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

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International management: An institutional perspective

Identifying country profiles

So far we have focused on understanding the nature of institutional differences between countries and looked more deeply at characterising countries in terms of the variety of capitalism that is represented in their economic, social and political institutions. However, if you are to make practical use of these ideas, first you need to know how to access relevant information on country profiles.

We will look first at two classifications of countries in terms of their institutional profile. Then we will turn to consider the different kinds of detailed country differences which are not adequately captured by the varieties of capitalism framework and some sources to find relevant country data.

Hall and Gingerich (2009) have drawn on data on the strength of the role of shareholders and the stock market (firm governance) on the one hand, and the regulation of labour markets (coordination in labour markets) on the other, to classify countries in terms of the varieties of capitalism framework. Table 2 below gives the scores on these two dimensions for 20 countries. Scores are standardised so that they range between 0 and 1. The chart below presents the same data graphically.

The first thing we can notice is that, as the varieties of capitalism perspective suggests, different kinds of institution are interrelated and mutually supporting. We see from the chart that countries with low levels of shareholder driven corporate governance also have high levels of labour market regulation (and vice versa). Countries in the bottom left of the chart are liberal market economies (LMEs) whereas those in the top right are coordinated market economies (CMEs). We see that whilst there are clusters of countries in each corner representing fairly pure forms of LME and CME, many lie somewhere between the two extremes.

Table 2 Coordination in labour relations and corporate governance

CountryLabour regulation Non-shareholder based corporate governance
Australia0.290.47
Austria11
Belgium0.50.77
Canada0.090.23
Denmark0.580.65
Finland0.660.71
France0.60.82
Germany0.920.95
Ireland0.280.35
Italy0.770.99
Japan0.940.72
Netherlands0.530.74
New Zealand0.090.27
Norway0.810.74
Portugal0.620.85
Spain0.540.77
Sweden0.590.71
Switzerland0.480.44
United Kingdom0.040.14
United States00
Data from Hall and Gingerich (2009)
Described image
Data from Hall and Gingerich (2009
Figure 3 Levels of coordination in labour relations and corporate governance

In their paper the authors refer to these as indices of ‘coordination in labour relations’ and ‘coordination in corporate governance’. We have relabelled them for clarity and to be more consistent with our discussion in this section.

The labour regulation index combines measures of coordination of wage bargaining (higher means greater coordination between employers and unions and more likely to be coordinated at national or regional level) with a measure of labour turnover (lower labour turnover implies greater employment protection). The non-shareholder based corporate governance index is based on measures of legal protections for shareholder power, the dispersion of ownership and control of firms and the size of the stock market. Lower scores on these indicators imply higher scores on the index.

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