MBA assignment
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NotestoFinalAssignment.zipNotes to Final Assignment/A new model for strategy and entrepreneurship in China.pdf
A new model for strategy and entrepreneurship in China
Alternative five forces
S ince its inception in 1979, Porter’s five forces model has been used by countless
academics and professionals to describe and analyze competitive forces in
business. The five forces consist of:
1. industry competitors (central to the other forces);
2. potential entrants;
3. suppliers;
4. buyers; and
5. substitutes.
However, the authors of this ‘‘Entrepreneurship and strategy in China: why ‘Porter’s five
forces’ may not be’’ believe that this model is no longer (if it ever was) relevant to strategy
development and implementation for entrepreneurs in China. In order to find out if Porter’s
model had played a part in shaping business practice in the country, Wang and Chang
carried out a survey of senior managers and entrepreneurs in China and from overseas.
Porter – relevant for China?
The authors asked if respondents had heard of Porter’s model, and if they had used it in
practice. Of the 70 senior managers from China who responded, less than 90 percent had
never heard of Porter’s five forces (compared to 33 percent of the 30 overseas respondents)
and less than five percent had used it in practice (again, compared to 33 percent of
overseas respondents).
Rather than using Porter, one of the respondents referred to the ‘‘three Ps’’ (or ren, shi, quian
in Chinese) as a tool for strategy and management. These were:
B People – both within the organization and within the wider community.
B Project – in order to assess whether an appropriate opportunity has been identified.
B Penny – because money is at the heart of business.
The respondent felt that the three Ps served his needs more adequately as they related to
elements that were within his control, whereas he believed that Porter’s five forces focused
on elements over which he has less control.
Alternative five forces
As the results of the survey confirmed to the authors that Porter had not and did not currently
play a part in strategy development in China, they turned their attention to the question of
DOI 10.1108/02580540910952172 VOL. 25 NO. 6 2009, pp. 19-21, Q Emerald Group Publishing Limited, ISSN 0258-0543 j STRATEGIC DIRECTION j PAGE 19
what approach would be relevant to this region. This led them to develop an alternative five
forces model based on the philosophy of Sun Tzu who, although he provided strategies in
the art of war, ultimately deemed that war should be avoided. Similarly, the authors propose
that in China there should be more focus on collaboration than competition. The alternative
five forces are:
1. Business purpose. This is referred to by the authors as the moral force of a business. They
believe that although money is a key driver for any organization, companies should also
consider how they can increase profits by employing a ‘‘win-win’’ approach. A contrast is
made between AMC/Peugeot, who did not succeed in China due to the fact that they
wanted local suppliers to buy parts from them but did not try and understand the market,
and Volkswagen, who experienced success due to their desire to co-develop products
and services with local partners in order to understand the market and therefore produce
relevant products. Volkswagen’s co-creation strategy was in line with what Wang and
Chang would describe as a moral business purpose.
2. Business climate. This temporal force is about changing variables such as regulation,
technology, competition and customer values. An example is given within the
telecommunications industry in China where some companies have fared better than
others at creating strategies to deal with the business climate force. Motorola was
originally a market leader due to its early entry but then lost ground to Ericsson. But
Motorola adapted its products and services more in line with market requirements in order
to fight back and did ultimately gain valuable ground. However, the company with the
biggest market share at present is Nokia due to their ability to learn from local rivals faster
than any other multinational.
3. Business location. Unsurprisingly, this spatial force relates to where a business locates in
order to be close to its customers, suppliers and other stakeholders. The authors observe
that this is particularly important in China because of the greater regional differences that
currently exist. This was a lesson that UK brewer Bass learned the hard way when it
located its Chinese joint venture brewery in a remote town in Jilin. Not only was distribution
hampered by regular flooding, but also due to the extremely cold winter temperatures,
production was affected by frozen pipes and therefore frozen draft beer. Bass eventually
sold its stake to the local partner and had to write off its investment of almost US$40
million.
4. Business organization. This force looks at how a business is organized and managed.
Consequently HR and structural issues become important. The authors believe that all
frustrations that Western executives have in China comes from the same source: ‘‘local
people see things differently’’. Therefore this force becomes increasingly important to
manage and requires a very hands-on approach.
5. Business leader (central to the other four forces). Just as competitive forces was central
to Porter’s model, so the business leader is to Wang and Chang’s paradigm. They refer to
the qualities that Sun Tzu identifies such as wisdom, sincerity, human-heartedness,
courage and strictness. It is also pointed out that people who show signs of recklessness,
cowardice, quick temper, sensitivity to honor and over-compassion to people will make
poor leaders. The authors also add that in China leaders need to be able to emotionally
connect with people, be fast to learn and also have the ability to bridge the gap between
local and head office.
Conclusion
By addressing the alternative five forces that have been identified in order to create a climate
of ‘‘collaborative innovation’’, Wang and Chang believe that organizations will be able to play
a key part in the economic development of China.
PAGE 20jSTRATEGIC DIRECTIONj VOL. 25 NO. 6 2009
Comment
This is a review of ‘‘Entrepreneurship and strategy in China: why ‘‘Porter’s five forces’’ may
not be’’ by Wei Wang and Peter Change. This viewpoint provides some controversial and
thought-provoking ideas about the relevance of a well-known and established strategic
academic model for organizations seeking success in China. Although much of the article is
based around anecdotal rather than empirical evidence, the authors do offer some sound
practical advice through the creation of an alternative five forces.
Keywords:
Entrepreneurialism,
Innovation,
Strategic management,
China
Reference
Wang, W. and Chang, P. (2009), ‘‘Entrepreneurship and strategy in China: why ‘Porter’s five forces’ may
not be’’, Journal of Chinese Entrepreneurship, Vol. 1 No. 1, pp. 53-64, ISBN: 1756-1396.
VOL. 25 NO. 6 2009 jSTRATEGIC DIRECTIONj PAGE 21
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Notes to Final Assignment/A revision of Hofstede model of national culture.pdf
A revision of Hofstede’s model of national culture: old evidence and new data from 56 countries
Michael Minkov Sofia Local Center, Varna University of Management, Sofia, Bulgaria
Abstract Purpose – Hofstede’s model of national culture has enjoyed enormous popularity but rests partly on faith. It has never been fully replicated and its predictive properties have been challenged. The purpose of this paper is to provide a test of the model’s coherence and utility. Design/methodology/approach – Analyses of secondary data, including the World Values Survey, and a new survey across 56 countries represented by nearly 53,000 probabilistically selected respondents. Findings – Improved operationalizations of individualism-collectivism (IDV-COLL) suggest it is a robust dimension of national culture. A modern IDV-COLL index supersedes Hofstede’s 50 year-old original one. Power distance (PD) seems to be a logical facet of IDV-COLL, rather than an independent dimension. Uncertainty avoidance (UA) lacks internal reliability. Approval of restrictive societal rules and laws is a facet of COLL and is not associated with national anxiety or neuroticism. UA is not a predictor of any of its presumed main correlates: importance of job security, preference for a safe job, trust, racism and xenophobia, subjective well-being, innovation, and economic freedom. The dimension of masculinity-femininity (MAS-FEM) lacks coherence. MAS and FEM job goals and broader values are correlated positively, not negatively, and are not related to the MAS-FEM index. MAS-FEM is not a predictor of any of its presumed main correlates: achievement and competition orientation, help and compassion, preference for a workplace with likeable people, work orientation, religiousness, gender egalitarianism, foreign aid. After a radical reconceptualization and a new operationalization, the so-called “fifth dimension” (CWD or long-term orientation) becomes more coherent and useful. The new version, called flexibility-monumentalism (FLX-MON), explains the cultural differences between East Asian Confucian societies at one extreme and Latin America plus Africa at the other, and is the best predictor of national differences in educational achievement. Research limitations/implications – Differences between subsidiaries of a multinational company, such as IBM around 1970, are not necessarily a good source of knowledge about broad cultural differences. A model of national culture must be validated across a large number of countries from all continents and its predictions should withstand various plausible controls. Much of Hofstede’s model (UA, MAS-FEM) fails this test while the remaining part (IDV-COLL, PD, LTO) needs a serious revision. Practical implications – Consultancies and business schools still teach Hofstede’s model uncritically. They need to be aware of its deficiencies. Originality/value – As UA and MAS-FEM are apparently misleading artifacts of Hofstede’s IBM data set, a thorough revision of Hofstede’s model is proposed, reducing it to two dimensions: IDV-COLL and FLX-MON. Keywords Masculinity, Hofstede’s cultural dimensions, Confucianism, Long-term orientation, Individualism and collectivism, Uncertainty avoidance Paper type Viewpoint
1. Introduction Geert Hofstede is the author of one of the most influential treatises on national culture (Kirkman et al., 2006), originally published in a short form (Hofstede, 1980), followed by an expanded version (Hofstede, 2001). According to Bond (2002), cross-cultural psychologists were “held in thrall” (p. 73) by Hofstede’s intellectual achievement, whereas Peterson (2003) pointed out that Hofstede’s first book shaped the basic themes, structures, and controversies
Cross Cultural & Strategic Management
Vol. 25 No. 2, 2018 pp. 231-256
© Emerald Publishing Limited 2059-5794
DOI 10.1108/CCSM-03-2017-0033
Received 13 March 2017 Revised 3 July 2017
14 July 2017 Accepted 1 August 2017
The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/2059-5794.htm
The collection of primary data for this study was organized by MediaCom Ltd and the Hofstede Center at Itim International, a Dutch-Finnish cross-cultural consultancy. Financial support was provided by MediaCom. Neither of the two organizations has influenced the study design, the data analysis, the decision to write and submit this paper, or any opinion expressed in it, in any way. All main findings in this study were shared with Geert Hofstede on several occasions by February 2017.
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of the cross-cultural field for over 20 years. Hofstede popularized the nomothetic approach to the study of culture, subsequently employed by other leading researchers (for instance Inglehart and Baker, 2000; House et al., 2004; Schwartz, 1994, 2008, etc.). Their studies have proven the utility of this approach. But how accurate is the product that it yielded in Hofstede’s research? The answer to this question is long overdue. As the issue is complex and requires a lengthy analysis, a single paper cannot provide all answers. Yet, it can outline some general conclusions.
This study starts with an analysis of secondary (published) data. Then, it analyzes primary data from a survey of nearly 53,000 respondents selected probabilistically in 56 countries. The survey was partly designed to check the structure and replicability of Hofstede’s dimensions.
I remind the readers that Hofstede designed his model at the national level of analysis, not at the individual. This means that Hofstede’s model explains patterns that are observable when the agents are whole nations, not individuals. Attempts to transpose Hofstede’s model to the individual level would be what Hofstede (2001) and others call an ecological fallacy. Unfortunately, Brewer and Venaik (2014) and Winzar (2015) found that many authors of articles in leading journals continue to project cultural patterns onto individuals or organizations. Such attempts amount to expecting the laws of classical mechanics to apply at the sub-atomic level, where very different quantum physics laws are in force. Still, if the laws are different at different levels, the logic of the discrepancy needs to be explained. In one instance, discussed further in this paper, this seems to be a problem for Hofstede’s model.
Another caveat is also important. Baumann and Winzar (2017) point out that the extent to which values drive behavior is a function of the circumstances in which individuals find themselves as well as the relative importance of competing values in particular circumstances. Minkov’s (2017) work shows that this may be especially true in the East Asian societies (all those with a Confucian heritage except Vietnam). Nevertheless, this recently highlighted challenge in the cross-cultural field will be ignored in this study and Hofstede’s model will be analyzed on the basis of the prevalent conceptualization of culture at the time of its creation, assuming that culture can be studied through snapshots of static situations rather than motion pictures.
2. Analysis of secondary data The analysis of secondary data should shed some light on four basic questions that entail validity tests for any model in social science or psychology and are therefore relevant in this study:
RQ1. Did Hofstede’s database, consisting solely of the employees of the IBM Corporation around 1970, adequately reflect the national cultures of the respondents?
RQ2. Do Hofstede’s dimensions replicate?
RQ3. Do Hofstede’s dimensions have internal reliability? Are their facets really correlated as the Hofstede model postulates?
RQ4. Do Hofstede’s dimensions have convincing predictive properties? Are they associated with relevant external variables in accordance with Hofstede’s theoretical expectations?
2.1 Reliability of Hofstede’s IBM database as a source of knowledge about national culture In an analysis of data from the World Values Survey (WVS) (www.worldvaluessurvey.org), Minkov et al. (2015) split all the national samples into several occupational categories. They found that national samples of respondents from a single category (e.g. only experts)
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do not necessarily yield the same dimensions of national culture as samples from another category (e.g. only skilled manual workers) although the items in the analysis are the same. Smith et al. (2002) explain why some seemingly matched samples may not be equivalent and, consequently, may not yield the same results: government employment is appreciated in Japan, but not in western countries. Consequently, Japanese and western government employees would probably not provide equivalent samples for comparisons of national cultures because they do not have the same status in their home countries. Likewise, while teachers enjoy respect in China, their profession is considered low status in some East European countries, and there are even derogatory words for “teacher” and “school” in those societies. Thus, it is possible that employment at IBM around 1970 did not carry the same social status across the world. As a result, the national subsidiaries of IBM may have attracted dissimilar types of job applicants. National culture also may have affected actual recruitment procedures, despite IBM’s efforts to enforce universal global standards.
The IBM database has yielded dimensions of national culture called individualism vs collectivism (IDV-COLL) and power distance (PD) that are strongly correlated with national wealth (Hofstede, 2001). This external validation means that at least some of the measured differences between the IBM subsidiaries reflect actual societal differences and are not pure artifacts of IBM’s organizational cultures, employee selection, or other local factors. But did the IBM database correctly reflect national culture in every respect? Critics, such as McSweeney (2002), were not convinced.
One of the pillars of Hofstede’s masculinity-femininity (MAS-FEM) dimension is Hofstede’s (2001) finding that distances between the values of men and women are greatest in MAS nations, whereas FEM ones have smaller distances. In other words, men and women in FEM countries, such as the Netherlands and the Scandinavian countries, have the most similar scores on values, whereas men and women in MAS countries, such as Japan, have the most dissimilar scores. By 2007, it was well established that this was demonstrably wrong. Guimond et al. (2007) summarize the literature on that subject, including Schwartz (2005) and Costa et al. (2001). The summary shows that national differences in distances between the values and personality traits of men and women are not a function of MAS-FEM but of gender emancipation, underpinned by national wealth. In other words, these gender differences are strongly associated with IDV-COLL since gender emancipation is greatest in the most IDV countries. There are diverse explanations of the larger gender differences in values and personality in the IDV societies, one of which could be that people in such societies have greater freedom to express their individuality, whereas in COLL countries there is strong pressure for men and women to be the same in terms of values and personality. Whatever the right explanation is, far from having the smallest distances between the values of men and women, as the MAS-FEM theory claims on the basis of the IBM findings, the Netherlands and the Scandinavian countries have the largest distances. The values sections in the WVS confirm this. It is noteworthy that MAS-FEM is orthogonal (unrelated) to IDV-COLL and national wealth (Hofstede, 2001). This means that, in terms of national distances between men’s and women’s values, the IBM database could hardly have been more misleading than it was, as it showed a 90-degree deviation from reality. It is highly unlikely that the structure of male-female distances across the globe has changed so drastically since 1970 that the IBM revealed a true societal pattern back then, which did not reflect any geo-economic logic, whereas today we see a 90-degree shift to something that rests on the solid logic of economic differences between nations and their societal consequences. Much more plausibly, the societal pattern was the same in 1970, yet the IBM database was contaminated with IBM-specific peculiarities that made it an unreliable source of information for extrapolations to the societal level.
Further, the IBM data set has yielded an IDV-COLL index that assigns the English-speaking countries, and particularly the USA, to the top of the ranking.
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Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al. (in press) reviewed all large studies of national IDV-COLL or closely related constructs, and found that the English-speaking countries do not have top scores on anything related to IDV-COLL. Of note, some of these studies are based on the nationally representative WVS or probabilistic data sets that are close in structure to the national census of each country (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press). The leading position of the USA on Hofstede’s IDV-COLL is doubtlessly an artifact of the IBM database, reflecting its national unrepresentativeness.
2.2 Replicability of Hofstede’s dimensions Only one peer-reviewed publication in an indexed journal so far (Merritt, 2000) describes an attempt to replicate all of Hofstede’s IBM dimensions in a single study. While IDV-COLL and PD replicated reasonably well, UA and MAS-FEM did not. Following this failure, Merritt (2000) tried constructing an UA dimension and a MAS-FEM dimension with items that were statistically correlated with those two dimensions, even though they had no face validity. The outcome was confusing. Merritt (2000) did obtain measures that were highly correlated with IBM’s UA and MAS-FEM, yet MAS-FEM was composed of classic UA items, such as a feeling of nervousness and agreement that rules should not be broken, and a PD item (employees afraid to disagree with superior). Besides, instead of being unrelated to IDV-COLL, as in the IBM study, this new MAS-FEM, just like UA, was strongly correlated with it. In short, Merritt’s (2000) work showed that UA and MAS-FEM could not be replicated, suggesting that they are problematic dimensions.
Single-dimension studies have replicated IDV-COLL successfully (Gelfand et al., 2004; Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al., in press). This implies that if PD is seen as a facet of IDV-COLL (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press), it also replicates. Schwartz’s (1994, 2008) work demonstrates that national aggregates of values in the domain of what he calls “hierarchy” are conceptually and statistically similar to PD. Thus, Schwartz’s work indirectly confirms the replicability of PD, yet without necessarily indicating that it is independent from IDV-COLL.
There are no studies in peer-reviewed journals focusing on the replicability of MAS-FEM. Hofstede (2001) reported that MAS-FEM is highly correlated with Schwartz’s (1994) measure of “mastery vs harmony.” Yet, Schwartz (2011) stated that he sometimes regretted his 1994 publication as researchers continued to cite it despite the existence of much more refined variants of his measures. Schwartz’s latest, unpublished mastery and harmony measures (personally provided by Schwartz in 2016), recommended by him for validation purposes, are unrelated to MAS-FEM.
Project GLOBE (Sully de Luque and Javidan, 2004) attempted to replicate Hofstede’s UA. Yet, GLOBE conceptualized and operationalized UA very differently, not as a combination of anxiety and a conviction that rules and laws must be followed strictly. GLOBE’s UA is reminiscent of Hall’s (1959) high-vs-low-context concept as it measures the degree to which people perceive their societies as having clearly explained rules or wish to have such rules. The first of these two GLOBE measures (UA practices) is a variant of IDV-COLL as it creates a more or less clear contrast between economically advanced countries (more explicit rule communication) and developing countries (more implicit rule communication), which conforms to Hall’s theory. GLOBE’s UA practices measure is correlated with Hofstede’s UA at −0.66 ( po0.001, n ¼ 47), suggesting that people in countries that Hofstede defines as strongly avoiding uncertainty and ambiguity actually describe their societies as having ambiguous rule communication. This confusing result can hardly be taken as a replication of Hofstede’s UA. GLOBE’s alternative UA measure – the degree to which people wish to have clear rule communication – correlates weakly with Hofstede’s UA at 0.32 ( p ¼ 0.03, n ¼ 47). Again this cannot be seen as a replication of Hofstede’s UA by any standard.
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Taras et al. (2012) reported that their meta-analysis of studies devoted to Hofstede’s dimensions, most of them done in a small number of countries at a time, yielded national indices that are reasonably well correlated with all of Hofstede’s IBM measures. The authors also report that the original IBM indices for IDV-COLL and PD remain highly correlated with the corresponding meta-analytical scores from the 1980s to the 2000s, However, measures of MAS-FEM and UA from the 2000s correlate with the Hofstede’s originals at only 0.56 and 0.46, respectively, suggesting that MAS-FEM and UA are unstable dimensions whose modern variants have little to do with their counterparts decades ago.
Taras et al. (2012) conceded that they relied on studies that had used not only Hofstede’s Values Survey Module but also a variety of other tools designed by various authors to measure Hofstede’s dimensions. Without detailed information about those unknown and untested tools, it is impossible to pronounce on what they really measure and, consequently, how valid the conclusions of Taras et al. (2012) are. Of note, the Values Survey Module has never been properly tested either. There is not a single study in a peer-reviewed journal showing how it works across at least 30 countries from all continents.
2.3 Internal reliability of Hofstede’s dimensions The issue of internal reliability is important as Hofstede’s theories are built on some key assumptions, such as the positive relationship between societal anxiety and societal restrictiveness with respect to rules and laws, underpinning the UA dimension, as well as a negative relationship between so-called MAS and FEM values, underpinning the MAS-FEM dimension. If these relationships were not confirmed, Hofstede’s model would be seriously challenged even if it were correct in other respects.
2.3.1 Internal reliability of IDV-COLL and PD. The question of whether IDV-COLL and PD, as operationalized by Hofstede, are internally reliable is probably irrelevant. Hofstede’s operationalization of IDV-COLL has not been accepted as a paradigm for major replications of that dimension simply because many of his items have been seen as lacking face validity and some have even been viewed as a mystery (Bond, 2002). Replications of IDV-COLL with entirely different items (Gelfand et al., 2004; Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press) are characterized by good internal reliability and face validity. There is no doubt that, measured in this way, IDV-COLL is a robust and important dimension of national culture.
Surprisingly, major replications of PD are simply missing in the literature. Therefore, it is impossible to pronounce on that dimension’s internal reliability. The relationship between IDV-COLL and PD has not been elucidated satisfactorily either. Hofstede’s measures of these two constructs are closely correlated statistically. Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al. (in press) argue that they are also related conceptually. If IDV-COLL reflects differences in treatment of people – as individuals or as members of particular groups – then PD is a logical facet of IDV-COLL, as it reflects differential treatment on the basis of one’s position in society. Thus, as PD is merely a conceptual facet of IDV-COLL, and not an independent dimension, the question of its internal reliability becomes irrelevant.
2.3.2 Internal reliability of uncertainty avoidance (UA). According to UA theory, people in societies with high levels of anxiety (a facet of neuroticism in the Big Five personality model) value job security (Hofstede, 2001; Minkov and Hofstede, 2014). Minkov and Hofstede (2014) found support for this theory albeit across European countries only. Yet, Table I demonstrates that “good job security” as an important job characteristic, measured by the WVS in 2000-2004 (Item v88, subsequently discontinued) across the world, is not associated with any reported measure of national neuroticism or anxiety, including the most recent estimates of national scores on the anxiety facet of neuroticism by Allik et al. (2017).
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The UA theory also postulates that societies characterized by high anxiety attempt to reduce that feeling by believing in, and in fact imposing, strict and unbendable rules and laws, so as to make life less uncertain (Hofstede, 2001; Minkov and Hofstede, 2014). However, this theory is not very convincing in view of the fact that anxiety and a rule-orientation ideology are not correlated at the individual level, which we know from Hofstede’s (2001) own findings. In other words, the anxious people and the bureaucratic-minded individuals are not necessarily the same. But if the bureaucrats do not necessarily have high anxiety levels, what makes them create and insist on unbendable rules? Are they doing it out of concern for the neurotics who need such rules? If the latter do need such rules, why do they not, too, believe in them?
Minkov and Hofstede (2014) found that, at the national level, a measure of anxiety is indeed highly correlated with a measure of the ideology that all laws must be followed strictly. Yet, this was a study across European countries only. It does not reveal whether these two facets of UA are correlated highly and positively across a wider set of countries. There are no secondary data that provide an answer to this question. Yet, the analysis of primary data below does provide an answer.
Minkov et al. (2013) extracted a dimension of national culture from WVS items measuring the strength of societal norms in the domain of creation and termination of life, such as divorce, homosexuality, prostitution, abortion, suicide, and euthanasia. They found that these items form a strong single factor, called “personal-sexual,” creating a contrast between economically advanced countries (greater permissiveness) and developing countries (greater restrictiveness). This factor is closely associated with IDV-COLL (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press), but is not related to any published national index of neuroticism or anxiety. In fact, according to Hofstede (2001) it is MAS-FEM, rather than UA, that explains societal restrictiveness as measured by “personal- sexual” items in the WVS. Although the logic of this association is not apparent, it will be tested in the section devoted to the predictive properties of MAS-FEM.
2.3.3 Internal reliability of MAS-FEM. MAS-FEM has two main facets: MAS values (achievement, challenge, recognition, earnings, competition) and FEM values (good human relationships, including compassion). These two facets should be correlated negatively (Hofstede, 2001).
The 1995-1999 wave of the WVS allows a test of this theory. Item V73 presents the respondents with four job characteristics – “good income,” “safe job, no risk,” “working with people I like,” and “important job, feeling of accomplishment” – and asks the respondents to choose the most important one. The first item and the last two items should reflect MAS-FEM goals as they correspond to some of the items that loaded highly on MAS-FEM in Hofstede’s (2001) factor analyses of IBM items (pp. 256-257, p. 284). “Good income” corresponds to “earnings,” “working with people I like” corresponds to “friendly
National neuroticism (N) or anxiety (A) measure r with v88 n (countries)
N: McCrae (2002) 0.19 16 N: McCrae and Terracciano (2005) 0.34 20 N: Schmitt et al. (2007) −0.07 20 N: Gebauer et al. (2015) −0.05 31 A: Allik et al. (2017) 0.03 17 Notes: Allik et al. (2017) provide several scores for some countries based on different studies. In those cases, I used the median score. None of the correlations are significant at 0.05 Source: World Values Survey (2000-2004, Item v88)
Table I. Correlations between national neuroticism (N) or anxiety (A) and importance of “good job security”
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atmosphere,” whereas “important job, feeling of accomplishment” is a measure of the social importance of prestige and success, and corresponds to “recognition,” “challenge,” and “advancement to a higher position” in Hofstede’s analysis. This WVS item format measures relative importance and avoids response style, approximating the effect of ipsatization (also known as standardization within subject or by subject) used by Hofstede (2001) in his analysis of work values from which he extracted MAS-FEM.
Table II demonstrates that the three items are not correlated quite as the MAS-FEM theory predicts. While “good income” and “working with people I like” are indeed opposites, “important job” yields correlations that contradict the MAS-FEM theory.
Figure 1 demonstrates that if the items measuring the importance of “feeling of accomplishment” and “working with people I like” were merged into a single dimension,
1 2 3
(1) Good income 1.00 −0.69** −0.43** (2) Important job, feeling of accomplishment 1.00 0.31* (3) Working with people I like 1.00 Notes: All correlations are across 51 countries. *,**Correlations are significant at 0.05 and 0.01 levels, respectively Source: World Values Survey (1995-1999, Item v73)
Table II. Correlations between
three masculinity- femininity work goals
Dominican Republic
Australia
Norway
Finland
Sweden
China Puerto Rico
Switzerland
Slovenia
Taiwan
Japan
Germany Turkey
Hungary India
Chile
ColombiaRomania
South Africa
Lithuania Moldova
Uruguay
Bosnia
Russia
Serbia
Korea Philippines
Slovakia
Salvador
Argentina Spain
Estonia
Venezuela
Georgia
Mexico
Armenia
Ukraine
Azerbaijan
Latvia
Albania
Croatia
Peru
Bangladesh
Nigeria
Montenegro
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50.00
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First choice: Working with people I like
F ir st
c h o ic
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g o
f a cc
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10.00 15.00 20.00 25.00
USA
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Republic of Macedonia
Figure 1. Visualization of the relationship between
percentages of respondents choosing
“feeling of accomplishment” and “working with people
i like” as most important job
characteristics, Item V73, World Values Survey (1995-1999)
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it would highlight a contrast between economically developed countries, in the upper right corner, and developing countries, in the lower left corner. Therefore, the observed national differences in job priorities are a function of differences in national wealth, not MAS-FEM, which is unrelated to it. Subsequent waves of the WVS confirm this finding, although the MAS item in question was fielded without the “feeling of accomplishment” component. Likewise, across the WVS waves in which these items were fielded, “good income” and “working with people I like” are negatively correlated and clearly merge into a single dimension that creates a contrast between economically developed countries (high priority of people, low priority of income) and developing countries (high priority of income, low priority of people). Evidently, these contrasts are not a function of MAS-FEM but are an outcome of differences in economic development, which is unrelated to MAS-FEM according to Hofstede (2001).
The WVS has fielded some of Schwartz’s items, including importance of success (V85) and importance of helping (V84) in the 2005-2009 WVS wave, which provides the largest set of countries that have been scored on both of these items (n ¼ 51). The two items certainly address societal MAS-FEM values. “Success” is part of Schwartz’s “mastery” domain, which according to Hofstede (2001, p. 298) contains MAS values. Helping is a major prerequisite for the maintenance of good relationships. Also, it is found across from “success” on Schwartz’s (2008) circumplex, suggesting that the two values are opposites, just as the MAS-FEM theory postulates. A reviewer of this paper helpfully provided the results of a Monte Carlo simulation analysis of these items, indicating the probability that a randomly selected male in a specific country will score higher or lower than a randomly selected female. The results are consistent with the MAS-FEM theory. For example, in 43 of the 52 countries in the WVS, men are less likely than women to value helping others and these differences are often substantial, reaching 23 percent (greater probability for males) vs 43 percent (greater probability for females). There is no doubt then that importance of helping is a FEM value, whereas importance of success is a MAS value.
Across 51 countries, importance of helping and importance of success are correlated significantly and positively: r ¼ 0.40 ( p ¼ 0.004). Ipsatization at the national level reverses this correlation and makes it negative, in accordance with the MAS-FEM theory, just like in Schwartz (2008) where the two items are in opposite sections of the value circumplex, suggesting a negative correlation. This raises the question of which method is preferable: comparing raw scores or ipsatized scores? This is a complex issue beyond the topic of this study. The section on the primary data analysis explains the outcome of fielding MAS and FEM items as categorical choices without Likert scales, which makes ipsatization irrelevant.
2.3.4 Internal reliability of Confucian work dynamism or long-term orientation (LTO). Originally called “Confucian work dynamism,” Hofstede’s fifth dimension is also known as LTO. It is an extremely important dimension as it seems to explain some of the cultural differences between the Confucian societies of East Asia at one extreme and Africa, the Middle East, and Latin America at the other. Minkov and Hofstede (2012) successfully replicated LTO with data from the WVS and confirmed its internal reliability. Still, they admitted that the dimension lacked theoretical coherence. Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al. (in press) have provided a radical reconceptualization of this dimension based on Minkov’s (2011, 2013) work, called “flexibility vs monumentalism” (FLX-MON). It is partly based on Steven Heine’s self-enhancement and self-stability theory, and reflects national differences in high vs low self-regard and self-confidence, being always the same person vs being flexible and adaptable, and liking to help people vs being reluctant to do that. Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al. (in press) do not include the concepts of persistence and thrift in FLX-MON, arguing that these facets of LTO are controversial.
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2.4 Predictive properties of Hofstede’s dimensions The predictive properties of Hofstede’s dimensions are a central topic in Culture’s Consequences, Hofstede’s (2001) main monograph. The numerous examples in that book create the impression that all the dimensions in Hofstede’s model are statistically associated with, and thus seem to predict or explain, variance in many external variables. However, given a database of diverse variables measured at the national level, it is easy to select some, or even many, that are associated at least weakly and at least across some countries. For a particular dimension of national culture to be credible and of practical utility, it should satisfy two more stringent requirements. First, it should have strong predictive properties, yielding high correlations with variables of interest across a large sample of countries from all, or most, continents, adequately representing the cultural variation across the world’s modern nations. Second, it should be a strong predictor, withstanding plausible controls. Appendix 6 at the end of Culture’s Consequences (Hofstede, 2001) shows that the great majority of Hofstede’s validity tests were performed across fewer than 30 countries, often from the economically developed part of the world, because Hofstede did not have data from other countries. This makes most of the reported associations unconvincing.
Taras et al. (2012) studied the predictive properties of Hofstede’s original indices and found reasonably high correlations, at least with respect to a small number of external variables, in the past decades. Yet, the strength of these predictive properties has been declining so much since then that, according to Taras et al. (2012), in another decade or so Hofstede’s indices may not explain adequately anything anymore. In view of the small number of dependent variables in the analysis of those authors, the lack of control variables, and the lack of information on the number and geographic location of the countries across which each correlation was calculated, their conclusions should be viewed with great caution. A more detailed dimension-by-dimension check would be beyond the scope of any article, including this one. Yet, it is noteworthy that Taras et al. (2012) found that IDV-COLL and PD yielded higher correlations with relevant external variables than did MAS-FEM and UA. This resonates with the finding of the same authors that MAS-FEM and UA are more temporarily unstable than IDV and PD, and with Merritt’s (2000) unsuccessful attempt to replicate MAS-FEM and UA, strengthening the impression that these are problematic dimensions.
2.4.1 Predictive properties of IDV-COLL and PD. Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al. (in press) show that IBM’s IDV-COLL index is still a reasonably good predictor of key variables such as rule of law, human inequality, and accident proneness. However, Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al.’s (in press) IDV-COLL index is a considerably better predictor of those key variables, suggesting that the IBM measure needs updating. Also, Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al. (in press) show that the Anglo countries, and especially the USA, do not score particularly high on IDV-COLL or any measure related to it. With the exception of Japan, the Confucian countries of East Asia score low on IDV-COLL in the work of Hofstede (2001). Yet, due to their phenomenal economic development in the past decades, they have all climbed higher on the IDV-COLL ladder, surpassing many developing countries, and currently occupy mid-range positions.
Table III compares the correlations that Hofstede’s PD and IDV-COLL yield with relevant external variables that can be expected to be associated with PD. Hofstede’s PD is the better predictor of only a few of them and in those cases the significant relationship is lowered and reduced to insignificance after controlling for a still better predictor. This seriously calls into question the utility of the PD index.
2.4.2 Predictive properties of UA. Exhibit 6 in Hofstede (2001) contains only one significant correlation between UA and a dependent variable that exceeds ±0.50 across at least 30 countries: UA predicts a country’s nurse-doctor ratio.
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Hofstede and McCrae (2004) reported that UA was associated with McCrae’s national neuroticism index. Table IV shows correlations between UA and the four large studies reporting national neuroticism scores based on the NEO-PI-R or BFI questionnaires. As UA is related to some measures of neuroticism but not to others, the evidence remains inconclusive. The correlations between the available measures of neuroticism are not impressive, suggesting that some of the four studies have not measured it convincingly. Identifying those studies is beyond the scope of this paper.
Table V provides more correlations between UA and relevant societal indicators that UA could be expected to correlate with. With the exception of the “personal-sexual” factor, all selected indicators conform to Hofstede’s (2001) expectations concerning the predictive properties of UA. Namely, it should predict importance of job security, trust, subjective well-being, a focus on order, racism, corruption, slow acceptance of innovation, and a lack of economic freedom. Some correlations were calculated twice: across all available countries and then across countries in the “very high” category on the UNDP’s (2015) Human Development Index, since Hofstede (2001) reports that some of UA’s predictive properties are valid only or primarily across economically advanced countries.
The expectation that UA should be positively associated with importance of job security and negatively with interpersonal trust (Hofstede, 2001) is not confirmed by the WVS data. Both variables are closely associated with GLOBE’s UA practices. This suggests high trust and relatively low importance of job security characterize societies with detailed and properly enforced formal rules that create predictability. This has nothing to do with national anxiety.
Variable r with PD
r with IDV-COLL n (countries)
GLOBE’s power distance “practices” (Carl et al., 2004) 0.54** 0.54** 47 GLOBE’s power distance “values” (Carl et al., 2004) 0.07 0.11 47 Schwartz’s hierarchy (personally provided scores, 2016) 0.32* −0.46** 50 Schwartz’s egalitarianism (personally provided scores, 2016) −0.48** 0.56** 50 Schwartz’s intellectual autonomy (personally provided scores, 2016) 0.52** 0.60** 50 Schwartz’s affective autonomy (personally provided scores, 2016) −0.65** 0.69** 50 Schwartz’s embeddedness (personally provided scores, 2016) 0.67** 0.67** 50 Corruption perception index 2015 (Transparency International, 2017) −0.64** −0.68** 68 Same item after controlling for GDP per person in 2014 (World Bank, 2016) and Welzel’s (2014) emancipative values index −0.09 0.07 62 UNDP’s coefficient of human inequality 2015 (Jahan and Jespersen, 2015) 0.55** 0.65** 54 Same item after controlling for GDP per person in 2014 (World Bank, 2016) and Welzel’s (2014) emancipative values index −0.17 −0.08 51 Project GLOBE’s “participative” leadership dimension (Dorfman et al., 2004) −0.49** 0.44** 48 Same item after controlling for Welzel’s (2014) emancipative values index −0.01 0.06 44 Use of superiors as a source of guidance for managerial decision making (Smith et al., 2002) −0.25 0.20 45 Use of subordinates as a source of guidance for managerial decision making (Smith et al., 2002) −0.37* 0.45** 45 Same item after controlling for Welzel’s (2014) emancipative values index −0.13 0.19 42 Obedience as a desirable trait for children, WVS 2005-2009, item v21 0.53** −0.38* 38 Same item, after controlling for individualism-collectivism (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press) 0.12 0.30 30 Obedience as a desirable trait for children, WVS 2011-2014, item v21 0.44** −0.35* 35 Same item, after controlling for individualism-collectivism (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press) −0.01 −0.29 24 Notes: *,**Correlations are significant at 0.05 and 0.01 levels, respectively
Table III. Correlation patterns of Hofstede’s power distance (PD) compared with those of Hofstede’s individualism- collectivism (IDV-COLL)
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Although Hofstede (2001) indicated that UA is not associated with risk avoidance, Table V shows that UA is a positive predictor of preference for a “safe job with no risk” as measured by the WVS. Yet, controlling for GLOBE’s UA practices reduces this correlation to statistical insignificance. The strongest preference for job safety is found in societies without detailed and strictly enforced formal rules (thus scoring low on GLOBE’s UA practices), which apparently depresses job safety while generating a high desire for it.
One of the most important practical implications of Hofstede’s UA is its presumed negative association with innovation (Hofstede, 2001). The largest study that supports this view was conducted across 68 countries more than 20 years ago (Shane, 1995). It concluded literally that uncertainty-accepting societies may be more innovative than uncertainty-avoiding societies, based on employees’ preferences for different roles within their organizations. Intrigued by these findings, Rinne et al. (2012) assessed the predictive properties of all of Hofstede’s dimensions, using data from the complex Global Innovation Index as dependent variables. They found that while IDV-COLL and PD were related to national innovation scores, UA was not related to them. The results in Table V show that UA is not related to adoption of innovative technologies.
Idiographic analyses further highlight some of the issues that plague the UA dimension and its index. According to Hofstede (2001), the South East Asian countries tend to score low on UA. This suggests that their societies should be quite liberal and allow their members to bend or ignore rules. The observed reality in those countries is precisely the opposite. They are well known for their harsh punishments, such as flogging for alcohol consumption during Ramadan in Malaysia, flogging for homosexual intercourse in Indonesia, prison sentences for graffiti writing in Singapore, and death penalty for possession of small amounts of light drugs in Malaysia, Indonesia, and Singapore. Singaporeans do not even have the right to chew gum and jokingly call their home place “a fine country:” a nice country where one can easily get fined.
2.4.3 Predictive properties of MAS-FEM. Appendix 6 in Hofstede (2001) does not list any significant correlations between MAS-FEM and a dependent variable that exceeds ±0.50 over at least 30 countries. Nevertheless, some of the presumed key predictive properties of that dimension are worth examining. Table VI provides correlations between key variables that MAS-FEM should be associated with according to Hofstede (2001). Some of the calculations were calculated also across economically developed countries as Hofstede (2001) indicates that some of the predictive properties of MAS-FEM are valid only across wealthy countries. Also, some calculations were calculated twice: using raw items and then ipsatized items, as advocated by Hofstede (2001).
Only two of the variables in Table VI – women’s share of seats in parliament and official development assistance as share of a nation’s gross domestic product – are associated, albeit
1 2 3 4 5
(1) Hofstede’s uncertainty avoidance 1.00 0.57** 0.18 0.32 43** n ¼ 28 n ¼ 37 n ¼ 37 n ¼ 60
(2) Neuroticism (McRae, 2002) 1.00 40* 0.49** 0.37 n ¼ 27 n ¼ 28 n ¼ 34
(3) Neuroticism (McCrae and Terracciano, 2005) 1.00 0.32* 0.20 n ¼ 38 n ¼ 45
(4) Neuroticism (Schmitt et al., 2007) 1.00 0.23 n ¼ 51
(5) Neuroticism (Gebauer et al., 2015) 1.00 Notes: *,**Significant at 0.05 and 0.01 level, respectively
Table IV. Correlations between
Hofstede’s uncertainty avoidance and
measures of national neuroticism
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Variable r with UA n (countries)
Importance of job security, WVS (2000-2004, Item v88) (not fielded in the same form after 2004) −0.11 21 Interpersonal trust, WVS (2005-2009, Item v23) −0.48** 39 Same item after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) −0.11 28 Interpersonal trust, WVS (2011-2014, Item v24) 0.41* 36 Same item after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) 0.13 24 Personal-sexual factor (Minkov et al., 2013), reflecting restrictive societal norms with respect to the creation and termination of life −0.11 32 Preference for a “safe job with no risk,” WVS (2000-2004 and 2005-2009, average of Items v84 and v48) (not fielded after 2009) 0.47* 42 Same item after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) 0.23 29 Average life satisfaction, WVS (2005-2009, Item v22) 0.01 35 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.64** 13 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for Welzel’s (2014) emancipative values index −0.37 13 Average life satisfaction, WVS (2011-2014, Item v23) 0.12 35 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.25 12 Subjective perception of one’s own state of health, WVS (2011-2014, Item v11) 0.33 30 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.42 ( p ¼ 0.20) 11 Average happiness, WVS (2011-2014, Item v10) 0.20 28 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.51 ( p ¼ 0.11) 11 “Maintaining order in the nation” most important of four national goals, WVS 2005-2009 (not fielded after 2009), Item v71 0.04 38 Percentage respondents choosing “people of a different race” as unwanted as neighbors, WVS (2005-2009, Item v35) 0.00 48 Percentage respondents choosing “immigrants, foreign workers” as unwanted as neighbors, WVS (2005-2009, Item v35) −0.04 45 Corruption perception index 2015 (Transparency International, 2017) −0.23 68 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.64** 27 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) −0.32 ( p ¼ 0.15) 23 Availability of latest technology according to the Global Competitiveness Report (2014-2015, Item 9.01) (Schwab et al., 2014) −0.20 64 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.39* 27 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) −0.04 23 Percentage internet users in 2013 according to the Global Competitiveness Report (2014-2015, Item 9.01) (Schwab et al., 2014) −0.06 64 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.50** 27 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) −0.22 23
(continued)
Table V. Correlations between uncertainty avoidance (UA) and relevant external variables
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weakly, with MAS-FEM, yet even these correlations become insignificant after controlling for relevant external variables, such as Welzel’s (2014) emancipative values index and GLOBE’s assertiveness, proposed by Hartog (2004) as a radical reconceptualization of, and improvement on, Hofstede’s MAS-FEM. This failure of MAS-FEM to predict female emancipation should not come as a surprise since it is well known by now that emancipation is strongly associated with variants of IDV-COLL and national wealth, and is completely unrelated to MAS-FEM. An example of such an IDV-COLL variant is Welzel’s (2014) emancipative values index. Welzel’s extensive work in the field of emancipation is fully convincing and conclusive.
Dimensions of national culture that replicate in one form or another, and have good predictive properties, produce clear geo-economic spatial configurations as shown by Dobson and Gelade (2012). This is accepted by Hofstede (Minkov et al., 2013). Yet, MAS-FEM does not yield a recognizable geo-economic configuration and neighboring countries whose populations have common ethnic and civilizational origins, such as Mexico and Guatemala, and Japan and Korea, sometimes have dramatically different scores on MAS-FEM. Naturally, an index that lacks a geo-economic structure cannot explain variables that have such a structure, such as most important national statistics and most WVS measures.
2.4.4 Predictive properties of Hofstede’s fifth dimension. Minkov and Hofstede (2012) showed that their LTO measure predicted national differences in educational achievement. However, Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al. (in press) demonstrated that FLX-MON, a radical reconceptualization of LTO, is the best-known predictor of national differences on TIMSS and PISA tests, considerably outperforming LTO measures.
3. Analysis of primary data The analysis of primary data focuses on the internal reliability of the two problematic dimensions: UA and MAS-FEM. It uses data from a new study of national culture and personality across nearly 53,000 respondents selected probabilistically from all main geographic regions and economic sectors of 56 countries, reflecting the ethnic, linguistic, and age structure of most countries quite adequately. In economically developed countries, the samples are also close to the national census in terms of educational-level differences, whereas the samples in developing countries consist predominantly of respondents with higher education. Nevertheless, in nearly each country in the second group there are at least 100 probabilistically selected respondents without higher education, thus allowing separate cross-national analyses of samples with and without higher education. This study excluded the Dominican Republic and
Variable r with UA n (countries)
Mobile phone subscriptions per 100 population in 2013 according to the Global Competitiveness Report 2014-2015, Item 2.08 (Schwab et al., 2014) 0.08 64 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.01 27 Index of Economic Freedom 2016 (Heritage Foundation, 2016) −0.33* 63 Same item, after controlling for GLOBE’s UA practices (Sully de Luque and Javidan, 2004) −0.07 45 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.74** 27 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for GLOBE’s future orientation practices (Ashkanasy et al., 2004) and neuroticism (McCrae and Terracciano, 2005) −0.50 ( p ¼ 0.07) 16 Notes: *,**Significant at 0.05 and 0.01 level, respectively Table V.
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Variable r with MAS-FEM n (countries)
Percentage choosing “Working with people I like” as most important job characteristic, Item v73, WVS (1995-1999) 0.11 28 Percentage choosing “Working with people I like” as most important job characteristic, Item v48, WVS (2005-2009) (not fielded after 2009) −0.11 36 Percentage choosing “Important job, feeling of accomplishment” as most important job characteristic, Item v73, WVS (1995-1999) (not fielded in this form after 1999) −0.34 28 Percentage mentioning “a job in which you feel you can achieve something,” WVS (2000-2004) (not fielded after 2004) −0.05 23 Importance of helping as a personal value, WVS (2005-2009, Item v84) 0.29 32 Same item, after ipsatization at the national level, across all 10 Schwartz items 0.18 32 Importance of success as a personal value, WVS 2005-2009, item v85 −0.06 32 Same item, after ipsatization at the national level, across all 10 Schwartz items −0.26 32 “Religious faith” mentioned as an important trait for children, Item v19, WVS (2005-2009) 0.12 38 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.28 15 “Religious faith” mentioned as an important trait for children, Item v19, WVS (2011-2014) 0.20 30 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.07 11 Importance of family, item v4, WVS 2005-2009 −0.07 37 Same item after ipsatization by nation across five value items in that section of the WVS −0.09 37 Same item after ipsatization, only countries with a “very high” Human Development Index (UNDP, 2015) −0.29 19 Importance of work, Item v8, WVS (2005-2009) 0.05 37 Same item after ipsatization by nation across five value items in that section of the WVS 0.05 37 Same item after ipsatization, only countries with a “very high” Human Development Index (UNDP, 2015) 0.08 19 Importance of religion, Item v9, WVS (2005-2009) −0.05 37 Same item after ipsatization by nation across the five value items in that section of the WVS −0.07 37 Same item after ipsatization, only countries with a “very high” Human Development Index (UNDP, 2015) −0.12 19 Average life satisfaction, WVS (2005-2009, Item v23) 0.01 35 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.16 12 Average life satisfaction, WVS 2011-2014, item v23 0.03 35 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.19 12 Subjective perception of one’s own state of health, WVS (2011-2014, Item v11) 0.09 30 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.21 11 Gender Inequality Index (UNDP, 2015) 0.08 62 Same item, only countries with a “very high” Human Development Index (UNDP, 2015) 0.20 27 Schwartz’s mastery (personally provided scores, 2016) 0.08 50 Societal restrictiveness vs permissiveness as measured by the WVS 2005-2009: “personal-sexual” factor (Minkov et al., 2013) −0.13 32 Same item after controlling for Hofstede’s IDV-COLL −0.30 ( p ¼ 0.10) 32
(continued)
Table VI. Correlations between masculinity-femininity (MAS-FEM) and relevant external variables
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Puerto Rico, where the data were collected by phone, unlike all other countries. Details about the samples are freely available from Itim International ([email protected]), an international cross- cultural management consultancy, licensed by Geert Hofstede.
The questionnaire included 108 items, plus demographic questions, grouped in several sections. The largest section (52 items) consists of personality items and self-construals, targeting the Big Five measures of personality and Hofstede’s dimensions. Two smaller sections measure consumer behavior preferences and sources of guidance in making purchasing decisions. Analyses of these sections may have interesting implications for international business.
Comparisons of data from samples with and without higher education did not reveal any substantial differences in terms of country positions. Below, only results from comparisons of samples without higher education are reported.
In order to avoid response style associated with Likert scales, all items in this study elicit categorical responses, plus an intermediate option. Examples are provided below.
3.1 UA Two items target the two main facets of UA. The first is about anxiety:
1. I worry a lot and often feel nervous. 2. I am somewhere here, in between these two. 3. I am usually relaxed and do not worry much.
The second item is about the conviction that all societal rules and laws must be followed strictly, which is the societal extrapolation of the conviction that all company rules must be followed strictly (Minkov and Hofstede, 2014):
1. If I could, I would make all people in our society follow all our laws and rules very strictly. 2. I am somewhere here, in between these two. 3. If I could, I would allow people to break useless or meaningless laws and rules.
Scored on a scale from 1 to 3 and aggregated to the national level, the two items correlate positively at 0.45 ( p ¼ 0.022) across the 26 European countries in the sample, supporting Minkov and Hofstede’s (2014) findings, and validating the representativeness of the database used for this analysis, as it produces the same pattern as the nationally representative European Social Survey used by Minkov and Hofstede (2014). But across 53 countries from all continents, this correlation is −0.23 ( p ¼ 0.094). Figure 2 visualizes the relationship between the two variables.
Figure 2 suggests that, with the exception of Vietnam[1], it is mostly the economically advanced IDV societies that have the strongest tendency to give people the discretion to
Variable r with MAS-FEM n (countries)
Same item, only countries with a “very high” Human Development Index (UNDP, 2015) −0.44 ( p ¼ 0.11) 14 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for Hofstede’s IDV-COLL −0.49 ( p ¼ 0.09) 14 Women’s share of seats in parliament (UNDP, 2015) −0.26* 61 Same item, after controlling for Welzel’s (2014) emancipative values index −0.16 55 Same item, only countries with a very high Human Development Index (UNDP, 2015) −0.45* 27 Same item, only countries with a “very high” Human Development Index (UNDP, 2015), after controlling for Welzel’s (2014) emancipative value index −0.38 24 Official development assistance in 2015 (OECD, 2015) −0.47** 27 Same item, after controlling for Welzel’s (2014) emancipative values index and GLOBE’s assertiveness “as should be” (Hartog, 2004) −0.36 ( p ¼ 0.14) 25 Notes: *,**Significant at 0.05 and 0.01 level, respectively Table VI.
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decide which laws and rules are not worth following. With the exception of Italy, all societies at the opposite extreme are developing countries. This supports Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al.’s (in press) assertion that this item measures IDV-COLL differences. In IDV countries, people have greater freedom and individual discretion to decide whether societal rules are meaningful or not. In COLL societies, people have to follow the rules that are imposed on them as their fellow countrymen and women do not believe that giving people discretion is a good idea. This highly meaningful and logical pattern suggests that the country scores on this item capture logical cultural differences and cannot be dismissed as a study artifact.
Table VII shows that, unlike Hofstede’s UA, the anxiety item in this study is significantly correlated with all national measures of neuroticism and anxiety obtained in large-scale studies. Besides, some of the correlations are quite high. This validates the anxiety item as a reliable measure of national anxiety. In fact, it may be the best available national measure of anxiety and neuroticism as it is the only one available that yields such (relatively) high correlations with each of the remaining measures in the other large-scale studies. In sum,
Japan
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Portugal
Vietnam Hungary
Greece Belgium
Serbia Finland Chile
Canada
UK Denmark
Ireland
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Norway
The Netherlands
New Zealand
Turkey
Romania
Sweden
Israel
Malaysia
China
Thailand Colombia
Peru
Venezuela
South Africa Kenya
Nigeria
Indonesia
Philippines
Kazakhstan
India
Australia
France
Egypt Germany
Korea
Singapore
Taiwan Spain
Brazil Poland
Mexico
Hong Kong Ukraine
Argentina
Russia
Italy
Czech Republic
USA
Figure 2. Visualization of the relationship between anxiety and preference for strict laws and rules (this study)
Variable r n (countries)
Neuroticism in McCrae (2002) −0.62 31 Neuroticism in McCrae and Terracciano (2005) −0.47 35 Neuroticism in Schmitt et al. (2007) −0.67 37 Neuroticism in Gebauer et al. (2015) −0.42 54 Anxiety in Allik et al. (2017) −0.67 37 Note: All correlations are significant at 0.01
Table VII. Correlations between the reversely scored anxiety item used in this study and measures of national neuroticism and anxiety
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we have solid evidence that this study has measured anxiety and societal restrictiveness in a very meaningful and reliable way, and that the two measures are not correlated as UA theory predicts.
3.2 MAS-FEM Baumann and Winzar (2017) correctly point out that value prioritizations are complex processes whose outcome may depend on the values themselves and circumstances. From this perspective, asking people how much they value achievement may not be informative enough. Everybody values achievement of some sort, yet some people may value achievement of good human relationships (a FEM value or goal) more than achievement of recognition (a MAS value or goal) or vice-versa. Therefore, for the purpose of this study, the text of the achievement item was quite specific:
1. I would like to achieve fame and glory. 2. I am somewhere here, in between these two. 3. I see fame and glory as useless to me.
This conceptualization of achievement is entirely in accordance with Hofstede (2001) who indicates explicitly that high MAS stands for “achievement in terms of ego boosting, wealth, and recognition” (p. 298).
The other MAS item addresses one’s willingness to compete, based on Hofstede’s (2001) indication that MAS cultures have a “concern” for “performance and competition” (p. 313), and that “The family in masculine societies socializes especially male children toward assertiveness, ambition, and competition” (pp. 314-315):
1. I like to compete with people. 2. I am somewhere here, in between these two. 3. I hate to compete with people.
The following items capture the concept of FEM: 1. I like to help people, even if I have to do something difficult. 2. I am somewhere here, in
between these two. 3. I rarely agree to do something difficult to help people. 1. I am a compassionate person. When others have problems, I feel very sorry for them.
2. I am somewhere here, in between these two. 3. If other people have problems, I am usually indifferent.
Just like helping, compassion is consistent with MAS-FEM theory since Hofstede (2001) indicates that “The mas/fem dimension affects priorities in the following areas: (1) solidarity with the weak in one’s society versus reward for the strong” (p. 317), and that “In masculine societies more people believe that the fate of the poor is the poor’s own fault” (p. 319).
Our data show that, worldwide, we have the same situation as with the “help” and “success” items in the WVS: men are more likely to adopt the supposedly MAS self-descriptions (desire for fame, competitiveness) whereas women are more likely to adopt the supposedly FEM self-descriptions (desire to help and compassion). Thus, there is no doubt that these items conform to Hofstede’s MAS-FEM theory.
Table VIII shows correlations between these items, scored on a scale from 1 to 3 and aggregated to the national level, and Hofstede’s MAS-FEM index.
Table VIII demonstrates that all MAS and FEM items are correlated positively. The use of conceptual opposites within each item instead of a Likert scale means that this pattern cannot be due to the well-known preference of some societies to agree with most statements or rate most items as important, since the respondents are not asked to agree with anything to any specific degree or rate the importance of anything. They have described themselves in terms of clear statements that they identify with.
Figure 3 visualizes the relationship between liking to compete and liking to help. The two items create a clear geographic map, with East Asia in the upper right corner, European and English-speaking countries in the middle, and Africa, Latin America, Southeast Asia, as well as the Balkans and the Middle East (Turkey, Serbia, Romania and Egypt), in the lower left corner. These two items obviously measure something very real; otherwise there would not
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be such a clear geographic pattern. It is evident that the East Asian Confucian cultures are least likely to socialize their members for a desire to compete and help, whereas the rest of Asia, Latin America, Africa, and the Middle East exhibit the opposite pattern. This pattern is indicative of FLX-MON differences, explained in the work of Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al. (in press).
This finding does not imply that East Asians do not engage in competitions. In fact, it is well known that they tend to be fiercely competitive in education. The results of this fierce competitiveness are also known. Children of Confucian heritage surpass those from any other societies in educational achievement, especially in mathematics. Yet, the nationally representative study TIMSS reveals that East Asian children are also those who have the most negative attitudes toward the study of mathematics (Minkov, 2011), and possibly toward the educational competitions that they have to engage in, under societal pressure.
2.60
2.40
2.20
Switzerland Germany
Israel
Austria Greece
Norway
Poland
India
Malaysia Italy
Ukraine
New Zealand
South Africa
Turkey
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Portugal Chile
Ireland Brazil
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Colombia
Vietnam
Nigeria
Kenya
Serbia
Venezuela
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UK USA
2.00
I lik
e t o c
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-I h
a te
t o c
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p e te
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I Like to help-I rarely agree to help
1.60 1.80 2.00 2.20
Figure 3. Visualization of the relationship between liking to compete and liking to help people (this study)
1 2 3 4 5
(1) Desire to achieve fame 1.00 0.55** 0.32* 0.47** −0.20 n ¼ 54 n ¼ 54 n ¼ 54 n ¼ 42
(2) Desire to compete 1.00 0.61** 0.59** 0.01 n ¼ 0.54 n ¼ 54 n ¼ 42
(3) Desire to help 1.00 0.77** −0.03 n ¼ 54 n ¼ 42
(4) Compassion 1.00 0.12 n ¼ 42
(5) Hofstede’s masculinity-femininity 1.00 Notes: *,**Correlations are significant at 0.05 and 0.01 levels, respectively
Table VIII. Correlations between masculinity-femininity items (self-construals) in this study and Hofstede’s masculinity-femininity index
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Again, we have evidence of Confucian duality and ability to adapt one’s behavior to the requirements of the situation even if this means a clash with one’s values and dispositions.
Item v10 in WVS 1999-2004 (subsequently discontinued) measured the importance of “service to others” as a personal value. The percentages of respondents who have chosen the “very important” option are highly correlated with the national scores on the reversely-scored liking-to-help item in this study: r ¼ −0.71 ( po0.001, n ¼ 21). Considering the 15-year time difference between the two studies, this is a remarkably high correlation, strongly validating both studies: the WVS and ours. Figure 4 visualizes the relationship between the two items.
In sum, the MAS and FEM measures in this study are highly reliable and valid as measures of national culture and the positive correlations between them, refuting the MAS-FEM theory, are not due to improper measurement.
4. Discussion Replication and validation studies can have three possible outcomes. First, the original model may be confirmed and validated. In that case, all is just well. Second, the replication and validation attempt may produce nonsensical findings. This would not necessarily invalidate the original model. It may be the case that the original is valid whereas the replication attempt is plagued by various methodological errors. This study is an example of the third possible outcome. The original model is not replicated and is not validated but the new findings are not nonsensical at all. They are underpinned by a very solid logic, which however differs from Hofstede’s. This new logic is based on nationally representative studies, mostly the WVS and a survey of 53,000 people chosen probabilistically, reflecting the structure of the national census more or less closely in each of 56 nations, adequately representing the world’s national cultures from all continents. Which of the two logics is stronger – the old or the new – is a question that is not hard to answer.
Egypt
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W V
S 1
9 9 4
-2 0 0 4 V
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ve ry
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Figure 4. Visualization of the relationship between liking to help people
(this study) and importance of “service
to others,” v 10 in World Values Survey
(1999-2004)
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This study documents the need for a thorough revision of Hofstede’s model of national culture. Of the four original IBM dimensions, only IDV-COLL is supported as a coherent and empirically useful dimension of national culture. Yet, the original IBM operationalization and the index that it has produced need a substantial correction. First, IBM’s IDV-COLL does not have good face validity. Second, after Hofstede’s IBM study, the USA and the other English-speaking countries have never been shown to lead the country rankings on any major dimension of national culture or any national statistics related to IDV-COLL. A much-needed correction of the IDV-COLL index is provided by Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al. (in press).
The internal reliability of PD and its independence from IDV-COLL could not be established with the data available for this study. It is however clear that IDV-COLL is a better predictor of the main variables that PD can be expected to predict, making PD empirically redundant. And since one of the main facets of IDV-COLL is differential treatment of people based on their group affiliation, PD is logically a sub-facet of IDV-COLL that need not be seen as independent from IDV-COLL.
The main pillar of UA – the assumption that societal anxiety accounts for societal preference for strict rules and laws – collapses upon scrutiny. These two presumed UA facets are correlated highly and positively only across European countries. An analysis across countries from all continents reveals quite clearly that societal preference for strict rules and laws is an aspect of COLL, and is not related to national measures of anxiety or neuroticism as UA theory predicts. This explains why, despite their low UA scores, the South and Southeast Asian countries have extremely strict rules in domains that their COLL cultures have traditionally considered important. The fact that westerners observe some lack of order in South Asia from their own perspective, such as chaotic driving, simply means that Western driving regulations are still a foreign import in South Asia that has not taken root in the local culture as it clashes with older cultural rules.
Apart from its lack of internal consistency, UA does not have any of the main predictive properties that it has been credited with. Whenever UA produces a significant zero-order correlation with a relevant external variable, that correlation is reduced to insignificance after controlling for various aspects or facets of IDV-COLL or closely related constructs, such as GLOBE’s UA or future orientation practices, or Welzel’s emancipative values index.
MAS and FEM values are correlated positively, not negatively, and are not related to the IBM MAS-FEM index. This finding, as well as the failure of the IBM’s MAS-FEM index to demonstrate the predictive properties that it is supposed to have, plus the fact that distances between the values and personality traits of men and women are not a function of MAS-FEM, discredits the MAS-FEM dimension and suggests that it is an artifact of the IBM data set without a societal equivalent.
Figure 5 is a cultural map of the world, using Hofstede’s UA and MAS-FEM as axes. It is puzzling to see the Confucian countries scattered throughout the map. It is also impossible to explain the close proximity of pairs of culturally distant countries, such as the USA and the Philippines, Canada and Indonesia, Taiwan and Brazil, Korea and Peru, Germany and Ecuador, Austria and Venezuela, and Finland and Thailand, to name just a few pairs. While the Scandinavian countries and the Netherlands have the lowest scores on MAS-FEM, the other economically advanced countries are at the other extreme on that dimension. The Latin American countries are also dispersed along the MAS-FEM axis, without any apparent logic. Some of the Confucian countries score very low on UA whereas others score very high. Taiwan is in the middle. These patterns do not have close analogues in any national statistics or other indicators.
Figures 6 and 7 present a new cultural map of the world, using the latest measures of IDV-COLL (Minkov, Dutt, Varma, Schachner, Morales, Sanchez et al., in press) and FLX-MON (Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al., in press).
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This new map of the world is very much like the real one, drawn from a traditional European perspective, without the world’s oceans. There is one logical exception: the English-speaking countries are not scattered across the world but form a fairly compact cluster right above the center of the map. Indonesia’s proximity to the Arab world and the African countries should not
Japan
VenezuelaAustria
South Africa
Australia
Switzerland
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Ecuador
Pakistan
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Panama
Serbia Uruguay
Guatemala Salvador
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ChileThailand
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Slovenia
The Netherlands Denmark
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Israel
Brazil
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East Africa
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Hofstede’s uncertainty avoidance
H o fs
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Hong Kong
Jamaica
Singapore
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India
Indonesia
Canada
New Zealand
Arab
Taiwan
Figure 5. A cultural map of the
world produced by Hofstede’s uncertainty
avoidance and masculinity-femininity
The Netherlands
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Finland
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Hong Kong
ChinaSingapore
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Thailand
Taiwan
Japan New Zealand
Australia
UK
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Figure 6. A cultural map of the world produced by the
new measures of collectivism-
individualism and monumentalism-
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seem surprising. It is supported by proximity on important national indicators, such as measures of rule of law, transparency vs corruption, accident proneness, and gender inequality (all associated with IDV-COLL), as well as educational achievement (associated with FLX-MON).
The new cultural map is also the only one available that highlights the cultural distinctiveness of the Confucian countries of East Asia. They occupy an intermediate position on IDV-COLL, yet they are leaders in terms of FLX-MON. This explains the leading position of the Confucian countries in educational achievement, followed by Finland, the Netherlands, Russia, and Kazakhstan.
This study exposes two perils in cross-cultural research. The first one is over-reliance on seemingly matched samples whose comparability is not guaranteed. The second is insufficient testing of the validity of a model of national culture. This includes use of small and globally unrepresentative samples of nations and reliance on modest zero-order correlations that have not been tested extensively by controlling for potentially better predictors. Authors who use Hofstede’s dimensions rarely test the effects of other predictors, such as Inglehart’s, Schwartz’s, and GLOBE’s measures, alongside Hofstede’s. This explains why, not only in Hofstede’s work, but also in the studies of many other authors, UA has been found to be a significant predictor of diverse variables, including some of those tested in this study. Even MAS-FEM has been reported to produce effects in some analyses, although it is obviously a fictitious dimension. Most recently, De Mooij (2017) reported several high zero-order correlations between MAS-FEM and various variables measured across European countries only. One of these, “agree with university education is more for boys” (p. 451) is reported to correlate with MAS-FEM at 0.68, without the number of countries across which the correlation was calculated (p. 451). The same variable is measured by item v52 in WVS 2011-2014 across the world. Across 30 overlapping countries, it correlates with MAS-FEM at −0.31 ( p ¼ 0.09).
At the time when Hofstede developed his model, and even in 2001, when his main monograph was published, the scarcity of the available data did not allow adequate
North Europe
Anglo
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Africa
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Figure 7. A cultural map of the world produced by the new measures of collectivism- individualism and monumentalism- flexibility, showing the world’s main cultural regions
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large-scale tests. Hofstede’s analysis caused the admiration of many scholars, including the author of this paper. Yet the world has changed enormously since then and the amount of information about cross-cultural differences worldwide has increased manifold. This wealth of information today reveals a picture that is very different from what Hofstede extracted from his IBM data set and, apart from the fact that the Confucian societies are now somewhat more IDV-oriented, the difference does not seem to be a result of seismic cultural restructuring across the world. It comes from the nature of Hofstede’s IBM samples: they were not good representations of the cultures from which they were drawn, whereas the samples available today are far more representative.
Might the new model, proposed here, consisting of the new measures of IDV-COLL and FLX-MON, also be refuted upon closer scrutiny? It may certainly be modified, updated, and improved, but it cannot be completely dismantled in the near future, before very significant cultural shifts have occurred across the world. IDV-COLL is a dimension that transpires in one variant or another from any large study of culture, and each variant is closely associated with differences in national wealth and a host of other national indicators. The long history of FLX-MON and its predecessors from diverse studies, including the WVS, is described by Minkov, Bond, Dutt, Schachner, Morales, Sanchez et al. (in press). The validity of that dimension is confirmed by its strikingly close and persistent association with differences in national educational achievement, and measures of self-consistency and self-esteem from a variety of reliable studies, covering many countries across the globe, including self-confidence or self-esteem measures by PISA OECD, which relies on the largest nationally representative samples in the history of cross-cultural studies. Other national indicators, such as homicide rates and adolescent fertility seem to follow the same geographic distribution, rising from Confucian East Asia toward Latin America and Africa, whereas suicide rates and tobacco consumption seem to rise in the opposite direction. These, and many other research topics, are awaiting further exploration.
Note
1. Vietnam exhibits an unusual pattern on this item. That country scores relatively high in terms of percentages of people who would enforce strict laws, like in a typical collectivist country. The percentage of Vietnamese who would allow others to break useless laws is small in absolute terms, yet high relative to other countries.
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Taras, V., Steel, P. and Kirkman, B.L. (2012), “Improving national cultural indices using a longitudinal meta-analysis of Hofstede’s dimensions”, Journal of World Business, Vol. 47 No. 3, pp. 329-341.
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A revision of Hofstede’s
model
Transparency International (2017), “Corruption Perception Index”, available at: www.transparency. org/cpi2015/ (accessed February 15, 2017).
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Winzar, H. (2015), “The ecological fallacy: how to spot one and tips on how to use one to your advantage”, Australasian Marketing Journal, Vol. 23 No. 1, pp. 86-92.
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Corresponding author Michael Minkov can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected]
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Notes to Final Assignment/Ansoff Matrix pain and gain.pdf
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Ansoff’s Matrix, pain and gain Growth strategies and adaptive learning
among small food producers Gerald Watts, Jason Cope and Michael Hulme
Lancaster University Management School, Lancaster, UK
Introduction This paper arises from a programme of research among food sector SMEs in the North West of England. The research project included both qualitative and qualitative phases and its primary focus was on the growth and development needs of the sample firms.
The first part of the title derives from the focus on g rowth and, more specifically, strategies for growth relative to the four quadrants of Ansoff ’s matrix (Ansoff, 1965): market penetration, market development, product development and diversification (Figure 1). In the analysis, we used this framework to categorise growth strategies and then attempted to relate them to other variables such as growth history and expectations.
The second part of the title is a reference to the inter-relationship between the “personal” and the “business”, in that all of the sample were owner-managed businesses. It is well understood that owner-management has significant implications at the qualitative level (Bolton, 1971) and that many aspects of the business, including objectives and strategy are closely related to the personal characteristics and goals of the owner-manager. (Carson et al., 1995).
As a specific focus, we wanted to explore the usefulness of the Greiner life- cycle model (Greiner, 1972) in interpreting the relationship between personal and business experience and learning in a small firm. Greiner’s model depicts growth as occurring through phases of relatively stable expansion interspersed with periods of “crisis” which may result in successful adaptation and learning, facilitating a further phase of growth (Figure 2).
At a broader level, we have set out to refine our understanding of the complex relationship between the owner-manager and his or her business, in terms of such factors as growth, horizons, aspirations, limitations and learning.
Theoretical overview Enterprise growth A basic problem exists in understanding growth, in that larger, developed firms are so different from small firms “that in many ways it is hard to see that they are of the same genus” (Penrose, 1959); the same author likens this growth to the transformation from caterpillar to butterfly. To explain this metamorphosis in
Inte Jnl of Entrepreneurial Behaviour & Research,
Vol. 4 No. 2, 1998, pp. 101-111. © MCB University Press, 1355-2554This research project was sponsored by North West Fine Foods.
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more g radual terms, patter ns of enterprise g rowth are frequently conceptualised in the form of a business life cycle, comprising a number of phases or stages (Churchill and Lewis, 1983; Miller and Friesen, 1984; Scott and Br uce, 1987). These stages are then associated with generic management problems and organisational characteristics.
Figure 1. Anshoff’s product/market growth
Current Products
Market Penetration
Market Development
New
Product Development
Diversification
Current Markets
New Markets
Source: Iqor Ansoff. “Corporate Strategy”, McGraw-Hill. 1987
Figure 2. Greiner’s life-cycle
Size of
Firm
1. Crisis of Leadership
2. Crisis of Autonomy
3. Crisis of Control
3. Crisis of Red Tape
4. Crisis of ?
Age of Firm1. Growth through
Creativity
2. Growth through
Direction
3. Growth through
Delegation
3. Growth through
Co-ordination
3. Growth through
Collaboration
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There is an intuitive descriptive reasonableness in such stage models and some longitudinal studies, such as that of Miller and Friesen (1984), have managed to substantiate these general patterns of transformation, albeit in a descriptive sense. Greiner’s model (Greiner, 1972) includes an element of causal explanation in hypothesising growth as occurring in relatively stable phases, interspersed with “crises”; at the crisis point, the organisation either successfully adapts or fails. In this sense, the crisis may be seen as a necessary catalyst of learning and further growth.
Adaptation and learning The “crises” elaborated in the Greiner model are essentially internal; to continue the lepidopteral metaphor, they may be likened to “growing pains” within the protective case of the pupa. However, a business is very much an open system (Bertalannfy, 1950) and, in this sense, a basic prerequisite of survival and growth is “successful” adaptation to the environment.
There are many issues of conjecture here, not the least of which is how we define the “environment” and to what is the adaptation being made. In the discussion here, environmental change may occur gradually or rapidly; not all “crisis-inducing” change is sudden or unexpected. In biology, extinction of a species represents the ultimate in adaptive failure. Biologically such failure is more likely to be the result of an inability to adapt to a series of local environmental changes, often occurring g radually, rather than to single moments of crisis – a macro-level parallel to Handy’s “boiled frog” (Handy, 1989).
What do we really mean by “successful adaptation” in the business context? Not all adaptation is directional. In particular, the concept of learning implies directionality or purpose: “the creature that lear ns is not the mythical amphisbaena of the ancients, with a head at each end and no concern where it is going. It moves ahead from a known past into an unknown future and this future is not interchangeable with that past” (Wiener, 1950, p. 45).
The concept of purpose, intentionality of life span or the “survival instinct” is closely related to notions of strategy and planning. It is at such a fundamental level that concepts of strategy and learning might usefully be discussed in relation to SMEs. Dawkins (1988) has suggested that “complicated things have some quality, specifiable in advance, that is highly unlikely to have been acquired by random chance alone” (Dawkins, 1988, p. 9), a quality of adaptive ability.
One central concept relevant to this discussion is the notion of system boundary – where does the “environment” start and end? Adaptive ability can be linked to the idea of horizon or “range of vision”; Simon (1956) observed that “we see that the organism’s modest capacity to perform purposive acts over a short planning horizon permits it to survive easily in an environment where random behaviour would lead to rapid extinction” (Simon, 1956, p. 134).
W hat becomes increasingly important is the notion of the interactive relationship between the enterprise and its many micro environments. In
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systems terms, the “environment and system do not just co-exist side by side. They interact to the point of mutual inter-penetration. Some aspects of the environment become “inter nalised by the system and some aspects of the system become externalised to become features of the environment” (Emery and Trist, 1975, p. 43). A central concept here is the extension of the environment in relation to the enterprise. Behind this lie notions of degrees of environmental knowledge, degrees of specialised adaptation and limits placed on knowledge of extended environments. Such limits may be completely explicit, having a basis in knowledge of the extended environment and therefore constituting a “knowledge strategy”, or may be implicit or even “instinctual” with significant knowledge localised. However we conceptualise this, we should be aware that we are talking here in terms of relative degrees, rather than in any absolute sense.
Growth strategies In the context discussed above, marketing strategy is a form of purposive adaptation, in most circumstances (but not necessarily) informed by learning. It might typically be proactive in nature, but the degree of proactivity is a relative concept; SME strategy is often characterised as primarily “reactive” (Fuller, 1994).
Carson (1990) combines the concepts of limited proactivity and personal management in the concept of an “involved” marketing style, describing how small firm marketing is often characterised by a high level of direct involvement on the part of the owner-manager and how it “relies heavily on intuitive ideas and decisions and probably most importantly on common sense” (Carson, 1990).
Addressing the problem of strategic choice, Cravens et al. (1994) hypothesise that “choice of marketing growth strategy (in an SME) is a function of strategic situation, organisational characteristics, and entrepreneur motivations” (Cravens et al., 1994, p. 247). Many authors have commented on the typical limitations of strategic alternatives available to the small firm by virtue of such factors as small market share and limitations of resources and skills (e.g. Carson, 1985).
Because of these limitations, it has been suggested that certain strategic alternatives are typically more appropriate for a small firm, namely those that avoid direct competition with larger firms and that involve the development of close customer relationships and product adaptation (Storey and Sykes, 1996). In the specific language of Ansoff ’s Matrix, it has been suggested by Perry (1987) that for SMEs the most appropriate growth strategies are therefore product development and market development.
Primary research and findings Methodology The primary research included thre e phases: a number of exploratory interviews, a quantitative survey by means of a postal questionnaire supported
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by telephone introductions and prompts, and a series of 25 face-to-face interviews with a selected sub-sample of the respondents.
Sample profile As defined by the sponsors, the sample frame included non-primary food producers in rural areas of Cumbria, Lancashire and Cheshire. A sample of 256 fir ms was selected as the respondents of the mail questionnaire and 79 completed questionnaires were returned. The profile of the sample was as follows:
• Age of firm. As shown in Table I, compared with the SME population as a whole, the sample was older than average, with a flatter age distribution than might be expected. This reflects the origin of many of the sample businesses in the agriculture sector.
• Origins. A total of 68 per cent were founder-owners, while a further 16 per cent were continuing a family firm.
• Turnover. The distribution of annual sales is shown in Table II. • Employment size. Employment ranged from self-employed to a
maximum of 395, with median employment at four full time and two part time. As might be expected in this industry, employment reflected seasonality of sales, with 51 per cent of respondents reporting fluctuation in employment throughout the year.
Growth patterns and aspirations Recent historical growth (last two years). As shown in Table III, most of the sample (77 per cent) had experienced some sales growth over the last two years, with 36 per cent reporting growth of over 10 per cent and 12 per cent reporting growth of over 50 per cent.
Age (years) <5 5-10 10-20 20-40 >40
Per cent 19 23 23 12 20 Table I.
Age of firm
T/O (£m) <0.25 0.25-0.5 0.5-0.75 0.75-1.0 1.0-1.5 >1.5
Per cent 53 19 4 6 4 13
Decrease Stable >10 10-25 25-50 >50
8 14 41 19 5 12
Table II. Distribution of
annual sales
Table III. Percentage growth
patterns (over past two years)
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Short-term growth expectations (next two years). Respondents were somewhat more optimistic about future growth, with 47 per cent expecting to grow by more than 10 per cent over the next two years, as shown in Table IV.
Of those forecasting growth, 76 per cent expected to create new jobs (full time or part time).
Objectives and growth strategies Business objectives. Respondents were asked to rank their objectives for the business. The results are shown in Table V.
Sales growth took precedence, with 68 per cent of respondents naming growth as the primary objective. Surprisingly few respondents appeared to want to increase their personal (i.e. discretionary) time.
Growth strategy. Respondents were asked to rank their priority growth strategies, according to the categories of Ansoff’s Matrix (the alternatives being specified in familiar business language). Results are shown in Table VI.
Respondents placed a high priority on finding new customers for their existing product range (penetration and market development), whereas they gave a lower priority to the offering of new products to existing customers (product development). On balance, there is limited support for Perry’s (1987) hypothesis that product and market development would be favoured strategies.
Decrease Stable >10 10-25 25-50 >50
1 17 36 36 3 8
Table IV. Percentage short-term growth expectations
1 2 3 4 5 Objective (rank) (%) (%) (%) (%) (%)
Grow substantially 14 12 5 2 0 Grow moderately 54 6 6 0 1 Stay about the same size 3 0 2 3 1 Increase profit margins 22 31 11 1 0 Obtain more finance 5 13 18 11 5 Increase personal time 2 7 18 9 6
Table V. Objectives and growth strategies
1 2 3 4 Growth strategy (rank) (%) (%) (%) (%)
Market penetration 22 15 7 11 Market development 55 21 5 3 Product development 12 25 24 2 Diversification 121 7 15 22
Table VI. Priority growth strategies
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Priority growth strategies were then cross-tabulated with growth expectations, as shown in Table VII. This table therefore depicts the relationship between favoured growth strategy and growth expectations, i.e. the outcome of these strategies.
In exploring this relationship, one might expect to se e an association betwe en high g rowth expectations and the more radical or higher-risk strategies and vice versa, i.e. a strategy of market penetration being associated with lower growth expectations. On the basis of these findings, however, there does not seem to be much evidence of a clear relationship between strategy and growth expectations. One interpretation of this could be confusion about the language used to describe strategic alternatives; although a number of pre-tests were carried out in developing the questionnaire, this may have been a factor. Another explanation is that the adopted strategies were equally well developed; there is no reason why a strategy of market penetration should not yield significant growth. A further explanation is that at least some of the sample did not have an elaborated business strategy in the conventional sense. This issue was one object of exploration in the qualitative phase of this research.
Qualitative evidence Interview focus The interview objective was to review the historical development of the sample businesses through the personal account of the owner-manager, exploring the concept of “crisis” and attempting to understand the basis and meaning of “strategy” in each context.
The overall picture was one of immense diversity: of evolutionary pattern of the business and of personal background, values and aspirations of the owner- managers. What became strikingly apparent were the frequently occurring accounts of “chance” incidents causing changes in business direction, not all of which could be reasonably described as “crises”. On the other hand, there was clear evidence among some businesses of a consistent strategy with relatively long-term horizons. A full analysis of the interviews is beyond the scope of this paper but the following vignettes will serve to illustrate a number of relevant issues.
Sales growth expectations (%) Growth strategy Negative 0 0-10 10-25 25-50 >50
Market penetration 0 30 35 25 0 10
Market development 2 15 33 42 4 4
Product development 0 36 36 18 0 10
Diversification 0 20 40 20 0 20 Table VII.
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Case 1: personal and business crisis One interviewee ran a catering business but developed a small “traybake” operation as a secondary venture. She was visited by someone who, by chance, was the father of a major competitor. A few weeks after this incident, the son (i.e. the competitor) visited the main customer and took away the business. At the same time her mother died; the outcome of these two incidents was a period of depression. However, the interviewee recounted how she came out of this experience thinking “I’ve got lots to live for” and resolved, with later success, to develop the tray-bake venture as an alternative main business.
Case 2: reframing of personal motivation and aspirations Another interviewee had become bored with his current business – a delicatessen. He was buying an important ingredient from a local company and found that the business was about to be sold. He bought the business and operated it in parallel with the original venture but soon found that he enjoyed it much more, in terms of the challenge and the pattern of working life. He decided to concentrate on this venture and successfully developed it to become the premier regional supplier; in retrospect, he observed that this incident “changed his life”.
Case 3: an operational crisis leading to critical learning Another respondent recounted a critical incident in which his freezer broke down, effectively bringing his business to a halt. He felt obliged to go round all of his customers and apologise for the disruption. This incident taught him both the importance of maintaining vital equipment and the value of customer relationships. More generally, he learned “not to take things for granted” and that he “should do it properly if he’s going to do it at all”.
Case 4: unplanned acquisition forcing adaptive learning Another interviewee was a farmer, one of whose customers, a specialist fish and game retailer, got into financial difficulties and defaulted on payment. The far mer acquired the business in lieu of debts and, although he had no experience of a retail business, operated it in parallel with the farm. He made it work after an uphill struggle: “it was a shock not to have a guaranteed customer … I was stung a few times – a very expensive learning curve.”
Case 5: long-term market development strategy Another farmer was a producer of very high quality lamb, which, as is practice, was sold at auction; however, he always wanted to market his own product. He could also see subsidies coming to an end, which increased his resolve. He experimented with direct sales from his house, gained experience and confidence and now sells through three channels: direct, mail order and specialist dealer.
Case 6: successful opportunistic diversification The proprietors of an historic water mill generated revenue by offering tours and producing specialist flour. Soon after acquiring the business, they realised
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that large numbers of people passed the door on the local train and on the bridleway, representing an attractive potential market, although walkers were not previously made welcome on the site. They built a tea-room and have successfully expanded the business.
Case 7: financially driven diversification A producer of cakes found that competition had increased to the point that, although he had increased output tenfold, profits had barely doubled. Seeking a route to higher margin products, he started designing new product ranges from the customers’ perspective and is now successfully exporting to Canada.
Conclusions Strategy and adaptation All of the cases discussed here are examples of successful “adaptation”; most resulted in what could be described as a new “strategy”. They represent diversity in many dimensions: timescale, motivation, degree of proactivity and impact, both positive and negative, on the owner-manager and on the business.
Some of these are clear examples of “strategy that happened” or “emergent strategy” (Mintzberg, 1994) rather than the deliberate, logically planned or “intended” notion of strategy often espoused within the planning literature.
What has earlier been described as the “instinctual” combines concepts of lear ning and action as strategy in one node within the enterprise’s environmental network. Such a strategy may not be explicit but rather tacit and localised. Importantly, at this level of discussion there is little or no distinction between tactics and strategy: “we find that the optimal strategy is just the simple tactic of attempting to do one’s best on a purely local basis” (Schutzenberger, 1954, p. 98). Ashby (1960) takes this argument further to suggest that within such micro environments “the best tactic in the circumstances can be learnt only on a trial and error basis and only for a particular class of local environmental variances” (Schutzenberger, 1954, p. 197).
The business life cycle and “progress” Scott and Bruce (1987) describe the birth phase of the business life cycle as being characterised by “owner-r un fir ms trying to establish a niche for themselves through much product innovation”. In this sense, many of the firms studied might be described as permanently in the birth phase.
This serves to illustrate one fundamental problem inherent in the very concept of the life cycle. Key words in this discussion have been environment and g rowth; an underlying but unspoken concept is that of unilinear development or “progress” . A consistent theme in our discussion, illuminated by our research, is that “growth” should more usefully be placed within an environmental context and should not be confused with progress, if the latter is seen as an imposition upon environmental change. Indeed, growth here can be
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characterised as symbiotic within environments, i.e. g rowth is not an “imposition” but rather an adaptation.
We have earlier used the term “instinctual” to characterise enterprises operating in a purely local environment. Learning and strategy is task based and the level of local adaptation is high. However we must avoid the common mistake of regarding such enterprises as in “non-progressive” stasis and lesser “successes” when compared to enterprises actively seeking to extend their environment. The act of survival in this view is itself an active notion – indeed to maintain the Emery and Trist line one may go further and relate extinction to a failure of the enterprise to act symbiotically over time. Therefore the sole measure of “success” may well be nothing more than temporal survival related to the enterprise’s intended life span.
Boundaries, learning and intervention So often it seems that the owners’ boundaries of vision, in both lateral and longitudinal senses, were simply too narrowly defined and that substantial benefits might derive from their expansion. Uexküll (1920) wrote that “every organism cuts out a special part of the environment which part then becomes its reality. The rest of the environment simply does not exist for the organism” . In this sense, the bakery in Cumbria supplying within a 30-mile radius has a more limited environment than the national producer.
However, the local enterprise is embedded within many networks within this environment and indeed “the firm’s effectiveness will be a function of how well it integrates the various types of network relationships” (Gibb, 1996). While these networks “attach” to wider environments, it is their specific localised manifestation which forms the immediate topography of the local environment.
Based on the environmental adaptation model it is reasonable to argue that a key role of training in small firms becomes one of extending environmental awareness such as to stimulate generative lear ning beyond its naturally occurring level.
The owner-manager and the business Clearly, the frequently-acknowledged “overlap” of the “personal” and the “business” is much more than this; instead, it is a super-complex system of evolving experience and lear ning that is infor ming horizons, goals and strategies, sometimes subtly, sometimes radically.
Rather than a unidirectional influence of the owner-manager over the business, we find it useful to characterise the relationship as mutual and interactive: owners share learning with their businesses and there is mutual cross-influence in this process. Similarly, the development process can more usefully be conceived as multilinear or multi-directional, therefore also complicating the idea of growth itself.
In this context, the concept of “crisis” is clearly problematic, in that the causality of learning and growth is much more complex than that suggested by
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the Greiner model. This was bor ne out by our research, in that most interviewees found it difficult to recount specific crises of this nature.
Instead, we recommend that the “systems” view of the firm that we have developed throughout this discussion provides a richer and more useful framework for understanding these complex processes.
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London. Carson, D.J. (1985), “The evolution of marketing in small firms”, European Journal of Marketing,
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(a qualitative approach)”, European Journal of Marketing, Vol. 24 No. 11, pp. 5-51. Carson, D., Cromie, S., McGowan, P. and Hill, J. (1995), Marketing and Entrepreneurship in SMEs,
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entrepreneurship and marketing strategy research”, in Hills, G. (Ed.), Marketing and Entrepreneurship: Research Ideas and Opportunities, Greenwood, Westport, CT, pp. 235-53.
Dawkins, R. (1988), The Blind Watchmaker, Penguin, London. Emery, F.E. and Trist, E.L. (1975), Towards a Social Ecology, Plenum, London. Fuller, P.B. (1994), “Assessing marketing in small and medium sized enterprises”, European
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as a learning organisation”, International Small Business Journal, Vol. 15 No. 3, pp. 13-29. Greiner, L.E. (1972), “Evolution and revolution as organisations grow”, Harvard Business Review,
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Notes to Final Assignment/Benchmarking the competitiveness of the ASEAN 5 equity markets.pdf
Benchmarking the competitiveness of the
ASEAN 5 equity markets An application of Porter’s diamond model
Wanida Jarungkitkul and Sorasart Sukcharoensin School of Development Economics,
National Institute of Development Administration (NIDA), Bangkok, Thailand
Abstract Purpose – The purpose of this paper is to study the competitiveness of the stock markets in ASEAN 5, which are the Stock Exchange of Thailand (SET), the Singapore Exchange (SGX), Bursa Malaysia (BM), the Indonesia Stock Exchange (IDX), and the Philippine Stock Exchange (PSE). Design/methodology/approach – This research applies Porter’s (1990) diamond model to analyze the competitiveness and the data were collected from World Economic Forum, International Institute for Management Development, the World Federation of Exchanges database, and DataStream. Findings – The results show that SGX is the most competitive exchange in ASEAN 5 region. It dominates other exchanges in every dimension. It gains its reputation for being the region’s most prominent exchange, followed by BM, SET, IDX, and the PSE, respectively. Practical implications – The results of this investigation provide rank for competitiveness of stock exchanges among ASEAN 5 and identify the way to improve its competitive position. Social implications – It is useful for public and private sectors involved in the development and policy making to promote funding and investment efficiency of the exchanges. It will be benefit to establish the well-planned development strategy and policy to build up the competitive advantage of the nations. Originality/value – Identifying and benchmarking the competitiveness of the stock markets in ASEAN economies. By using Diamond Model, the authors propose indicators to assess the competitiveness of the stock markets in ASEAN 5 countries. Assessing the competitiveness of the ASEAN stock markets in this paper will lead us to better understand about each country’s strengths and weaknesses and to promote a mutual collaboration among the region toward ASEAN Economic Community. Keywords Benchmarking, Competitive advantage, ASEAN, Stock markets Paper type Research paper
Introduction The ASEAN has been a regional economic integration initiated in 1967. The collaboration aims to increase the potential of bargaining position in the global, and share resources among members within this region. The cooperation has been started by ASEAN Free Trade Area initiating in 1993. ASEAN’s economic performance continues to outpace the rest of the world with the Asian Development Bank (ADB) predicting that GDP in ASEAN countries will grow 5.3 percent in 2013 and 5.6 percent in 2014. One important attempt devoted to financial sector development is the linkage between seven stock markets from six countries in ASEAN, namely, ASEAN exchanges. The members of the ASEAN exchanges are Thailand, Malaysia, Indonesia, Philippine, Singapore, Ho Chi Min, and Hanoi. The issue of stock markets integration has been emphasized
Benchmarking: An International Journal Vol. 23 No. 5, 2016 pp. 1312-1340 © Emerald Group Publishing Limited 1463-5771 DOI 10.1108/BIJ-05-2014-0047
Received 29 May 2014 Revised 5 January 2015 Accepted 13 January 2015
The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/1463-5771.htm
The authors would like to thank Thailand Research Fund (TRF) for research grant.
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by the liberalization of financial markets, which start out by relaxation of international capital flows and the growing cross-border investment into ASEAN. Furthermore, leaders of the ASEAN countries confirmed their commitment to the founding of the ASEAN Economic Community (AEC), briefly AEC, by the end of 2015. It is enthusiastically to transform ASEAN to be a free movement zone of goods, services, skilled labor, investment, and capital. This impressive performance will shape the region with an important investment opportunity. One of the main objectives for the collaboration is to establish market base economies, in which financial sectors are liberalized. It is expected that financial and capital markets will be integrated to ensure that capital flows are flowed toward the right mechanism, so reducing the vulnerable to the crisis.
One accelerating pace of regional stock market integration that worth noted is devoted to ASEAN trading link, a gateway for securities brokers to offer their clients access to each exchanges at ease. Individual investors can be able to buy about 2,300 shares of a company in Malaysia, Singapore, or Thailand at their convenience with a tax exemption for capital gains. The link of three exchanges accounts for 67 percent of the total market capitalization of the ASEAN exchanges group. In stock market integration areas, there is a marked interest in assessing the issue of competitiveness among each stock exchange in the region. This attempt toward regional stock market integration not only creates benefits toward a cross-border harmonization and more trading of ASEAN centric products, but also intensifies competition among them. Therefore, benchmarking provides the baseline by which an equity market can articulate key issues and a means by which to measure their competitiveness among each national stock exchange. Many organizations worldwide look at benchmarking as a tool to help them to achieve better result and to learn from others in order to improve competitive advantage, with no exception for the stock exchanges in ASEAN.
In this study, we benchmark the competitiveness of the stock market among five nations of ASEAN using Porter’s diamond model. There are two main search questions for this paper. First, which stock exchange has higher level of competitiveness than others in ASEAN region? And how to improve competitiveness of each stock exchange to be more competitive in the future? In answering them, we first construct indicators examining the competitiveness under Porter’s diamond model. Then, we compare the competitiveness of each stock exchange in each dimension. Next, we discuss results and implications for each exchange and ASEAN as a region by introducing many different ideas and policies for continuous improvement toward competiveness.
The contribution of this research has two folds. First, benchmarking stock market competitiveness is interesting area of research, which, there are no research has previously explored. This study will fill a literature gap in benchmarking equity markets under the theme of financial integration in ASEAN. Through benchmarking process, we can assess stock market in each country for its competiveness against the best-in-class exchange in the region and provides an opportunity to learn from others in order to reduce gap among regional exchanges to foster the future of the economics and financial integration. The benchmarking process is valuable to each stock market by introducing many different ideas for continuous improvement toward competiveness. Since the stock market in one country can compare its score against other exchanges and identify the weak and strong points, the analysis is also useful for public and private sectors involved in the development and policy making to promote funding and investment efficiency of the exchanges. Second, the approach being used in this paper is new. This paper computes simple indices using published information, organizes, and adds them for comparing the stock markets of five ASEAN stock markets. To the
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best of our knowledge, it is also the first attempt to generalize Porter’s diamond model to benchmark stock market competitiveness. A number of prior researches have been focussed on comparative study of the stock market integration in the ASEAN region such as Karim and Ning (2013) or Das (2014). However, these research works are quantitative studies focussing on one or a few particular aspects of the stock markets, not the competitiveness aspect. This study analyzes several facets of competitive advantage using quantitative approach to benchmark stock exchanges in the region.
The paper is divided in five parts. The first part is devoted to the motivation for competiveness among ASEAN 5 countries. It is then followed by second part, which presents a short overview of the stock market integration in ASEAN and the literature reviews and conceptual framework explaining stock market competitiveness based on Porter’s diamond model. The third section presents the data and methodology used in the study. After that, we analyze and compare the competitiveness of ASEAN 5 stock markets in the fourth section based on the diamond model. The last section concludes the main findings and implications of the research.
Literature review A brief review of ASEAN stock markets This section provides a brief review of ASEAN stock markets. A stock exchange is an organized market in which a participant can trade securities in a publicly visible manner, under recognized guidelines relevant to all memberships of the organization. As part of the financial system, exchanges can have an effect on economic growth through their effects on capital accumulation. The concern for stock market development is a key alarm in all ASEAN members as important fragment of their particular financial deepening programs. In 2009, the ASEAN step forward to AEC for establishing market base and working together to strengthen in the region. One of activities related to financial sector development is the linkage between seven stock markets from six countries in ASEAN, namely, ASEAN exchanges. The members of the ASEAN exchanges are Thailand, Malaysia, Indonesia, Philippine, Singapore, Ho Chi Min, and Hanoi. The purpose of forming the ASEAN exchanges is to make the feasibility for funding and investment in the region. Together, there are 3,613 companies listed in seven stock markets. Total stock market value is USD1,980.37 billion, making the eighth ranked with about 4 percent of the market capitalization in the world according to the World Federation of Exchanges (2012) as shown in Figure 1. There are 3,613 companies listed in seven stock markets. Hopefully, the integration of stock markets in ASEAN becomes more interesting in global investor’s perspective and attracts more foreign investment to the region.
The stock market capitalizations of the ASEAN region have noticed considerable progress after the 1997 Asian financial crisis, although with different speed of progress across countries. After Asian financial crisis, ASEAN has been riding an unprecedented bull market. ASEAN members have initiated plans to develop their local stock markets. There have been also determinations to synchronize the market, set up settlement customary, promote transparency, and integrate exchanges among members. The market value of equity markets in Malaysia, Thailand, and Singapore have approximately been at comparable level as shown in Figure 2. According to data reported by world federation of exchange, in 2012, the stock market in Malaysia, Indonesia, Thailand, and the Philippines are at 466.59, 428.22, 389.76, and 229.32 billion dollars, respectively.
The underlying growth in ASEAN stock market is significant. Table I shows annual growth rates of ASEAN 5 stock exchanges during 1997-2012. It is noted that the
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466.59
428.22
229.32
765.08
389.76
–
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
B ill
io n U
S D
Domestic Market Capitalization
Bursa Malaysia
Indonesia SE
Philippine SE
Singapore Exchange
The Stock Exchange of Thailand
Source: World Federation of Exchanges (2012)
Figure 2. Market capitalization
of ASEAN 5 exchange during
1997-2012
NYSE Euronext (US), 13,150.14, 25%
NASDAQ OMX, 4,486.68, 8%
Tokyo SE Group, 3,315.35, 6%
London SE Group, 3,307.19, 6%NYSE Euronext (Europe),
2,479.87, 5% Hong Kong Exchange,
2,408.09, 4% Shanghai SE, 2,282.49, 4%
ASEAN exchanges, 1,980.37, 4%
TMX Group, 1,910.35, 4%
Australian SE, 1,293.12, 2%
the rest of the world (43 stock exchanges), 16,867.39, 32%
Note: Units: billion USD Source: World Federation of Exchanges (2012)
Figure 1. Market capitalization
of ASEAN 5 exchanges and the world stock market
Stock market Average annual market capitalization
growth (1997-2012) (%) Market capitalization growth
during 1997-2012
Bursa Malaysia 11.33 4.0 Indonesia SE 19.65 13.7 Philippine SE 14.18 6.3 Singapore Exchange 14.20 6.3 The Stock Exchange of Thailand 20.80 16.0 ASEAN 5 14.98 7.1 Notes: The average annual market capitalization growth is the geometric mean of the market capitalization for each year during 1997-2012. The market capitalization growth is the change calcu- lated using 2012 and 1997 data
Table I. Growth of ASEAN 5
exchanges
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geometric average annual growth rate for the region is 14.98 percent. Among others, the Stock Exchange of Thailand (SET) occupies the top spot with average annual growth of 20.80 percent, followed by Indonesia Stock Exchange (IDX) (19.65 percent), Singapore Exchange (SGX) (14.20 percent), Philippine Stock Exchange (PSE) (14.18 percent), and Bursa Malaysia (BM) (11.33 percent). Moreover, the total market capitalization of the SET has ascended at maximum speed, up to 16 times during 1997-2012. IDX is a runner-up in growth. The growth of the market capitalization for IDX is almost 14 times. The total stock market capitalization of SGX and PSE have risen more than six folds in the past 16 years, followed by BM, quadruple the market capitalization, during 1997-2012, respectively.
Benchmarking and the competitiveness Benchmarking is the process of systematically identifying, analyzing, and adapting industries’ best practices for an organization’s performance (Boxwell, 1994). Benchmarking is an increasingly important management tools being used for continuous improvement by comparing a firm’s practices and performance measures with that of its most successful competitors (Leibfried and McNair, 1992; Boston Consulting Group, 1994; Attiany, 2009) defined benchmarking as a systematic approach through which organizations can measure their performances against the best-in-class organizations. The process of benchmarking is more than just a means of gathering data on how well an organization performs against others. It is a powerful and effective tool to learn from other in order to get the excellence. Benchmarking can also be used at industry or country level. Comparing best practice from an international geographic location of the comparison organization is referred to international benchmarking (Watson, 1993). The key motivation behind benchmarking is for an organization to improve its performance and reduce gap between the organization and its superior comparables (Oakland, 2003; Van Schalkwyk, 1998).
There are several types of benchmarking that are in use today. These are process benchmarking, performance benchmarking, strategic benchmarking, international benchmarking, and competitive advantage benchmarking (Bogan, 1994; Boxwell, 1994; OECD, 1997). Among these, Lankford (2000) argues that competitive benchmarking is the most difficult type of benchmarking to practice. For obvious reasons, organizations are not interested in helping a competitor by sharing information. Most of the time, this form of benchmarking is measuring the performance, products, and services of an organization against its direct or indirect competitors in its own industry. This does not just include the disassembly and examination of the product but it analyzes the entire customers’ path of the organization’s competitor. This is a difficult thing to do because this information is not easily obtained; therefore, it needs to do an extensive research and requires unbiased outsiders to perform the benchmarking functions. Overall, different organizations can have their own benchmarking methods, but no matter which method is used, benchmarking practices usually imply the notions of competition. Therefore, in a world of scarce resources, the attempt to analyze competition has been in the center of researches since the 1980s. The use of benchmarking as a competitive tool was embraced by firms cutting across diverse industry including construction, education, aviation, manufacturing, banking, financial services, insurance, health care services, and government among others (Luu et al., 2008; Henderson et al., 2006). Andersen (1999) notes that competitive benchmarking can be useful and add most value when comparing performance levels and/or strategies of organizations. Among others, some studies have been focus on the role of benchmarking in achieving competitive advantage or continuous improvement (such as Boxwell, 1994; Attiany, 2014), but not benchmarking the competitiveness.
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The study of the competitiveness has recognized popular due to its importance in shaping an organization to a sound business strategy development (Feurer and Chaharbaghi, 1994). Several studies have been focussed on the issue of competitiveness. These studies can be grouped further into organization, industrial, and national competitiveness; in other words, micro-, meso-, and macro-level of competitiveness. Flanagan et al. (2007) discuss and review main schools of competing thought for the competitiveness. These are, first, the competitive advantage model of Porter (1980) which based on the industrial organization view, and second, the resource-based view of Wernerfelt (1984). The diamond framework by Porter (1980, 1985) has been widely used when analyzing competitiveness at both industry and national level. There were limited studies on benchmarking or comparative study of organizations on their competitiveness until Porter published his seminal works on diamond model system (Porter, 1990, 1998, make possible). He proposed a model that examines why some states are more competitive and why some industries within states are more competitive than others are. In this fashion, Porter’s diamond model of national competitiveness has been perceived as a model that helps understand the competitive position of a nation in global competition as well.
A resource-based view of competitiveness clarifies its capacity to deliver sustainable competitive advantage when resources are managed such that their consequences cannot be imitated by competitors, which ultimately creates a competitive barrier. In his article “A Resource-Based View of the Firm” Wernerfelt (1984), on the other hand, assumes competitive advantage does not depend on market and industry structures, but restrain from the resources inside an organization. The unique resources such as financial resources, tangible resources, and intangible resources, of an organization is the source of competitiveness. A competing firm can come in the market with a resource that has the ability to overthrow the preceding firm’s competitive advantage, which results in reduced. However, the concept of resources remains an amorphous one that is rarely operationally defined and explored in different competitive environments (Miller and Shamsie, 1996). Moreover, the use of its inward concentration may risk ignoring the market structures and conditions. More importantly, a resource-based view holds that sustained competitive advantage can be attained effortlessly by taking advantage of internal rather than external factors as compared to industrial organization view such as Porter’s diamond model (Hooley et al., 1998).
Since our objective in this study is to benchmarking the competitiveness of ASEAN stock exchanges, in which external environment rather than the performance of the stock exchanges is the main concerns; therefore, it is more justified to apply Porter’s diamond model as a framework for benchmarking competitiveness. ASEAN stock exchanges are also appropriate case study for benchmarking the competitiveness because ASEAN integration is attempted toward collaborative regional stock market, and at the same time, also intensifies competition among them. This situation is consistent with benchmarking concept because benchmarking measures their competiveness against the best-in-class exchange in the region and provides an opportunity to learn from others in order to reduce gap among regional exchanges to foster the future of the integration. The benchmarking process is valuable to each stock market by introducing many different ideas for continuous improvement toward competiveness. This is because improving competitiveness is a long-term process rather than a short-term operation (Dixit and Joshi, 2011).
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Porter’s competitive advantage framework As the objective of the research is to benchmarking the competitiveness of the stock exchanges in the ASEAN region, we have to build our indicators representing competitiveness of the stock exchanges. There are numerous issues that affect the environment in which stock markets function. We try to develop those indicators on the competitiveness of the stock exchanges taking into account that stock exchanges work in a national environment that can develop or hamper those businesses’ ability to compete within their own countries or internationally. This concern can be assessed by using Porter’s (1990) framework, which attempts to establish a connection between the academic literatures in strategic management and international economics. In his book, Competitive Advantage of Nations in 1990, his model has been constructing a foundation for developing national policies on competitiveness by introducing the comprehensive framework, which he calls the diamond. The model is a dynamic system in which all elements interrelate and support each other so as to make it difficult to replicate the structure of the industry in another country. Diamond model is the competitive advantage framework for countries, sectors, and firm levels. He investigates different economic characteristics of firms operated in ten countries to find the elements that determine the competitiveness of nations. He tries to explain why some regions are more competitive than others are and how firms gain superior positions in the country on global competitiveness.
The phenomena that are analyzed under the model are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness (Porter, 1990). There are four important determinants for the competitiveness, factor conditions, demand conditions, related and supporting industries, and firm’s strategy, structure, and rivalry factors. The government influences each component positively to achieve national competitive advantage. Chance is any event or occurrence that is outside of control of a firm. The details are illustrated in Figure 3.
Early works using this framework are based on one country’s competitiveness. Later, several prior studies commonly apply Porter’s diamond model when comparing competitiveness among nations to identify the sources of international competitive advantage (Hitt et al., 1999; Öz, 2002). One significant research is Stone and Ranchhod (2006) utilize Porter’s diamond of competitive advantage and develops a quantitative approach to determine the competitive advantage of a nation. The paper attempts to redress this balance by providing a more robust framework for assessing the relative global competitive advantage of a nation. Applying this approach to the BRIC nations,
The Firm’s strategy structure and rivalry
The Related-supplier Industries
Factor Conditions Demand Conditions
Chance
Role of Government
Source: Porter (1990)
Figure 3. Diamond model
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the UK, and the USA has yielded some interesting results indicating that the UK is currently the most competitive nation and that China will soon position itself as a truly competitive one. In this study, we propose that the diamond model can be used to analyze stock market competitiveness. Diamond model chosen for analysis since it is one of the most popular tools for the competitiveness analysis among nations. Also, we compare many external environment factors rather than focus on only performance of the stock exchanges; therefore, it is more justified to apply Porter’s diamond model as a framework for benchmarking competitiveness instead of using resource-based view’s model. Factor conditions are basic input and high quality/specialized input such as human resources, physical resources, knowledge resources, capital resources, and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages. These are commonly called by economists as factors of production and represent merely the inputs necessary for everyday operations. Within this framework, we look at basic infrastructure of the country in which the stock markets operate in, for instance, capital market structure, financial skills of human resources, infrastructure, availability of financial services, affordability of financial service, and share of stock market capitalization. Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors. In the context of stock exchange, we look at various proxies of market size, growth, variety of products offered, and level of competition in each market. Related and supporting industries can produce inputs which are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate. We focus on business environment to support the stock exchange activities. These factors include level of ethical standard, corporate governance mechanism, auditing, and level of internal control system, as well as availability of venture capital companies. Firm’s strategy, structure, and rivalry constitute the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. In our study, we investigate the basic infrastructure of each exchange to facilitate the security trading, trading participants, and level of market stability. The presence of intense rivalry in the home base is also important. It creates pressure to innovate in order to upgrade competitiveness. We then include market share and overall financial performance and attractiveness of listed companies into analysis.
Further, role of government and chance can influence each of the above four determinants of competitiveness. Role of government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national, or supranational level. One of the key relationships between government and the facets of the model is the governmental policy to impose or reduce taxes related to security trading such as capital gain taxes or dividend taxes. Although chance events are occurrences that are outside of control of a firm, they are important because they create discontinuities in which some gain competitive positions and some lose. We incorporate efficiency of the country’s public finance policy and institutional framework, as well as government regulations of business for the analysis.
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Data and methodology Data In this study, we collect the data from secondary sources and compute simple indices for each factor under the Porter diamond to comparatively analyze the competitiveness of the ASEAN 5 stock markets. There are a variety of sources the statistical data or indices are collected. We comply the data and categorize them using Porter’s diamond framework. The macroeconomics factors are synthesized from the Global Competitiveness Report presented by World Economic Forum, World Bank, and International Institute for Management Development. Financial structure data were obtained from ADB, tax rates and structures are compared using Deloitte International Tax Source. For stock market information, we collect from the stock market database of each country, the World Federation of Exchanges database and DataStream. Corporate governance information is obtained from Asian Corporate Governance Association. Data relating to performance in monetary and fiscal policy is gathered from IMD’s World Competitiveness Yearbook. Industry concentration (measured by Herfindahl Index (HI)), concentration ratio, and volatility of the stock markets are calculated by the authors using statistics from DataStream. All data are analyzed at the end of the year 2012 or at the nearest available period.
Methodology We employ exploratory research to analyze data of various dimensions proposed by Porter (1990) for stock markets of five ASEAN members. Kotler et al. (2004, p. 345) described that exploratory research is a kind of research, intended to “gather preliminary information that will help to better define problems and suggest hypothesis.” Various academic papers suggest that exploratory research is suitable to study multi-dimensional phenomena (Yin, 2003) since the methodology provides a clearer holistic assessment of the context (Ghauri and Gronhaug, 2005). We acknowledge that selection of performance measures or indicators is one of the most important steps in benchmarking. Benchmarking will have limited benefits or even be damaging if the quality of the indicators is not satisfactory. As a result, we then conduct focus group methodology to identify indicators in each dimension under the framework of Porter’s diamond model that are appropriate for assessing stock exchange competitiveness. A group of ten capital market experts are invited to the forum to generate indicators. These indicators are generally used to compare the results of one stock market to other stock markets. In doing so, stock market in one country can compare its score against other exchanges and identify the weak and strong points. This can consequently seek to reduce the weaknesses by benchmarking their processes against best-in-class organizations (Helgason, 1997).
After getting raw data for each indicator from various sources, we then use relative value approach. This method is proposed by Stone and Ranchhod (2006) to describe the growth of the BRIC nations (Brazil, Russia, India and China) relative to the competitive advantage of the main OECD nations. Their paper utilizes the framework within Porter’s diamond of competitive advantage and develops a quantitative approach to determine the competitive advantage of a nation. They compute the relative value of subcategories under each competitiveness indicator for comparison. Therefore, we employ this approach to compute relative value for each indicator under Porter’s framework among ASEAN 5 stock markets. Relative value approach is a method of determining an indicator’s value that takes into account the value of other countries’ data for comparison. In contrast, absolute value looks only at a country’s indicators and
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does not compare them to other countries. Supporting references to the methodology about using the relative value calculation for comparing data for different countries are World Bank (2011a, b); which the calculation is based on four aspects for financial sector and stock market development. However, these studies do not cover the assessment of competitiveness. Since our objective is to benchmark competitiveness of stock markets in ASEAN; therefore, we use of the Porter’s diamond framework to measure competitiveness. The indicators based on the diamond model included factor condition, demand condition, related and supporting industries, and firm strategy, structure and rivalry are transformed into relative values. The relative value of each indicator for assessment of stock market development among five nations can be calculated by using following equation:
CA;i ¼ ValueA;i–MinA � �
MaxA–MinAð Þ=10 (1)
where CA,i is the relative value of factor A for stock market i; ValueA,I, the numeric value of factor A for stock market i; MinA, the minimum value of factor A in all stock market; MaxA, the maximum value of factor A in all stock market; 10 ¼ graph scale full points to compare among stock market; i ¼ SGX, SET, BM, PSE, IDX; A, the four important determinants for the competitiveness; factor conditions, demand conditions, related and supporting industries, and firm’s strategy, structure, and rivalry factors.
Scores that are computed can vary from 0 to 10 and show relative positions on selected criteria. In principle, a higher competitive advantage stock market should have higher relative value than a lower competitive advantage equity market for one or all dimensions. Unlike the absolute value, since the relative value adjust the most preferable facet to the maximum score and least preferable one to the minimum score. For instance, among all stock markets, an equity market with a relative value of 10 in the scale indicates a more competitive condition for a particular aspect comparing to other stock markets. Therefore, we then hypothesize that the cumulative overall relative value for a country having higher competitive advantage should be greater than lower competitive advantage equity markets.
Analysis of the competitiveness for ASEAN 5 stock markets The competitiveness of stock market among ASEAN 5 nations was analyzed based on diamond model. This model considers the four aspects of stock market environment including factor condition, demand condition, related and supporting industries, firm strategy, structure, and rivalry. In addition, the role of government is affecting factor on four key factors. We hypothesize that the cumulative relative value for a country having higher competitive advantage should be greater than lower competitive advantage equity markets.
Factor condition Factor condition comprises of basic, or non-key, factor and advanced, or specialized, factor. Basic factor such as unskilled labors and raw materials or basic infrastructures can be obtained by any organizations. Basic factor refers to quality of infrastructures, investment in telecommunication, connectivity of people and firms and technological cooperation. Specialized factors of production involve heavy, sustained investment. They are more difficult to duplicate. This leads to a sustained competitive advantage because if other firms cannot easily duplicate these factors. Advanced factor refers to innovation, skill of labor in finance market and financial deepening.
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The results show that the mean score of the factor condition among five nations is 4.66. Comparing factor condition between five nations, SGX holds the first position (CF,SGX ¼ 9.16) and BM is ranked second (CF,BM ¼ 7.44). They are only two stock markets that have score on factor condition above the mean score. Although SET is ranked third among ASEAN 5 stock markets, however, the score on factor condition is below average (CF,SET ¼ 2.85) Whereas the PSE (CF,PSE ¼ 2.19) and IDX (CF,IDX ¼ 1.67 ) are fourth and fifth in ranking, respectively.
When considering the details of factor condition, we find that SGX has highest score in almost every aspect. BM has highest score in telecommunication infrastructure investment, low-financial risk, and high capacity for innovation, but low score for remuneration in services professions dimension. SET has more strength such as financial depth, as measured by the market capitalization to GDP ratio, financial risk factor, and relative competitive remuneration for labors in services professions, but SET has many weaknesses such as quality of overall infrastructure, language skills, company spending on R&D, capacity for innovation, and quality of management schools.
Considering the size of the equity markets in this region, the ratio of stock market capitalization to GDP for Singapore and Malaysia have exceeds 100 percent (290 percent for SGX and 170 percent for BM). This means the size of the two stock markets is larger than the size of the economy as a whole for each country. However, it is not the case and less pervasive for Thailand, Philippines, and Indonesia, which have the ratio of stock market capitalization to GDP at 87, 83, and 51 percent in 2012, respectively. The meaning is that the sizes of these stock markets are smaller than the size of the economy for each country. The details are shown in Table II.
Demand conditions Demand conditions are the pressure based on requirement about quality and service in stock market of the market participants. It comprises of two sets: size and growth of demand, and sophisticated demand. Size and growth of demand refer to GDP growth rate, market capitalization, and value of share trading. Sophisticated demand refers to number of listed companies, number of newly listed, products in market, market concentration (CR10), and HI in industries. The market concentration ratio, CR10, is the percentage market share attributable to a given number of the ten largest listed firms in a stock market. Likewise, HI is a measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then adding the resulting numbers. A more developed and competitive market should have low concentration of a few largest firms in the market and high competition within a particular industry in order for market participants to take part.
The results in Table III show that among five nations, mean score of demand condition was 4.37. Comparing demand conditions among five nations, there are three equity markets in the region having above average score. SGX holds the first ranked (CD,SGX ¼ 6.14), BM is second ranked (CD,BM ¼ 5.36), SET was third ranked (CD,SET ¼ 4.62). Another two markets are below the average score; IDX was fourth ranked (CD,IDX ¼ 3.69). Lastly, PSE holds lowest rank (CD,PSE ¼ 2.04).
Besides, considering the details of demand conditions, we find that SGX has highest score in almost every aspect, except for relatively slow economic growth, low volume of share trading, and low-competitive forces as measured by HI. BM has highest score in accessibility to the stock market as highlighted by a large number of listed companies and a more dispersed market structure. SET has its strength in turnover velocity and average daily turnover which is highest among five nations. In addition, SET has a relatively high variety of investment products, following SGX. However, SET has many threats such as
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se rv ic es
pr of es si on s ($ )
22 ,4 88
13 ,7 28
8, 62 9
2, 48 4
4, 31 5
10 .0 0
5. 62
3. 07
0. 00
0. 92
B ra in
dr ai n
5. 7
4. 1
4. 7
3. 4
4 10 .0 0
3. 04
5. 65
0. 00
2. 64
C ap ac it y fo r in no va ti on
4. 4
3 4. 6
2. 9
3. 9
8. 82
0. 59
10 .0 0
0. 00
5. 88
C om
pa ny
sp en di ng
on R & D
5. 1
3. 1
4. 7
3. 2
3. 9
10 .0 0
0. 00
8. 00
0. 50
4. 00
Sc or e
9. 85
2. 84
6. 97
3. 02
1. 95
M ea n sc or e (4 .6 6)
9. 16
2. 85
7. 44
2. 19
1. 67
Table II. Factor condition
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Benchmarking the competitiveness of the ASEAN 5 equity markets
D es cr ip ti on s
D at a
Sc or e (0 -1 0)
SG X
SE T
B M
P SE
ID X
SG X
SE T
B M
P SE
ID X
2. D em
an d co nd
it io ns
2. 1 S iz e an
d gr ow
th of
de m an
d G D P gr ow
th (%
) 3. 59
4. 50
5. 00
5. 00
6. 54
0. 00
3. 08
4. 78
4. 78
10 .0 0
M ar ke t ca pi ta liz at io n (b ill io n U SD
) 54 9. 33
23 5. 53
34 5. 77
13 2. 16
28 4. 02
10 .0 0
2. 48
5. 12
0. 00
3. 64
M ar ke t ca pi ta liz at io n gr ow
th (%
) 14 .7 0
27 .7 1
18 .3 1
36 .0 7
31 .9 5
0. 00
6. 09
1. 69
10 .0 0
8. 07
V al ue
of sh ar e tr ad in g (b ill io n U SD
) 20 4. 7
10 1. 99
71 .5 4
15 .8 3
65 .4 8
10 .0 0
4. 56
2. 95
0. 00
2. 63
V ol um
e of
sh ar e tr ad in g (t ho us an d sh ar es )
11 4. 64
20 1. 29
52 .3
65 .7 2
31 4. 64
2. 38
5. 68
0. 00
0. 51
10 .0 0
St oc k tr ad ed
pe r ca pi ta
(U SD
) 55 ,5 76
3, 23 3
3, 15 4
29 0
55 3
10 .0 0
0. 53
0. 52
0. 00
0. 05
T ur no ve r ve lo ci ty
(% )
0. 52
0. 76
0. 33
0. 22
0. 40
5. 56
10 .0 0
2. 04
0. 00
3. 33
Sc or e
5. 42
4. 63
2. 44
2. 18
5. 39
2. 2 S op hi st ic at ed
de m an
d N um
be r of
lis t co m pa ni es
77 8
54 1
95 6
25 3
42 0
7. 47
4. 10
10 .0 0
0. 00
2. 38
P ro du
ct in
m ar ke t
16 13
12 6
10 10 .0 0
7. 00
6. 00
0. 00
4. 00
M ar ke t co nc en tr at io n C R 10
0. 33
0. 47
0. 37
0. 46
0. 46
10 .0 0
0. 00
7. 14
0. 71
0. 71
H er fi nd
ah l In de x (H I)
0. 23
0. 17
0. 15
0. 18
0. 22
0. 00
7. 39
10 .0 0
6. 92
0. 94
Sc or e
6. 87
4. 62
8. 29
1. 91
2. 01
M ea n sc or e (4 .3 7)
6. 14
4. 62
5. 36
2. 04
3. 69
Table III. Demand conditions
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low-stock traded per capita (the SET had USD3,233 per capita, but the SGX had USD55,576 per capita) and lack of newly listed companies (five years average newly listed companies in SET is 13 firms, and average newly listed in ASEAN 5 exclude PSE was 30-40 firms). IDX has made a remarkable economic growth and high-volume trading with strong market capitalization growth, while has poor score for sophisticated demand conditions. PSE has strong market capitalization growth, but less pronounced score in almost sub-indicators.
Related and supporting industries Related and supporting industries are networks of suppliers and distributors that cooperate with the industry to support it in international competition. Since stock market is one of the financial intermediations to enhance the effective allocation of the resources, it interconnects many different sectors of the economy. Synchronization across these sectors is extremely critical to make sure capital market is able to develop in a sustainable and efficient manner. The existence of a cluster of competitive-related and supporting industries serves to enhance competitiveness of the equity markets.
In this study, related and supporting industries refer to venture capital availability, ethical practices which are implemented in the listed companies. Credibility of managers and corporate boards of the listed companies, which are the member of each exchange. Also, auditing firms and accounting practices, as well as image abroad also enhance their competitiveness for each exchange.
The results show that among five nations, mean score of the related and supporting industries was 4.93. Comparing among five nations, SGX is the first ranked (CR,SGX ¼ 9.85) and BM is second ranked (CR,BM ¼ 7.50). The two stock markets have very high scores on related and supporting industries aspect far above other countries in the region. Whereas SET is third ranked (CR,SET ¼ 3.47), PSE (CR,PSE ¼ 2.43), and IDX (CR,IDX ¼ 1.41) are fourth and fifth ranked, respectively. The three countries have much lower. In addition, considering the details of related and score on related and supporting industries comparing to the first two countries. Under this facet, we find that SGX has the highest score in almost every aspect. BM has a relatively high score, holding second rank in almost categories, comparing to the rest of the stock market in the region.
The SET has moderate score on every indicator, particularly image abroad, credibility of managers, and corporate boards. However, the SET has many threats such as venture capital availability, ethical practices, and auditing and accounting practices. PSE has moderate score on overall country’s ethical practices, credibility of managers, and corporate boards and auditing and accounting practices. However, it has poor score in venture capital mechanism and image abroad.
Finally, IDX has made strength in venture capital mechanism and maintain a fair image abroad, while has poor score for other related and supporting industries criteria. However, IDX has the lowest score on ethical practices, creditability of the managers, corporate boards, and auditing and accounting practices. Overall, the results suggest that stock markets in Thailand, Indonesia, and the Philippines need to improve their related and supporting industries to catch up with SGX and BM. The results are showed in Table IV.
Firm strategy, structure, and rivalry. Firm strategy, structure, and rivalry constitute the fourth determinant of competitiveness. This element describes the conditions in the nation governing the way in which each stock market is created, set goals and is managed. These aspects are important for success. But the presence of intense rivalry in the home base is also important it creates pressure to innovate in order to upgrade
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competitiveness. The results show that among five nations, mean score of the firm strategy, structure, and rivalry was 4.94. Comparing the firm strategy, structure, and rivalry between five nations, SGX is the first ranked (CS,SGX ¼ 7.18) SET is second ranked (CS,SET ¼ 5.77), then BM (CS,BM ¼ 5.21). These stock markets are above average score on the firm strategy, structure, and rivalry. For those stock markets that have
Data Score (0-10) Descriptions SGX SET BM PSE IDX SGX SET BM PSE IDX
3. Related and supporting industries 3.1 Business development Ethical practices 7.78 5.67 6.84 5.82 5.2 10.00 1.82 6.36 2.40 0.00 Credibility of managers 7.93 6.9 7.33 6.84 5.9 10.00 4.93 7.04 4.63 0.00 Corporate boards 7.05 6.42 7.17 6.43 5.85 9.09 4.32 10.00 4.39 0.00 Auditing and accounting practices 8.3 6.9 7.71 6.92 6.29 10.00 3.03 7.06 3.13 0.00 Venture capital availability 4.4 2.9 4 2.7 3.6 10.00 1.18 7.65 0.00 5.29 Image abroad 8.95 7.1 7.65 4.78 6.1 10.00 5.56 6.88 0.00 3.17 Mean score (4.93) 9.85 3.47 7.50 2.43 1.41
Table IV. Related and supporting industries
Data Score (0-10) Descriptions SGX SET BM PSE IDX SGX SET BM PSE IDX
4. Firm strategy, structure, and rivalry 4.1 Structure Market capitalization to GDP (%) 181.2 70.21 141.8 63.8 41.5 10.00 2.06 7.18 1.60 0.00 Financial sector liberalization 5.69 4.56 5.4 4.06 4.52 10.00 3.07 8.22 0.00 2.82 Trading participants 30 38 35 118 134 0.00 0.77 0.48 8.46 10.00 Corporate governance (CG watch report) 69 58 55 41 37 10.00 6.56 5.63 1.25 0.00
4.2 Rivalry Market share in WFE 1.33 0.68 0.81 0.29 0.74 10.00 3.75 5.00 0.00 4.33 Stability of stock market Stock volatility 0.067 0.075 0.043 0.064 0.077 2.94 0.59 10.00 3.82 0.00 Stock return 0.02 0.1 0.03 0.09 0.09 0.00 10.00 1.57 9.04 9.16 Skewness of market return index −0.26 −0.49 −1.41 −0.81 −0.58 10.00 7.99 0.00 5.21 7.22 Exchange rate volatility 0.017 0.020 0.019 0.020 0.027 10.00 6.56 7.79 6.60 0.00
Fundamental financial performance Price-earning ration (P/E ratio) 12.32 12.08 15.58 17.47 16.7 9.56 10.00 3.51 0.00 1.43 Price to book ratio (P/B ratio) 1.41 1.78 1.88 1.92 3.13 10.00 7.88 7.27 7.03 0.00 Dividend yield 3.09 3.97 3.39 2.57 2.64 3.71 10.00 5.86 0.00 0.50
Mean score (4.94) 7.18 5.77 5.21 3.58 2.95
Table V. Firm strategy, structure, and rivalry
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score below average are PSE (CS,PSE ¼ 3.58) and the IDX (CS,IDX ¼ 2.95). They are third, fourth, and fifth ranked, respectively. The details are shown in Table V. Structure of stock market includes sub-criteria such as market capitalization to GDP, degree of financial liberalization, trading participants, quality of corporate governance. The three stock markets, SGX, BM, and SET, have superior score in almost aspects under firm’s structure and rivalry sub-dimension except indicators relating to trading participants. For risk and return performance of the competing stock markets, IDX and SET are two markets with higher return and risk comparing to the rest. When comparing fundamental financial information, on average, the stocks listed in the SET seems to be cheap among its competing stock markets.
The role of government. The role of government in Porter’s diamond model is acting as a catalyst and challenger; it is to encourage, or even push, companies to raise their aspirations and move to higher levels of competitive performance. They must encourage companies to raise their performance, stimulate early demand for advanced products, and focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing regulations or deregulations. The government of each country takes on plans to develop capital market by formulating and implementing several policies to foster capital market in various aspects. These include changing in public finance and fiscal policy, shaping the institution framework, and changing regulation related to transaction and income generated from the stock market. In this study, the role of government was separated into three sets; efficiency of public finance and fiscal policy, institutional framework, government regulation.
The results from Table VI show that among five nations, mean score of the role of government was 4.16. Comparing between five nations, SGX holds the first ranked (CG,SGX ¼ 9.81) and BM is second ranked (CG,BM ¼ 6.06). SET is third ranked (CG,SET ¼ 2.86). Whereas IDX (CG,IDX ¼ 1.72) and PSE (CG,PSE ¼ 0.33) are fourth and
Data Score (0-10) Descriptions SGX SET BM PSE IDX SGX SET BM PSE IDX
5. Role of government 5.1 Efficiency of public finance Public finance 7.92 2.95 5.23 2.6 3.24 10.00 0.66 4.94 0.00 1.20 Fiscal policy 10 2.8 3.2 3.0 2.6 10.00 0.26 0.80 0.59 0.00
5.2 Institution framework 9 2.9 4.2 2.8 2.9 10.00 0.10 2.24 0.00 0.08
5.3 Government regulation of business Burden of government regulation 5.6 3.4 4.6 3 3.7 10.00 1.54 6.15 0.00 2.69 No. of procedures to start a business 3 5 4 15 8 10.00 8.33 9.17 0.00 5.83 No. day to start a business 3 29 6 35 45 10.00 3.81 9.29 2.38 0.00 Efficiency of legal framework in challenging regs 5.5 3.6 5.1 3.2 3.8 10.00 1.74 8.26 0.00 2.61 Shareholders’ rights 5.6 4.5 5.3 4.7 4.6 10.00 0.00 7.27 1.82 0.91 Public trust in politicians 6.3 2.2 4.4 2.4 3 10.00 0.00 5.37 0.49 1.95
Taxation Corporation income tax 17 23 25 30 25 10.00 5.38 3.85 0.00 3.85 Dividend tax 0 10 0 15 15 10.00 3.33 10.00 0.00 0.00 Value-added tax (VAT) 7 7 6 12 10 8.33 8.33 10.00 0.00 3.33 Mean score (4.16) 9.81 2.86 6.06 0.33 1.72
Table VI. Role of government
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Benchmarking the competitiveness of the ASEAN 5 equity markets
fifth ranked, respectively. In addition, when we consider the details of role of government, we find that SGX leave behind other equity markets in the region in almost aspects. SGX and BM are only two exchanges that have extremely high score on the role of government. The three exchanges, SET, IDX, and PSE have many threats such as shareholders’ rights, public trust in politicians, and fiscal policy.
We then combine all aspects into analysis and report the results in Table VII. As we hypothesized, the overall results are expected. SGX, therefore, holds the highest stock market competitiveness among ASEAN 5 with highest average score at 8.43. SGX has received the highest score in every aspect in Porter’s diamond model. This is due to its distinction on more liberalized market with strong environment and government aspect. Singapore Government plays an important role in the investment in basic infrastructure development since this will remove the bottleneck effect caused by low-infrastructure conditions and to increase energy productivity, transportation quality, and communication capability. SGX is the heart of ASEAN financial services industry and the Asian Gateway to global and regional financial markets. With SGX’s electronic trading system, it provides an opportunity for a global trading access to SGX markets where 80 percent of the customers are from outside Singapore (Huat Tan, 2002). Moreover, SGX offers its clients a variety span of equity products such as index derivatives, uniquely centered on Asia’s three largest economies – China, India, and Japan. Also, SGX provides opportunity for companies listed on SGX originating outside of Singapore, which cannot be beaten by its ASEAN counterparts. Last but not least, SGX offers a fully integrated value chain from trading and clearing, to settlement and depository services. BM has a second rank with average score of 6.31. Both SGX and BM have above average score and higher rank than other exchanges in ASEAN 5 region, they outrank others in almost every dimension in Porter’s diamond model. Although SET gets third ranked in term of competitiveness and it outranks the other two ASEAN equity markets (IDX and PSE), all of them have lower than average competitiveness score. In general, the results are in line with our expectations since similar studies on the development of ASEAN financial and capital markets by World Bank (2011a, b), also report the rank on development, though not competitiveness, consistent with our studies.
The results of the assessment of the competitiveness are shown in Figure 4. We utilize radar chart to graphically display multivariate data in the form of a two-dimensional chart of five variables. The star plot can also be used to explain the competitiveness of ASEAN stock markets. Each dimension is represented on a spoke, where each spoke represents one of dimensions of Porter’s model. The data length of a spoke is proportional to the magnitude of the variable for the data point relative to the
Score (0-10) Descriptions SGX SET BM PSE IDX
1. Factor conditions 9.16 2.85 7.44 2.19 1.67 2. Demand conditions 6.14 4.62 5.36 2.04 3.69 3. Related and supporting industries 9.85 3.47 7.50 2.43 1.41 4. Firm strategy, structure, and rivalry 7.18 5.77 5.21 3.58 2.95 5. Role of government 9.81 2.86 6.06 0.33 1.72 Total score 8.43 3.92 6.31 2.11 2.29 Rank 1 3 2 5 4
Table VII. Summary
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maximum magnitude of the variable across all data points. A line is drawn connecting the data values for each spoke. This gives a star-like appearance. The bigger star normally indicates a superior position for this plot; therefore, attain the highest level of competitiveness. The radar plot also implies that there are inequalities in the level of competitiveness for stock markets in this region. In particular, there are only two exchanges, SGX and BM, having superior competitiveness than other countries in the group. SGX dominates its counterparts in every aspect such as international listings, robust online trading platforms, and efficient clearing houses. BM outperforms SET in almost every aspect, except firm structure, strategy, and rivalry dimension. However, IDX and PSE cannot completely dominate each other in terms of competitiveness. Results in the figure show that there are vast differences in the level of competitiveness among stock markets in the ASEAN region. From the results in the figure separate the five stock exchanges into two groups. The higher competitive markets include SGX and BM. And, the lower competitive markets are SET, IDX, and PSE.
Policy implications and discussions One remarkable implications of the radar chart in the above figure is the distance between each point on the same spoke. The distance represents the competitiveness gap between two stock exchanges under a particular dimension of Porter’s diamond model. From the previous analysis, the relative competitiveness score has separated the five stock exchanges into two groups. There are three aspects of Porter’s diamond model that contribute to this separation. The higher competitive group surpasses another in the role of government, factor condition, and related and supporting industries aspects. The three aspects are more macro-factors related to government policies and decisions. This indicates that government and the environment the stock exchanges operating in plays an energetic role in supporting the financial and capital market development. The result shows that the leader stock exchanges of the region, Singapore and Malaysia have significant involvements from the government. To learn from the best-in-class exchange, SGX, the remaining stock exchanges should focus on the role of government since government plays an important role in the investment
Total Scores: SGX 8.43 BM 6.31 SET 3.92 IDX 2.29 PSE 2.11
1. Factor Conditions
5. Role of Government
4. Firm Strategy, Structure and Rivalry 3. Related and Supporting Industries
2. Demand Conditions
10.0
8.0
6.0
4.0
0.0
2.0
SGX (Singapore) SET (Thailand) BM (Malaysia) PSE (Philippine) IDX (Indonesia)
Figure 4. Analysis of the competitiveness for ASEAN 5 stock markets
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Benchmarking the competitiveness of the ASEAN 5 equity markets
in basic infrastructure development under factor condition aspect, relaxing regulations related to investment and taxation under the role of government, as well as creating supportive activities and business environment for the advancement of equity markets. Therefore, the government of the lower competitive group should indorse basic infrastructure, increase level of involvement in public policies and taxation, as well as promote supporting industries so as to explore domestic and regional demand for financial products and to improve the supply chain efficiency.
As Flanagan et al. (2007) noted in their paper “research is then suggested to move forward from understanding competitiveness to improving it. Measuring competitiveness is not the ultimate purpose; improving it and achieving long-term performance is.” With the results presented in the previous sections, it is clear that ASEAN 5 stock markets are in a dynamic environment with unparalleled opportunities. Several things should have been done for increasing the competitiveness of each market. For SGX, the battlefield is not ASEAN, it needs to go beyond competing within the region, but a more challenging landscape in global environment. From the analysis, SGX is obviously a market dominant and best-in-class exchange in ASEAN. SGX faces its challenges in demand condition and firm strategy, structure and rivalry aspects, according to Porter’s diamond model. Specifically, SGX should find its way to stimulate the growth of market and volume trading as well as correcting the problem of industry concentration. The highlights should be placed on expanding the total market, protecting market share, and expanding market share. Since the internal market is nearly soaked, SGX should look for many alternatives to seize new opportunities. SGX needs to create blue oceans strategy, the creation of innovative value to unlock new demand. Innovation can be using new technologies to facilitate investment trading or finding new products for competing. In doing so, SGX needs to become a leader in some selected industries and should work with investment bankers to target both companies and investors in these industries and bring them together on the SGX platform. SGX has targeted biotechnology, but it should also consider expanding into pharmaceuticals and health care given the long-term prospects in the global market. Focussing on innovations will stimulate demand condition and at the same time lessen the concentration to existing industry the exchange has focussed.
BM has reached a second rank, the market challenger. The implication for BM is to aggressively expand its market share by attacking the dominant exchange, SGX. Since BM has above average score and higher rank than the remaining three exchanges in ASEAN 5 region, it outranks the remaining three exchanges in almost every dimension in Porter’s diamond model. For BM, The analysis of the competitive structure of the Malaysian stock market reveals that BM has its strong points on factor condition, related and supporting industries, and the role of the government, comparing to the rest of the countries. Only exceptions on firm strategy, structure, and rivalry dimension that it follows the SET. Therefore, BM should improve its policy toward trading participants and financial return dimensions. For private sector, investment banking houses can assist the exchange by allocating more research analysts and traders to cover Malaysian equities among region and to the world. In this way, the true valuation of the assets will be revealed to the markets for their fair prices. In addition, more analysts mean more information and analytics, which should attract more investors to the market accordingly. BM has also need to do various initiatives aimed at improving its product and service offerings. It should develop new products by using its strengths. One way to enhance its product variety is to introduce new products related to its strong points are to encourage development of a wider range of competitive products and services related to Islamic securities and regulatory framework for the
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Islamic capital market so that it can create a sustainable market for the effective mobilization of Islamic funds. Liquidity is one of the largest factors for both issuers and investors make one equity exchange more attractive to an issuer than another. Therefore, to achieve a more competitive advantage, BM should be positioning itself as an international Islamic capital market center and increase the liquidity and turnover velocity of its markets, as well as improving the efficiency and transparency of the market. To do this, the role of government should be improved. Combining with firm strategy, structure, and rivalry aspect, the Malaysian Government has to establish its market infrastructures and policies in supporting the promising embryonic Islamic capital markets. More relaxed comprehensive accounting procedure is needed to be revised, more incentives should be given to attract foreign investors, more tax-reduction scheme or lower fees and taxes on profits earned by institutions undertaking activities related to Islamic products should be launched; for example.
The SET holds the third position, classified as the market follower which is designated as a runner-up that should not rock the boat. To enhance its competitiveness over short run, the policymakers should primarily improve its weakness on the laws and regulations to facilitate investment environment. Thailand should also ensure easing procedures, providing better protection to investors, and amendments to the existing laws to improve investment condition. Most importantly, since the gap analysis in the previous section indicates that the SET should improve its factor condition, related and supporting industry, and the role of government facets. These dimensions are the focus for the SET to improve its competitiveness. Therefore, the trading systems, general infrastructure quality, and the skills of human resource in financial industry are needed to be enhanced. The issue of labor quality is the most important sub-dimension since the labor quality is far below others for the information technology skills, language abilities, and financial literacy. Next, the SET may consider pursuing focus strategies by exercising its strength on geographic location in the Greater Mekong Subregion (GMS). The SET should collaborate with other stock exchanges in GMS to strengthen its competitiveness. By having a deep understanding of the greater Makong Regions market and the unique needs of its counterparts, the SET can therefore develop unique lower cost or differentiated products or services for GMS market. The SET may consider promoting capital markets connectivity among emerging in-land ASEAN countries. For instance, it can be the center of the GMS capital market in raising funds or promoting cross-border listing in multiple exchanges in ASEAN. In addition, the exchange can also encourage merger and acquisition activities among companies in the emerging ASEAN countries. In this way, the SET can create competitive advantage by exploring an entirely new market opportunity or by expanding market supply of products and services. At the same time, the SET can build up the competitive advantage in the long run by serving a market segment that other exchanges can access with more geographic difficulties.
Considering IDX and PSE, from the factor condition perspective, there is a need to be strengthened for the exchange’s infrastructure and organizational foundation. PSE should also focus on its general infrastructures, while IDX should focus on quality of labor issues to improve their competitiveness. From demand condition perspective, these two markets have not expanded at a speed rapid enough to catch their counterpart exchanges. There are a variety of reasons. One reason is the predominance character of less developed countries, in which less investor participation in the stock markets comparing to SGX, BM, or the SET. Another is low-awareness and negative perception of the stock market investing that have been prevalent subjects which
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Benchmarking the competitiveness of the ASEAN 5 equity markets
continue to keep investor levels low. Such incidences can be explained by looking at related and supporting industries dimension. These are due to low ethical practice, loosing creditability of managers, weak corporate boards, and insufficient auditing agencies. Moreover, from firm strategy, structure, and rivalry dimension, to expand the market size and increasing volume, IDX and PSE can learn from the leader’s experience. They can follow or even improve on the leader’s existing products, programs, and back-office supporting systems. This will help expand the market with much less expenses. For example, the exchange authority may consider having a more efficient internet trading platform to help facilitate the trading transaction, which will increase liquidity of the market. Electronic trading and modern information technologies are enabling the two exchanges to attain global access from foreign investor at very low costs. They can join the ASEAN trading link network leaded by SGX, BM, and the SET. Also, the exchanges could possibly relax its regulation to allow for securities borrowing and lending activities that help investors managing their position more efficiently. Moreover, an increased variety of products available for trading and enhanced investor base will result in significant mobilization of funds feeding into capital markets and increasing the number of listed firms and trading volumes. Information disclosure of the listed firms and good corporate governance score are low for the two exchanges. Therefore, the two exchanges need to enhance good corporate governance among their listed firms since transparency and corporate governance will strengthen investor confidence. For the role of government, it is clear that government in these two countries should improve its regulations, specifically on regulation related to business operation and taxation to support firms and facilitate the trading activities. Regulations at the central and regional level need to be modernized to comfort the doing of business.
Over the long run, IDX and the PSE can increase their competitiveness by searching niches to focus on. Specializing in certain product lines or courting specific sectors has proofed from the leading exchanges to be paid off and indicates significant opportunity for long-term capital markets growth. Since Indonesia and the Philippines need logistic infrastructure improvements. Significant development elements, such as nationwide infrastructure development, are promising opportunities. Due to the limitation of government funding, it is resulted in the slow achievement of adequate infrastructure to support rapid development. With capital market, there are opportunities for cooperation between the government and the private sector under the public-private partnership scheme. Infrastructure funds are expected to bring in needed capitals. This massive amount of investment will help boost the size of the stock market and enhancing the competitiveness of the countries eventually. For example, strategic collaboration between one of the leading exchanges in ASEAN should be strengthen to find mutual benefits among exchanges. In doing so, less developed exchanges can learn from the leaders to improve their competitiveness and can move toward sustainable growths based on long-term partnership.
Overall, though the results in the previous section point out that there are large discrepancies among stock markets in the ASEAN region, the main concern is not the case that SGX is going to prosper to a great extent than another because of the its high- competitiveness scores. Rather, the evidence points out existing gaps should be abridged in order to foster the benefits of integration. One effective way to lessen the gap is to promote strategic alliances among the region. Less competitive markets, such as IDX or PSE, could finds their weak points in a particular dimension under Porter’s diamond model. Then, they can match with the higher competitive exchanges to find
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synergies. This helps the lower competitive stock markets to determine what they could be doing better with the help of the higher competitive ones. The lower competitive markets would benefit by learning from the leaders’ experiences for its products and trading systems. Most importantly, firms in the lower competitive markets can widen the investor base and raise addition funds by means of dual listing on the local and the more competitive bourses, potentially SGX, BM, or the SET. With a broader market access to raise capitals within ASEAN, listed companies have the prospect to circumvent the foreign exchange mismatch when doing business overseas. This would be especially beneficial for a multinational corporation that prefers to obtain funding in the location of operation. In doing so, the higher competitive exchanges also benefit from synergies. They can expand their market size for their sustainable growth of the stock exchanges, stimulate the growth of market and volume trading, as well as correcting the problem of industry concentration.
As mentioned on the work of Karim and Ning (2013) on the ASEAN 5 stock markets integration, there a need for policy coordination among ASEAN 5 members to foster the success of the integration and mitigate the impacts of financial instability. For ASEAN, we believe the next important move for all countries would be set the priority task to improve the role of government dimension in order to benefit from the full collaboration since this aspect is a crucial condition before doing business since each country has different regulations. The law and regulations should be first synchronized and open the room for new products cross-border listings. For example, the capital gain and dividend taxes for each country should be aligned and harmonized. Also, cross-border clearing and settlement process have to be redefined and synchronized since settlement is the final leg of the trade cycle, where assets are swapped for cash. Likewise, all exchanges including SGX should focus on the important role of the venture capital industry as a source of financing to emergent high-growth firms. Policies and initiatives to promote innovation need the funding from the venture capital industry. One way to do is to increase private sector participation in the venture capital and private equity industries. Moving forward, the growth of the role of the private sector in developing the venture capital industry and the complementary development of the private equity industry are vital strategies to widen the sources of financing. At last, we expect the agreement to have a cross-border listing of exchange traded funds, or ETFs. ETFs are useful to track the performance of stock indices in each country. These products should be open to all ASEAN members and foreign investors. In this way, ASEAN will benefit from integration and meet its objective in attracting foreign investors as one of the asset classes to seek further asset diversification from local markets.
Conclusion This paper investigates the competitiveness of the stock markets in ASEAN 5, applying Porter’s diamond model to analyze the competitiveness. The model is based on five main pillars of competitiveness, comprising of several indicators that emphasize different aspects of competitiveness. This research contributes to a deepened concern of the sources of competitive advantage among ASEAN stock markets. To the best of knowledge, this study is the first to conduct benchmarking on the competitive advantage for stock exchanges, which has never been studied before. The study sheds light on the competitiveness structure of the stock markets in the ASEAN region. The results show that SGX tops the list far ahead of others. BM acquires the second highest-ranking after Singapore in terms of competitiveness. The SET is third ranked
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ahead of IDX and the PSE, respectively. This finding reveals that the competitiveness and the development levels of the stock markets in this region are imbalanced. The existing gaps should be reduced in order to foster the future of integration. One effective way to lessen the gap is to promote strategic alliances and cross-border listing of equity products among the region. The benchmarking process in this study helps the lower competitive stock markets to determine what they could be doing better. The lower competitive markets should indispensably need to establish the well-planned development strategy and policy to build up the competitive advantage and to find synergies among the region before full participation of AEC in 2015.
There is one noteworthy limitation of this study. In our methodology section, we normalize raw data for each indicator to compare competitiveness score. We convert published and calculated indices to numbers between 0 and 10 inclusively; therefore, it is implicitly assumed each indicator receives the same weight under the framework. Though this limitation exists, the impact of this limitation is little in relation to the overall findings and conclusions of your study. This is because score on competitiveness for SGX, the best-in-class stock exchange, is far beyond its counterparts and better than other exchanges in the same region in every dimensions. Changing weights may not alter the results. This limitation may affect the rank of two of the least competitive exchanges when one indicator has more weight than others since their competitiveness score are almost similar; however, to assign different weights on indicators may trigger another restraint. For example, one of such question is why one indicator is more important than others. Also, the level of importance of each indicator for exclusive country may be different; therefore, we leave this issue as the room for future research.
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Appendix. Factor definition This section describes indicators constructed using Porter’s diamond model: factor condition, demand condition, related and supporting industries, firm strategy, structure and rivalry and role of government.
1. Factor conditions 1.1 Basic factor. Infrastructure. Quality of overall infrastructure: quality of general infrastructure (e.g. transport, telephony, and energy) in each country (Source: World Economic Forum, 2013).
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Investment in telecommunication: investment refers to as the annual capital expenditure; this is the gross annual investment in telecom (including fixed, mobile, and other services) for acquiring property and network. The term investment means the expenditure associated with acquiring the ownership of property (including intellectual and non-tangible property such as computer software) and plant. This includes expenditure on initial installations and on additions to existing installations where the usage is expected to be over an extended period of time (Source: IMD, 2013).
Connectivity of people and firms (e.g. telecom, IT, etc.) (Source: IMD, 2013). Technological cooperation between companies is lacking or developed (Source: IMD, 2013). 1.2 Advancing financial systems. Deepening financial system. Financial depth is measured by
market size of financial market in each of country. It is divided into three types: domestic bank credit, stock market capitalization, and debt securities market (Source: World bank, 2012).
Availability of financial services: the financial sector provides a wide range of financial products and services to businesses (Source: World Economic Forum, 2013).
Affordability of financial services: it indicates whether financial service are affordable or not (Source: World Economic Forum, 2013).
Ease of access to loans: in each country, this variable is measure the ease to obtain a bank loan with only a good business plan and no collateral. It shows extremely difficult or extremely easy) (Source: World Economic Forum, 2013).
Soundness of banks: in each country, banks are generally healthy with sound balance sheets or require recapitalization (Source: World Economic Forum, 2013).
Euro money country risk (ECR) evaluates the investment risk of a country, such as risk of default on a bond, risk of losing direct investment, risk to global business relations, etc. by taking a qualitative model, which seeks an expert opinion on risk variables within a country (70 percent weighting) and combining it with three basic quantitative values (30 percent weighting) (Source: www.euromoneycountryrisk.com/ 2010).
Financial risk factor: the risk factor in the financial system is adequately addressed. Higher score indicates adequately addressed to these risks (Source: IMD, 2013).
Quality of labor. Financial skill is the ability to understand how money and economy work, how people earn or make money, and how they invest and use it to help themselves and others. If people in the country have higher financial skill, then it has a positive effect on stock market development (Source: IMD, 2013).
Information technology skills: the way people get access the readily available of information technology skills (Source: IMD, 2013).
Language skills: the way people have the language skills that meet the needs of enterprises (Source: IMD, 2013).
Quality of management schools: it shows the quality of management or business schools in the country. The more number of high quality of management schools can be interpreted as people can work effectively (Source: IMD, 2013).
Remuneration in service professions: total base salary plus bonuses and long-term incentives, US dollars. Researcher uses salary of bank credit officer as proxy variable. The higher salary signals higher quality labor flows into financial industries (Source: IMD, 2013).
Brain drain: country retains and attracts talented people. In financial sector, most people like to take opportunities working in another country because it provides higher salary and better benefit. Higher brain drain in the country affects stock market development and lessens its competitiveness, accordingly. (Source: IMD, 2013).
Capacity for innovation: the level technology and innovation of companies in a particular country involve with technology. Higher score can be interpreted as higher competitive advantage of stock market development (Source: World Economic Forum, 2013).
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Company spending on R&D: the extent to companies in a country spend money on R&D. Higher score can be interpreted as higher competitive advantage of stock market (Source: World Economic Forum, 2013).
2. Demand conditions 2.1 Size and growth of demand. GDP growth: this indicator illustrates the growth of a nation in terms of the production and income (Source: World Bank, 2013).
Market capitalization: the domestic market capitalization of a stock exchange is the total number of issued shares of domestic companies. It describes the developing of stock market. Higher stock market capitalization interprets a higher economy of scale and competitiveness (Source: World Federation of Exchanges, 2012).
Market capitalization growth: this indicator demonstrates the growth of stock market. Higher growth of stock markets attracts investors and implies that stock market will have a better performance in the future (Source: World Federation of Exchanges, 2012).
Value of share trading: this indicator is measured as total number of shares traded multiplied by their respective matching prices. The liquidity of stock exchange that is important for stock market development and competitiveness. Higher value of share trading can be interpreted as a higher competitiveness (Source: World Federation of Exchanges, 2012).
Volume of share trading: it measures liquidity of stock market, like value of share trading. However, volume of share trading is calculated from the number of shares traded in a security during a given period of time (Source: World Federation of Exchanges, 2012).
Stock traded per capita: it shows proportion of value of share trading to number of population in the country. If there is a higher stock traded per capita, it can be interpreted as people in the country have capacity to invest (Source: World Federation of Exchanges, 2012).
Turnover velocity is the ratio between the Electronic Order Book (EOB) turnover of domestic shares and their market capitalization. The value is annualized by multiplying the monthly average by 12, according to the following formula:
Monthly EOB domestic share turnover � 12 Month � end domestic market capitalization
Higher turnover velocity displays a higher liquidity (Source: World Federation of Exchanges, 2012).
2.2 Sophisticated demand. Number of listed companies: it is the number of companies which have shares listed on an exchange at the end of the period, split into domestic and foreign, excluding investment funds, and unit trusts, and companies whose only objective is to hold shares of other listed companies, such as holding companies and investment companies, and regardless of their legal status. A company with several classes of shares is counted just once. Only companies admitted to listing are included (Source: World Federation of Exchanges, 2012).
Product in market: it is divided into three parts: equity products (e.g. equity, REITs, warrants, etc.), derivative products (e.g. index future, index options, single stock future, etc.), and bond products. A variety product shows market efficiency responsiveness to investor demand (Source: Autayani et al., 2009).
Market concentrates (CR10): the indicator is measured by the total output produced in an industry by a given number of firms in the industry. In case of CR10, it uses the market share of the biggest ten firms listing in stock market each of country. Higher value of CR10 will retract stock market development and competitiveness because the market is manipulated from some firm (industry is oligopolistic) (Source: Datastream calculated from researcher).
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Herfindahl Index (HI): it measures the size of firms in relation to the industry and an indicator of the amount of competition among them. HI index is calculated as the sum of the squares of the market shares of over all of the firms, according to the following formula:
HI ¼ XN
i¼1 s2i
where si is the market share of firm i in the market, and N is the number of firms. Higher Herfindahl Index generally indicates a decrease in competition and an increase of
market power, which will retard stock market development and competitiveness (Source: Datastream calculated by researcher).
3. Related and supporting industries 3.1 Business development. Ethical practices: it is sub-indicators of management practice. Higher score shows ethical practices are implemented in companies (Source: IMD, 2013).
Credibility of managers: higher score indicates that credibility of managers in society is strong. (Source: IMD, 2013).
Corporate boards: higher score shows that corporate boards do supervise the management of companies effectively (Source: IMD, 2013).
Auditing and accounting practices: higher score shows that auditing and accounting practices are adequately implemented in business (Source: IMD, 2013).
Venture capital availability: this indicator expresses the level to access to capital for entrepreneurs with innovative but risky projects to find venture capital. higher score shows that the venture capital in country is available (Source: IMD, 2013).
Image abroad: the image abroad of your country encourages business development (Source: IMD, 2013).
4. Firm strategy, structure, and rivalry 4.1 Structure. Market capitalization to GDP: it shows the development of stock market compare with the growth of country economy (Source: World Bank, 2013).
Financial sector liberalization: the Financial Development Report 2012 (World Economic Forum) summarize the level of financial sector liberalization in 3 levels; conservative, transition, liberal; in years book analyze from exchange rate stability, bank system, impact of financial crisis.
Trading participants are the number of dealers, brokers, brokers-dealers, and individuals acting as principals who trade on the exchange through direct access to the trading system. Clearing and settlement members are excluded. Several branches of a same organization have the right to apply as trading member to an exchange, and each license is computed as one trading participant. For example, if two branches belonging to the same organization apply as trading members, they are counted as two trading participants (Source: World Federation of Exchanges, 2013)
Corporate governance (CG watch report) is a managerial principle for a company to balance the interests of stakeholders, and enhance efficiency, transparency, and accountability of the company.
4.2 Rivalry. Market share in WFE: it calculate from market capitalization each of ASEAN 5 country divide total of markets capitalization of markets which are listed in World Federation of Exchanges. according to the following formula:
Domestic market capitalization � 100 Total market capitalization
Higher scores imply the country has competitive stock market (Source: World Federation of Exchanges, 2013).
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Stability of stock market: this indicator shows stock market has high liquidity, appropriate volatility and stock price can reflect market prices. Sub-indicators include stock price volatility, stock return, skewness of market return index, Exchange rate volatility and fundamental financial performance (price earnings ratio; price to book ratio; dividend yield) (Source: dataStream calculated from researcher, average 2007-2012).
5. Role of government 5.1 Efficiency of public finance. The ways government manages revenue and expenditure of the public authorities and the adjustment of one or the other to achieve desirable effects and avoid undesirable ones. Five sub-indicators consists of government budget surplus/deficit (percentage of GDP), total general government debt-real growth, public finance is efficiently managed, tax evasion, and pension funding (Source: IMD, 2013).
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. Three sub-indicators consist of total tax revenues (percentage of GDP), real personal tax, taxation (Source: IMD, 2013; Deloitte, 2012).
5.2 Institution framework. Efficiency of monetary policies in the country. Five sub-indicators consist of real discount/bank rate, cost of capital, efficiency of central bank policy, foreign policy reserves and interest rate spared (Source: IMD, 2013).
5.3 Government regulation of business. Government has regulated business that need for more responsive and effective business regulation. Five sub-indicators consist of burden of government regulation, number of procedures and days to start a business, efficiency of legal framework in challenging registration, shareholders rights and, public trust in politicians (Source: IMD, 2013).
About the authors Wanida Jarungkitkul is a Graduate Researcher in Finance Economics at the Graduate School of Development Economics, National Institute of Development Administration (NIDA). She had been involved in several research projects related to capital market development and competitiveness.
Sorasart Sukcharoensin is an Associate Professor and an Associate Dean for Academic Affairs at the Graduate School of Development Economics, the National Institute of Development Administration (NIDA), Thailand. He had achieved the Rajapruk award for teaching excellence from the National Institute of Development Administration. His research interests include capital market development, corporate governance, insider trading, mutual fund performance, and benchmarking. Sorasart Sukcharoensin is the corresponding author and can be contacted at: [email protected]
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- Outline placeholder
- Appendix.Factor definition
- 2.Demand conditions
- 3.Related and supporting industries
- 4.Firm strategy, structure, and rivalry
- 5.Role of government
