ASIAN BUSINESS ENVIRONMENT EXAMS

PATH DEPENDENCE HAS BEEN A USEFUL CONCEPT TO UNDERSTAND THE

FORMATION OF BUSINESS ENVIRONMENT. GIVE 3 EXAMPLES ON HOW
COUNTRYS BUSINESS ENVIRONMENT IS BEING SHAPED BY PATH
DEPENDENCE.

1. Business environment in Malaysia is being shaped by

its Ethnic-based Economy Policy
There are two main ethnic groups in Malaysia - Bumiputera
(Malays and indigenous people in Malaysia) and Chinese, in
which the Bumiputera has been taking the lead role in
determining the economy policy in Malaysia. However, despite
of being the most influence ethnic group in Malaysia, most of
the wealth is still being controlled by the Chinese, and thus
created a socio-economically imbalance society Chinese
is being the wealthier ethnic group, whereas, most of the
Bumiputera members are still gaining lowest income and
under great poverty.
In order to stabilize this imbalance society, the Malaysian
government was trying to implement an ethnic-based
policy, after which resulted in Bumiputera getting more
advantages over the Chinese. One of the examples of this
ethnic-based policy is the New Economic Policy (NEP) and
Industrial Coordination Act (ICA). Under these policies,
Bumiputera are being given privilege to access the traditional
sectors in Chinese business bigger company needs to have
at least 30% of Bumiputera workforce and 30% of equity
made up by Bumiputera. In addition, the governments
affirmative action has also made it easier for Bumiputera to
get loans from government.
Responding to NEP and ICA, some of the Chinese started to
form ALI-BABA alliances with Ali (Malay partner) as
sleeping partner, which provides the political connections, and
Baba (Chinese partner), for capital and skills. However, the
formation of Alibaba has made the Malaysian partner to
become less competitive. In addition, there were also
Associated Chinese Chambers of Commerce and Industry of
Malaysia (ACCCIM) who strongly opposed these policies.
Seeing these outcomes, the Malaysian government started to
deregulate and liberalize the NEP.
Later on, Malaysian government implemented the National
Development Policy (NDP) and National Vision Policy
(NVP) in order to make the Malaysia more internationally

competitive. However, the effect of NEP and ICA is still

showing in order to gain access to government resources,
Chinese companies still needs to incorporate with the
Bumiputera and makes them their partners. Seeing this
situation, in which Chinese still needs to depend on the
Bumiputera, Bumiputera members still does not have the
urgency to be competitive and subsequently result in the
middle-income trap in Malaysia and encourage the Chinese
to start invest outside Malaysia.
The recent ethnic based economy policy is the New Economy
Policy (NEM), which has the purpose to improve
competitiveness by removing inefficient rent-seeking and
patronage behaviour. In addition, under this policy the
ethnic Malays are not being benefited again as it removes the
subsidies for ethic Malays. NEM also gives an equal
opportunity for all entrepreneurs of all races. Compared to
previous policies, it is obvious that NEM, which promotes
economic liberalization, is more favourable for the Chinese
businesses. The NEM made the Malays unhappy, as they could
not compete with the Chinese who have both capital and
skills. In the end, the later version of NEM is reintroduced with
the NEPs 30% Bumiputera equity target. The ethnic based
economy policy in Malaysia shows path dependence, in
which in the end the policy made tends to favour the
Bumiputera.
2. South Koreas Chaebol
Chaebol
The early state-led development strategy in South Korea
has resulted in the emergence of chaebol. In its early stage,
chaebol was mainly used as a tool to help the South Koreas
economic development. In addition to this, South Koreas
government also created a restriction to the local market and
regulation for the market entry, these were done to keep
foreign companies from gaining a permanent majority stake in
Korea firms while at the same time bringing in vital foreign
technology. Like for example, the firms that met production
and export targets were rewarded with continued access to
cheap credit and vice versa. This condition had further
developed a deeper relation between the government and
business, in which it managed to produce economic growth.
Since mid-1990s, chaebol faced various challenges that come
from both international and local market. Growing competition
from China and Southeast Asia, the three highs wages,
interest rates and exchange rate, and economic crisis has lead

chaebol to become a public scorn it has been a symbol of

corruption and failure. The main reason behind this is
because at that time, chaebol dominated the economy, from
small to medium-sized enterprises, and tended to pursue
market share rather than profits. In addition, family
control has been accused for the failure to respond
appropriately to changes in the global market and for making
poor business decisions.
Post-1997 Market Reform
Most of Koreas chaebol are still family owned, in which the
34.5% of total shares still represents the cross-shareholdings
and ultimately controlled by the families. Despite of having
only small fraction of the shares, the business owners still
have the ability to control the groups affiliated
companies, which resulted in a rather less transparent and
accountably in decision-making. In addition, at that time, the
chaebol are not required to submit any consolidated financial
statements. The lack of transparency and accountability has
discouraged the FDI to invest in South Korea and worsen
the South Korea economy at that time. After the economic
collapse, the South Koreas government asked for IMF help.
But, in order to be able to help economy, IMF requested the
government to change its developmental state to
regulatory state, in purpose to break down the chaebol
and induce FDI from other countries.
After getting the request from IMF, the government started to
do market reform, which sadly turned out into a temporary
corporatism and market-friendly policy. Using this opportunity,
the chaebols transformed itself by adapting to new market
situations and use the given market freedom to even extend
their power, which eventually gives them more decision
making power to the markets. In addition, the winning of Lee
Myung Bak has also represented a regain of power of
chaebols. Most of the policies were being turned back into
chabeol-friendly and CEO-style management were brought
back to the government. In conclusion, South Koreas
chaebols have shown path dependence even after the
market reform, cheabols are still being views as the only
business model capable of creating economic growth
and it is believed that bigger chaebols are needed to
compete with global competition.
3. Rent Seeking in India
After its independence, Indias government emphasized a
state-planned economy where government regulations

should be strengthened. In the name of protecting public

interest
from
monopolistic
economic
activities,
the
government implemented strict regulations on conglomerate
business activities. Under state-dominated power distribution,
the private businesses had little incentives to increase
productivity. Subsequently, they started to focus on
flourishing their relationship with the government in order to
receive favourable treatments. This created the emergence of
rent-seeking
relationship in India, where private
businesses would spend wealth on political lobbying to
increase ones share of existing wealth without creating
wealth. In addition, it was also being institutionalised by the
existence of license-permit raj system. The emergence of rent
seeking relationship and the political interest has resulted in
inefficiency of the country economic system and
weaken the industrial competitiveness.
The rent seeking behaviour and inefficiencies of India
economic has leaded them to economic crisis. In order to
overcome this economic crisis, the Indian government
adopted a different approach system, where the economic
reform used a free market economy to reduce the scale of
economies regulation substantially. However, the rent seeking
behaviour in India still limits the effectiveness of these growth
policies.
The Indian government has implemented new
policies, rules, and regulations but the big businessman (i.e.
big interest group) still managed to bypass the regulations.
One of the examples of this could be seen from the Indian IT
business, in which bigger firms tend to use the traditional
way (i.e. rent seeking) in order to protect their self-interest.
Despite limited scope and extent of Indias industrial
development strategies, the government began to display
favouritism attitudes and form cooperative relationship
with business firms. In addition, there were partial
modifications to change the established rent-seeking
relationship and create more flexible pro-business
climates. Indian government pro-market industrial policies
have become more and more vulnerable to the demand of
various interest groups. Thus, the rent-seeking
behaviour or relationship in India can be seen as path
dependence because most of the regulations in India
are still being shaped by the business interest which
are based on the rent-seeking relationships.
THE BUSINESS ENVIRONMENT OF JAPAN IS ABOUT CORPORATION, SOUTH
KOREAN BUSINESS ENVIRONMENT IS MORE ABOUT CONTROL. EXPLAIN!

Japan Business Environment

Japans business environment is based on both goodwill

capitalism and coordinated production. The idea behind
having good cooperation with the partners is to come up with
win-win solutions between firms and its partners. Economic
efficiency in Japan does not rely on the market mechanism of
free market, since it does not guarantee the quality of product
being supplied, thus, a better way will be to internalize and to
avoid the contract by relying on TRUST relational contract.
The goal of building relational contract is then to create a
long term trading partner, in which this will indirectly lead
Japaneses firm to have a lower transaction cost compared to
other firms where else. It is through relational contracting also
that most Japanese firm is able to externalize and fulfil the
needs through goodwill and able to avoid self-interests.
It is also important to take notes that the firms in Japan do not
look for the cheapest way to produce products, instead they
are looking for a way to bring out the best out of their
products. Firms in Japan will try their best to make sure that
their firms will produce the products with best quality,
however, it is often difficult and time consuming to have to
monitor each other works (i.e. to avoid free-riders). This
problem could be avoided in Japan by establishing moralized
trading relationships with their trading partners, which
once again is relying on the corporation between firms /
partners. The establishment of moralized trading relationships
will automatically put obligations to both sides and ensure
that there will not be any controlling needed and it will also
create a stable partnership. Last but not least, by
implementing relational contracting (i.e. in vertical keiretsu)
which based on corporation and trust, firm in Japan will have a
better and more efficient way to guarantee quality.
EXAMPLE: TOYOTA KEIRETSU?
Korean Business Environment
Unlike Japan who relied their businesses on each other trading
partners (i.e. suppliers), the business environment in Korea is
more about control, which can be traced back from the
Korea corporate culture. In general, the leadership and
decision-making in Korea tended to be authoritarian. Along
this line, the business relationships in Korea are usually based
on personal ties rather than written contracts most of the
firms are using top-down approach in which the discussion
is often going one way only and only accept complete
control. The existence of Chaebol, which is family-owned and
managed by either founder or its heirs, shows that there are

concentrated ownership structures. In most cases

immediate family members of the entrepreneur who started
the group will hold controlling interest in most of the group
companies and there will only be one head that will do all the
decision-making and control everything.
EXAMPLE: SAMSUNG
HOW WOULD YOU USE THE CONCEPT ORGANIZATIONAL FIELD TO
UNDERSTAND A BUSINESS ENVIRONMENT?

Organization exists in a field of inter-organizational

relationships with shared understandings you will
not survive if either you dont understand what and why other
organizations are doing within the field, or no one understand
what you are trying to do. In other words, a (pre-existing) field
that a new member will come across when he or she is trying
to engage with existing members within the field. Like for
example, personal capitalism in Malaysia has been becoming
an organizational field because in order to be able to satisfy
your personal interest and compete in the business, you will
be needing personal connection to both Bumiputera and
Malaysian government. This continuous trend or culture has
made personal capitalism an organizational field in Malaysia.
Thus, in order to be able to understand business environment
in different country, it is important to know "what kind of
organizational field" each country has and subsequently able
to know what kind of strategy you want to implement in order
to do business in the related business environment. In other
words, in order for you to be able to engage with the existing
members you will need to understand not only their business
model but also the factors (e.g. history, capabilities, cultures)
that lie behind their business model. Simply to say, you
cannot directly copy other countries business model if you
dont understand others organizing logics as each country will
have its own configuration.
DESCRIBE AND COMPARE THE PERSONAL CAPITALISM IN MALAYSIA AND
THAILAND