25 Feb 2002  Research & Ideas

The Country Effect: Does Location Matter?

How much is the success of your company pegged to the cultural and economic traditions of the country you do business in? Not much—at least that is what is suggested by Rohit Deshpandé's research on high-performing companies.

 

Tigers, elephants, rabbits, and monkeys—even dragons—all play a part in Harvard Business School professor Rohit Deshpandé's search for success factors among high-performing Asian firms.

But in the end, it's the tigers and rabbits that oftentimes run the best zoo.

The animals represent different types of organizations. Highly entrepreneurial organizations are rabbits, emphasizing innovation and risk-taking. And tigers are built around competitive advantage and market superiority. Elephants are, as you would expect, full of regulation and bureaucracy. Consensual organizations, emphasizing loyalty, tradition and internal maintenance, are the monkeys. Organizations frequently show aspects of different cultures, making for dragons.

Competitive and entrepreneurial firms consistently perform better than do more bureaucratic and consensual ones.
— Rohit Deshpandé and John U. Farley

Deshpandé and collaborator John U. Farley have studied the impact of corporate culture and national culture on global marketing strategy. A few years ago they looked at the role played by these key organizational factors (innovation, market orientation, organizational culture, and organizational climate) in helping define company success in highly industrialized countries. In short, they reported that companies with cultures that embrace entrepreneurialism and competitiveness—the rabbits and tigers—outperform companies that tend toward the bureaucratic and consensual—elephants and monkeys.

Now comes the next step, as outlined in a working paper entitled "Tigers and Dragons: Profiling High Performance Asian Firms." Deshpandé and Farley extended their research to analyze company performance in large companies in China, Hong Kong, Thailand, Vietnam, India, and Japan.

The conclusions are important for any company doing business in multiple countries. While it is simplistic to suggest that there is no country effect at play in determining the success of companies—Deshpandé and Farley do not make that contention—their work does suggest that corporate organizational factors trump national factors in determining performance.

In other words, successful companies in China or Thailand look a lot like other successful companies regardless of where they are located, and regardless of their country's political and economic system.

In Asia, as with the previous study of highly industrialized countries, "competitive and entrepreneurial firms consistently perform better than do more bureaucratic and consensual ones" among national peers, the authors wrote in a report summary for the Marketing Science Institute.

Deshpandé presented his work February 15 as part of Harvard Business School's ongoing International Seminar Series.

This area of research is of universal interest. After all, a basic question that any multinational business would like to answer is this: Is there a single business model or set of best practices that works equally well in Singapore, San Francisco and San Juan? — "the notion is that there is a kind of (universal) success profile," Deshpandé told colleagues at HBS.

Using regression analysis, the work concludes that Asian companies that tend to perform better look very similar, regardless of what country they are in. These companies exhibit greater innovativeness and market orientation, more entrepreneurial organizational cultures and participative climates.

However, there were some differences between the studies of companies based in industrialized and Asian nations. The earlier report underscored the importance of innovation for firms in industrialized countries, while the new study finds market orientation—where the interests of customers are placed first among stakeholders—is more central to the high performance Asian firms.

The work also argues against a distinct Asian business model, as put forward by some scholars. "…This study suggests that just as there is no single management model that can be applied unilaterally across cultures, there is no unified Asian style of management. Market orientation, innovation, organizational climate, and organizational culture all affect firm performance in predictable ways."

The researchers used professional research firms to conduct interviews with some 500 large firms in major Asian industrial cities.

Deshpandé said the work has been criticized in some quarters. At one conference, Deshpandé was told his work was "a Yankee imperialist way of looking at things," while noting to his HBS colleagues with a laugh that he is not a Yankee and is from a former colonial state.

At HBS, colleagues were interested that the research seems to play down the role of country effects in determining the success of companies. In fact, several suggested, it may be a country's culture that prevents companies from succeeding. For example, Japanese companies may not be able to easily transcend that country's consensual culture. Establishing just what that country effect is on performance could be a good next step for the research.

The work suggests that China and India are best poised to emerge as market leaders in Asia:

  • Chinese firms in Shanghai "reflect relatively entrepreneurial cultures, open organizational climates and a relatively high degree of market orientation," according to the authors in their paper.
  • India, emerging from a system where some industries were centralized, has developed a powerful private sector that "seems well positioned for an entrepreneurial outburst."
  • Vietnam, where all industries were under centralized control, appears to face a more serious set of managerial problems as it moves toward a more market driven structure.
  • The blending of national cultures over time in Hong Kong, where a high level of economic success has been recorded, may ultimately hurt the performance of companies in that country. H.K. firms have not developed a clear profile of organizational culture. "Organizational climate, innovativeness and market orientation measures are all below average in Hong Kong," concluded Deshpandé and Farley.
  • Thailand, an industrializing nation with a market-oriented economy, "reflects a strong Buddhist tradition with an above-average consensual organizational culture but a more modern participative organizational climate."
  • Japan, with fewer entrepreneurial and more consensual organizations, can anticipate more difficulty.

John U. Farley is a senior research fellow at the Amos Tuck School of Business Administration, Dartmouth College.