Teaching Note by Salam Al Khateeb

Chapter 1
Business Systems in Asia
Gordon Redding
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CHAPTER OUTLINE
This chapter covers the following topics:

1. Variety in the region and general features

2. What is a business system and why do business systems vary among societies?
3. The business system of Japan
4. The business system of China
5. The business system of South Korea
6. The regional ethnic Chinese in business
7. Southeast Asian societies in business
8. Indochina in business

CHAPTER OBJECTIVES
After studying this chapter, you will have gained an understanding of the following issues:

1. The basic components of the region’s variety of business systems

2. How a business system works
3. The main features of the business systems of the major economies
4. The smaller economies of the region

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CHAPTER OVERVIEW

This chapter is an introduction to all the following chapters. It provides an explanation of the
concept of a business system and its brief application to Asian economies. The concept of a business
system is one of various approaches (a heuristic device) that help us to understand a great deal
about Asian business and management. Each approach has strengths and weaknesses. We consider
the business system approach to be a strong intellectual lamp for understanding the complex
realities that were previously hidden in darkness. The weaknesses probably go in two directions. One
weakness is that a causal relationship between factors is difficult to measure quantitatively. This is
also true of other social sciences. The second weakness is that social relations such as class relations
will almost disappear as they will submerge in the evolutionally dynamics of the system itself.
Overall the system tends to see realities as an evolutionary process leading to harmonious
developments. Its strength is that it can provide an integrative and coherent understanding of the
realities, including all the critical components of the system, and thus be able to explain the
directions of causal relationships and the links among the major components.

1. Variety in the region and general features

 Present two maps of Asia and Europe and make the students pinpoint the main differences
between the two continents in terms of the size of the countries, their histories, languages,
ethnicities, religions, civilizations, etc.
 Demonstrate the immense variety within Asia
 The need to cluster the countries arises from this immense variety
 The Indian sub-continent is excluded from the discussion: the focus is only on Pacific Asia
(Japan, China, Korea, Southeast Asia and Indo-China)
 The history of Pacific Asia was divided into three main historical phases:
1. The Political Turbulences Period (1945–1975)
2. The Growth and Development Period (1975–1997)
3. The Post-Crises Reforms Period (1997–)

- Place the students into three teams to highlight the main features of each of these periods.
Place the students in three teams and assign each team to highlight the main features of a
specific phase.

2. What is a business system and why do business systems vary among societies?
 The definition of a business system, as a complex adaptive system, has two main
interrelated parts:
- Analyzing the business components of a given society
- Analyzing the business components in the context of that society

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  Any given economy must not be seen as a process of aggregate economic behaviour alone.
Rather, it should be seen and analyzed through the cultural, historical and societal elements
within that economy.
 Present the structure of a business system and explain its three components (layers):
1. Meaning (in terms of rational, identity and authority)
2. Order (in terms of human, financial and social capitals)
3. Coordination (in terms of ownership, networks and management)

Deepening Understanding

- Discuss each of these layers with the students, and demonstrate how they connect and
relate.
- Demonstrate how the three-layered business system structure can explain how each
society (having different combinations of these elements and different intensity)
develops and perform its economic activities in a unique manner (use Japan and
Malaysia as contrasting examples).

3. The business system of Japan

- Hold a class discussion about the impact of Japanese history on its modern economic
growth (raise topics such as Isolation under The Tokugawa Shogunate, The Meiji
Restoration, World Wars I & II)
- How has historical legacy affected the Japanese business system (in terms of the three
layers)
- Present a blank business system structure and ask the students to place the following
within:
1. Firms exist to keep people employed (cultural element in the Meaning layer)
2. Patient Capital (financial capital in the Order layer)
3. Trust (social capital in the Order layer)
4. Keiretsu (Coordination Layer)

4. The business system of China

 Briefly highlight China’s main historical phases, and its recent reforms.
 Present a blank business system structure and ask the students to place the following
within:
1. Principles of Confucianism (a cultural element in the Meaning layer)
2. Rise and decline of state-owned enterprises (ownership in the Coordination layer)
3. Weak trust (social capital in the Order layer)

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5. The business system of South Korea
 Discuss with the students the modern historical background of Korea (highlighting the
Japanese occupation, Korean War, Park’s 5 year plans).
 Present an empty structure of the business system and ask the students to locate these
points into the structure:
1. Hierarchy and military orientation (authority element in the Meaning layer)
2. ‘Strong state’ – professional civil service and the Japanese legacy (institutions in the
Control layer)
3. Chaebols (ownership, networks and management in the Coordination layer)

6. The regional ethnic Chinese in business

 Explain the roots of the migration waves that created ‘Overseas Chinese’ communities.
 Discuss the main challenges these communities face in terms of identity, tacit
knowledge transfer, relations with China, economic power in the host countries, and
more.
 Elicit student opinions on the business systems of these ‘Bamboo Networks’ and those
of China.

7. Southeast Asian societies in business

 Indonesia, Malaysia and the Philippines share these features: a colonial legacy and long-
term struggles for development.
 Create a discussion in the class to pinpoint the specific differences between these
countries (population, demographic fabric, colonial power, pillars of the economy,
political system, current situation, other…)

8. Indochina in business
 Focus only on Vietnam and Thailand
 The Doi Moi (the opening up of Vietnam) has been described as “a re-run of the Chinese
miracle in slow motion.” Discuss with the students the validity of this statement.