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'Asian' business culture? The concept oversimplifies issues

Understanding 'cultural differences' is key for managers, but it seems unwise to use culture as an excuse to throw out accepted principles of good governance and management.

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When industrialisation is sufficiently advanced, economic growth slows to be more in line with other developed economies because productivity and demand growth slow.

ARE "cultural differences" sometimes oversimplified and used as an excuse for sub-optimal management practices and poor corporate governance in both the "West", and in Asia (or the "East")?

Let me make clear at the outset that I am not arguing there are no such things as cultural differences; clearly there are and, equally clearly, some of the models that have been developed can be very helpful in describing those differences on an aggregate level.

The cultural argument in business, as espoused by some, typically runs as follows:

" 'Asia' or the 'East' is 'different' from the 'West', and ...

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Market voices on:

... 'Asian' GDP growth has been faster than that in the 'West', so ...

... 'Asia' is the source of growth for the world in the future, therefore ...

... 'Asian' approaches must be the best, consequently ...

... 'Western' models have little to teach or contribute to 'Asia', because ...

... connections and interpersonal relationships are more important in 'Asia' than legal structures, therefore ...

... 'Western' style management, and corporate governance approaches not only won't work, they shouldn't even be attempted."

Such arguments may grow from an adoption of moral relativism - the idea that a person's beliefs, values and practices should be understood based on that person's own culture, rather than be judged against the criteria of another.

However, arguments that substantially follow the logic above may muddle, over-simplify or ignore a number of important issues. Some of the key issues and their implications are as follows:

WHERE IS 'ASIA'? IS THERE AN 'ASIAN' CULTURE?

"Asia" is a flexible geographical concept. At its most extensive, it can be considered as stretching from Iran in the West to the Bering Straits in the East, from the Arctic Ocean in the North to Papua New Guinea in the South. It covers about 30 per cent of the Earth's land area and is home to about 60 per cent of the world's population.

"Asia" has a wide variety of ethnicities, languages and climates. It has countries at widely differing stages of development with very different histories. There are adherents of every world religion, countries that are mono-cultural, and countries that are multi-cultural. "Asian" governments range from theocratic autocracy, through democracies to peoples' republics. Frankly, it doesn't take much cultural awareness to know that the business and national cultures in, for example, Japan, China, India, Indonesia and Pakistan are very different.

Useful generalisations about "Asian" culture are not possible.

Much of the economic growth in Asia has been driven by the industrialisation of previously agricultural economies. It is well known that moving any individual from agricultural work to industrial work leads to an improvement in their productivity, and to an increase in demand for goods and services; in turn, GDP increases. When the industrialisation process is sufficiently advanced, economic growth slows to be more in line with other developed economies because productivity and demand growth slow. Just look at Japan, Singapore, South Korea and Taiwan for examples.

Higher Asian historical growth rates may not be primarily due to different management practices, and may have more to do with economics than culture.

The way people interact and behave on average does differ between nations, but this is average behaviour. It encompasses a very wide range of individual behaviours between those who belong to the same nationality, which are impacted by economic grouping, ethnicity, age, religion, gender, occupation, social class, education, personality traits and many other factors. Individual behaviour has many determinants and is very variable. Individuals' experiences, and motivations at a particular time, and /or in a specific situation also affect the way that they behave.

Any one aspect of culture is not, usually, a useful predictor of individual or collective behaviour in any given situation.

THE DANGEROUS FALLACY OF INTERNATIONAL BEST PRACTICE

In debates about the influence of culture on management practices, it is often said that Asian societies are much more dependent on connections in the functioning of, inter alia, businesses than Western ones. I'm not fully convinced of this generalisation, but many accept it, and propose that it be used as a guide for management practices in "Asia". If the importance of connections is adopted as a primary consideration in the management of organisations, the dangers of corruption (the misallocation of resources to less viable activities for personal gain), and the undermining of meritocracy (in favour of appointments, performance assessments and rewards based on criteria not related to business goals or an individual's effectiveness) need to be recognised, and addressed as potential risks.

What, undoubtedly, needs to vary in dealing with different groups is the style of communication, but this is not solely affected by any one aspect of difference. For example, the way that a pay review is communicated to site workers in a coal-mining operation in Indonesia is necessarily very different from the way that redundancies would be best communicated to senior managers of an investment bank in Korea, and it seems obvious that national culture is not the only criterion for determining the best approach in either case.

Managers need to understand the nitty-gritty of the situation in which they are working and devise strategic and operational plans that take account of all the important factors.

CULTURE AND CORPORATE GOVERNANCE

Some have argued that the very nature of what constitutes good governance is changed in different cultural settings.

Corporate governance generally addresses agency problems or divergences of interest between stakeholders (manufacturers vs customers, managers vs shareholders, companies vs governments, companies vs communities, and so on). These problems manifest in a variety of guises in different jurisdictions at different times; for example, executive pay in some, related-party transactions, and/or cartel behaviour in others. Investopedia has a useful definition of "good" corporate governance, which it sees as essentially an attempt to balance the interests of a company's many stakeholders.

The dominant approach to corporate governance (often called a "Western" approach) is based on:

  • Clear property rights,
  • Enforceable contracts,
  • Transparency, and
  • An independent, and expeditious legal system

The underlying features described above provide a framework for business relationships that is independent of the influence of connections to ensure fair dealing, and they support legislative and regulatory actions in jurisdictions intended to limit the ability of agents to further their own interests at the expense of others. By such means, it is hoped the confidence of investors, the community, and other stakeholders in businesses will be enhanced. Such features, together with the innovations of limited liability, and the joint stock company, were the necessary conditions that allowed Western businesses to thrive.

Connections become especially important in jurisdictions where there is a lack of transparency, no clear property rights, no trust in contracts and no faith that the legal system or institutions, to enforce them. That increases the tendency of individuals to rely on "feudal protectors" to enforce their rights; the Godfather movies give a picture of how that works!

Of course, the dominant approach doesn't always prevent problems, as can be seen from the long history of corporate scandals, but it makes redress possible for those who are abused, and creates potential penalties and risk to discourage the ill-intentioned.

The long-term attractiveness of different jurisdictions and/or businesses as investment destinations are impacted by considerations that are not directly related to culture (except insofar as culture hinders, or encourages, transparency, the enjoyment of property rights, the enforcement of contracts and the impartial functioning of the legal system).

Understanding cultural differences, in the widest sense, is important for directors and managers. It is part of understanding the business environment. However, a rigorous approach to understanding the parameters and the limits of culture as a predictor of behaviour, and the variety of factors that impact the behaviour of individuals and organisations is beneficial in most situations. It seems unwise to use culture as an excuse to throw out established principles of good governance and good management.

  • The writer is a doctoral researcher at Aston Business School in the area of cultural cognition and board decision making. He has lived and worked in South-east Asia since 1997. His interests are centred around how corporate governance is impacted by human behaviour as it occurs in boards and top management teams.