Part I Global Business Strategy
3 Changes in the Global Economic Environment
3.5 Summary
infrastructure” refers to the level of dissemination of telecommunications and broadband networks, as well as human elements, such as IT skills and the number of qualifi ed engineers. Japan’s aging society lowers its ranking in basic infrastruc-ture, which cannot be helped. However, it does seem rather strange that Japan’s technological infrastructure lags that of the U.S. and is at about the same level as China’s. A closer examination shows that Japan’s ranking is lowered by its ratio of investment in telecommunications costs and infrastructure to GDP.
In summary, the factors that raise Japan’s competitiveness ranking are as follows.
• A high per capita GDP and a domestic market with a large population
• The country’s science and technology-related activities, as seen by R&D and patents
• High energy effi ciency and an environmentally conscious economic system
• Health and longevity, and a safe and secure living environment
However, the following factors are among those that bring down Japan’s ranking.
• Inaction on fi scal defi cits and government ineffi ciency
• An aging society and slowdown of economic activity
• A high cost structure
As we have seen this far, the IMD World Competitiveness Yearbook uses a broad range of indices, and one cannot help but get the sense that it is a hodge-podge of data. However, this shows that international competitiveness is a multi-faceted con-cept, and these various factors intermix in a complex fashion. In addition, the IMD includes factors that have no direct relationship with economic activities, such as environmental aspects and public safety. Some concepts expand upon the traditional idea of GDP, such as green GDP, which incorporates depletion of natural resources in conjunction with economic activity, or Gross National Happiness (GNH), which measures the overall happiness of a nation’s people. The IMD index can also be thought of as extending beyond mere economic performance to encompass environ-mental and social value aspects.
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relatively small amounts of per capita capital accumulation, will have higher GDP growth than developed countries. The per capita GDP (or income levels) will also increase at a faster rate than in the developed countries, although we note that, when we examine the timeline through 2030, the overall picture of developed versus developing nations’ income levels does not change. In other words, the economies of developing nations will grow, but “economic distance,” explained in the previous chapter, will remain.
Moreover, other distances in global business, particular cultural and administra-tive distances, are unlikely to decrease rapidly. Developing countries without mature capitalist economies have institutional characteristics that vary by country. These developing countries have a much smaller international fl ow of people compared with developed nations, so cultural distances are unlikely to be affected by global-ization. In other words, developing countries require global strategies that are adapted to each country. Furthermore, it must be kept in mind that the large coun-tries of China and India have CAGE (cultural, administrative, geographic, eco-nomic) distances internally as well. These countries have vast disparities in their per capita income levels. In India, the administrative framework varies by state, and regional languages are spoken alongside English and Hindi. To be sure, the major trend is to steer toward global strategies that target newly industrializing countries, but creating specifi c global strategies will require suffi cient awareness of the diver-sity among the newly industrializing countries.
Open Access This chapter is distributed under the terms of the Creative Commons Attribution Noncommercial License, which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
References
Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative devel-opment: An empirical investigation. American Economic Review, 91 , 1369–1401.
Barro, R. J., & Sala-i-Martin, X. I. (2003). Economic growth . Cambridge: MIT Press.
Grossman and Helpman. (1993). Innovation and Growth in the Global Economy . Cambridge: MIT Press.
IMD. (2013). World competitiveness yearbook . Lausanne: IMD.
Motohashi, K. (2014). The sun rises Again: Revitalization of Japan’s industrial competitiveness (Hi ha mata takaku, Sangyo Kyosoryoku no Saisei). Tokyo: Nikkei Publishing Ltd.
(in Japanese).
Porter, M. (1990). Competitive advantage of nations . New York: Free Press.
World Bank. (1993). East Asia miracle: Economic growth and public policy . Washington, DC: The World Bank.
World Economic Forum. (2012). WEF index 2012 . Geneva: World Economic Forum.
References
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© The Author(s) 2015
K. Motohashi, Global Business Strategy, Springer Texts in Business and Economics, DOI 10.1007/978-4-431-55468-4_4
in China and India 4
4.1 Introduction
Global business strategies must conform to business environments in target coun-tries and regions. As repeatedly expressed herein, while the world is becoming fl at-ter, there still are signifi cant barriers in the form of national borders. Chapter 2 discussed ideas and strategies to understand the differences in business environ-ments because of these barriers. According to the CAGE distance framework, the differences in business environments due to national borders are wide-ranging and consist of cultural, administrative, geographical, and economic factors. These dif-ferences may be observed in the languages, religions, economic systems, and living standards present in each country. This chapter discusses a more fundamental prin-ciple of “institutional theory” in the context of differing business environments between nations, and examines its relationship to global strategy.
The 1993 Nobel laureate in economics, Douglas North, developed a theory that countries not only have codifi ed “formal” institutions such as laws, but also have just as important and implicitly presented “informal” institutions such as the code of conduct and practices. North expounded on the relationship of these institutions to economic performance (North 1990 ). Among economic theories based on market transactions, such as product and labor markets, the fi eld of “institutional econom-ics” as developed by North, which studies the relationship between economic activi-ties and informal constraints such as the code of conduct and practices, continues to be researched.
The behaviors of corporations and individuals within an economic society do not necessarily abide by the formal institutions, but they are often determined by infor-mal restraints such as taboos and customs. This tendency is particularly apparent in developing nations such as China and India because these nations have been slow to enact various rules regarding economic transactions (corporate law, contract law for private transactions, property law including intellectual property, etc.). Even when laws have been codifi ed, the enforcement of these rules has often been insuffi cient.
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For example, China has made three major revisions to its patent laws since their enactment in 1985, and intellectual property institutions are being strengthened because of calls for “indigenous innovation.” However, the state of intellectual property protection in China is far removed from the country’s tough patent system.
China also implemented antimonopoly laws in 2008. However, its enforcement makes it appear like the objective is to protect domestic industry and limit foreign corporations.
It would appear that these countries are conforming to global standards by inte-grating modern legal structures from foreign countries and codifying them into rules; however, because the inertia of informal rules of economic transaction prac-tices and societal behaviors is so strong, the enforcement of rules are quite literally all over the map. With the help of the WTO and regional economic partnership agreements, an international alignment according to formal economic rules is shap-ing. However, informal rules such as country-specifi c societal norms and customs do not change easily, and some doubt the hypothesis of converging into one global system. A concept often used within institutional economics is that of “path depen-dency.” The thinking goes that because practices and rules for economic transac-tions are formed during a country’s process of achieving economic development—a process that is determined by differing historical backgrounds and economic devel-opments depending on a country—there exists several equilibriums. For example, some countries drive cars on the right side of the road, whereas others drive on the left. There are various theories as to why this difference exists; one of them is that the position of doors in horse-drawn carriages differed in England and France, but whatever the case, there is some historical background for this phenomenon.
However, once a practice like this is set, it is extremely expensive to change and things remain in a state with several equilibriums. Incidentally, there is a fi eld of study called “comparative (or historical) institutional analysis” that uses game the-ory to model path dependency and a state of multiple equilibriums to explain differ-ences in institutions among countries (Aoki 2010 ; Grief 2006 ).
Institutions in various countries, including informal institutions, can be charac-terized as game rules for conducting economic activities. An examination of global business strategy cannot be engaged in without an understanding of these game rules. In Chap. 2 , we discussed the state of global strategy considering primarily codifi ed formal institutions. In this chapter, we progress one step further and con-sider the impact of institutions in economic society, including unwritten rules, on global strategy. Chapter 1 featured a company in an industrial park in Shanghai’s Jiading district that was suddenly ordered by the government administration to exit the park. Codifi ed rules granted contractual authority to companies within this industrial park to use the property for a specifi c length of time. However, the deci-sion by the government administration can overturn this contract. These rules are not explicitly codifi ed, but they nonetheless exist. Property rights in many regions of India are vague, and when discussions with local farmers in Tata Motor’s appro-priation of land in West Bengal did not go well, Tata made the decision to pull out of its planned factory construction.