A key challenge in international business is understanding the rules of the game abroad. Michael Witt explores the research and shares some of his favourite teaching methods.
In research, most of the field has relied on various indices to express these differences. Researchers focusing on the impact of cross-cultural differences usually draw on metrics such as those provided by Hofstede, Schwartz, the GLOBE project, or the World Values survey. Analogous metrics about institutions usually come from sources such as the World Governance Indicators, the Index of Economic Freedom, or the World Bank’s Doing Business project.
Helpful though they are to both scholars and practitioners, these metrics ultimately represent only a base line from which to start exploring how culture and institutions shape the functioning of a given economy. For instance, most cross-cultural measures include dimensions for hierarchy and collectivism in a given society. However, for a full understanding of these dimensions, we need to know not only the extent of hierarchy and collectivism, but also how they are expressed. For instance, what establishes hierarchy in a given society? Humankind has been extremely inventive in this regard, with common differentiators including education, wealth, family, age, height, sex, color of skin, race, and caste, just to name a few. Likewise, collectivism can revolve around an array of references groups, including the family, region, caste, religion, company, or schools, again just to name a few. Point being, it is not enough to know the differences as expressed in metrics. A full understanding requires analyzing and understanding the specifics of each country.
A parallel concern applies to metrics of institutional differences. For example, it is helpful for scholars and practitioners alike to know to what extent a given country has the rule of law. But once again this is only the first step, in this case for understanding how a society manages to keep individuals and organizations legally compliant. In many societies, this involves a well-functioning legal system. However, in others, such as Japan, much of the compliance involves both social pressure to conform and social sanction for failure to do so. For anyone operating in a society such as Japan’s, knowing this is essential, but the metrics do not contain this information.
How then to provide a richer and comprehensive, yet still systematic, picture of the workings of another society and its economy?
One tried and tested answer to this challenge is Redding’s approach to business system analysis as laid out in his 2005 article in the Journal of International Business Studies. Combining key insights from the literature on comparative institutional analysis and Geertz’s thick description, Redding’s approach allows for a holistic understanding of the key cultural and institutional aspects of a society’s economy.
While the framework initially looks forbiddingly complex, it is actually a great classroom tool. After a brief introduction of the framework and why understanding the rules of the game abroad matter—key phrase “liability of foreignness”—one approach is to demonstrate its application using a sample country. I personally like using Japan as a starting case, as it is widely seen as difficult to understand. As a next step, one might ask students to reconstruct the business system of another country on their own. If the task is too large for the time available, different groups may work and report on different aspects of the business system. With the help of a large whiteboard, the instructor then takes (and fine-tunes as well as elaborates on) student input to reconstruct the respective business system in its entirety. Gordon Redding and I have taught entire MBA and EMBA courses using this approach (and done so very successfully), but we have also condensed theory and sample application into half-day executive development sessions.
Pulling this off successfully requires that the instructor know the country in question reasonably well, but also that the students at least initially receive some materials that give them a sense of the kinds of data used for successful business system analysis.