Firms in Coordinated Market Economies - Term Paper Example

? FIRMS ARE ONE AND SAME ALL OVER THE WORLD: IN CONTEXT TO LIBERAL AND COORDINATED MARKET ECONOMIES By number and title> INTRODUCTION: Overall world has been divided into different countries and regions, and each of these countries have their own respective policies and practices (Albert, 1993). Different countries have implemented different setups of economies, most popular one in this regard are capitalism and socialism (Lipset, 1993). Capitalism can be further divided into various types (Fukuyama, 1992). Hall and Soskice (2001), after conducting thorough study and researches on the concept of varieties of capitalism, came up with two new typologies named liberal market economies and coordinated market economies. However, it is important to explore that because of different types of economies and different systems of governance, the firms all over the world are operating in similar manner or not. For understanding this concept it is first important to describe what are firms or organisations and what are their aims or objectives. Firms or organisations are a collective set of people who are striving to achieve a common goal or target. The main aim or objective of almost every other firm is of maximizing the overall profits and revenues. It is difficult to conclude that firms or organisations are similar in different social setups and economies or not. Different researchers and analysts have presented several theories in order to answer the complicated question that is there any difference in the firms and management across different societies and economies (Dore, 2006). Two most popular categories of theories in this regard are universalistic theories and particularistic theories. According to the universalistic theories the firms are same all over the world and are subject to same rules and regulations. On the other hand the particularistic theories try to explain the distinctive nature of the organisations across different economies (Koen, 2005). According to some analysts, firms are either operating in liberal market economies or coordinated market economies, they have same goal and purpose i.e. profit maximization. For this purpose firms are also looking for opportunities in other countries and regions. This has given rise to the concept of the international business and globalization. Organisations are composed of different humans, and the basic characteristics or features of human behaviour are same all over the world (Koen, 2005). On the other hand, according to second school of thought, firms and organisations are different across different economies and societies because of the different preferences and expectations of the management. It is important to consider the impact of the history and culture on the operations and organisational culture of the firms. It is not possible to change the basic culture or history of the firms and there is always a certain level of difference among different firms which cannot be disappeared even by globalization (Koen, 2005). In this paper an attempt has been made to explore and investigate that whether firms are same all over the world or not. For this purpose, emphasis has been placed on the firms in liberal and coordinated market economies. Nature of operations of organisations operating in liberal market economies has been compared with the nature of operations of organisations operating in coordinated market economies. In order to better understand the difference and similarities in the firms in these both types of market economies, characteristics of each type of market economies are also explored. Along with this the universalistic and particularistic theories are also further explained and investigated in the process of finding an answer to the questions under study. Finally, the impact of globalization on the firms and organisations has been examined. UNIVERSALISTIC THEORIES: According to the universalistic theories, organisations are exposed to same laws and regulations all over the world. Some of these theories present the example of direct relationship among the size of the firm and level of internal differentiation, which is true in every region and economy of the world. Supporters of universalistic theories are of the view that, if there is any difference among the firms operating in different locations it will be not there in future because of the globalization. Markets all over the world are being integrated and there is global competition all over the world, this in turn make way for the best practices of management without considering the location of the organization and management (Koen, 2005). One of the most influential and famous universalistic theory in this regard is contingency approach or perspective (Koen, 2005). The supporters of contingency approach have based their arguments on structure of the organisations. According to this approach, under specific conditions all organisations have same organisational structure associated with the process of control, communication, and coordination, irrespective of the location of the organisations. Mechanistic structure of the organisations is associated with more stable circumstances, whereas the organic organisational structure is linked with unstable and inconsistent environment. This means that the organisations which are exposed to more technological and market change have organic organisational structure and organisations which are exposed to less technological and market change have mechanistic organisational structure. Contingency theories neglect or ignore the impact and influence of the culture and societies on the organisations. PARTICULARISTIC THEORIES: As oppose to universalistic theories, particularistic theories present the idea that firms operating in different countries and economies are different from each other. Supporters of particularistic theories are of the view that there is always a difference in the firms operating in different countries because of the different history, culture, and preferences. Two of the most popular particularistic theories in this regard are cultural approach and institutional approach (Koen, 2005). Owing to the increasing integration among different environments, which resulted in disturbing the structure of the organisations. The cross cultural interaction required more detailed and complete analysis of the organisations. Organisations are composed of different individuals who have their own cultural background and history. Same is true for the overall organisations. Every other organisation has its own set of history and culture and is different from the other organisations. The cultural theory can be further divided into two different approaches which are: the inside view and the outside view. The inside view is of the ethnographers who work to explain the culture in its respective concepts and terms and is known as emic perspective. On the other hand the outside view is of the researchers in the field of comparative studies who look forward to explain the nature of different cultures in general terms and standards. This is known as etic perspective (Koen, 2005). Apart from cultural perspective, another famous perspective in this regard is institutional approach. According to this approach organisations have different factors and strategies when compared on similar variables. Supporters of this approach are of the view that it is not enough to consider the technology and market while comparing the organisations, but it is also important to keep in consideration the different social setups and cultures. The institutional approach has resulted in generation of different typologies. Two most famous typologies in this regard are of liberal market economies and coordinated market economies. FIRMS IN LIBERAL MARKET ECONOMIES: Liberal market economies are prevalent in the Anglo-Saxon countries like United States of America (USA), Ireland, United Kingdom (UK), New Zealand, Canada, and Australia (Koen, 2005). Main characteristics of liberal market economies are: Proper market relationships characterized by competition and hierarchies There is process of formal contracting The supply and demand are force towards equilibrium values by the force of price There is a strong and effective legal environment. The financial system is such that firms are derived toward short term planning but are also encouraged to take high risk. Labour market is deregulated, as a result there is no proper representation of the employees in the organisations. This means that there are weak setup of unions, but also implies that top management has complete control over the organisation (Godard, 2002). The training and development system along with the education system supports the process of acquiring general education and discourage one time training. In this system short term training focused on particular skills is encouraged. There is strong competition among the firms because of the inter company system. As a result there is least cooperation among different organisations. Hence, it can be said that the firms in liberal market economies are subjected to relatively weak organisation and coordination. Along with this there is low level of trust among different institutions and relations are short term (Pistor, 2005). The training and education system is ineffective and there are weak unions. Managers in liberal market economies have between firms career patterns and the labour market is deregulated and flexible. FIRMS IN COORDINATED MARKET ECONOMIES: The coordinated market economies have been developed on the basis of the economic superiority of the Rhine Model (Dunford & Greco, 2006). Most of the northern European countries are characterized as the coordinated market economies including Germany, Netherlands, Switzerland, Scandinavian economies, and Austria. Along with this Japan is also included in the list of coordinated market economies (Moen & Lilja, 2005). Some of the characteristics of coordinated market economies are: There is lack of proper market relationships There is a strategic interaction among the organisations which results in providing additional cooperation and collaboration among the organisations (Thelen & Kume, 2005). This strategic interaction results in the generation of informal rules. The financial system in this system of economies facilitates the organisations in the process of long term planning and financing. Unions have important role in the industrial relations system which results in giving more recognition to the employees. This also enables a more coordinated and effective process of wage bargaining. The educational system supports the organisations involvement in the long term training programs for the people (Harcourt & Wood, 2007). There is a proper inter-company system which allows the organisations to interact with each other in the process of technology and other associated cooperation. Hence, it can be said that the firms in the coordinated market of economies are exposed to more organised and strong organisation and coordination at both industry and group level. Apart from this there is high level of trust among different institutions and long term relationships are encouraged. The overall training system is effective and the unions are strong and have an important role to play. The career patterns of manager in coordinated market of economies are within organisations and the labour market is more regulated (Koen, 2005). GLOBALIZATION: With the passage of time the phenomenon of globalization has become popular in the business world. Organisations are looking forward to exploit the demand in international markets. This has resulted in expansion of the business across the borders. This increasing phenomenon has resulted in the generation of different comparative studies across the borders. Organisations who are expanding their businesses in other countries are keeping in point the particular environment and culture of that region. In order to be successful in capturing the market share in international market it is important for the organisations to adapt its structure and operations according to the demands and preferences of the people and institutions in that different regions (Koen, 2005). CONCLUSION: It is difficult to conclude that whether firms are similar or not all over the world. Different analysts have presented different theories in this regard. Different theories and approaches have been presented in order to understand the operations and strategies of the organisations in different situations and conditions. Firms operating in different regions and economies have to take in account the respective culture, history, and preferences associated with that region. This reflects that firms operating in different economies are different from each other. It is important to understand the success and growth of any firm is directly related with the coordination and relationship with other important institutions and players in the industry or market. Organisations should ensure coordination with the industrial relations system, training and development system, corporate governance, inter firm relations, and employees. All these factors varies in different economies and societies. As a result, the firms operating in different social setups and economies also differs. On the other hand the basic aim and objectives of all organisations are same. And organisations use more or less same structure and operations in order to achieve the end results and targets. Hence, it will be not wrong to say that firms are one and same all over the world in some aspects and also differs from each other in some other aspects and factors. List of References Albert, M 1993, Capitalism vs. Capitalism. Four Wall Eight Windows, New York. Dore, R 2006, Stock Market Capitalism, Welfare Capitalism: Japan and Germany Versus the Anglo-Saxons. Oxford University Press, Oxford. Dunford, M, & Greco, L 2006, After the three Italies: Wealth, inequality, and industrial change. Blackwell Publishing, Oxford. Fukuyama, F 1992, ‘Capitalism and Democracy’, Journal of Democracy, vol. 3, no. 3, pp. 100-110. Godard, J 2002, ‘Institutional Environments, Employer Practices, and States in Liberal Market Economies’, Industrial Relations: A Journal of Economy and Society, vol. 41, no. 2, pp. 249-286. Hall, P, & Soskice, D 2001, Varieties of Capitalism: the Institutional Foundation of Competitive Advantage. Oxford University Press, Oxford. Harcourt, M, & Wood, G 2007, ‘The importance of employment protection for skill development in coordinated market economies’, European Journal of Industrial Relations, vol. 13, no. 2, pp. 141-159. Koen, C 2005, Comparative International Management. McGraw-Hill, London. Lipset, S 1993, ‘Reflections on Capitalism, Socialism and Democracy’, Journal of Democracy, vol. 4, no. 2, pp. 43-55. Moen, E, & Lilja, K 2005, Changing Capitalisms Internalization institutional change and systems of economic organization. Oxford University Press, Oxford. Pistor, K 2005, Legal Grounds Rules in Coordinated and Liberal Market Economies. ECGI – Law working paper no. 30/2005, Columbia University School of Law. Thelen, K, & Kume, I 2005, ‘Coordination as a Political Problem in Coordinated Market Economies’, Governance, vol. 19, no. 1, pp. 11-42. Read More