MC 514

Managerial Economics
Instructor: Dr. Petia Tanova
GLOBALIZATION, THE COMPETITIVE
ADVANTAGE OF NATIONS
AND THE ROLE OF CULTURE
Prepared by:
ulian !enov" ###$%&$&$
enny !enova" ###$%&$&1
'o(ia" )ulgaria
December &$$1
GLOBALIZATION, THE COMPETITIVE ADVANTAGE OF NATIONS
AND THE ROLE OF CULTURE
*pparently" t+e era o( globali,ation poses a parado-. It seems t+at open global mar.ets" +ig+/
speed communications and (aster transportation s+ould practically eliminate t+e competitive role
o( p+ysical location (or businesses. Indeed" no0 t+at everyt+ing can be sourced 1ust 0it+ a
mouse/clic." location s+ould no longer be a source o( competitive advantage. )ut i( location
matters less 0+y is 'ilicon 2alley still in t+e 3nited 'tates and not in Pa.istan4 T+e years o(
global trade and business +ave been everyt+ing but an e5uali,ing (actor (or economies or nations
6 on t+e contrary" di((erences in development +ave even deepened. T+e process o( globali,ation
+as eliminated t+e natural barriers o( protection (or local economies and businesses" determined
by p+ysical location. 7emoving t+e isolation o( mar.ets and labor" globali,ation +as e-posed"
instead o( concealed t+e vast di((erences in t+e 0ay business is done. T+e impact o( culture on
outcome +as become ever more evident in a 0orld 0it+ (e0er barriers and limits. !lobali,ation
+as broug+t toget+er and standardi,ed outputs8 but +as it done t+e same to culture4 9ould a
nation/determined business conte-t support a globally re5uired output4
7ecent researc+" alt+oug+ some0+at controversial" seems to prove t+at location 0ill remain
(undamental to competition t+oug+ in a rat+er di((erent 0ay. Porter :1##;a< in +is boo. =>n
Competition? claims to contribute to t+is topic. *ccording to +im" :1##;b< location/related
comparative advantages suc+ as c+eap labor" natural +arbor" etc. 0ere relevant to t+e industrial
era. @o0adays competition +as become muc+ more dynamic. Companies can ma.e use o( global
sourcing in order to ac+ieve +ig+er cost e((ectiveness. =Indeed" competitive advantage rests on
ma.ing more productive use o( inputs" 0+ic+ re5uires continual innovation? ibid :1##;b<"
Innovation +as muc+ more to do 0it+ +uman capital" rat+er t+an 0it+ t+e natural one. )ut is
+uman potential detac+ed (rom local (actors4
*naly,ing 0+y some nations +ave muc+ greater success t+an ot+ers Mic+ael Porter :1##A<
arrives at a more relevant 5uestion: =0+y are (irms based in a particular nation able to create and
sustain competitive advantage against t+e 0orldBs best competitors in a particular (ield4? Cis
=diamond? o( t+e determinants o( competitive advantage consists o( (our attributes:
:1< Dactor conditions
:&< Demand conditions
:%< 7elated and supported industries
:4< DirmBs strategy" structure and rivalry
*lt+oug+ +e admits t+at =@ational di((erences in c+aracter and culture" (ar (rom being t+reatened
by global competition" prove to be integral to success in it?" Porter stops s+ort o( t+e issue o(
0+y some countries got better =diamonds? t+an ot+ers.
o+n Dunning :1##%< claims t+at =in one sense t+ere is not+ing original in PorterBs analysis?.
Indeed" Porter pays =little or no attention to suc+ variables as investment and entrepreneurs+ip?.
*ccording to Co(stede :&$$1< t+ey are bot+ connected to national culture.
Casson :1##%< identi(ies some o( t+e geograp+ical" industrial and +istorical c+aracteristics t+at
a((ect t+e relative per(ormance o( di((erent national cultures. Ce provides analysis o( t+e direct
economic implications o( cultural di((erences on generating output (rom a given resource base.
Peter !ray :1##E< claims t+at t+e role o( cultural (actors (or economic development involves a
substantial indirect component 6 t+e role o( government and its policy as intervening variables.
*ccording to +im =it is impossible to divorce t+e role o( culture and national c+aracteristics (or
gro0t+ (rom t+e stage o( development o( t+e national and global economies? :1##E<.
2an den )osc+ and 2an Prooi1en :1##&< tried =to augment PorterBs (rame0or. by assessing t+e
implications o( national culture (or t+e competitive advantage o( nations?. T+e aut+ors claim t+at
=PorterBs (rame0or. does not e-plicitly consider t+e in(luence o( national culture on t+e
competitive advantage o( nations?. T+ey try to combine PorterBs diamond 0it+ Co(stedeBs (our
dimensions o( national culture :1#;$" &$$1< 6 *ppendi- 1. T+ey use t0o e-amples to support
t+eir claim t+at PorterBs vie0 is et+nocentric:
1. *ccording to Porter competition creates innovation and innovation 0ill create
competitive advantage. True" but (or a masculine society li.e t+e *merican" t+at tolerates
and encourages ac+ievement" ac5uisition o( money" competition etc. In a (eminine
society" suc+ as t+e )ulgarian" one 0ould rat+er opt (or 5uality o( li(e and 0ill tolerate
t+e =small and slo0? :Co(stede" &$$1<.
&. Describing t+e determinants o( =demand conditions? Porter stresses on t+e importance o(
t+e internali,ation o( t+e +ome demand. Co0ever" (or a nation to be success(ul on t+e
global mar.et" it s+ould be open to ne0 ideas and ready to sell products in (oreign
countries. Co0ever" t+e more a culture avoids uncertainty" t+e less people are 0illing to
leave t+eir sa(e environment and (ace t+e ris.s o( global competition. =@ational culture is
t+e base on 0+ic+ t+e national diamond rests? :ibid<
>ne can (ind (urt+er proo( (or t+e et+nocentricity o( PorterBs position in Campden/Turner F
Trompenaars :1##A<. =T+e conventional 9estern vie0" represented by Mic+ael Porter" is t+at
strategic advantage lies in t0o principal sources: lo0er cost production and distribution" or t+e
belie( o( customers t+at t+e product +as premium 5ualities? :ibid<. )ot+ (orms tend to precipitate
s+ort term goals 0it+ 0inners and losers. @ot so 0it+ t+e *sian Tigers. =T+eir strategy stresses
value added per person by 0ay o( increases o( .no0ledge content? :ibid<. *ccording to
Campden/Turner F Trompenaars =it is very +ard (or @ort+ *mericans" )ritons and ot+er inner/
directed
1
cultures to see outer/directed people as anyt+ing ot+er t+at losers? :ibid<. Co0ever" t+e
situation in outer/directed cultures is completely di((erent. Gosers in suc+ a society are t+e ones
0+o are determined to get t+ings t+eir 0ay" are desperate to control t+e e-pression o( t+eir 0ants
and so create dis+armony. T+ey are considered immature. =It is t+e 0illingness to connect your
aims to ot+er peopleBs aims" to react to t+eir suggestions in an outer/directed mode" 0+ic+ creates
+armony?" so important (or t+e ac+ievement o( long/term goals :ibid<. Moreover" culture is a
comple- concept by itsel( and one s+ould be very care(ul not to over/simpli(y" attributing success
to =culture? in general. Campden/Turner F Trompenaars admit t+emselves t+at outer direction"
0+ic+ is a typical c+aracteristic o( *sian countries" cannot bring about success by itsel(. =>uter/
directed cultures t+at +ave not s+o0n aptitude (or economic gro0t+ include 'audi *rabia"
2ene,uela" @epal" )ulgaria and 7ussia? :ibid<. It is easy to e-plain t+at using Co(stedeBs (i(t+
dimension
&
:&$$1<. *ll t+ese (ive countries are s+ort/term oriented i.e. t+ey combine t+e s+ort/
term orientation o( t+e 9estern civili,ation 0it+ t+e collectivism :outer/directedness< o( t+e
*sian countries. *ll *sian tigers are very muc+ long/term oriented. T+ey accept and tolerate
ine5uality o( po0er distribution" live in +armony and t+ri(t and create 0ealt+ in a rat+er di((erent
0ay t+an t+e 0ell/developed 9estern countries. T+e c+ie( value o( *sian tigersB cultures is
persistence.
Synthesis
Territory/related (actors as natural resources" labor cost" resources remoteness" in(ormation
access" +ave signi(icantly lost t+eir importance as competitive advantages in t+e age o( global
business" as Mic+ael Porter states. Co0ever" I do claim" in agreement 0it+ ot+er researc+ers
5uoted above" t+at t+ere is one e-tremely important territory/related (actor" 0+ose importance is
yet to be grasped 6 t+e culture. T+ere is plenty o( empirical evidence to support t+e in(luence o(
culture on economic output. @evert+eless until recently economic studies +ave traditionally
tended to place priority on purely economic (actors" completely neglecting cultural ones. In (act"
+o0ever" global economy is a product o( t+e mar.et culture. @o doubt representatives o( t+e
1
Inner/directed vs. outer/directed 6 see *ppendi- 1
&
Con(ucian dynamism 6 long/term vs. s+ort/term orientation 6 see *ppendi- &
underdeveloped nations are so (anatically anti/globalistic. People" resistant to c+ange and lac.ing
mar.et t+in.ing 0ill (eel t+reatened by t+e process o( globali,ation. T+e (act t+at mar.et
economic structures 0onBt 0or. e((ectively i( applied in cultural environment t+at is
(undamentally di((erent (rom t+e one t+ey originated in" ma.es it clear t+at economic output is
not merely economic/determined. Culture can and +as survived centuries 0it+in t+e borders o( a
national entity 0it+out economic development to sustain it8 +o0ever" imported economic and
social structures +ave spectacularly stumbled or (ailed 0+en t+ey +ave not been supported by a
respective type o( business culture. T+is (act ma.es it evident t+at culture is t+e primary reality
and t+e economic t+eories and institutions are by/product o( culture. My o0n t+esis is t+at t+e
solutions to global economical problems are cultural rat+er t+an economical" per se.
In t+is respect I strongly support t+e implementation o( t+e (indings o( social sciences in
economics. T+e researc+ conducted by Co(stede :1#;$" &$$1<" Campden/Turner and
Trompenaars :1##A< and :&$$$<" etc." provides deep insig+ts into t+e possible (uture convergence
bet0een traditional economics and social sciences suc+ as cross/cultural psyc+ology"
ant+ropology and sociology. ust a decade ago an economic t+eorist 0ould typically claim t+at
culture simply does not matter as (ar as economic per(ormance is concerned. Indeed" t+e role o(
culture +as been e-cluded (rom neoclassical analysis in order to simpli(y t+e comple-ity o(
economic problems and to arrive at more precise (ormulas. Co0ever during t+e last t0o decades
t+e impressive gro0t+ rates o( t+e *sian Tigers could only be e-plained based on t+eir e-tremely
positive culture and values resulting (rom t+eir Dar East religions and t+e Con(ucian p+ilosop+y.
*sian tigers are a good e-ample s+o0ing +o0 =tec+nologies originating in t+e 9est are re(ined
(or *sian and 9estern mar.ets via outer/directed customer orientation" 0+ic+ combines t+e best
o( East and 9est? :Campden/Turner F Trompenaars" 1##A<. In (act" *sian societies +ave ta.en
economic advantage o( 9est/born ideas" 0+ic+ t+e 9estern society (ailed to appreciate and put
to practice. Ironically or not" t+e (at+er o( t+e concept (or continuous improvement 0as an
*merican" 9. Ed0ards Deming. Co0ever" +e 0as unable to arouse t+e interest o( t+e *merican
society 6 and no 0onder 6 it +as al0ays been individualistic and s+ort/term oriented. T+e
apanese" t+oug+" (ound +is t+eory culturally compatible. T+ey not only accepted it / t+ey made a
.ind o( religion out o( it. Continuous improvement is long/term oriented concept per se and
besides it is outer/directed :collectivistic< in its essence :Campden/Turner F Trompenaars"
1##A<. Indeed" 9estern businesses resort muc+ more to ma.ing errors and correcting t+em and to
post/(act planning t+an to scienti(ic reasoning. T+at is 0+y t+e apanese are so success(ul in
introducing ne0 products.
Culture is a necessary" but not a su((icient condition (or prosperity and economic gro0t+" as
Co(stede claims :&$$1<.. T+e need (or a mar.et e-plains 0+y t+e gro0t+ o( t+e *sian economies
started only a(ter 1#55 0+ere (or t+e (irst time in t+e +istory o( +umanity t+e basic condition (or
global mar.et 0as (ul(illed. Dinally" t+ere is also a need (or a positive and supportive political
conte-t. *ll (ive =dragons? 6 Cong Hong" apan" 'ingapore" Tai0an" 'out+ Horea" created suc+ a
conte-t alt+oug+ in 5uite di((erent 0ays ranging (rom active government support to =laisse,/
(aire? :Co(stede &$$1<. T+eir culture (acilitated t+e building o( social and economic structures"
leading to gro0t+ even t+oug+ t+ey do not +ave great natural resources. T+ere is t+e opposite
e-ample o( many Moslem countries" 0+ic+ +ave received enormous incomes (rom t+eir natural
oil resources but nevert+eless +ave +ardly adapted better to t+e modern 0orld t+an t+ose t+at
remained poor li.e *(g+anistan. T+e tragic proo( o( t+at +as been t+e terrorist attac. on
'eptember 11 in @e0 Ior." 0+ere terrorists 0ere (rom di((erent *rabic countries" no matter poor
or ric+.
Conc!sion
*s globali,ation processes advance and c+ange t+e nature o( economics" nations 0ill +ave to
loo. (or ne0 advantages to =s+arpen? t+eir competitive edges. Many output/related concepts 0ill
+ave to be rede(ined" ot+ersJ re/considered. Culture proves to be a concept in need o( re/
discovery 0+en it comes to its economic implications. It is a location/determined (actor 0+ose
in(luence increases under globali,ation" 0+ile ot+er location related (actors lose t+eir impact.
T+is parado- may prove to be accounted (or by t+e (undamental nature o( culture. )eing prior to
social and economic structures" culture can not be overruled by suc+. In t+e globali,ation era a
nation s+ould searc+ (or and create advantages out o( its +uman resources rat+er t+an resort to
simple import o( unmatc+able upgrade 6 economic structures" models and t+eories. T+us it mig+t
be able to utili,e its +uman potential rat+er t+an oppose it to (oreign practices" 0+ic+ +ave
evolved over time to (it a di((erent (oundation. T+e (uture 0ill increasingly belong to =created?
or =engineered? resources rat+er t+an to =natural? resources :Dunning" 1##%<. *ccording to
T+uro0 :1##E< t+e gi(ts o( nature +ave lost t+eir 0eig+t (or t+e comparative e5uation as long as
+uman capital and .no0ledge are t+e (uture engines o( gro0t+ and prosperity. T+is means t+at
societies and nations capable o( creating and ma.ing use o( +uman capital" in(ormation and
tec+nologies" 0ill create 0ealt+ and lead t+e 0orld.
3nder !lobal economy t+e searc+ (or advantages +as s+i(ted (rom as.ing =9+at +ave I got? to
=9+at can I create? It is more t+an evident t+at national culture 0ill be a ma1or advantage or
disadvantage (or competitors on t+e global mar.et. Economic sciences 0ill +ave to increasingly
go beyond pure mat+ematics and cooperate 0it+ social sciences i( t+ey are to provide ade5uate
solutions to contemporary economic issues. Political arguments s+ould become muc+ more
concerned 0it+ +uman capital issues t+an purely economic ones8 social debates s+ould center on
means (or nurturing open/minded" (le-ible and sel(/motivated individuals" instead o( importing
(oreign economic models only to create greater con(usion. Education s+ould be designed to
cultivate people" able to integrate and adapt to t+e constant c+allenge o( c+ange" posed by t+e
globali,ation.
*PPE@DIK 1
Inner/directed cultures / t+e action and be+avior o( people are ruled by 0ills" convictions"
principles and core belie(s 6 conscious purpose is t+e name o( t+e game. T+ey typically stop
at some stage o( creation o( 0ealt+ in order to spend it or give it a0ay.
>uter directed cultures pre(er +armony" relations+ips" aest+etic environment. T+ey create 0ealt+
as long as any e-ternal needs remain unsatis(ied. T+eir c+ie( value is persistence.
*PPE@DIK &
!eert Co(stede" an eminent Dutc+ management researc+er" developed a (ive/dimensional model
o( culture" based on +is researc+ o( more t+an 1E$ $$$ managers and employees 0or.ing (or an
*merican multinational corporationBs o((ices in more t+an E$ countries. Co(stede (ound t+at
national culture e-plained more o( t+e di((erences in 0or./related values and attitudes t+an did
position 0it+in t+e organi,ation" pro(ession" age" or gender. 'ummari,ing t+e most important
di((erences" Co(stede initially (ound t+at managers and employees vary on (our primary
dimensions: individualismLcollectivism" po0er distance" uncertainty avoidance" and career
successL5uality o( li(e. Gater Co(stede and +is colleagues identi(ied a (i(t+ dimension" Con(ucian
dynamism :&$$1<.
T+e (irst dimension is Individualism vs. Collectivism. Individualism e-ists 0+en people de(ine
t+emselves primarily as separate individuals and ma.e t+eir primary commitments to
t+emselves. Tig+t social net0or.s in 0+ic+ people strongly distinguis+ bet0een t+eir o0n groups
and ot+er groups c+aracteri,e collectivism.
T+e second dimension" po0er distance" measures t+e e-tent to 0+ic+ less po0er(ul members o(
organi,ations accept an une5ual distribution o( po0er.
T+e t+ird dimension" uncertainty avoidance" measures t+e e-tent to 0+ic+ people in society (eel
t+reatened by ambiguity and t+ere(ore try to avoid ambiguous situations by providing greater
career stability" establis+ing more (ormal rules" re1ecting deviant ideas and be+aviour" and
accepting t+e possibility o( absolute trut+s and t+e attainment o( e-pertise.
T+e (ourt+ dimension" Career success vs. Muality o( li(e :also .no0n as Masculinity vs.
Demininity< contrasts societies (ocused more narro0ly on career success versus t+ose (ocusing
more broadly on t+e 5uality o( li(e. T+e dominant values in 5uality o( li(e societies emp+asi,e
relations+ips among people" concern (or ot+ers" and overall 5uality o( li(e.
T+e (i(t+ dimension" Con(ucian dynamism :also .no0n as long term vs. s+ort term orientation<"
is identi(ied a(ter t+e establis+ment o( t+e ot+er (our dimensions" and measures employeesB
devotion to t+e 0or. et+ic and respect (or tradition. Persistence" t+ri(t" tolerance to ine5uality and
sense o( s+ame are t+e values typical (or t+e long/term orientation pole. Personal steadiness"
respect (or tradition" protecting N(ace?" reciprocation o( greetings" (avors and gi(ts are speci(ic (or
t+e s+ort/term pole o( t+e dimension.
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Economics" 2ol. 1A" @o. & :1##%<.
&< Dunning . C." The Globalization of Business" 7outledge :1##%<.
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o( Comparative Economics" 2ol. &%" @o. % :1##E<.
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2alues are Trans(orming )usiness Practices. Capstone :1##A<.
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F'ons" Gtd. :&$$$<.
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