The preceding model shows how differences in the competitive environment can be explained by the dynamics of business and government relations. The model emphasizes some important differences in business-government relations. The model complements previous VOC discussions. Hall and Soskice classify capitalism as a dichotomy between two modes of organization: liberal market economies (LME) or coordinated market economies (CME).82 They argue that institutional complementarities cluster countries into identifiable groups based on either market or strategic coordination modes of governance. The United States and United Kingdom classify as LMEs, whereas

Germany and the Nordic countries fall under the CME classification. The current model extends Hall and Soskice's model by considering LMEs to contain both proprietary and managerial forms of capitalism and CMEs to contain both authoritarian and cooperative capitalism forms.83

Managers with an eye on overseas markets face problems from their marketing mix, and economic, political, and sociocultural conditions in the foreign markets. U.S. managers particularly are naive when assessing the relationship between the government and competitive environment. In the United States, business and government seem to be obsessed with the notion that free and unfettered markets exist and that the government should have a minimalist role in the economy. As a result, these assumptions may be relied upon when assessing the overseas competitive environment. While collecting information about foreign countries, marketing managers need to take care not to use a neoclassical economic assumption in their analyses. Reliance on neoclassical market assumptions may result in incorrect conclusions about opportunities and threats in the external environment. Business opportunities to enter foreign markets depend upon the interaction between internal and external environmental factors.84

In the United States, the managerial variant has been the dominant form of capitalism for the last 100 years. As markets have become more global, the United States seems to respond slowly to different forms of capitalism. Evidence of serious trouble began surfacing between the years 1997 and 2000 when trade imbalance more than doubled from $215 billion (1997) to $482 billion (2000) and imports increased to over $1.1 trillion.85 The trade imbalance's effect has been increasing difficulties for U.S. businesses to compete domestically as well as internationally. To decrease costs, U.S. businesses outsource production. While this model lowers costs, domestic unemployment has soared to over nine percent.86 Consumers fearful of losing their jobs have cut back on spending. Declining sales force retailers to downsize further. Arguably, the U.S. strategy has backfired.

Meanwhile, state-assisted businesses from other nations seem to be successful when trying to sell goods and services in the United States. In 2010, the United States had negative goods trading imbalances with China ($273 billion), South Korea ($10 billion), and Taiwan ($9.8 billion).87 South Korea rose to become the world's eighth-biggest exporter of goods in 2010 and a tenth-ranked gross domestic product growth rate of close to four percent.88 At the same time, China's gross domestic product rose by 10.5 percent and forecasts for 2015 predict a 10 to 12 percent annual growth.89 The evidence suggests that the United States may be mismatched when competing against nations with more formalized business and government relations.

Understanding nuances of business-government relations are important for reforming a business strategy to compete in domestic and foreign markets. The next challenge for U.S. businesses and government is to find the right balance between assisting and interfering with commerce. Finding this balance is problematic because neoclassical economic thought influences state policies. Global markets dictate that something needs to be done to improve the effectiveness of U.S. businesses to enter foreign markets. Proprietary capitalism's influence makes this proposition more challenging. Each foreign market also offers a different competitive dynamic. Michael Porter's study of national competitive advantages shows evidence of industry clusters in various industrialized countries.90 Large multinational corporations reach most markets affecting markets without major domestic competitors. For example, even though New Zealand's business base does not include any companies in the top global 500 firms, a number of these top foreign firms have a market presence. New Zealand's economy is considered to be one of the least corrupt and transparent, thereby creating an environment where foreign businesses can easily enter and compete with smaller, local firms.91 Foreign and domestic firms lobby New Zealand's government, suggesting managerial capitalism is not contained by national borders.

The United States is the headquarters for 133 of the top 500 global businesses, compared to 61 in China.92 On the other hand, another U.S. trading partner, Mexico, only has three companies in the global 500 list. These large global companies pay taxes, employ people, and finance political campaigns. These companies also employ professional lobbyists to try and influence government policies to protect their self-interests. Goldman Sachs spent $4.6 million lobbying the U.S. federal government last year to try and influence the overhaul of financial regulations because key reforms will directly affect their bottom line.9 3 Corporate lobbyists in the Australia, Canada, Japan, European Union, United Kingdom, and United States sometimes are former elected officials or retired government employees with links to top policymaking officials. In the United Kingdom, some observers argue a revolving door exists between parliament and industry.94

While measures such as the government corruption scale developed by Transparency International and domestic influence serve as proxies for big business and government involvement, the evidence is startling.95 Managerial capitalism exists in both the United States and United Kingdom. Between 2005 and 2011, these economies show declines in transparency and big businesses. Such changes suggest more government involvement, either directly or indirectly in economic planning. Dramatic increases in government spending serve as subsidies for businesses affected. For example, between 2005 and 2011, the U.S. federal percentage of spending increased from 19.9 percent to an estimated 25.1 percent of the nation's gross domestic product.96 At the same time,

U.S. private sector unemployment increased from 5.2 to 9.2 percent.97 The U.S. total of the global 500 businesses shrank five percent from 176 to 133.98

Japan's cooperative capitalism also shows some changes. Like the United Kingdom and United States, the number of global 500 big businesses dropped from 81 to 68.99 Interestingly, the transparency score for Japan's government shows improvement, suggesting less government involvement and fewer barriers for foreign businesses. These changes likely reflect ongoing efforts by the Japanese national government to boost economic growth. Government spending as a percentage of gross domestic product continues to hover around 37 percent.100

Finally, China's business sector has increased considerably since 2005. China now has 61 of the global 500 businesses, an increase from 16 in 2005.101 The Chinese government owns all large financial institutions and the four state-owned banks account for over 50 percent of the total assets.1 02 A combination of high corruption, a weak judicial system, and a strong central government control that limits foreign investment makes foreign business investment challenging. Although China's recent economic growth outpaces the industrialized nations, wages for workers remains low. Businesses from other countries find price-based competition against Chinese businesses difficult.

Business and government leaders need to recognize free market economies do not exist. The competitive environment includes both domestic and foreign big businesses. These giants have economies of scale advantages and perhaps institutional arrangements with local governments to protect their interests. Any action or inaction by government affects the playing field as well. To be successful in global markets, businesses need to understand that differences exist and develop strategies taking these differences into account.

< Prev   CONTENTS   Next >