ASIAN BUSINESS

SYSTEMS
Sari Sitalaksmi, Ph.D

September 3, 2014

Asian Business Systems

(Witt & Redding, 2012)

Background

Asian economies and business, previously

dominated by Japan, attracts increasing
attention
Studies on Asia, both individually by country and
by cluster, proliferate.
Yet, the further away from Japan, the less
understood the institutional structures and
dynamics of business systems in Asia become.
The scarcity of data

Models of Comparative Institutional

Analysis
Two Models
1.
Dimensions of vatiation emerge from the data
2.
Draw on existing models to identify key dimensions of
different types of business systems and search for data
relevant to these dimensions
All efforts at theory building and empirical research in
the field and the models that have resulted
keeping dimensions consistent with existing models
facilitates the drawing of conclusions about the utility
of existing models for explaining empirical patterns in
Asia and about the possible directions of further theory
building

Asian Business Systems: A

Comparison
Education and Skill Formation
Universal education to decent levels cannot be assumed for
Asia
The literarcy rates among adults in Asia range from 61% in
India to full literacy in Japan
With the exception of Japan, even the richer Asian
economies of Hong Kong, Korea, Singapore, and Taiwan
have not yet attained the 99 percent literacy rates common
in the West.
The acquisition of professional skills is left to private
initiative in most Asian countries.

Manual labor is a reflection of academic failure

OJT is mostly seen in Japan reluctance of other countries

(contd.)
Employment Relations
Unionisation quite diverse (5% in Indonesia to 23% in HK)
Vietnam as outliers with 67%
Company union-type dominates
The major exceptions to the rule are the nominally
socialist economies of the region, that is, China, Laos, and
Vietnam ACFTU in China
State intervention and control is higher in socialist
economies

(contd.)
Financial System
The main source of external financing for firms across Asia
is banks with a common pattern that business groups
maintain their own banks or similar institutions for providing
long-term funding.

leading Korean conglomerates cover a large part of their financial

needs through non-bank financial institutions such as insurance
companies that they own
the informal banking sector in China which is the main avenue of
obtaining external funding for the private sector (estimated to
about two-thirds of Chinese GDP)

(contd.)
Interfirm Relations
the presence of business groups across all Asian nations large conglomerates that are ultimately owned and/or
controlled by the same party, usually a family or the state

Exception to it Japanese keiretsu has no ultimate owner or

controlling party

in communist countries where the party retains ownership

and control of at least some firms and permeates the private
sector through measures such as the mandatory
unionization of employees under the umbrella of the partycontrolled unitary labor union
the presence of personalistic ties personal relationships on
an individual level which enables, among others, the finding
of new business opportunities and occasional, ad-hoc

(contd.)
Internal Structure
Decision-making in Asian firms is usually hierarchical and
top-down with Japan as an exception (more participatory).
The key criteria for rising through the ranks are
relationships and, to a lesser extent, seniority.

(contd.)
Ownership & Corporate Governance
In most Asian economies, family ownership is dominant.

Korea - firms are majority publicly owned but family controlled, a

trick accomplished through creative shareholding patterns such
as pyramidal and circular shareholdings
Japan - firms essentially control themselves, accomplished
through a combination of high levels of friendly and disinterested
long-term shareholders and fairly weak corporate governance
rules.

Corporate governance rules are generally weak.

No country in the region comes close to a governance
score of first-rate of 80 - Singapore (67) and Hong Kong
(65)

(contd.)
Social Capital
social capital as trust (i.e. Interpersonal trust and
insitutionalised trust)
Institutionalised trust system control, system trust, system
morality

Japan System morality

relies relatively little on its legal system and relatively much on
reputational mechanisms that can be used to sanction offenders
informally

Culture
The Asian nations cluster in the upper right quadrant,
implying high hierarchy and greater importance of groups
The existence of relatively strong hierarchical values in

(contd.)
Multiplexity
the presence of multiple business systems within the same
economies
China and India - coexisting state-owned and private