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 THE OXFORD HANDBOOK OF

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ASIAN BUSINESS

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SYSTEMS

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Edited by
MICHAEL A. WITT
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and
GORDON REDDING
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 3

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Great Clarendon Street, Oxford, ox2  6dp,

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United Kingdom

Oxford University Press is a department of the University of Oxford.

It furthers the University’s objective of excellence in research, scholarship,
and education by publishing worldwide. Oxford is a registered trade mark  of

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Oxford University Press in the UK and in certain other countries

© Oxford University Press  2014

The moral rights of the authors have been asserted

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First Edition published in  2014
Impression:  1

All rights reserved. No part of this publication may be reproduced, stored  in

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a retrieval system, or transmitted, in any form or by any means, without  the
prior permission in writing of Oxford University Press, or as expressly permitted
by law, by licence or under terms agreed with the appropriate reprographics
rights organization. Enquiries concerning reproduction outside the scope  of  the
above should be sent to the Rights Department, Oxford University Press,  at  the
address  above
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You must not circulate this work in any other  form
and you must impose this same condition on any acquirer

Published in the United States of America by Oxford University  Press

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198 Madison Avenue, New  York, NY 10016, United States of America

British Library Cataloguing in Publication  Data

Data available
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Library of Congress Control Number: 2013956539

ISBN 978–0–19–965492–5

Printed and bound  in Great Britain by

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CPI Group (UK) Ltd, Croydon, cr0 4yy

Links to third party websites are provided by Oxford in good faith  and
for information only. Oxford disclaims any responsibility for the materials
contained in any third party website referenced in this  work.
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 C HA P T E R  1

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INTRODUCTION

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M IC HA E L A . W I T T A N D G OR D ON R E DDI NG

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The exploration of Asian business systems can look back on a long and somewhat
adventurous history. Among its earlier classics are works such as Dore’s (1973) compari-
son of British and Japanese factory organization; Aoki’s (1988) research on the workings
of the Japanese economy; Redding’s (1990) exposition of ethnic Chinese capitalism in
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South East Asia; Whitley’s (1992) work on East Asian business systems, which helped lay
the foundation for one of the key works of the field, Whitley’s (1999) elaboration of busi-
ness systems theory; and Orrù, Biggart, and Hamilton’s (1997) explorations of economic
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organization in East Asia.
Recent years have seen a surge of works seeking to expand the boundaries of our
knowledge of Asian business systems and of extant theories and models in the field.
The case of Japan has continued to attract much attention. A  series of works has
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explored topics such as how the Japanese business system compares with those of other
advanced industrialized economies (e.g. Berger and Dore 1996; Dore 2000; Streeck and
Yamamura 2001) and how it evolves over time (e.g. Dore 2000; Yamamura and Streeck
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2003; Anchordoguy 2005; Vogel 2006; Westney 2006; Witt 2006; Aoki, Jackson, and
Miyajima 2007; Lechevalier 2007; Sako 2008).
Research on other Asian economies, as well as wider comparative work, has likewise
built up steam. There has been a proliferation of focused studies, especially of China
(e.g. Huang 2008; Witt and Redding 2009; Robins 2010), but also of other Asian econ-
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omies, individually (e.g. Andriesse and van Westen 2009; Ritchie 2009) or viewed as
a cluster (e.g. Loveridge 2006; Heugens, van Essen, and van Oosterhout 2009; Steier
2009; Tipton 2009). A number of works undertaking broad intra-Asian comparisons
and surveys have emerged, including volumes by Redding and Witt (2007) (China,
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Japan, Korea, ethnic Chinese business in South East Asia); Pascha, Storz, and Taube
(2011) (China, Japan, Korea); Storz and Schäfer (2011) (China and Japan); and Boyer,
Uemura, and Isogai (2012) (China, Japan, Korea, East Asia).
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Yet much work remains to be done. The progress of science depends on the constant
interplay of idiographic description and nomothetic theorizing, and thus less on logi-
cal procedures of deduction than on the inventing of testable explanations based on

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 2    Michael A. Witt and Gordon Redding

immersion in empirical reality (Popper 1963; Tsoukas 1989; Runciman 2005; Babble
2012). These can then be tested and possibly destroyed, but they must be conjectured
first, and a way forward in this is describing and categorizing.

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At the point of this writing, the literature lacks a comprehensive, up-to-date, and
detailed overview of the institutional features of Asian economies in comparative
perspective. In general, the further away one moves from Japan, the less well under-
stood the institutional structures and dynamics of business systems in Asia become.

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South East Asian economies, for instance, are usually clustered together, sometimes
jointly with Hong Kong and Taiwan (e.g. Whitley 1992, 1999; Redding and Witt
2007). There is some justification for this, in the sense that ethnic Chinese businesses
produce much of the economic value in these countries. At the same time, institu-

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tional variations that are important for understanding these economies are unac-
counted for. India, now Asia’s third-largest economy, is virtually terra incognita from
a business-systems perspective. We also do not know how the institutional structures

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of Asian economies compare and may form clusters of similar Asian varieties of busi-
ness systems.
The scarcity of systematic and detailed comparative data means that we have been
unable to leverage the full institutional diversity that Asia affords for testing and amend-
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ing extant theory of institutional variations—lack of idiographic detail means foregone
nomothetic progress.
The objective of this handbook is to help address this issue. In the twenty-nine chap-
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ters that follow, it presents detailed institutional analyses of each of the major Asian
business systems; comparative analyses of important themes across these business sys-
tems; perspectives on the impact of history and institutional change; and summary con-
clusions for business-systems research and business practitioners.
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In the following pages, we begin with definitions. We then briefly discuss the struc-
ture of this book and, where appropriate, its methodological and epistemological foun-
dations. We deliberately abstain from summarizing each chapter here, leaving this task
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to Part IV. We further do not engage in an extensive review of business-systems theory,

but assume that our scholarly readership is familiar with the key foundational works,
especially those by Whitley (1992; 1999); Hall and Soskice (2001), augmented by the crit-
ical evaluation of Hancké, Rhodes, and Thatcher (2007); Amable (2003); and Redding
(2005).
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Definitions
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In this handbook, we define ‘Asia’ to mean the land-mass from India to Japan, excluding
the territory of Russia as well as the Antipodes.
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We use the term ‘business system’ to refer to the institutions—the ‘humanly

devised constraints that shape human interaction’ (North, 1990:3)—governing
economic activity inside and outside firms, as identified in the models of Whitley

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 Introduction  3

(1999), Hall and Soskice (2001), Amable (2003), Redding (2005), and Hancké et al.
(2007) and summarized in Table 1.1. Our definition of business system deviates from
the original meaning proposed by Whitley (1999), who used the term for the insti-

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tutional structure of firms, which in turn is derived from the societal institutional
structure in which firms are embedded. However, in subsequent use, the focus of the
term has widened to include institutions both at firm and societal level (e.g. Edwards
et al. 2005; Redding 2005; Redding and Witt 2007), and even Whitley’s own usage has

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been ambiguous (e.g. Casper and Whitley 2004). We stay consistent with this evolved
meaning.
Throughout this book, ‘Korea’ refers to the Republic of Korea, that is, South Korea.
We note that this usage is consistent with that employed by South Koreans themselves.

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Structure of this Book

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This handbook contains twenty-nine chapters (in addition to this one) divided into four
major parts. Part I comprises thirteen chapters, each of which presents a detailed insti-
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tutional analysis of one major Asian business system. Part II has eleven chapters. Each
analyses one particular topic of interest, across as many of the thirteen business systems
described in Part I as possible. Part III consists of three chapters, which offer perspec-
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tives on the impact of history on Asian business systems and on the dynamics of insti-
tutional change. Part IV presents two summary chapters bringing together the results
emerging from the preceding parts. One of these is written for scholars, the other for
business practitioners.
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Part I. The goal of the chapters in this part was to present up-to-date, in-depth insti-
tutional descriptions and analyses of the major Asian business systems as they are today.
The authors deliberately abstained from recounting the historical trajectories of these
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systems in any detail beyond that needed to contextualize the status quo. This design
choice was based on the editors’ assessment that, while there is an abundance of his-
torical accounts of what once was or happened in many Asian business systems, there
is great scarcity of truly contemporary analyses of what currently is. The story of eco-
nomic reforms in China, for instance, has already been told thousands of times, and the
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probability of any additional account adding actual value to science is slim at best. The
same goes for topics such as the developmental state (and attendant business systems) of
Japan, Korea, or Taiwan, to name a few examples.
There are two basic approaches to structuring an institutional analysis. One is to let
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dimensions of variation emerge from cross-sectional data, as Amable (2003) did for the
advanced industrialized countries. The other is to draw on existing models to identify
key dimensions of different types of business systems and to search for data relevant
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to these dimensions. We chose the latter approach, for two reasons. First, given all the
efforts at theory-building and empirical research in the field and the elaborate models
that have resulted, it seemed prudent to draw on this existing theoretical and empirical

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 4    Michael A. Witt and Gordon Redding

basis rather than to start from scratch—not least also given that two major models,
Whitley (1992; 1999) and Redding (2005), were built with Asia in mind. Second, keeping
dimensions consistent with existing models facilitates the drawing of conclusions about

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the utility of existing models for understanding Asia, and about the possible direc-
tions of further theory-building. By engaging existing theory, it is easier for idiographic
description to facilitate nomothetic progress.
We structured our comparison around the key dimensions suggested in four major

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models of comparative institutional analysis:  Whitley (1992; 1999); Hall and Soskice
(2001), augmented by the critical evaluation by Hancké et al. (2007); Amable (2003); and
Redding (2005). Table 1.1 summarizes these dimensions. As indicated in the left-most
column, we selected for our comparative analysis all eight institutional dimensions

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mentioned by at least two of these five works.
The resulting range of dimensions is consistent with the themes in the 2010 Oxford
Handbook of Comparative Institutional Analysis (Morgan et al. 2010), which is a survey

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of the state of the art. The one additional dimension the 2010 Handbook discusses is
the nature of the national innovation system, which is not included in any of the other
models (but will be covered, in comparative perspective, in Part II). The 2010 Handbook
also shares with Amable (2003) a concern for social protection and social welfare. We
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chose not to pursue this dimension separately, as a survey of the role of state in society
will subsume it.
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Table 1.1  Institutional dimensions of leading models of comparative

institutional analysis
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Hall and
Whitley, Soskice, Amable, Redding, Hancké
Selected Dimension 1999 2001 2003 2005 et al., 2007
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Civil Society Role y

y Education and Skills y y y y y
Formation
y Employment Relations y y y y y
y Financial System y y y y y
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y Inter-firm Networks y y y y
y Internal Dynamics of the y y y y
Firm
y Ownership and Corporate y y y y
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Governance
Product Markets y
y Social Capital (Trust) y y
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Social Protection y
y State Role y y y

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 Introduction  5

With the above in mind, each of the Part I chapters follows this standardized outline:

1. Introduction

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2. Brief context (if needed)
3. The role of the state
4. Financial system
5. Ownership and corporate governance

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6. Internal structure of the firm
7. Employment relations
8. Education and skills formation
9. Inter-company relations

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10. Social capital
11. Conclusion

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A number of Part I  chapters further identify salient institutional complementarities­
(cf. Hall and Soskice, 2001) and discuss the state of knowledge about the dynamics of
institutional change in the respective business system.
Part II. The objective of the chapters in this part was to present comprehensive analyses of
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important themes across the region. These themes generally fall into three categories: major
institutional aspects of business systems viewed in comparative perspective; factors influ-
encing the evolution of these systems; and variations in outcomes produced by them.
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The chapters in the first of these categories leverage the empirical data on the given
topic contained in the Part I chapters, paired with suitable additional comparative data,
to identify overall patterns across the region and draw conclusions for business-systems
theory and social-science theory more generally. Topics covered include, in alpha-
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betical order:  business systems corporate governance, employment relations and

human-resource management, finance, social capital, and the role of the state.
The chapters in the second and third categories open up additional avenues of idiographic
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exploration and nomothetic theorizing. Major factors influencing the evolution of Asian
business systems include, in particular, culture, but also the role of multinational enterprises
(MNEs) and of offshoring, outsourcing, and supply chains in the region. Given the concern
of the business-systems literature with outcomes such as innovation and economic per-
formance (e.g., Hall and Soskice 2001; Whitley 2007), chapters in the third category cover
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national innovation systems as well as firm strategy and performance patterns in the region.
Part II chapters follow this generic outline, with deviations as required by the topic:

1. Introduction
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2. Literature review: relevant theory and empirical findings in

a. the business-systems literature
b. the social sciences more generally
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3. Empirical patterns visible in the region

4. Implications for existing theory
5. Conclusion

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 6    Michael A. Witt and Gordon Redding

Part III. This set of three chapters examines patterns in the evolutionary trajectories
of Asian business systems. One of them explores the long-term key historical influences
underlying the institutional diversity visible in Asia today. The other two focus on recent

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institutional change, one with respect to retail markets, the other with respect to organi-
zational forms. There is no standard outline for these chapters.
Part IV. The two concluding chapters in this section provide synopses and spell out
implications for scholars and business practitioners. The former summarizes the key

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institutional data from Parts I and II. It identifies five major clusters, or types of business
systems, in Asia, and it draws conclusions about the utility of extant business-systems
theory for understanding Asian business systems today. It also proposes a range of addi-
tional variables the field needs to incorporate in its analytical toolset to come to terms

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with empirical diversity and institutional change in Asia.
The chapter for business practitioners identifies salient themes relevant to managers
in the region and possible responses to some of the main challenges.

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In preparing this this handbook, the aim of the editors has been to gather together
conveniently the work of the leading writers in this rapidly expanding field, and to
locate their work against the backdrop of a massive global shift towards a new centre of
gravity for world trade and industry. It is necessary for people from many parts of the
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world, and from industry as well as academe, to be able to grasp the dynamics of that
shift. More especially is it necessary for them to be able to judge for themselves the likely
future patterns as such shapes appear out of the often puzzling detail. Such patterns have
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increasing relevance in many aspects of international life and work.

In doing so, we enter two important caveats. The first is that the volume of research work
out there is now such as to force selection, and we are more aware than most of how much
scholarship could have been added. In these circumstances we have paid special attention
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to judging our options and choices. Second, the scene is shifting rapidly, as regional growth
continues apace. We have deliberately addressed change where it has been feasible to do so,
but we invite all readers to accept the intellectual adventure of themselves carrying their
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own particular questions forward in time, using the resources given here to this date.

Acknowledgements
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Parts of the text of this chapter were previously published in Witt and Redding (2013).
We thank Oxford University Press for permission to use them for this chapter.
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