Hitotsubashi University
Institute of Innovation Research

An Interdisciplinary Approach of Cultureand Business Competitiveness to
the Analysis of Western and East Asian Models

Hwy-Chang Moon

IIR Working Paper WP#06-07

June 2006

Institute of Innovation Research
Hitotsubashi University
Tokyo, Japan
http://www.iir.hit-u.ac.jp

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An Interdisciplinary Approach of Culture and Business Competitiveness to
the Analysis of Western and East Asian Models

Hwy-Chang Moon
Professor of International Business
Graduate School of International Studies
Seoul National University
Seoul 151-742, Korea
E-mail: cmoon@snu.ac.kr
Fax: (82-2) 879-1496
Phone: (82-2) 880-8518

June 2006

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Abstract

Culture is becoming increasingly important in determining the competitiveness of firms
in international business. Perlmutter first presented variables that focused on the
primary attitudes among international executives, allowing an understanding of how
cultural aspects affect the success and failure of a multinational corporation. Other
scholars proposed various models of fundamental dimensions of culture. Among them,the Hofstede model is the most popular one. Almost all of studies on culture publishedin major business journals are based on this Hofstede model. However, the Hofstede
model has some weaknesses, so studies on this model often produce conflicting results.
The main goal of this paper is to develop a new cultural model, by correcting the
problems of the Hofstede model, to identify East Asian dimensions of culture, and to
give strategic guidelines for East Asian business.

Key Words: culture, Hofstede, OUI model, competitiveness, East Asia

3Introduction

Krugman (1994) argued that economic growth that is based on expansion of inputs (theEast Asian model), rather than on growth in output per unit of input (the Western model),is inevitably subject to diminishing returns. According to him, the East Asian model,
which is input-based and perspiration-based, has a significant limitation, compared to
the Western model, which is efficiency-based and inspiration-based. Krugman thenpredicted that the East Asian economies would never overtake the Western economies.

What are the fundamental differences between the Western and East Asian models?
Porter (2000) presented an interesting link between culture and economic success. He
introduced a new term, economic culture, which is defined as the beliefs, attitudes, andvalues that bear on the economic activities of individuals, organizations, and otherinstitutions. Studies on culture tend to focus on desirable cultural attributes such as hard
work, initiative, and education. Porter argued that these generic attributes should be
more specific: hard work is important but just as important is what guides the type ofwork; initiative is important but not all initiative is productive; education is crucial but
so is the type of education. Porter proposed an essential need to provide specific cultural

4

dimensions, but he did not provide his own model for this purpose.

The main purpose of this paper is to link economic performance to culture andintroduce a new cultural model by correcting the Hofstede model. For this purpose, thefollowing equation can be formulated.

Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 …

Where Y is the economic performance and X’s are cultural variables. In this equation,
three things are important.
(1) The X’s are significant variables for explaining economic performance (Y).
(2) There should be minimum overlapping (or multicollinearity) between X’s.
(3) The signs of β’s should be consistent.

The most popular model regarding business culture is the Hofstede model, which has a
set of cultural dimensions: Individualism/Collectivism, Power Distance, Uncertainty
Avoidance, Masculinity/Femininity, and Long-term/Short-term Orientation. However,this model has problems by all these three criteria.

5(1) The variable of gender (Masculinity/Femininity) may not be a significant
variable.
(2) Some variables such as Collectivism, Power Distance, and long-term
Orientation are overlapping(3) Both “Masculine” Japan and “Feminine” Scandinavian countries are rich. So,
the sign of β, whether it is plus or minus, is not consistent.

We will first make an in-depth critical analysis on the Hofstede model in the next
section and then we will introduce a new model by revising the Hofstede model in thefollowing section.

Critical Analysis on Hofstede’s Cultural Dimensions

There are several models on business culture (e.g., Schein 1992, Hall and Hall 1990,
Trompenaars and Hampden-Turner 1998). However, Hofstede (1983, 1993, 1997) is themost popular model. Chapman (1997) says:

6…Hofstede’s work became a dominant influence and set a fruitful agenda. There isperhaps no other contemporary framework in the field of “culture and business” that isso general, so broad, so alluring, and so inviting to argument and fruitfuldisagreement…

There are several criticisms on Hofstede’s approach (McSweeney 2002, HampdenTurner and Trompenaars 1997, Hofstede 2002) as follows:
1. Surveys are not a suitable way of measuring cultural differences.
2. Nations are not the best units for studying cultures. For example, although
the state: “Great Britain” is composed of at least three nations: England,
Scotland and Wales – Hofstede treats it as a single entity with a single“national” culture.
3. A study of the subsidiaries of one company cannot provide information
about entire national cultures.
4. The IBM data are old and therefore obsolete. Hofstede’s primary data was
extracted from a pre-existing bank of employee attitude surveys undertaken
around 1967 and 1973 within IBM subsidiaries in 66 countries.
5. There may be other dimensions.

7

However, these criticisms are not very serious, except the fifth problem, and do notsignificantly downgrade the contribution of Hofstede. This paper will deal with more
fundamental problems of the Hofstede model, i.e., the significance of variables,
multicollinearity, and consistency of signs, as stated above.

First, are the two dimensions, Individualism/Collectivism and Power Distance, truly
independent of each other? Second, is the fourth dimension, Masculinity/Femininity, an
important factor in the present world? Third, Hofstede measured Uncertainty Avoidance
through three means of security – technology, law, and religion. But are these variables
appropriate in measuring economic and business performances? Fourth, is Shortterm/Long-term Orientation really an independent and unique dimension compared tothe others? Isn’t this a part of Individualism/Collectivism?

To begin with, the term Power Distance should be considered as an element of
Individualism/Collectivism instead of as an independent variable, because the unequal
distribution of power and control within a society is an indicator of whether a culture isindividualistic or not. The more individualistic a culture is, the less inequality can be

8

found

in

the

distributionofpower.

Inarelatedmatter,theterm

Individualism/Collectivism can be shortened to simply Individualism, because if aculture is collectivistic, it can be deemed low in Individualism.

Masculinity/Femininity is an inappropriate factor in measuring culture for a society. For
example, According to Hofstede (1983), Japan is the most masculine society among the
52 countries measured. However, the Japanese consider “small to be beautiful,” aremodest, and have high regards for helping others and for the preservation of theenvironment; so the Japanese are also “feminine”. Also, the elements of Masculinity
such as promotion in one’s job, high recognition and earning for one’s performance canbe included as elements of Individualism while Femininity, which includes good
relationship with others, cooperation among group members, work security along withdesirable living environment, can be seen as elements of Collectivism.

Hofstede (1997) added a new dimension, Short-term/Long-term Orientation, to his
original model. Confucian dynamism, another term for this dimension, has been
postulated to explain the rapid economic growth and development of some of the Asian
countries, especially the “Five Dragons” that consisted of China, Hong-Kong, Japan,

9South Korea, and Taiwan. The key principles of Confucianism, which “deals with asociety’s search for virtue,” make up this dimension. It includes the principles ofmorality such as perseverance, honoring of one’s elders, obeying the opinion of thegroup, and so on. Such characteristics can be found in the collectivistic societies of Asia.
Therefore, Confucian dynamism can be said to comprise an element of Collectivism.

Hofstede (1983) classified three types of uncertainty: nature, human behavior, and death.
Technology is used in a broad sense to control nature and other uncertain aspects of theenvironment, as well as to avoid the risks and dangers that might occur because of theunpredictability of the natural world. Laws, including principles and rules, are used toprevent crime and to preserve peace and order – in other words, to control humanbehavior. Religion allows people to avoid fear of death and the after-life. It represents
absolute truth, saving us with messages that transcend uncertainty. Of these three typesof uncertainty, nature and religion do not directly relate to economic and businessperformance, which constitute the major concern of this paper. Therefore, only law,principles and rules will be considered among the three avenues of security, as
exemplifying human behavior that influences the decision-making and performance ofbusiness.

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A New Model

Excluding

Masculinity/Femininity

andShort-term/Long-term

Orientation,

andincorporating Power Distance as an attribute of Individualism, the Hofstede model canbe abridged into two dimensions: Individualism and Uncertainty Avoidance. In addition,a new dimension, Openness, needs to be added for a correct understanding of culturaldifferences. Openness is particularly important to understand the changing
competitiveness of East Asian countries. Each of these three variables is further
classified into two sub-variables to allow for a more precise concept and accurate
measurement of culture.

We will highlight cultural differences between Western and East Asian countries.
However, the new model introduced in this paper can be applicable to any culture in theworld.

Individualism

11

The concept of Individualism will be extended and specified as the degree to which aperson is given responsibility and reward for performance on an individual basis. The
lower the level of Individualism an organization has, the more people focus on the “weare one” concept, i.e., Collectivism.

As sub-variables of Individualism, we will consider how much responsibility an
individual is given, and whether or not an individual is fully rewarded for time, work,and effort. In a culture with high Individualism, people are given full responsibility for
their work. If a person is able, devoted, and diligent, a bonus, promotion, vacation, or
higher reputation is rewarded. People within the society are motivated by the prospectof receiving higher rewards. There will be strong and active competition among people,
which will lead to the development of new ideas, a high standard and quality oftechnology, and so on. In contrast, if both responsibility and reward are low, there will
be no progress.

In the case of high responsibility and low reward, people will not put much effort into
their work, because there is nothing given in return for excelling – praise and rewards
are typically given only to people of higher status or age within the group. On the other12hand, in a culture that gives high rewards with low responsibility, moral hazard willcommonly occur. In such a case, people can receive rewards, which are disproportionate
to the effort they have invested. These different types are illustrated in Figure 1. The
Western business culture is pretty much balanced between reward and responsibility,
while the Eastern business culture is biased toward responsibility, rather than reward, as
contrasted in this figure.

Place Figure 1 here.

What is then an implication of this difference? This does not mean that Western culture
is superior to its Eastern part in every aspect. The superiority actually depends on thelevel of economic development. At the initial stage of economic development, people
may have to sacrifice their rewards for the benefit or responsibility of the whole society.
However, as the economy grows, i.e., the pie expands, people will ask for more rewards.
Otherwise, they will show minimum efforts or go on strike. The serious labor problem
in Korea is thus a result of this cultural characteristic of high responsibility and low

13

reward. It was a very efficient culture when Korea was a fast developing country but nota good one for further takeoff as a fully developed country.

It should be very important to distinguish Individualism from egoism. Egoism ischaracterized by lack of cooperation, commitment, and loyalty. By contrast,
Individualism is to maximize individual’s productivity with a balance of responsibility
and reward. In almost all of the fully developed countries, the culture is individualistic
and in all fast developing countries, the society emphasized more responsibility thanreward. Therefore, the most appropriate culture depends on the level of economic
development.

It is interesting to compare Korean firms that have changed their cultures to Westernculture to the Korean firms that still keep their traditional cultures. Almost all of thefirms that have severe labor problems now in Korea are those that have traditional
collectivist cultures. These firms, such as Hyundai affiliated firms, were the fastest
growing in the past but nowadays are the most problematic ones with regard to labormanagement relations. The workers of these companies believe that they have beensacrificed and exploited for the benefit of the group. The firms should change their

14cultures before they move up to the next stage.

So far, East Asian firms have benchmarked the Japanese collectivist system but now
they have to change it to a more Western system. Even Japan has to change its businessculture. The collectivist nature of Japan hinders its business system. Japanese firms are
the world’s best in terms of production, marketing, and related & supporting sectors, but
not good at their strategies and structures. Firm strategies are still in many cases not for
profit but for market share of the group. Their governance structures are not clear interms of responsibility and reward, and often discourage the most capable individuals.
The most efficient culture at one time may become an obstacle to further development
at another time. Therefore, the following proposition can be formulated.

Proposition 1
At the catch-up and fast-growing stage of economic development, Collectivism,
emphasizing responsibility more than reward, is efficient. However, at the fully
developed stage, high Individualism, emphasizing both responsibility and reward, is
important.

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Uncertainty Avoidance

The second dimension, Uncertainty Avoidance, concerns the degree to which people ina country prefer structured situations to unstructured ones (Hofstede 1993). In otherwords, it is the extent to which a culture feels threatened by uncertain or unknown
events and therefore, creates laws and standards, and refuses to take risks or challenges.
People can be either offensive or defensive with regard to present and future events.
However, Hofstede has explained only the defensive side of Uncertainty Avoidance, i.e.,
disciplinism and a new sub-variable, i.e., frontierism, is needed to allow for a complete
explanation of the dimension.

As a sub-variable of Uncertainty Avoidance, disciplinism is the preciseness in ruleorientation. A disciplined culture prizes precision and accuracy, and requires its people
to be diligent and hardworking. Rules are made as a defensive mechanism, to prevent
and avoid damage, casualties, and risks. The less a country exhibits disciplinism, thegreater the chance of corruption, bribery, and crime. Disciplinism is basically focusedon preserving and strengthening laws and standards, and explains Hofstede’s

16perspective of Uncertainty Avoidance, which is past/present-oriented.

By contrast, frontierism is the mindset to innovate, invent, and invest in building a morecertain future. It is the willingness to change and to create something better in order toavoid future uncertainties. Therefore, a culture that is frontieristic is dynamic andfuture-oriented. Frontierism is similar to entrepreneurship in its goal of maximizing
return through avoiding uncertainty by means of innovativeness. Entrepreneurship isdefined as an activity of creating supernormal values for individuals, organizations, andsociety by creating reward minus risk, i.e. increasing reward, reducing risk or both(Moon and Peery Jr. 1997).

As seen in Figure 2, when frontierism and disciplinism are both high, a nation isheading toward advancement. People not only keep the rules and are diligent but also
develop new skills and abilities. However, if both are low, a condition exists similar tothat of the pre-historic period wherein no well-established laws, rules or regulations
exist, the fundamental factors of life (food, shelter, and clothing) are the overriding
concerns of life, and there is no progress.

17

Place Figure 2 here.

But an abundance of one factor combined with a dearth of the other can create problems
as well. With high frontierism and low disciplinism, a nation can fall into turmoil orchaos. People will act on their own, and will take unnecessary and counterproductive
risks, for there will not be any significant rules to regulate such acts. If frontierism is
low and disciplinism is high, the decision-making process and its results will show slow
progress, as people will feel bound to do things according to existing laws and standards.
In the Western society both frontierism and disciplinism are high, while both are low in
the Eastern society. In particular, Korea and China are located at the low disciplinism
because “rule by virtue” or “rule of great person” was historically emphasized over“rule by law,” and people in those countries compared to Westerners, usually do notshow disciplined behavior. Therefore, the following proposition can be formulated.

Proposition 2
At the catch-up and fast-growing stage of economic development, low Uncertainty

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Avoidance, such as “rule by virtue” or “rule of great person”, is efficient. However, atthe fully developed stage, high Uncertainty Avoidance, emphasizing both disciplinism,
such as “rule by law,” and frontierism for the future security.

Openness

The new dimension that is added to the Hofstede model is Openness. Openness is theability to accept and understand the diverse characteristics and behaviors of different
cultures. Aggressiveness and attractiveness are the two sub-variables, which can be used
to characterize two different ways of opening a country. A country demonstrates
attractiveness when it creates an environment that encourages the inflow of foreigners,
foreign goods, and foreign investments [inbound orientation]. On the other hand, acountry is aggressive when it prefers to go out into the world through emigration,
exports, and foreign investments [outbound orientation]. These differences arecontrasted in Figure 3.

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Place Figure 3 here.

The Openness of a country, both inbound and outbound, can be related to Perlmutter(1969)’s EPG Profile. If a country is high in both attractiveness and aggressiveness,
people will have the willingness to accept and change according to need, leading themto have an open global mindset. However, when a country lacks both of these factors,
people become negative and narrow-minded, closed within them with no thought for orinterest in what lies outside their borders. They act according to their emotions and areconsidered nationalistic and protective. Countries can be either outbound- or inboundoriented in their way of thinking or doing business, but there needs to be a balance
between the two variables because if there is not, an imbalance will arise in the flow ofcapital, goods, and services. As shown in Figure 3, the East Asian culture is biased
toward aggressiveness, while the Western culture is well balanced between
aggressiveness and attractiveness with higher degrees than those of the East Asian
culture.

Westerners often neglect the importance of Openness for economic success because
they are relatively open-minded. But compare North Korea and South Korea, for20

example. How can we explain the big gap in economic development between the two?
Traditional economic variables such as natural resources, labor and capital cannot
explain the gap because North Korea was as good as or better than South Korea by anyof these criteria. The most significant difference between North Korea and South Korea
is their attitude toward outer world – Openness. North Korea is notorious for its
isolationism, i.e., lack of Openness. However, East Asian countries, including South
Korea are relatively less open than their Western counterparts. In order to become major
players in the global business, the East Asian countries should be more open-minded.
The Openness described in this paper is not applied just to nations or societies. Its
definition can be broadened to incorporate other units of analysis such as individuals,
teams, and organizations, as well as nations. Specifically, all of businessmen, firms, andgovernment officials should be more open-minded to enhance their competitiveness inthis era of globalization. Therefore, the following proposition can be formulated.

Proposition 3
At the catch-up and fast-growing stage of economic development, low Openness, suchas protectionism, may be efficient. However, at the fully developed stage, highOpenness, emphasizing both outbound and inbound, is important.

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Conclusion

Although culture must be a crucial factor in business, it has been difficult to find a
precise relationship between culture and business. Existing cultural models, including
the most popular Hofstede model, are not satisfactory to solve this question. We haveused the Hofstede model for a long period, even if we have been frustrated by its
limitations. Thus, scholars as well as managers in strategy/international business havelong been looking forward to any significant improvement on existing models on
culture. For this purpose, this paper has introduced a new model by correcting the
Hofstede model and incorporating a new variable. Using this model, this paper has
contrasted the differences between Western culture and East Asian culture. Scholars andpractitioners will find useful implications from the results of this research. Amongothers, the arrows in the three figures can immediately show strategic guidelines for the
East Asian firms in the process of business transformation and overcoming the culturalproblems.

An important implication of this paper is that the East Asian countries have to consider

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adopting Western culture in the new business environment. This does not imply that
Western culture is much better than East Asian culture in every respect at any time. East
Asian culture has its strengths, but only at the stage of catch-up and fast growing stage.
Collectivism (low Individualism), bypassing rules (low Uncertainty Avoidance), andprotectionism (low Openness) could be an efficient culture or way of doing business for
the East Asian countries in the past. However, the strengths of this culture will beobstacles to becoming the first-rate, major players in the global economy. Business
managers as well as government officials in the East Asian countries have to change
their once-successful culture to a new paradigm in this new business environment.

This paper can be further developed. Based on the new cultural model and propositions
developed in this paper, various statistical tests can be conducted. It would be alsointeresting to compare the Hofstede model and the new model of this paper with a new
set of data, and their managerial implications. The scope of analysis can be very broad,including individuals, firms, and nations. Culture is a very important topic. We need tospend more time and effort on finding managerial implications from culture.

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References

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Hampden-Turner, Charles and Fons Trompenaars. 1997. Response to Geert Hofstede,International Journal of Intercultural Relations 21 (1): 149-159.

Hofstede, Geert. 1983. The cultural relativity of organizational practices and theories.
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Hofstede, Geert. 1993. Cultural constraints in management theories. Academy ofManagement Executive 7 (1): 81-94

Hofstede, Geert. 1997. Cultures and organizations: Software of the mind, New York:24

McGraw-Hill.

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Hofstede’s national cultural research, Human Relations 55 (11): 89-118

Krugman, Paul. 1994. The myth of Asian miracle. Foreign Affairs, November: 62-78.

McSweeney, Brendan. 2002. Hofstede’s model of national cultural differences and theirconsequences: A triumph of faith – a failure of analysis, Human Relations 55 (11): 89118.

Moon, Hwy-Chang and Newman S. Peery Jr. 1997. Entrepreneurship in international
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Perlmutter, Howard V. 1969. The tortuous evolution of the multinational corporation,
Columbia Journal of World Business (4): 9-18

25

Porter, Michael. 2000. Attitudes, values, beliefs, and the microeconomics of prosperity.
In Lawrence Harrison and Samuel Huntington, editors, Culture Matters, New York:
Basic Books.

Schein, Edgar H. 1992. Organizational culture and leadership. San Francisco: JosseyBass Publishers.

Trompenaars and Hampden-Turner. 1998. Riding the waves of culture: Understanding
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26

Figure 1.

Individualism

High

Moral
HazardMaximum
EffortWestern
RewardEastern

Low

No
Progress

Minimum
EffortLow

High
Responsibility

27

Figure 2.

Uncertainty AvoidanceHigh

Chaotic

Advanced
Western

Frontierism
Eastern

Low

Primitive

Stubborn

Low

High
Disciplinism

28

Figure 3.

OpennessHigh

Polycentric

Geocentric
Western

AttractivenessEastern

Low

Narrow-minded

Ethnocentric

Low

High
Aggressiveness