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‘Asian’ Business Patterns: Culture in Context

Monday, August 19, 2013

Culture is only one variable determining the differences between Asian and Western business practices.

In early June 2013, the Financial Times ran a lengthy feature entitled “Succession Lessons Sought for Asian Family Businesses.” The subject of succession is especially prominent these days in China, the Financial Times suggests, because many enterprises there were founded during the economic reforms of the 1980s and will soon be facing generational changes. The gist of this piece was that “[a]lthough problems with succession are not unique to Asian family businesses, the difficulties are more acute because there is an added cultural reluctance to broach the issue of succession.” Well, maybe. But when culture is invoked in this way, many economic historians will feel the urge to reach for Beta Blockers so that their blood pressure doesn’t spike.

If the passionate debates of the 1990s regarding “Asian values” have quieted down, assertions of culturally determined differences between “Asian” and “Western” business organizational strategies and structures are still going strong. Making binary distinctions between the characteristics of “Western” and “Asian” (typically “Chinese”) business organization and behavior is common. Discussions involve impersonal corporations vs. family-run firms, transaction-based relationships vs. guanxi (personalized connection or influence) networks, contracts vs. trust, individual vs. group orientation, short term vs. long run thinking, transparency vs. opaqueness, etc. — or, more to the point, Western vs. Asian business characteristics. 

In these discussions, “culture” is assumed to be an exogenous variable parachuted in to account for any and all perceived differences. To be sure, differences can be expected — and often are discernible — when widely separated individuals and groups, with different histories and cultures, practice business. But such differences are generally a matter of degree rather than of kind. When culture is employed as an explanatory variable, it is better understood as endogenous, the component parts and roles of which are determined largely by the state of (and interaction with) other variables within the system in question. A brief glance back at Asian business history can help to illustrate this point. The enterprises of two pioneering overseas Chinese businessmen in Southeast Asia in the early twentieth century named Aw Boon Haw and Tan Kah Kee offer excellent examples.

Differences can be expected – and often are discernible — when widely separated individuals and groups, with different histories and cultures, practice business. But such differences are generally a matter of degree rather than of kind.

These two men were arguably the most powerful, and certainly the most famous, big businessmen in the Straits Settlements (essentially peninsular Malaysia and Singapore) during the first third of the twentieth century. Although they both eventually became involved in other businesses, each is remembered mainly for the activities wherein they began. Aw Boon Haw is best known for his business efforts in the area of Chinese folk medicine. Along with his brother, he founded a pharmaceutical empire based on a product whose formula their firm acquired early on: the now iconic medicinal salve known as Tiger Balm.

Tan Kah Kee’s business fortune was based on commodities, particularly rubber. He was not the first “Rubber King” in British Malaya, but he was the most eminent and is the best remembered for it even today. Writers studying Aw and Tan as businessmen have almost always evaluated their organizational and strategic decisions in terms of their Chinese heritage, attributing many, if not most, such decisions to family considerations, guanxi, clan spirit, etc., and in Tan’s case, even to feng shui (the Chinese belief that the way in which one’s surroundings are arranged can affect the “harmony” of such surroundings and, in so doing, help to create conditions for success or failure). The problem is that there are other, more persuasive explanations, if one knows where to look.

East Meets West

During the first two decades of the twentieth century, when Aw and Tan’s small businesses first began to flourish, the economic environment in Southeast Asia in many ways resembled that of the United States and other parts of the West in the late nineteenth century. This environment was increasingly characterized by large, integrated markets and innovations in manufacturing technology that offered the possibility for significant increases in productive capacity. To varying degrees, such environmental changes transformed the structure of business opportunities the world over, leading some business entities to pursue adaptive measures that would better enable them to succeed under the new conditions. Such measures significantly changed the way these entities were organized, controlled, and operated. 

The stories of the business empires created by Aw Boon Haw and Tan Kah Kee are better explained by firmly embedding 'Chinese business culture' in the economic environment of early twentieth century Southeast Asia than by invoking a rather free-floating sense of 'Chineseness' abstracted from space and time

The structural/strategic changes affecting (some) businesses in the United States and Europe — the shift to corporate organization, multiple operating units, professional management, and external and internal integration — manifested themselves in Southeast Asia as well, including in the business concerns of Aw and Tan. Both men pursued manufacturing, marketing, and managerial strategies that would not have seemed out of place in the United States: expanding operations via multiple units in multiple countries; employing new, more efficient procurement methods and manufacturing technologies; establishing more formal management hierarchies; attempting to achieve greater market coordination via vertical and horizontal integration; developing fuller product lines and diversifying. And Aw, like pioneering business contemporaries in the West, made a major push into brand development via trademarking, packaging, and labeling, and employed advertising and PR creatively. 

Yes, in retrospect, management structures in both cases remained overly familial and centralized, which later led to succession problems. But such characteristics were due in large part to weak institutions relating to contract enforcement and underdeveloped mechanisms for training, identifying, and recruiting non-familial managerial talent, not to anything ineffable about the culture of the Chinese who migrated to the Straits Settlements. By and large, the stories of the business empires created by Aw Boon Haw and Tan Kah Kee are better explained by firmly embedding “Chinese business culture” in the economic environment of early twentieth century Southeast Asia than by invoking a rather free-floating sense of “Chineseness” abstracted from space and time. Discussions about generational changes in business ownership in the future — in China and elsewhere — need to be less parochial to be useful.

Peter A. Coclanis is Albert R. Newsome Distinguished Professor of History and Director of the Global Research Institute at UNC-Chapel Hill (USA).

FURTHER READING: Coclanis also writes “Pride and Prejudice: Contrarian Speculation on Wall Street’s Future” and “Are There Hidden Virtues to Bowling Alone?” Glenn Hubbard and Tim Kane excerpt their book in “Imbalance: Institutions and the Chinese Economy, Past and Present.” James Pethokoukis blogs “The Most Important Economic Chart in Western Civilization – And How It Happened” and “Romney Is Right. Culture Is Why Israel And the West Are Rich.” Timothy P. Carney explains “How Chinese Investors Buy Their Way into the U.S. Economy,” Dan Blumenthal examines “The ‘Beijing Model’ Bubble,” and Mark J. Perry says “Don’t Expect Apple-Like Innovation in China.”

Image by Dianna Ingram/Bergman Group

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