Nations are based on a certain cultural tradition, and it is then contended that certain values and attitudes within this tradition are intuitively linked to economic performance. National cultures are best understood as complicated contextual structures, in which distinct values and attitudes do not exist in isolation, but rather in a well defined relationship with other values and attitudes (M. Lewis, R. Fitzgerald and C. Harvey). Every country has its unique history consisting of various national characteristics created either by the state or the national culture, which are believed to have major effects on economic growth of a country.
Writers such as Alfred Chandler have argued that businesses succeed because of their cultural norms, government regulations and institutions. Large-scale European companies are not as good as U. S companies due to their cultural differences and the nature of management. There are some values promoted in the East, which are best suited to the culture prevalent there and are responsible for the most part, for the success therein. The essay will look at the effects of culture on business in the West (Western Europe and the US), and Asia.
Asian countries in particular have made phenomenal economic progress in a relatively short period of time, compared to that of its western counterparts. Asia has particular significance as it is still in process of continual change, of moving from third to first world status. When the competitive advantages of nations are compared, with respect to their culture, growth patterns need to be looked at closely. These patterns along with trends can be evaluated against mature economies such as the US and Western Europe.
Each society has its own set of traditions and inherent culture, which influences the way in which business is also carried out. Max Weber has made a substantial contribution to this field. Webber says, throughout history, every system has a distinct desire for wealth, demanding regular motivation to achieve profit through normal economic exchange, this desire for wealth he called ‘Capitalism’. Regularisation of investment capital and the organisation of the labour force became the byword of capitalism. Long term planning is a key to success, and it is for this reason North America and Western Europe are economically successful today.
Weber, in his book ‘The Protestant Ethic and The Spirit of Capitalism’ stresses upon Confucianism, and what impact this has had on the Japanese economy, in addition to the Protestant Ethic as the dominant culture in Western Europe and North America. Patriarchy is particularly highlighted in Confucianism culture, where there is usually a hierarchy in life and in organisations. Here, hard work based on authoritarianism and respect for the elderly with strong family values and deep rooted in the culture. This leads to a more close-knit community.
The Protestant ethic on the other hand envisages hard work, high levels of discipline and emphasis on institutions. Thrift and individualism is a common feature of such a society and is similar to Confucianism in the sense that it believes in high levels of discipline produced through institutions that can be internal (family) or external (banks). However, Weber does not suggest that differences in cultures that he highlighted are the only influences that differentiate economic development in the west from that in the east.
Other factors include the West’s ability to separate the productive enterprise from the household much before the East did and western communities reached high levels of political autonomy and a sound juridical system beforehand as well. Due to the fact that all activity in the world is carried out by organisations, a high degree of social cooperation is required to ensure smooth and productive functioning of the world and its various economies. Trust is therefore of considerable importance and can greatly enhance quality and speed of communication within societies.
It is the product of pre-existing communities of shared moral norms and values, brought about by families, kinship ties and religious ethics. There were none the less some commonalities found in non-kin cultures; China, France and other low trust societies for example had prolonged periods of centralised state control as opposed to trusting nations like Germany, Japan and the US where there never really was a period of centralised state power. Dispersed political power led to social organisations being able to flourish and later becoming the basis for economic cooperation.
Both cultures have their success stories of entrepreneurial spirit flourishing. Each helped by the business culture of the country, such as Bill Gates and Mr. Hitachi. Between 1950 and 1990 US Gross National Product (GNP) leapt from $308. 1b to a staggering $5,521. 3b. Japans success as an economic superpower is without doubt a remarkable success story. After the Second World War, Japan was utterly destroyed. Its economy was in ruins and its vital infrastructure had been the victim of the world’s first nuclear weapons attack. This left Japan with no capital to rebuild its economy or country.
Gershenkron states that although Japan started very far behind in the industrialisation process, this actually worked to Japans advantage. This was due to Japans ability to take advantage of already existing western technology, which was tried and tested. Japan’s post-war growth has been so rapid, her take-off so much more impressive than that recorded by Western countries in previous waves of industrialization decades before, that there is a widespread and intuitively appealing belief that it must in some way be culturally determined (M. Lewis, R. Fitzgerald and C. Harvey).
To begin with Japan concentrated its efforts on outsourcing, it was at the same time upgrading and dispersing its technology. This has helped Japan become the global leader in electronics. As structures are likely to be large in the electronics industry, economies of scale must be sought and rivalry needs to be on the basis of size rather than price. The three major economic powers, the US, Japan and Europe are mainly responsible for the expansion of large scale enterprises. The differing cultures prevalent in each country or countries in the case of Europe, untimely dictate how business is run.
Take for example Japan, which is considered to be a high trust society, whereas France is considered to be low trust. However, France still holds amongst the top status in the technological industries. In this industry it has been noted that the state-run companies perform worse than subsidized companies. This is due to politicians gaining political advantage by pressuring state-owned for their political needs, rather than letting them react to market forces. Calvinistic values are strongest in US business leaders, where equality, democracy and self-fulfilment take precedence.
An individual’s personal career is considered by their ability to navigate to the upper echelons of power within a company. Here, the ultimate responsibility of both success and failure lie with management. On the contrary, in Japanese culture, groupism, harmony, and flexibility are of paramount importance. There is a strong sense in team work and achievement, not just for a particular company but as a nation. In the U. S the stakeholders give power to the executives to run the daily operations of the enterprise, the executives in turn, hire the managers to accomplish certain goals with utmost autonomy.
College graduates are mentally trained to be motivated internally and develop the drive to achieve a status in the society. Alternatively, in Japan, employees and stakeholders are seen as possessing equal stakes in the organisation with an equal right to profit. Japanese firms consider the socialisation of new employees to be very important and a lot of attention is given to young recruits and their training into the management track. A new recruit after being welcomed embarks upon what is an intensive six-month training programme.
The recruits emerge from here with a strong network of relationships and intense dedication and perseverance instilled into them. These cultural values which help the economic development of nations are more likely to be the cause of the development, rather than an outcome of it. As has been illustrated certain cultures can go a long way to facilitate economic development. Cultures which have been most successful at this are namely Western European, US and Japanese cultures. Some aspects of culture are common to almost all East Asian societies.
These include respect for education amongst Chinese, Japanese, and other Confucian states, a common work ethic and the role of the state having significant effect on economic development. State intervention and industrial policy are taken to be the essence of the Asian “economic miracle” but economic success does not correlate very well with the degree of state intervention amongst the countries in East Asia so this may not be the key determinant of economic growth. Whereas culture may appear to have a severe effect on a nations people, economy and global positioning, one needs to be careful to not overrate its effects.
The notion that socio-cultural values have a direct influence on national economic performance is open to question because the shared values apparently conducive to economic success or failure are, by definition, only recognized as such with benefit of hindsight (M. Lewis, R. Fitzgerald and C. Harvey). Few small-scale, private corporations hold on in Hong Kong and France compared to Germany, Japan and the US because of effects of and differences in national market size, level of economic development, number of supporting institutions and their linkages, late/early development status and the role of the government.
A multiplicity of factors besides culture can affect industrial structure. But the role of culture, and particularly spontaneous sociability, has been greatly underestimated by conventional economic analysis in explaining the large variations among societies that are otherwise at a similar level of development (Fukuyama). Fukuyama, further goes on to say, ‘perhaps the most crucial area of modern life in which culture exercises a direct influence on domestic well-being and international order is the economy. Certain cultural values, no doubt, are conducive to business being successful.
It is a powerful argument that can be used to explain a wide variety of differences. However, culture is a very broad term and cannot encompass everything. Any one argument does not explain all possibilities and focus is easy to lose if everything is attributed to culture. Business is always evolving and certain practices today which may seem to facilitate today’s business needs may not be appropriate in the years to come, and business, especially in this technological era will adapt and evolve to stay competitive.