.

In particular he focuses on one central theme, the idea that thought exists independently of action. Strategy formulation, he argues, is a process of conception rather than one of learning. Eisenhardt and Brown (1998) inform us that ‘Complexity theory says if a company is too tightly structured, it can’t move; and if it’s too chaotic, it can’t move. There is a point called the “edge of chaos” where companies can move.’ At this point, a company has enough structure to hold people and processes together, yet enough flexibility to allow innovation and adaptation. In the temporal nature of the Asian business environment we will see how many companies have experienced the edge of chaos. In their book Competing on the Edge, Eisenhardt and Brown (1998) develop a framework that they argue qualifies a company to compete on the edge. This framework has been adapted here to interrogate our data. It comprises:

• Rule 1: Advantage is temporary

• Rule 2: Strategy is diverse, emergent and complicated

• Rule 3: Reinvention is the goal

• Rule 4: Live in the present

• Rule 5: Stretch out the past

• Rule 6: Reach into the future

• Rule 7: Time pace change

• Rule 8: Grow the strategy

• Rule 9: Drive strategy from the business level

• Rule 10: Repatch businesses to markets and articulate the whole.

Findings

We will now harness the framework established above to examine the business environment in Asia Pacific and the responses of foreign players to these developments.

Rule 1: Advantage is Temporary

Executives at several of the interviewed firms, across most markets studied, highlighted the transient nature of competitive advantage. This was true in Japan where firms were subject to astonishingly rapid paces of product and technological innovation and in Korea where Joint Venture partners have typically replicated the manufacturing facility of the JV companies only to set up in competition. This is also the case in China where counterfeiting is a serious problem and proves to be a major management distraction. Moreover the re-invention of many local PRC-based companies, which are harnessing the infrastructure that has followed the international foreign direct invested enterprises is proving to be a serious competitive obstacle. The advantage of being foreign may provide a rationale to enter these markets but it is certainly no long-term formula for success. The continuance of brand strategies that build and support a long-term relevant position in these markets is an effective long-term success formula.

Rule 2: Strategy is Diverse, Emergent and Complicated

Successful strategies in these times of change appear to be those that emerge as relevant in those markets whether they are radically different from those that have reaped success elsewhere or have been quietly adapted. Amway, for example, has been hugely successful in Japan, Hong Kong and China as well as Thailand. A raw American concept resonates with Japanese and Thais alike in this sector. Where there are independently minded people keen for success who are also prepared to believe in the advantage of the products, and willing to use the leverage of their social networks there are opportunities for Amway and other network marketing companies to follow this model.

In many Asian markets radical paradigms are required. For example, in Indonesia managers of foreign companies observe the business scenario to be very complex: As one consumer products CEO put it:

Just take a look at the politics here. You only have to look at East Java. Don’t take anything at face value. Ask simple and naïve questions. If you take it too seriously you are dead.

Contrary to popular opinion, there is a great deal of foreign money ready to be invested in Indonesia. For many it is a question of timing and price. Timing is connected with elections, price meaning a fair offer on the table. But they would all be wise, if they ar...