Introduction
According to Peng (2009), globalization enables close integration of countries and peoples of the world. However, refer to Scheuerman, W 2010, globalization enable liberalization in the world economy, developing dominance of western forms of political, economic, and cultural life such as westernization", development and sharing of new technologies and enable communication or interaction between human in differ nations. However, Institution is referred to as consisting of both structure and formal systems on the one hand and normative and cognitive frames on the other that altogether provide stability and meaning to social behavior. (Djelic & Quack, 2003, p.17) Therefore, a question appeared on the relations between globalization and the institutional diversity.
In fact, this report will discuss about the approach on the relationship between capitalism, multinationals and institutional diversity. Moreover, Influences of globalizations towards institutional diversity of Japan will be discussed.
Part 1: What is Globalization?
Peng (2009) defines "globalization as the close integration of countries and peoples of the world" and also suggests three takes on Globalisation, the first being its widespread influence in the modern world. This is illustrated through present-day advancements in technology and the usage of Western hypocrisy by MNEs to achieve their goal of world domination and exploitation.
Secondly, it is said that globalization has existed throughout human civilization and has been undergoing evolution to suit the times such as the Assyrian, Phoenician and Roman empires. The East India Company by the English is probably the best example of an early MNE, which set off with the ultimate goal to dominate the global market in terms of geography, politics and economics (Peng, 2009).
Globalisation is also likened to a pendulum which can change according to time and having both pros and cons. It also brings together people and countries from different ends of the world, lowering the costs of transportation and communication. Other than that, it also encourages borderless trading of goods, services, capital, and knowledge while allowing intercommunication of individuals from different nations (Peng, 2009).
Opinions of globalization differ from person to person, depending on which point of view one takes. Nadar (2008) observes that globalization is encouraged by those who see it as beneficial in world economics as it is an unavoidable and forward-moving process that will promote growth of trade. However, there are others who are concerned about the creation of gaps within and between nations, especially in terms of social situation of the country, with emphasis on employment, living standards and social progress (Nadar, 2008).
Globalisation is also seen as a platform for expanding trades from national to global level with the concept of borderless trade. Although the speed of its progress thus far has not been uniform between nations, countries have been known to exhibit improved growth and decreased poverty levels fully success in integration into the global economy.
Part 2: What is Institution?
Peng (2008) defines institutions as "the humanly devised constraints that structure human interaction." Institutional is built up of formal and informal institutions regulate individual and formalization of behavior; and supporting by Regulatory, normative and cognitive, which known as three different types of pillars
Peng (2008) explained that formal institution includes regulations, law and rules and regulatory pillar that is categorize as primary supportive pillar, which also represent the coercive power of governments. Whereas Informal institution which is contains ethics, cultures and norm are known as supportive pillars such as normative and cognitive. Normative pillar contains of beliefs, values, and actions of other relevant players-collectively known as norms that could bring influence to the behavior of focal individuals and firms. On the other hand, internalized, taken-for-granted values and beliefs of cognitive pillar; happen to allow cognitive pillar to guide individual and firm behavior.
However, the reason of the existence of institution is to mark down uncertainty. By indicating which conduct is legitimate or illegitimate, institutions restrain the series of acceptable actions. In other words, institutions reduce uncertainty that can be potentially demolished. Moreover, Political uncertainty such as ethic riots may render long-range planning obsolete; Economy uncertainty such as failure to carry out contractual obligations may result in economic losses. (Peng, 2008) Additionally, lack of stable institutional frameworks might be affecting the transaction expense to become intensely pricey, or specific transactions simply would not take place. Yet investors might choose to put their money abroad while lack of credible institutional frameworks that protect investors.
Part 3: What is the relationship between Globalization and Institution diversity?
The relationship between Multinationals and Institutional Diversity
Multinationals are international corporations with production location in more than one country. Today, using the theory of globalization, multinationals have dominated world production and trade by controlling a substantial portion of world production and total sales of a good number of products. (Maheshwari, 1999)
According to Morgan (2009), multinationals put more attention on their marketing positioning to drive their goals and strategies rather than the indirect impact of their actions on the reproduction of the dominant model of institutional diversity.
Dunning (2001) notes that there are four main types of "seeking' strategies by multinationals: First, 'Market-Seeking', to acquire new markets for the multinational's business; Second, 'Resource-Seeking', to seek for and gather certain supply of key material resources such as raw materials, minerals or other input factors; Third, 'Efficiency-Seeking' in costs-saving of production factors such as labour, land and input in order to accomplish economies of scale; Fourth, 'Strategic Asset-Seeking' to enable knowledge to be accessed, skilled labour or capital as guarantee of key asset for company growth. However, four multinational activities drive the decision-making of multinationals by combinations of any but not by itself. In extent, developments of world economy, driven by globalization, such as foreign direct investment (FDI) and competition in national markets, using the dollar as the standard currency worldwide and the removal of market protection by countries have supported the development of these 'seeking' strategies.
Through the action of globalization, both public and private representative have steadily coordinated to play important roles in further developing and expand the "opening-up" of markets. Formal arrangements of organizations such as GATT and WTO have also asserted pressure on states to remove market protection from formal policies. This liberalized capital flows and released financial markets from strict regulation, allowing currencies to flow as necessary as markets are now open to investment from other nations.
Djelic (2006) claims that the spread of marketization has had a broad revolution with economic, social and political dimensions since the 1980s. Also, the rapid spread of market-oriented macro-economic policies, deregulation, liberalization and privatization, progression of trade liberalization, translation of marketization to financial liberalization and the struggle to gain for control in markets has reach the global level. However, Djelic (2006) also identified the limitations of marketization in the sense that it receives opposition politically and ideologically. Marketization can also have limited implementation in local markets as it will require adaptations and maybe even hybridization. To be put simply, it is more often than not easier said than done in terms of implementation.
Capitalism, Multinationals and Institutions Diversity
Below discusses how multinationals and institutional diversity can be influenced by this several type of capitalism of mentioned earlier by the means of relationships with key stakeholders by referred to Morgan (2009).
Liberal Market Economies
Morgan (2009) suggests liberal markets are not against foreign multinationals as long as they are rule-abiding. The multinationals are provided with the liberty to choose how much they wish to accommodate to the rules but will obviously encounter limitations, especially access to some strategic assets. However, others such as skilled labour, is not easily limited and will still allow the multinational to thrive. One problem that may arise through conformation to the rules is that institutional orders can be weakened. The participation of MNCs from different institutional backgrounds can help mediate the weakened institutional order.
Thus the financial markets of Wall Street and the City of London are increasingly populated by banking institutions based in very different national systems. (Morgan, 2009) Also, this happens even in those liberalized and highly advanced market segments. As an example, refer to Morgan (2009), Credit Lyonnais and Socie´te´ Ge´ne´rale french, both of these French banks are active in derivatives trading in the City of London, which is a city within England as they able to get in the markets and purchase expertise on derivatives markets in a approach that is very difficult and insecure way than how those banks of United State and European sought to work out an institutional investment banking nexus in Japan in between 1995 to 2003, referred to Morgan & Kubo (2005)
Inclusive Corporatist Contexts
Morgan (2009) notes that although inclusive corporatist systems do not encourage relocation of MNCs to gain access to new strategic assets or to increase its efficiency, there is still room for MNCs from specific categories to extend its market. These categories are usually looking to gain experience and knowledge on how capital markets function, and later on use that to increase their assets.
This is because in the past, this system has been lacking in terms of experience and knowledge. However, financial and legal MNCs are beneficiating from new market opportunities due to pressure externally and internally. Faced with competition and customers with increased expectations, local firms have come to equip themselves with the necessary skills either locally or abroad. Therefore, institution diversity helps to apply pressure and separate the capital market-oriented firms from local and self-investment financed firms, including improving traditional banking systems. This potentially aggravates the otherwise stagnant system (in terms of evolution) to change how it responds to management. For example, new conditions will influence the role of labour and subsequently affects how it behaves to management.
Grovconf (n.d.) claimed that Inclusive corporatism had started in Ireland in late 1980s and 1990s and carry on until nowadays. The purpose of Ireland's social partnership is to aside from bad impact of huge social disparities or deficit spending; yet attain what classical corporatist arrangements acquired. However, Irish social partnership function as a alliance that attempts to be inclusive of all social partners in making decision that the country economy and society benefits and outcomes always come in the first place.
Moreover, House & McGrath 2004 argued that Irish social partnership is more inclusive as it is comprise huge amount of social interest. Also, it is more strategic, with a well-articulated integrated approach to social and economic development that is self-corrective and articulated in a new national agreement every three years; and it is more firmly institutionalized in both government and nongovernment agencies in the country. (House & McGrath, 2004)
Social partnership has serve as a part of culture of the New Ireland. Additionally, this innovative form of governance underlies the Irish turnaround and act a great forecaster for the nation' future; it can also function as appropriate modification custom-made to each case, for other jurisdictions that is looking to fight for Ireland's success.
Business corporatist forms
Whitley (2007) Japan is the country that implements this type of model, this had affect the country to have limited extend of inward FDI and competition and have limited influences of outward investment on large firm's behavior; also Japan's transnationality, in which principles of carrying out an action across national borders, tend to be the lowest in between all the developed countries, according to the composite measure by UNCTAD (United Nations Conference on Trade and Development).
For the extent, business corporatist firm have a very weak external labour market in recruit for skilled or professional labour due to the dominance within the large firm sector of internal labour markets, and the existence of firm-specific skill sets. A research from Morgan & Kubo (2005) about the entry of United States and European investment context had facing difficulty in lure those expert analysts away from lifetime employment in Japanese banks and to get them to join the more highly-paid and more specialized foreign banks.
The developmental state
One of the examples of Japan in 1960s, a strong nationalist and bureaucratic ethos seems to prevent corruption and enable the state to play a more 'objective' role in the development process.
Part 4: Globalization influences on Institutional Diversity of Japan
Trade Agreements as Vehicles for Institutional Change of Japan
Refer to Croix & Kawaura(2005), Japan is always better in human and physical capital-intensive industries compared to other countries as it is a country which is good at producing high-technology products. Hence, trade liberalization would lead to an increase in imports from other countries, such as the ASEAN countries and China as the unskilled labour in those countries are relatively cheaper than the Japanese unskilled labour. These gains in import would be off-set by the significant losses to Japanese unskilled labour. The Singapore-Japan Free Trade Agreement (FTA), concluded in January 2002, signals Japanese interest in more liberal trade, yet was relatively high wage rates, and its small size. (Croix & Kawaura, 2005, p20)
Additionally; In recent Japanese interest in negotiating FTAs with Association of Southeast Asian Nations (ASEAN), South Korea, and China signals that potential Japanese winner from increased trade, i.e., high -technology Japanese manufacturing firms and their labor force, may finally be organizing more effectively to press their interests within Japan. (Croix, & Kawaura 2005, p20)
Furthermore, Croix & Kawaura (2005) notes that liberalized trade with Pacific Rim countries would benefits Japan by rising its economy towards its comparative advantage in order to ensure long-lived burst of boost; also to open a new market to compensate any losses to their existing exporters from yen depreciation in order to reduce the pressure on other Asian country on resist of yen depreciation; and pressures for additional revolutionize in Japan by reduce prices on goods that is produced in highly competitive foreign markets.
Lastly, pressure that WTO membership is exerting on China to reform its inefficient state-owned enterprises could well be replicated in Japan if were to negotiate a series of substantive FTAs with ASEAN, China and Korea. (Croix, & Kawaura 2005. p20)
How globalization drives institutional diversity: the Japanese electronics industry's response to value chain modularity
Sturgeon (2007) had claimed that globalization could fastening and deepening the geographic circulation of industrial models as it increase global competition, better information trigger change from within, and the most important part is globalization allow global value chains in become more complex over the practice of foreign direct investment, value chain fragmentation, and increasing trade in intermediate inputs. Also, Japan Electronics Industry had been influence by globalization as- Japanese firms have extensive investments in the United States, sell extremely complex components and production machinery on world markets, share some of the same Taiwan-based contract manufacturers used by US firms, and have made huge recent investments in China, both for the local market and for export, just as their US competitors have. (Sturgeon, 2007)
Moreover, Sturgeon (2007) also mentioned the breakthrough of intensely complex but practicable integrated global value chains has bring national economies to become intensely embedded in one another. Additionally, lots of opportunities are discovered for institutional layering and organizational experimentation due to globalization of the supply base. Sturgeon (2007), another way of globalization to influence institutional diversity in Japan is globalization enables Japanese firms to obtain enormous access to suppliers that have arisen in foreign institutional setting. Furthermore, globalization does fasten the progress of change and organizational innovation of Japanese firm while this may not be leading to convergence toward a single institutional and organizational model.
As the result, globalization will likely be increased institutional diversity over time due to the existence of many economic institutions in the face of protracted pressure for change, and the apparent commonality of institutional layering over wholesale displacement.
Conclusion
Globalization had become a reality, it influence our world and human life in the sense of politics, cultures, economics, sociology, technology and even standard of living. Besides, it is also a fact that globalization bring significant changes to different nations and even cause institution diversity for each different nations. Japan will tend to be a good example of a nation that had faced institutional diversity. However, the institutional diversity of Japan by the influence of globalization or even multinationals had allow Japan growing in the sense of economic, politics and technologic and becoming one of the strongest nation in Asia.
As a conclusion, globalization is an important ideology or knowledge to a growth multinationals or even a nation to be success in their strategy and attains their goal.
Appendixes
Table 1: Dimensions of Institution
DEGREE OF FORMALITY
EXAMPLES
SUPPORTIVE PILLARS
Formal Institutions
Laws
Regulations
Rules
Regulatory (coercive)
Informal Institutions
Norms
Cultures
Ethics
Normative
Cognitive
Liberal market economies
Inclusive corporatist
Business corporatist
Developmental state
Market-seeking activity
Open to entry
Competition based on
transparent rules and
regulations to sustain
'fair' markets
Limited restrictions
on innovating new
types of markets
Large home markets
'Older' markets in
manufactured products
are formally open but
tend to be dominated
by insider incumbents
Newer markets in
financial and
professional
services have been
opened up by
international firms
in this area
Formally markets are open but structure of home-based firms works through networks to limit access to final product markets
Resistant to the establishment of
new markets that may undermine
existing networks
Generally resistant to
market-seeking MNCs
which could undermine
attempt to build up
home industry
State is willing to
compromise and welcome
entry where MNC brings
required technical
expertise for upgrading
and also access
to global markets
State may also welcome
financial organizations
seeking to develop
capital markets
Efficiency-seeking activity
Relatively high cost but
market flexibility and low
cost of regulation make
this a possibility (as does
the low cost of exit)
Costs of doing
business tend to
be high: costs
of labour, costs of
regulation; taxation
Not suitable for
economizing on costs
Not a feasible option due to high
costs of doing business, need for
links to other firms and the state,
dominance of internal labour
markets
Developmental state may
offer a cheap and
disciplined labour force
plus state-supported
infrastructure and tax
breaks encouraging
MNC entry
Strategic-asset-seeking activity
Most key assets open to
incomers
Knowledge assets accessible
through market mechanisms
(remuneration packages at
the individual level:
M_A at the firm level)
High on specialist
knowledge and skill
External labour market
for skills weak though
possible as skills are
defined occupationally
Potential for accessing
knowledge through
M_A low due to weak
capital markets
High on firm-based specialist
knowledge
Dominance of internal labour
markets makes it difficult for
incomers to access skill and
knowledge
Strong informal networks
not accessible to outsiders
MNCs less likely to identify strategic assets. Rather the
MNC may be seen by the state as a strategic asset and encouraged to enter. Some efforts by developmental states to upgrade education, skills and R&D may change this.
Impact on institutional diversity
Likely to become more
diverse
Increased diversity from
growth of international
sector linked to global
finance separated from
small and local firms
Unlikely to be much change
Increased diversity: growth
of transparent firms and
capital markets; severing of
corrupt links between state
and business: potential
growth of small business
sector
