Comparative Institutional Advantage Research Articles

Fencing or balancing? An exploratory study of Australian and New Zealand exporters’ strategic responses during the US-China trade war

PurposeA key challenge for exporters and international marketing/purchasing managers is formulating strategic responses to deal with geopolitical disruptions during a trade war between superpowers. While past studies provide insightful analysis of the influence of changes in the institutional environment (regulatory pressures) on national and firm-level trade activities, they tend to ignore the association between inward (sourcing) or outward (export) international activities of firms during a trade war. In this study, we aim to explore various strategic options employed by third-party SME exporters in response to geopolitical disruptions, institutional pressures and constraints during a trade war.Design/methodology/approachWe adopted a qualitative methodology and applied a hermeneutical approach in collecting, analysing and theorising interview findings. We conducted interviews with 15 owners or senior managers from 12 Australian and New Zealand exporters that exported or sourced significantly from at least one party of the trade war, the USA or China, between 2018 and 2020.FindingsOur study developed a typology of fencing vs. balancing for explaining third-party SME exporters’ response strategies in terms of export market and international sourcing locations during a trade war. Fencing strategy centres on location choice decisions based on a fence or a secure buffer zone. Balancing strategy focuses on leveraging opportunities outside the conflict zone, i.e. third-party countries. Our study finds that exporters’ location choice decisions are influenced by a number of institutional factors during the trade war.Research limitations/implicationsFirstly, our study examined only the early phase of the trade war under the “Trump” era. Future research may consider a longitudinal study design that examines exporters’ responses to global political uncertainty over a longer term. Secondly, we chose Australia and New Zealand as the focal context of this study. Future research could investigate exporters from other third-party countries that have different institutional conditions during the US-China trade war.Practical implicationsFirstly, an exporting firm should monitor and assess closely the wider changes in international relations between their home country’s major security partner and major trading partner, and the impact of these changes on the political risks of operating in international locations. Secondly, as the trade war intensifies, the fencing option needs to be given a greater weight than the balancing option in the strategic decision making of an exporter from a third-party country. Lastly, we encourage marketers and managers to reflect on and differentiate short-term and long-term benefits in strategic market-sourcing location decisions.Originality/valueOur study makes a pioneering effort to theorise the linkages between institutional factors and the combined evaluation of export market selection and sourcing location selection choices under global political uncertainty based on the institution-based view. We present a conceptual framework highlighting the importance of institutional avoidance, embeddedness, comparative institutional advantages and multiple institutional logics for SME exporters’ international location selections during the trade war. Furthermore, we combine these institutional factors into two overarching constructs namely institutional buffer and institutional pluralism.

Transnational trade union strategies in the context of market integration: The case of company union clubs in the Nordic finance sector

The creation of a common European market for financial services has significantly altered the strategic edifice for banks, as well as for the trade unions representing their employees. In the Nordic countries, where regulation of the labour market has long relied on multiemployer bargaining and strong sector-level actors, this has led to a strategic realignment. Faced with mergers and acquisitions, the potential for delocalization and an increasing amount of directly applicable EU-regulation in the sector, Nordic finance trade unions have supported the creation of company-level trade union alliances within MNCs, while still building upon resources and repertoires stemming from Nordic ‘comparative institutional advantage’. Our ‘extended case study’ of three such alliances in the finance sector, called ‘Nordic company clubs’, concludes that, while trade unions there still benefit from strong, typically Nordic institutional and associational power resources, important actor-centred variables and capabilities such as narratives, scaling, resourcefulness and institutional experimentation complement and strengthen our understanding of trade union strategies and institutional change in the context of market integration.

Local co-production and food insecurity: leveraging institutional advantages of partner organisations

ABSTRACT Across the developed world food insecurity has become a growing problem, including in contemporary Japan. A common response to food insecurity has been the development of food banks typically run by voluntary associations often in partnership with public agencies and private firms. Considerable ingenuity exists in the Japanese food bank sector that can inform public policymaking in addressing the problem of food insecurity. Adopting the conceptual prism offered by the co-production literature, we study three food banks: Second Harvest Nagoya, Food Bank Iwate and Food Bank Kanagawa. While the modus operandi employed by the three food banks differs considerably, a common thread underpinning their success resides in the fact that they all combine the comparative institutional advantages of their collaborating partner organisations in the local public and the private sectors.

From Varieties of Capitalism to European Growth Models: towards a critical synthesis

The widespread belief that globalization would lead to the gradual convergence of advanced capitalist economies was challenged by the emergence of the Comparative Capitalism (CC) literature. Arguably the most influential approach within CC is the Varieties of Capitalism (VoC) model which argues that differences among advanced capitalist economies not only do not fade away but may be amplified due to the disparate comparative institutional advantages that various socioeconomic models may hold. VoC, nonetheless, was soon criticized -among others- for its binary ontological framework and heuristic shortcomings by the second generation CC. Contemporary writings within the third generation CC suggest a radical break from VoC as the focus should be, it is argued, on the demand, rather than the supply, side of the economy. This article posits that while the third generation CC has shifted attention to other institutional and policy fields, emphasizing essentially macroeconomic issues vis-à-vis economic policy reform, an epistemological rapprochement between the two main strands of CC could offer a more contextualized understanding of the different proposals put forward by the member states regarding the on-going Eurozone reform effort.

Creating institutional advantage: local government co-production with community groups

Japanese local government faces formidable problems, not least of which are severe financial constraints and rapidly ageing populations. These problems are acute in the Tohoku region of northern Honshu, with its lower incomes and declining population. Public policies designed to assist local authorities in addressing these problems include fostering greater collaboration between local communities and local governments through co-production in local service provision. In this article, we examine two leading examples of local co-production in Tohoku through the lens of case studies in Sendai City and Hirosaki City, the former focused on the development of evacuation centre manuals and the latter on the competitive sponsorship of community projects by local authorities. Drawing on the theory of comparative institutional advantage, we argue that these approaches are not only efficacious in leveraging the relative strengths of local councils and community groups, but are also readily applicable in other countries.

Antitrust and Ex-Ante Sector Regulation

Using ex-ante regulation to replace inefficient and ineffective ex-post litigation based antitrust is a familiar refrain for those interested in regulating large technology firms. But the narrative that antitrust is either solely or predominantly based on ex-post litigation is a false narrative, as both the current antitrust laws and its institutions incorporate many of the features that reformers put forth as ex-ante regulation. As a matter of optimal regulatory design, this is not surprising, as a true ex-ante approach will incorporate both approaches. In the U.S., the Supreme Court has expanded its implied immunity and related common law limits on the use of the antitrust laws in response to the potential costs of inconsistent and overlapping regulation. This forces an ex-ante choice between antitrust and sector specific regulation when addressing specific problems associated with regulated industries. We suggest the ex-ante choice between antitrust and sector regulation be made based on the comparative institutional advantage of each approach, and that such an approach will result in the allocation of duties to deal and price setting to sector specific regulators. Because both approaches are imperfect vehicles for controlling competition, both the initial allocation between antitrust and regulation and the choice to regulate in the first place should be undertaken with caution, and expected to involve a long, slow, and costly evolution towards a more efficient system of antitrust and regulation.

Comparative capitalism and innovation policy: complementarities and comparative institutional advantage

Innovation policy has to acknowledge and integrate the specific modes of coordination within a particular capitalist system. It has to make sure that policies match the dominant rules of corporate ...

Constitutionalisation of Labour Law: A Nigerian Perspective

Over the decades in Nigeria, the traditional principles and thinking in labour law has been shaped by years of dominance of the common law. These principles have a strong hold on labour law in Nigeria and are immutable compared to the changing world of works. The effect of this is industrial unrest and an unharmonious relationship characterized by rampant strikes, unemployment, and other forms of industrial conflict. Labour standard in Nigeria has been very low and the labour rights almost non-existent some see this as a means of the state gaining a comparative institutional advantage in order to attract international business and remain competitive. To the workers, this translates to a few minority of working people who hold jobs with decent working condition in the country. In a bid to change this and balance, the employment relationship brought about legal intervention in the employment relationship. One of the most significant is the juridification of the constitution, which develops and strengthens justiciable social/workers’ right and obligation. This provides a significant yardstick by which the reasonableness and constitutionality of the Nigerian labour law may be measured. The methodology adopted is qualitative, a right based approach by using the provision of the constitution and interpreting primary material such as statute and case laws. The article revolves around labour constitution in Nigeria. It analyses the principles and constitutional provisions on labour rights and obligation before and after the Third Alteration of the Nigerian Constitution. It examines the Nigeria’s labour law philosophy, rationale and the changing world of works. It further highlights the gradual changes brought about by the Third Alteration; strengthening of the role of the National Industrial Court and addresses, the need for more legislative activism to be able to accommodate issues brought about by the changing world of work.

Comparative institutional advantage: an obituary

AbstractThe article traces the remains of the theory of “comparative institutional advantage”, which was crucial during the early development of the “varieties of capitalism” approach to economics but fell into oblivion quickly afterwards. It follows the discussions of the concept over time and works out possible reasons – theoretical, methodological, and discursive – for the theory's decay. In conclusion, many arguments of the theory seem outdated today but it is a great witness to thezeitgeistof comparative political economy and institutional theory of the millennium.

Domestic Institutions and Global Value Chains: Offshoring in Germany's Core Industrial Sectors

AbstractDo domestic institutions affect industrialised countries’ positions in global value chains? A key insight from literature on global value chains is that a firm's decision to offshore depends on the trade‐off between price competitive gains and coordination costs. The role of domestic institutions in this decision has largely been neglected in global value chains analyses. However, a core insight from literature on varieties of capitalism is that the outcome of this trade‐off differs depending on the national institutions in which firms are embedded. National economies vary in terms of the importance of non‐market institutions for firms’ production decisions. This article integrates insights from both literatures, resulting in the hypotheses that for firms in coordinated market economies offshoring has lower gains and higher costs than for firms in liberal market economies and that this will translate in a different importance and/or geography of global value chains. We empirically test these hypotheses by focusing on Germany. We find that Germany is intensively integrated in international value chains, but that its core sectors have made relatively more use of ‘near shoring’, as this allows them to retain comparative institutional advantages. This has permitted Germany to maintain and even expand output and employment in industry.

A plea for varieties of entrepreneurship

Research into the link between national institutions and entrepreneurship is characterized by three shortcomings: First, clear-cut concepts of institutions are rare. Second, a parsimonious understanding of how a few core institutions influence entrepreneurship is missing. Third, scholars often ignore that incrementally innovative ventures constitute a distinct (and under-researched) type of entrepreneurship next to the (over-researched) form of radically innovative, high-growth or high-tech entrepreneurship. By addressing these three shortcomings, the Varieties-of-Capitalism (VoC) literature can explain how a core group of distinct national institutions facilitate the development of different types of entrepreneurship between countries. In particular, the VoC framework illustrates the comparative institutional advantage that continental European economies offer to incrementally innovative ventures. Applications of the VoC reasoning to entrepreneurship studies would thus allow researchers to, first, perform focused rather than eclectic analyses of institutional influences on entrepreneurship. Second, it would pave the way for research into institutionally induced equifinality. Third, entrepreneurship research could move away from its wishful ideology displaying radically innovative entrepreneurship as the most desirable form of entrepreneurship. As a consequence, policymakers could target entrepreneurial support measures more specifically to their economy’s institutional environment.

Many Roads Lead to Rome – the State of European Integration

Abstract The ongoing crisis in the euro zone raises the question of whether the previously chosen path of European integration is likely to spur internal and external competitiveness and capability of action. In economic terms, it is about a strategy that does justice to the uniqueness of the landscape of European markets. Its special feature is that Europe – in contrast to North America – has developed diverse economic cultures historically whose qualities match the requirements of distinct markets and whose set of institutions are functional. An adequate European economic policy has to acknowledge these cultures and develop strategies to improve their individual effectiveness, i.e. comparative institutional advantage. This productive governance (Ordnungspolitik of the visible hand) is in stark contrast to a policy of harmonization that emanates from the idea of uniform market conditions. The attempt to integrate Europe on the basis of a “multi-speed” model has failed. The essential task now is to take into account the diversity of economic cultures in Europe and to unite the continent along a variety of paths. What the EU needs are rules and strategies that create unity in diversity, realizing its official motto: united in diversity. What Europe needs is an integration strategy on several paths – not only at several speeds. JEL Codes: F15, F53

The Forces Shaping National Response(s) to Global Educational Regulatory Initiatives: The Case for Germany and Ontario

This article argues that the stance toward global regulatory initiatives is influenced by the extent to which these regulatory initiatives threaten the comparative institutional advantages of the national economy. The cases through which this proposition is examined are the showpieces of Germany and Ontario: their system of vocational education and training. The article draws on the Varieties of Capitalism literature to explore the factors that implicated the most into the educational reforms introduced in Germany in the context of the Bologna Process. In the case of Ontario, the paper used educational reforms in the context of two OECD reports, Learning for Job and A Skills beyond School. The paper concludes that comparative institutional advantage and the institutional complementarity sustaining it explain the different trajectories countries take in their response to global pressures.

Disentangling patterns of economic, technological and innovative specialization of Western economies: An assessment of the Varieties-of-Capitalism theory on comparative institutional advantages

It is one of the central arguments of the Varieties-of-Capitalism (VoC) literature that national institutions determine comparative advantage. While Liberal Market Economies (LMEs) are said to offer comparative institutional advantages to firms that specialize in high-tech sectors based on radical innovation, Coordinated Market Economies (CMEs) offer advantages to firms specializing in medium-high-tech sectors characterized by incremental innovation. Several studies have tested these claims and arrived at contradictory results about specialization in line with institutional advantages. We argue that undifferentiated conceptualizations of the notion of specialization contribute to these inconclusive results. Based on the insights of the innovation literature on comparative advantage, we therefore disentangle the concepts of 1) economic specialization, 2) technological specialization, and 3) innovative specialization. Our analyses of panel data on exports and patents show that the VoC theory is rather weak in explaining patterns of economic specialization but can account for technological specialization. Furthermore, the VoC literature can hardly explain patterns of innovative specialization.

Challenging varieties of capitalism’s account of business interests: Neoliberal think-tanks, discourse as a power resource and employers’ quest for liberalization in Germany and Sweden

This article contributes to the debate on employer preferences. It challenges varieties of capitalism’s argument that manufacturing employers in Coordinated Market Economies (CMEs) will tend to defend non-liberal institutions because of the comparative institutional advantage that they provide. It examines Germany and Sweden, two critical cases in this debate. It is based on interviews with key officials and an in-depth examination of the Initiative Neue Soziale Marktwirtschaft (INSM) and Timbro, think-tanks sponsored by German and Swedish employers to shape public opinion. In line with power resource theory, I find that both German and Swedish employers have a strong preference for liberalization. In both cases, they responded to left-wing threats, institutional constraints and situations of ‘crisis’ by launching a counteroffensive and promoting welfare state reform, labor market flexibility and deregulation. Employers have used discourse as a power resource to pursue an aggressive liberalizing agenda and to attack institutions that required active deregulation on the part of the state. Whether employers in CMEs seek to dismantle existing institutions altogether or soften and reengineer these institutions from within, one thing is clear: their use of radical neoliberal discourse is incompatible with the claim that they defend traditional institutions in any meaningful sense. Section 3 of the paper includes a discussion of the role of Friedrich Merz, who was closely associated with the INSM, in pressing for liberalization and neo-liberal reforms in the early-mid 2000s.

Where to Seek Strategic Assets for Competitive Catch-up? A configurational study of emerging multinational enterprises expanding into foreign strategic factor markets

Emerging multinational enterprises (EMNEs) often engage in strategic-asset-seeking foreign direct investment (FDI) for competitive catch-up. This study explores the linkages between an EMNE’s competitive scenario consisting of a configuration of its awareness-motivation-capability (AMC) conditions and the comparative institutional advantages of its strategic-asset-seeking destination. Our configurational analyses of Chinese FDIs in the technology-intensive industries of OECD countries reveal a taxonomy of four distinct asset-seeking strategies of EMNEs. Our findings shed novel insights into the strategic variations within EMNEs based on a theoretically and methodologically extended AMC framework. This study also extends the varieties of capitalism literature by addressing the implications of comparative institutional advantages for foreign entrants, rather than domestic incumbent firms.

The Eurozone crisis and the rise of China in the global monetary and trading system: The political economy of an asymmetric shock

In this article we examine the role of EMU-China monetary and trade relations in the divergent evolution of the extra-regional trade balance of Germany and the GIPS countries (Greece, Italy, Portugal, Spain). These deepening relations generated an asymmetric shock in the Eurozone: while Germany largely benefited from the rise of China in the global monetary and trading system, the GIPS countries have been much less adapted. Drawing on the insights of the varieties of capitalism literature, we argue that the institutional adaptability of these countries to these deepening relations has been a function of the presence of particular labor market institutions that allow manufacturing firms to maintain their competitiveness. Coordinated labor market institutions supported Germany’s extra-regional trade balance performance by bestowing its manufacturing firms with comparative institutional advantages, whereas the absence of these labor market institutions in the GIPS rendered their manufacturing firms much less institutionally adjusted to deal with the competitiveness pressures associated with the rise of China. As such, EMU-China monetary and trade relations have been a contributing factor in the Eurozone debt crisis by forcing the GIPS countries to run increasing extra-regional trade deficits.

The impact of product and labour market deregulation

Economists have often talked about the European Paradox:” - Europe having the necessary knowledge and research but failing to utilize these advantages and bring them to the markets. The perception, largely attributable to the media reporting, is that Europe lags behind the United States in innovation. While it is true that most of the e-commerce innovations were developed in the United States, Europe’s economies did well over the 1990s despite the lack of major breakthroughs in high-tech sphere. Thus, it is hard to say that Europe is facing an innovation crisis, and I will argue that Europe has other advantages that make it competitive globally. While Europe might not have as much success in innovation as the United States, it nevertheless, has been successful in more developed and mature segments of the markets. Moreover, I will argue that country’s specialization depends on the setup of the institutions in the political economy. The countries utilize their comparative institutional advantage (CIA) to maintain competitive globally. Finally, I will argue against the idea of drastic deregulation of the product and labor markets in Europe. Doing so would be like shooting yourself in the foot since individual European countries would lose their comparative institutional advantage that allows them to stay competitive globally in the market for incremental innovation products.

In Search of the Latin American Variety of Capitalism

In Search of the Latin American Variety of Capitalism* (SCHNEIDER, Ben Ross. Hierarchical Capitalism in Latin America: Business, Labor, and the Challenges of Equitable Development. Cambridge: Cambridge University Press, 2013)The classical endeavor of comparing national models of capitalism has fortunately returned to the center of political science. Its resurgence can be attributed to the publication of Varieties of Capitalism (HALL and SOSKICE, 2001) and the multiple debates triggered by this book. Almost a decade later, Ben Ross Schneider has published Hierarchical Capitalism in Latin America, the first comprehensive and systematic effort to apply the framework of V°C to Latin America. This inspiring book feeds the growing community of scholars who are calling for a renovation of the traditionally vibrant but recently stagnant field of Latin American political economy (LUNA, MURILLO, and SCHRANK, 2014). The book presents new arguments and empirical evidence to support the critical diagnosis that if we do not strengthen the study of business actors and how politics and markets are mutually shaped, we will continue to miss extremely important political processes and outcomes in this region.Schneider's book utilizes institutional complementarities-V°C's core and most elegant analytical device-to build the novel concept of hierarchical market economy (HME), which, he argues, defines the distinctive nature of capitalism in Latin America. Four elements characterize HMEs: diversified business groups, multinational corporations (MNCs), segmented labor markets, and low levels of education and vocational skills. The book dedicates one chapter to each of the four dimensions of HMEs. These mutually reinforcing attributes result in a tight equilibrium that has proved resilient over time, even through the regional transition from a state-led import substitution industrialization model to a post-neoliberal setting.Among many institutional complementarities, the continued prominence of MNCs in Latin America-and their practice of importing the innovation they generate in their home countries-increases incentives for domestically-owned diversified business groups to specialize in lower-technology sectors, which in turn reduces these grupos' demand for skilled labor. The low level of skills in these economies further strengthens the disincentives of both domestic business groups and MNCs to conduct higher-technology investment. As a result, Latin America's comparative institutional advantage lies in simple manufacturing and commodities, which contrasts with both the radical and incremental types of innovation enabled by the institutions of Liberal Market Economies (LME) and Coordinated Market Economies (CME), respectively.In its extension of the V°C framework to the developing world, Hierarchical Capitalism in Latin America begins to address, within the limits of this region, the shortcomings that characterize the original framework, i.e., its sidelining of the state's role in contrasting types of capitalism, its apolitical character, and its inattention to history. By reflecting on how these three dimensions play out in defining HMEs, Schneider's book has the additional benefit of suggesting to scholars studying industrialized nations how to overcome V°C's limitations in understanding the origins and changes of LMEs and CMEs over time.Probably only those who face the rather lonely challenge of conducting research on the interaction of business and politics in Latin America-within an academic community where other interest groups such as social movements and labor receive significantly higher levels of attention-will be able to fully appreciate the achievements of this book. The breadth of case knowledge shown in a work that presents original research covering six countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru) is impressive. It is these very same scholars who will need to conduct more fine-tuned readings of Schneider's book in progressing to the next stages of research that this work may motivate. …

The rise of Taiwan in the TFT-LCD industry

Purpose– This study aims to refocus the analysis of global political economies using concepts from studies on Varieties of Capitalism (VoC) to track Taiwan’s rise in the Thin Film Transistor Liquid Crystal Display (TFT-LCD) industry. Taiwanese electronics firms began to outpace their competitors from Japan in TFT-LCD industry’s competition from about the year 2000.Design/methodology/approach– Drawing on depth interviews and analysis of secondary source material, newspaper and magazine.Findings– A time factor that helps determine advantage and/or disadvantage of high-tech industry in Japan and Taiwan. Stable organizational structure and less talent mobility in the Japanese TFT-LCD firms may well have been an advantage initially in the transformation process from US firms’ experimental technologies to tacit mass production technologies, but proved to be a disadvantage in the subsequent competition with more mobile talent in Taiwanese firms eager to standardize mass production techniques. Japanese firms’ rigid organizational structure could not keep pace to the market-oriented technology strategy in the global TFT-LCD industry, lost competitive advantage in a rapid pace.Social implications– VoC literature should be focused to highlight two insights. The first is the premise of institutional forms specific to national models of capitalism. Patterns of technology transfer appear critical in the innovation process, and differ markedly between Taiwan and Japan. Second, the VoC literature suggests comparative institutional advantage.Originality/value– Through the comparative analyses between Taiwanese capitalism model and Japanese counterparts, we can understand the reason and process of the rise of Taiwan in global TFT-LCD market.