International management: An institutional perspective
International management: An institutional perspective

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International management: An institutional perspective

Introducing the varieties of capitalism approach

Since the collapse of communism and the dissolution of the former Soviet Union, it has been common for commentators (often in the USA) to declare the victory of capitalism as the primary world economic system. This might be taken to imply that forms of economic organisation around the world have now become quite uniform. This is by no means the case. Even if we accept this account of victorious capitalism, it is clear that there are many different forms of capitalism in different countries.

In this section we are going to look in depth at one approach to understanding the ways in which institutions vary systematically between countries. This approach is known as the ‘varieties of capitalism approach’. The varieties of capitalism approach categorises most countries on a continuum from ‘liberal market economy’ systems, such as those found in the USA and the UK to ‘coordinated market economy’ systems, such as those of Germany and Austria. This is clearly a considerable oversimplification of institutional differences between countries, however, as with the culture models, it can be a useful starting point and provide useful insights into the conditions faced by managers and firms in different countries. As we will outline below the varieties of capitalism approach rests on three key ideas:

  • national institutions provide mechanisms for firm coordination
  • complementarities between these institutions lead to mutual reinforcement
  • and the idea of the comparative advantage of nations.
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