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

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International management: An institutional perspective

Institutional complementarities

A core idea of the varieties of capitalism approach is that institutions are most stable when there are interlocking and mutually complementary institutions. Stable institutions will be the most likely to survive over time, so we should tend to see institutions within any country that are mutually supporting.

In particular, institutions relating to the five spheres outlined above will tend to work in complementary ways. For example, where (as in the USA and UK) systems of governance are based on the dominance of shareholder interests and highly fluid capital markets, with a related emphasis on short-term profitability, coordination of workforce requirements with availability of labour is more likely to be mediated through markets. Such labour markets tend to be associated with low employment protection. This makes it quicker and less costly to hire and fire workers, or to change their conditions of employment – facilitating the transfer of human resources among firms and projects and the rapid hiring and shedding of employees in response to economic conditions. In contrast, where the financial system provides funds on terms less sensitive to current profitability (such as in Germany), long-term employment protection may be more feasible and in turn this may be associated with greater emphasis on firms’ investment in training.

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