Confucian
Capitalism
An inquiry into the
relationship between
East Asian Thought
and Firm Performance
I.
Preface
The author declares that the text and work presented in this Master thesis is original and that
no sources other then those mentioned in the text and its references have been used in creating
the Maser thesis.
The copyright of the Master thesis rests with the author. The author is responsible for its
contents. RSM Erasmus University is only responsible for the educational coaching and
beyond that cannot be held responsible for the content.
II.
Executive Summary
This thesis aims to contribute to the understanding of the role of Confucianism -an ideology prevalent
throughout and particular to the Orient- in the East Asian business context. The thesis provides a
historic synopsis of the debate on Confucianism and economic development, discussing Weber, whose
opinions are still influential to much of the recent research, as well as the relevance of the Asian crisis
of 1997. Consequently, focus shifts from the macro to the meso (firm) level. This part is pertained with
research that has related Confucian values to behavior and modes of organization characteristic for
East Asian businesses. Finally, the author examines whether Confucian values indeed have a
differentiating effect on behavior and firm performance, using a novel approach to explicate the
Confucian Orientation (CO) of East Asian business organizations. The research results indicate that
Confucianism can indeed be linked to certain behavior, but no relationship can be established
between CO and financial performance. The author discusses the implications of these results and
makes suggestions for future research.
2
Contents
Preface ............................................................................................................................1
Executive Summary.......................................................................................................2
Introduction ...................................................................................................................4
An overview of the debate on Confucianism and economic performance ...............6
Early Protagonists ...........................................................................................................6
Post-war development: Culturalist contentions .......................................................7
Asian Crisis ................................................................................................................... 12
A closer look ................................................................................................................ 15
The central tenets of Confucianism ................................................................................ 16
Confucianism and the East Asian business organization ................................................ 18
Research ....................................................................................................................... 22
Limitations..................................................................................................................... 28
Research Results & Discussion ...................................................................................... 29
Conclusion ................................................................................................................... 33
Suggestions for future research .................................................................................. 34
Bibliography ................................................................................................................ 35
Appendix I: Confucianism ............................................................................................. 39
Appendix II: Index of ConfucianVocabulary .................................................................. 41
Appendix III: Elaboration on terminology ...................................................................... 44
Appendix IV: Statistics .................................................................................................. 46
3
Introduction
Having studied Chinese language and culture for some five years and having resided in East
Asia for a year and a half, I’ve always had the intention to make a further inquiry into Chinese
business practice. For many, both Chinese and non-Chinese, Confucianism encompasses
much of what is regarded as quintessentially Chinese. Much researched social phenomena
such as guanxi, mianzi (face) and xinyong (trust) all find their antecedents in the teachings of
Master Kong (孔子, kong3zi), who became known in the West by the latinized name
Confucius. Having worked in a Taiwanese company, I feel that Confucian principles are still
an important part of Chinese business and social life. Therefore, I intend to investigate the
prevalence of Confucian values in Chinese business organizations, and whether and how they
relate to the performance of these firms.
The relation between Confucianism and economic performance became a topic of research for
economists and business scholars as part of the broader inquiry into the causes of the
successful post-war industrialization and economic development of the Asian nations.
However, the debate on the merits and demerits of Confucianism within a social economic
context has antecedents that can be traced back to the 18th century, when Voltaire praised the
Confucian political model of ‘benevolent despotism’, considering it an example for the West
(Yi et al., 2006).
Some have argued that Confucianism is a detriment to economic development. Others have
proposed the exact opposite, claiming that Confucianism is a catalyst for economic activity.
Still others insist that Confucianism is simply inconsequential to economic performance.
While the focus of the debate was first on the social-economic level, interest in the business
literature in the influence of culture on organizational behavior and business performance has
led to the inclusion of Confucianism amongst the subjects of business research.
In this thesis, I will perform an appraisal of the extant literature and examine the relation
between Confucianism and behavior within business organizations and subsequently, the
relation between Confucianism and company performance. First I will provide an historic
synopsis of the debate on Confucianism and economic development, discussing Weber, who’s
opinions are still influential to much of the recent research, as well as the relevance of the
Asian crisis on 1997, which all but put an end to the Asian economic fairy tale. Consequently,
focus will shift from the macro to the meso (firm) level. In this part, I will describe research
4
that has related Confucian values to behavior and modes of organization characteristic for
East Asian businesses. Finally, I will examine whether Confucian values indeed have a
differentiating effect on behavior and firm performance. I will use the linguistic instrument of
content analysis, examining the vision statements and management philosophies of a sample
of one-hundred and nineteen Taiwanese companies for vocabulary indicative of a Confucian
orientation. This orientation is linked to the prevalence of nepotism – a trait consistently
associated with Confucian values- within these firms. Consequently, CO is related to the
companies’ return on equity (ROE), to determine what –if any- effect adherence to Confucian
values has on financial performance.
5
An overview of the debate on Confucianism and economic
performance
Early Protagonists
As early as the eighteenth century Renaissance thinkers such as Leibniz and Voltaire studied
the culture and political system of China, which they held in high regard (Yi et al., 2006).
They propagated the supremacy of the political ideology of ‘benevolent despotism’,
exemplified in the rule of the Chinese emperors (ibid.). Through their work and the Jesuit
missions to the Chinese court, the general Western public first became acquainted with
Chinese culture, resulting in a wide-spread but superficial infatuation. Indeed, when
imperialist forces made their way into China a little more than a century later, many
westerners came to regard Chinese culture with contempt.
The first serious and arguably most influential treatise on Confucianism and economic
development was Max Weber’s “The religion of China: Confucianism and Taoism”, first
published early in the twentieth century. In this seminal work, Weber expands on his
proposition that religion has a critical influence on the development of nations. In “The
religion of China” Weber sets out to prove that the Confucian tradition is detrimental to
modernization and economic development. The thrust of the original argument is that
Confucianism and capitalism -which is considered if not the only ideology promoting
economic growth certainly the most effective- have characteristics that are irreconcilable.
This inherent antagonism stems from fundamentally different religious views. Western
Protestantism regards God as detached and not partaking in the human world. In effect, the
human world without God is completely guided by objective goals and rational behavior.
Moreover, Protestant ethic itself motivates values such as diligence and the productive use of
time (Redding, 1993).
East Asian society presupposes that reality and all its facets are infused and guided by a
divine presence.1 Human relations are regarded as subject to the same principles as natural
phenomena and inherently ethical in nature. This precludes the possibility of creating the
objective and impersonal relations, based on economic rationality, that are fundamental to
modern industrial society. Confucian rhetoric implicitly assumes that some courses of action
6
are preferable to others, because they are good in and of themselves, regardless of their
potential for value maximization. In a further extension of this argument, ethics, in the
Confucian perspective, are not a means but rather the final goal.
Weber’s thesis found significant support when Western scholars tried to explain the failure of
China to industrialize at the turn of the twentieth century (Feuerwerker, 1965). However, it
has to be noted that these scholars didn’t discriminate between Confucian values and the
institutions concomitant with dynastic society that are inherently antagonistic to
modernization. Similarly, Weber’s argument was based on an assessment of pre-communist
China. Later research on the same period has provided alternative explanations of China’s
difficult modernization process, ranging from the prevalent anti-Western sentiment at the turn
of the twentieth century, to the abundance of manual labor, to the absence of stringent
Malthusian constraints, which prompted the West to engage in Smithian economics and
mercantilism (Vries, 2001). The concurrent successful industrialization process of Meiji Japan
and the later economic boom of Singapore, Hong Kong, Taiwan and Korea lend credence to
these alternative explanations and pose questions about the tenability of Weber’s argument.
Nonetheless, Weber’s anti-Confucian thesis regained significance when some research
identified ‘Asian values’ (broadly similar to Confucian morals) as the root cause of the Asian
economic crisis of 1997 (Pye, 2000, Seong, 2003).
Post-war development: Culturalist contentions
The inquiry into the relation between Confucianism and economic development resurfaced
approximately half a century later. After the second world war, the East Asian Economies
underwent a remarkable development, characterized by rapid industrialization and double
digit growth. The characteristics of economic development of this region led researchers to
propose the existence of an Asian development model, or a mode of economic organization
called Confucian capitalism2 (Tu, 1991, Kim, 1994). Although the latter, when compared to
the former, puts greater emphasis on cultural facets, both imply that the economic
development of the East Asian region differs significantly from the rest of the world.
1
Here Weber extends his proposition to Daoism and popular religious traditions of China, since Confucianism is
an ideology and by and large devoid of religious elements. However, Confucianism does propagate the
conception of universal processes that are extant from the cosmological down to the individual level.
2
See Appendix 3
7
One emerging perspective was that the unique cultural heritage of these nations endowed
them with systems of organization and values that yield higher efficiency and thus superior
economic performance. This proposition was first articulated by American political strategist
Herman Kahn in the late seventies, and has consequently been expounded by sociologists
such as Geert Hofstede. Hofstede et al. contend that culture is the ultimate determinant of
economic performance (Hofstede, 1991, Franke et al., 1991). Certain values promoted in
Confucian ideology, such as acceptance of hierarchy, valuing perseverance and thrift
(collectively referred to as Confucian Dynamism), and a collectivist outlook are held to be
responsible for the impressive economic growth of nations with a Chinese heritage. Hofstede
recognizes that certain Confucian values are detrimental to economic performance, but argues
that these are subjugated by the positive influences of Confucian Dynamism, because
collective societies have long-term orientations and emphasize the acquisition of skills and
knowledge.
A related paradigm seeks to place culture in an social-political institutional context, so as to
try and arrive at a holistic explanation of East Asian economic performance. However, doing
so explicates the differences between the various models of economic organization rather than
identifying a common denominator (Wilkinson, 1996).
The salient dissimilarities of Japan’s keiretsu, South Korea’s chaebol, and the family oriented
businesses of Singapore and the Chinese nations, make it problematic to contend that
Confucianism is the single most important determinant of organizational structure
(Wilkinson, 1996).
Ethnocentrism
In his 2003 article, Seong describes how certain Korean intellectuals have employed the notion of Confucian
capitalism for political purposes. Rather than aiming to provide an objective assessment of the interplay
between traditional Confucian values and economic performance, they have taken the economic success of
the East Asian region to be de facto proof for the cultural superiority of nations adhering to Confucian
ideology. Moreover, their contentions implicitly justified morally objectionable practices such as
authoritarianism, corruption and nepotism, and even discrimination and human rights violations by placing
them under the banner of the glorious Confucian capitalist system.
Clearly, such considerations are of a political, rather than an economic nature. For example, even though
most will agree that authoritarian dictatorship is undesirable, empirical observation demonstrates that such a
mode of organization may very well expedite economic progress, especially in the early stages of the
process, were growth is contingent on resource mobilization. However, these dynamics do obscure the
scientific debate to the extent that scholars are inclined either to only evaluate the positive characteristics of
Confucian capitalism (Yeh, Lawrence, 1995) or refrain from making explicit statements about the potentially
superior aspects of this development model lest they be accused of ethnocentrism (see: Wilkinson, 1996).
8
Economic Explanations
An alternate body of research pertaining itself with the development of the East Asian nations
adopted a different methodology. Economists adhering to the neo-classical perspective have
examined the economic performance of the ANICs ( Asian newly industrialized countries) in
the context of factor mobilization and factor efficiency, and have taken particular interest in
the singularity and sustainability of East Asian development. Using growth accounting they
trace economic growth back to two basic constituents, factor input and factor efficiency. The
foundation for this method of analysis was provided by Solow, who held that economic
growth consists of three elements; capital, labor and a miscellaneous factor called the Solow
residual. The Solow residual expresses the economical effect of technological progress and
increases in knowledge, such as more efficient management systems. Although all three
factors contribute to economic growth, only the growth resulting from the Solow residual is
deemed to be sustainable. This is because under conditions of full or near to full utilization,
capital and labor will be subject to diminishing returns, up to the point where further addition
will only serve to compensate for depreciation of extant utilized stock (Krugman, 1994).
Growth accounting therefore differentiates between economic growth engendered by factor
input (factor accumulation), which is finite and non-repeatable (that is to say, any input
dedicated to a particular activity is non-retrievable), and growth resulting from technological
progress, which is fungible and virtually unlimited.
Early analyses of the economic development of the dragons (China and Japan) and tigers
(Hong Kong, Taiwan, Singapore and South Korea) by amongst others Young (1992, 1994),
and Kim and Lau (1994) yielded the surprising results that the impressive growth rates could
almost in their entirety be accounted for by increases in factor input. This led Krugman, in his
1994 article “The Myth of the Asian Miracle”, to liken East Asian economic growth to that of
Soviet Russia, stating that “Once one accounts for the role of rapidly growing inputs in these
countries [i.e. the newly industrialized countries of Asia] growth, one finds little left to
explain.” The fact that over the last twenty years many East Asian economies have been
subject to diminishing growth rates seem to lend credence to Krugman’s contention. It is easy
to conceive how the political-economic model of the East Asian nations was well disposed to
9
mobilize unutilized resources and direct investment, but become less instrumental when the
constraint of full factor utilization is approximated3.
Nonetheless, recent advances in the methodology of growth accounting have called into
question the earlier work of Young and his colleagues. Kim and Lee (2006) and Liao et al.
(2007) differentiated between technological progress and technical efficiency, that is, the rate
at which new knowledge is generated or accumulated and the degree to which this knowledge
is effectively internalized and utilized. These studies demonstrate that although economic
growth was and remains primarily investment driven, factor productivity is an (increasingly)
important constituent of ANIC economic growth (Liao et al., 2007). Furthermore, their
research shows a rapid increase in both technological efficiency and technological progress
vis-a-vis Western nations.
The unusual speed of technological progress in post-war Asian countries can be explained by
means of the catch-up theory (Page, 1994). This theory posits that less developed countries
can internalize extant knowledge from technologically more advanced nations at high speed
and low cost. Indeed, as utilization of capital and labor approximates the maximum, and
knowledge adoption is substituted for knowledge generation, growth rates of East Asian
economies seem to slowly approximate those of Western nations.
Figure 1: GDP growth of East Asia, US, and Europe
12.00
Growth Rate %
10.00
8.00
6.00
East Asia
United States
4.00
Europe
2.00
07
05
20
03
20
01
20
99
20
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
r
73
19
19
19
Ye
a
-2.00
71
0.00
-4.00
Source: www.ers.usda.gov/Data/Macroeconomics/Data/HistoricalRealGDPValues.xls
3
For a description of this political-economic system, coined the ‘Asian development model’ see the section
“Asian development model” in Appendix III
10
The preceding may serve to illustrate that from the outset, researchers from the Culturalist and
Neo-classical paradigm thus had a fundamentally different appreciation of the economic
development of the Asian nations and its significance. Culturalists postulated that Confucian
influenced cultural values were a leading cause of the ‘Asian Miracle’, having not only a
clearly differentiating influence on their national economies vis-à-vis those in the West, but
also being a source of competitive advantage, yielding superior performance. Neo-classical
researchers questioned whether Asian economic development even was all that extraordinary,
considering it a natural consequence of the utilization of latent resources. Consequently, if
cultural values would promote economic development, factor productivity surely ought to
have been greater than that of the Western nations. While the debate on the merits of
Confucianism was inconclusive, the advent of the Asian Crisis of 1997 would give rise to yet
another perspective.
11
Asian Crisis
Inquiries into the causes of the economic success of the East Asian nations all but ceased with
the outbreak of the financial crisis of 1997. Failure to maintain a peg to the American dollar
prompted a massive devaluation of the national Thai currency. As investors struggled to
withdraw from the Thai economy, panic soon spread to other parts of the East and South East
Asian region. The toll of the crisis on the various Asian economies varied from nation to
nation and was mitigated or exacerbated by domestic economic conditions and financial
policies. While devaluation of the national currency occurred in nearly all East Asian nations,
the effects of the crisis where most grave in Thailand, Indonesia and Malaysia (see figure 2).
Researchers have proposed a host of explanations for the onset of the financial crisis. The
brunt of these focus on the results of excessive investment in the Thai economy (primarily in
the real estate sector) and poor lending policies resulting from premature privatization of the
financial sector without proper supervision (Stiglitz, 1998, Radelet, 1998, Corsetti et al.,
1999). Wong adds to these observations that the abundant availability of foreign credit greatly
increased the scale of the crisis, while prior intervention by the IMF in the Mexican crisis of
1994 presented the issue of moral hazard. Other accounts have pointed towards the cultural
antecedents of the crisis, identifying Asian Values, or its negative pendant ‘cronyism’ as the
culprit (Pagano, 2002, Alon, Kellerman, 1999). Whereas factors such as nepotism most
certainly have contributed to the creation of an non-transparent investment climate, the
developments of investment activities and credit management prior to the crisis directly relate
to the depreciation of the Asian currencies and the immediate withdrawal of foreign
investment. Moreover, Singh (2007) argues that the prevalence of corruption and other
practices associated with cronyism was due to the economic and social institutions
concomitant with the particular stage of economic development of the ANIC’s rather than
their culture. This seems plausible considering the fact that the Asian region hosts great
cultural diversity; as point in case, Thailand’s population is predominantly Buddhist, while
Indonesia’s and Malaysia’s are largely Muslim. Most Confucian nations incidentally fared
rather well.
In any case, the similarity of Korea’s pre-crisis financial policies with those of the South East
Asian countries (Radelet, 1998) seems to provide a better account for its dismal economic
performance than any explanation rooted in culture.
12
Nonetheless, the experience of the Asian crisis is significant to the inquiry into the relation
between Confucianism and economic performance for two reasons. First, it inspired a new
body of research which based itself on Weber’s original assessment of Confucianism, and
explicated the potential hazards and downsides of Confucianism. Pye (2000) and Seong, 2003
focused their research on how Confucian motivated practices of nepotism and corruption lead
to socially and economically unfavorable outcomes. As noted before, some have even taken
Confucian values as the very cause of the crisis. Secondly, it demonstrates the lack of scrutiny
with which much of the pre-crisis Culturalist research was performed. The disregard for
cultural dissimilarities and a one-sided perspective of Asian values (Peng, 2007) were
explicated when explanations of the financial crisis fell short, and drew into question the
value of cultural accounts of economic performance on the macro level, which may serve to
explain the scarcity of such research after 1997. Moreover, Singh’s contention that institutions
are delineated by the stage of economic development rather than culture begs the question
whether behavior and attitudes exhibited by firms in a Chinese cultural context are indeed the
result of the Confucian tradition or should rather be attributed to their larger economic
environment, and consequently disappear with the development of corporate governance and
market supervision.
13
Figure 2: GDP growth during the Asian Crisis
GDP Growth during financial crisis
15.00
Growth rate %
10.00
5.00
China
0.00
Hong Kong
Japan
South Korea
Taiwan
Indonesia
Malaysia
Philippines
Thailand
1996
1997
1998
1999
2000
-5.00
Singapore
-10.00
-15.00
Year
Source: www.ers.usda.gov/Data/Macroeconomics/Data/HistoricalRealGDPValues.xls
In the end, this exposition of research about the relationship between Confucianism and
economic performance thus yields three diverging perspectives, which conveniently cover all
possible outcomes of such an appraisal.
On the one hand, Culturalists propose that traditional values induce certain behavior that is an
important determinant of economic performance. Amongst them is a (decreasing) number that
maintain that Confucianism engenders economics growth. However, these researchers are
accused of drawing selectively upon the body of Confucian values, focusing on those that are
believed to promote economic growth while marginalizing those that seem detrimental to
development (Yeh, Lawrence, 2007). Others argue the opposite, stating that Asian values
propagate behavior and modes of organization that adversely affect the economy. This view
gained in both credence and popularity as the Asian crisis unfolded. However, based on the
previous paragraphs it is clear that this perspective at the very least cannot provide a
satisfactory explanation of the sudden economic downturn.
More importantly, all Culturalist arguments are of a rhetoric nature, and lack empirical
demonstrations of the proposed cause and effect mechanisms. Critics have rightly pointed out
14
that Culturalists seem to have taken the coincidence of Confucianism and the economic
development (or adversity) within the East Asian region as proof of a causal connection
between the two. Although their research provides ample demonstrations of the moderating
effects of culture on attitudes and behavior, it doesn’t subject the relationship between this
behavior and performance to the same kind of scrutiny. This calls into question the general
validity of Culturalist explanations of macro-phenomena.
The Neo-classical perspective provides more substantial insights into the accomplishments
and limitations of the model of political economy prevalent amongst the ANICs. Through
growth accounting, Neo-classical research has proven that, although increases in factor
productivity have occurred in the ANICs, factor accumulation was the primary vehicle for
economic growth. The rapid mobilization of factors can be attributed to a particular political
economical model, characterized by an export orientation, high savings and active
government involvement. This model was employed not only in those nations with a
Confucian heritage but also within many South East Asian nations, such as Malaysia,
Indonesia and Thailand (Freeman, Hew, 2002). Moreover, Asian nations do not achieve
higher factor productivity than their Western counterparts. Therefore, it cannot be maintained
that the economic development of the ‘Confucian’ nations is unique nor proof of cultural
superiority. This concludes the discussion on the macro-level.
A closer look
While Confucianism cannot be held to provide an explanation of the economic development
of the greater Asian region, the possibility remains that it has a distinctive influence on the
performance of individual companies. One group of researchers has aimed to elucidate how
cultural values influence attitudes and the behavior they engender within organizations, which
consequently is linked to business outcomes (See: Ralston et al., 1999, Friedman, Chi, Liu,
2006). Although focus thus shifts from the macro to the meso (firm) level, the questions
essentially remain the same:
a)
Is there anything particular about the organization and behavior of East Asian
companies, and if so, are these characteristics influenced by Confucianism?
15
b)
Does Confucianism then bear on firms’ abilities to extract returns from their
investments?
First, I’ll provide a brief overview of the concepts and themes central to Confucianism, which
will aid in the appreciation of the subsequent sections. Second, I will provide an enumeration
of research on the relation between the institution of Confucianism and the behavior it
engenders, following the framework of Gordon Redding’s exposition on Confucianism in the
East Asian social-economical context. Finally, I will present my research, which aims to
provide the answers to the two questions posed just now. To do so, I will empirically test
whether behavior deemed characteristic of the East Asian business organization can indeed be
attributed to Confucian influence or whether we ought to admit the possibility that, as Singh
proposes, it is a mere consequence of the stage of development of the broader economic and
institutional context. Following, I will determine whether a correlation can be determined
between Confucianism and the financial performance.
The central tenets of Confucianism
After their initial grouping together by Mencius, the four virtues (思维, si4wei4) consistently
appear in Confucian writings to form the fundament for the Confucian ideology. These are 仁
(ren2), 义 (yi4), 礼 (li3), and 智 (zhi4) . Although they have no direct English counterparts,
these terms are commonly translated as “benevolence”, “righteousness”, “propriety” and
“wisdom”. These concepts might seem unrelated, but are in fact considered mutually
reinforcing and indispensable qualities for those who aspire to attain the stature of a
gentleman (君子, jun1zi, that is, one who leads through exemplary conduct).
Ren is the cultivation of the natural mutual affection that exists between those who are related
by blood. As a parent acts selflessly for the sake of the family, so can the practice of ren
benefit and elevate the whole of society. Yi is ren in action. It is the alignment of one’s
activities with the common good. Li is often rendered as ritual or etiquette. In Confucianism,
li is considered an expedient means for cultivating yi; through consistent practice of those
rituals and habits that are in accordance with yi, yi will become a second nature, requiring no
premeditation. Zhi cannot be simply equated with knowledge. It is a thorough understanding
of the other three virtues. It is the appreciation of logical structures on a meta-level as they are
16
embodied within the various natural phenomena and the universe, so that they may be
internalized. It is for this reason that Confucianism places great emphasis on education; it is
not specific information but the process of continuous inquiry and reflection itself that is
paramount.
Of all the precepts of li, the most influential is that of the ‘five cardinal relationships’ (五伦,
wu3lun4). It sets out to describe the proper conduct within the most fundamental organization
of all, the family, and transposes these principles to the community and society at large. Each
of these relations are reciprocal and iterative; between leaders and subordinates, there must be
righteousness (yi) and loyalty (忠, zhong4), between father and son there must be kindness
(亲, qin1) and devotion (孝, xiao4), between husband and wife, there should be
discrimination ( 别, bie2, that is to say, each has their respective sphere of influence), between
the elder and the youth, there should be hierarchy (序, xu4) and finally there should be trust
(信, xin4) between friends.
The ‘doctrine of the golden mean’ (中庸, zhong1yong1) is tantamount to the five cardinal
relationships. It is comparable to it’s Western philosophical and mathematical counterparts, in
the sense that it ordains that actions be carried out to their proper degree. It is the law of
moderation and restraint, not giving in to one’s passions and not being excessive in both
actions and demeanor. It also provides the precepts for harmonious coexistence; by not acting
impetuously one can ensure that his actions do not violate the rights of others. Indeed, in
classical Chinese the words ‘moderation’ and ‘harmony’ are designated by the same character
(和, he2).
The above may serve to elucidate a crucial point; i.e. Confucianism is essentially a societal
ideology. Ren, yi and li are all precepts for personal conduct. So are the five cardinal
relationships and the doctrine of the golden mean. Confucianism can only exist in the context
of interpersonal relationships and the outcomes of human interaction, as opposed to Western
rationality which is pertained with objective cause and effect mechanisms. A close reading of
Weber reveals the same conclusion, and Hofstede implicitly concurs by stating that in East
Asian societies Truth is subjugated by Virtue, although they hold opposing views on what the
implications are for economic development (Hofstede, 1991).
17
The following paragraph will expound on research that describes how adherence to a
relational rather than an objective logic might influence inter-organizational behavior.
Because the principles of the five cardinal relationships are held to transcend beyond the
boundaries of the family and permeate all interpersonal relations, it isn’t surprising that many
researchers have characterized East Asian Management styles as both paternalistic and
personalistic (Redding, 1993, Cheung, King, 2004, Xin, Pearce, 1996, Westwood, 1997).
Similarly, many researchers have indicated the importance of harmonious relations both
within and between organizations (Redding 1993, 1995, Friedman, Chi, Liu, 2006, Gamble,
Gibson, 1999).
Confucianism and the East Asian business organization
Redding (1993) considers paternalism, personalism and insecurity the most salient examples
of Confucian influenced behavior.
The traditional paternalistic orientation of the family was depersonalized through the vehicle
of Confucianism and propagated as the exemplary mode of relational ordering. To
characterize this Confucian model as autocratic would be an oversimplification. Instead, it is
based on an intricate combination of power and responsibility (corresponding to the principles
of ren and yi). Much of the de facto legitimacy for the authority of the business leader
tautologically stems from this professional predicate and his or her ownership of the business.
But underlying this authority is an expectancy of moral conduct befitting a leader. Confucian
rhetoric alludes to the notion of the gentleman (junzi), who inspires through immaculate
demeanor and a display of appropriate concern for his subordinates. The undiminished
importance of this principle was confirmed in a study by Neelankavil, Mathur and Zhang
(2000) in which Chinese business professionals rated charisma –which is to be understood in
the Confucian sense- the most important quality of an effective leader.
The importance of authority and hierarchy has clear Confucian antecedents in the doctrine of
the five cardinal relations, as can be illustrated with the following excerpt from ‘the
Analects’: “A lord a lord, a minister a minister, a father a father, a son a son” (
君君，臣臣，父父，子子, Analects 12.11). This comment reiterates the importance of the
reciprocal relationships between ruler and subordinate; the ruler has to be righteous and
caring, the subordinate has to be loyal, and each should attend to their respective scopes of
18
work. However, Seong reports that this notion has also been used as justification for crude
authoritarianism. In any case, although managers have a certain autonomy in dealing with
routine operations, important strategic decisions are always made by the business head. A
distinguishing characteristic of the Chinese management model then seems to be a separation
of authority and autonomy. Business leaders with a Confucian cultural heritage seem to have
an intrinsically adverse disposition to empowerment strategies (Bae, Lawler, 2000). Likewise,
employees in traditional organizations seem to be indifferent to empowerment, if not looking
upon it unfavorably (Chen, Aryee, 2007). The nodal position of the business leader ensures
that he or she alone possesses the complete repository of extant information. Knowledge may
be shared with others at the discretion of the leader (Westwood, 1998). The combined
leadership aspects of centralized power and consideration for employees are to ensure order
and social harmony within the organization (ibid.), but do so at the cost of restraining
initiatives at the front end and the potential detrimental effects of group thinking (Forsyth,
1999) .
The second distinctive element of the Confucian model is personalism. Redding (1993)
defines personalism as ‘the tendency to allow personal relationships to enter into decision
making’. Each society has in some stage of its economic development relied on kinship
structures to mitigate the risk of defection. In the West these institutions gave way to a system
of impartial and equitable rules of trade and external enforcement mechanisms as the scale
and scope of economic activity increased (North, 1991). Despite the gradual adoption of these
mechanisms, the Chinese continue to rely to a great extent on kinship structures to deal with
agency problems.
One implication for the business organization is that one’s respective position and authority
within the organization are contingent on the relational proximity to the business leader, who
him or herself often attains that position as a result of social standing rather than purely on the
basis of professional merit (Westwood, 1997). Hall identified this mechanism of status by
ascription (i.e. based on who you are rather than what you did) as a common denominator of
collectivist cultures. The sustainability of managerial authority is also delineated by
personalism, as it is contingent on the managers relationship with his or her subordinates.
Another implication is that performance and results are permeated by a high degree of
subjectivity. Because superior-subordinate relationships have an interpersonal rather than
professional basis, there is a strong incentive for subordinates to withhold or misreport
unfavorable information or results so as to avoid conflict (Friedman, Chi, Liu, 2006, Gamble,
19
Gibson, 1999). Conversely, superiors are likely to rate subordinate performance in terms of
personal relation rather than on an objective basis (Gamble, Gibson, 1999). Like paternalism,
personalism has clear antecedents in the Confucian writings as expressed by the statement: “A
gentleman who cares for his kin is likely to extend the care to the populace and influence
them to approach nobleness” (Analects 8.2). But also here the principle of moderation needs
to be applied “A gentleman in amicable but not clannish” (Analects 13.23).
Finally, personalism influences inter-organizational relationships. The subject of guanxi and
its intricacies have been extensively researched. The trust that is engendered by personalism
allows for the formation of extensive alliances (Redding, 1995), sharing of resources and
significantly reduces transaction costs (Lovett, Simmons, Kali, 1999). The obvious downsides
are that the prerequisite of longstanding relationships might significantly slow down the
incorporation of newcomers that might bring valuable new knowledge or technology to the
network, and the potential that nepotism leads to the selection of partners that deliver suboptimal results. Nonetheless, guanxi are to be considered a viable alternative to the contractbased alliances prevalent the West, especially given the academic interest in trust and self
enforcing safeguards as constraints of opportunistic behavior (Das, Bing, 1998).
Redding identifies insecurity, which he considers a result of historical uncertainty pertaining
to the tenability of property rights in China combined with the transient nature of new
societies such as Hong Kong, Taiwan and Singapore, as a factor reinforcing the family
orientation in business organizations. It emphasizes the importance of kinship ties as a
mechanism for mitigating risk associated with opportunistic behavior.
Altogether, this line of ‘Culturalist’ research seems more insightful than that which deals with
broad macro-economic trends, because it pertains itself with behavior and relationships within
the defined spectrum of the business organization. Moreover, this research provides a clear
logic about how the institution of Confucianism propagated certain values, which in turn can
be related to particular behavior, organizational forms and business practices.
Figure 3 : The relation between Confucianism, values and attitudes
20
In light of the previous, the effects of the described behavior and organizational structures on
business performance can be expected to be equivocal. The centrality and autonomy of the
business leader allow for swift decision making in the face of environmental change. Power
structures follow kinship ties, making them relatively simple and stable. Likewise, alliances
are formed along common lineage or origin, in which implicit trust is high. As a result, the
transaction costs and potential delays concerned with contract based alliances are significantly
mitigated. This facilitates rapid execution of business plans. On the downside, paternalism
and personalism might adversely affect the efficiency of business processes, leading to suboptimal outcomes. The centralization of power renders the quality of any decision contingent
on the cognitive capabilities of the business leader and the quality of the information he or she
possesses. A general tendency to avoid conflict might lead to improved work flow, but could
also motivate subordinates to omit important information that is potentially upsetting or
incongruent with the dominant perspective. When a concern for trustworthiness based on
extant relations dominates procurement or alliance considerations, this might go at the
expense of more objective measures such as task performance.
This exposition suggests that Confucian influences are an important moderator of inter and
intra-organizational behavior and attitudes. Practices such as ‘paternalistic headship’
(Westwood, 1998) and guanxi seem to have direct antecedents in the Confucian concepts such
as the ‘cardinal relationships’. While nepotism and hierarchical organizations are ubiquitous,
their manifestation in East Asia is certainly idiosyncratic, and are the result of a long cultural
development.
However, the economic effect and social desirability effectuated by Confucian influences are
contingent on the particular reading of Confucianism. As Seong notes, Confucianism is a
double-edged sword. If tendencies towards paternalism and personalism aren’t mitigated by
the principle of the Golden Mean, they can easily degrade into authoritarian dictatorialism,
oppression, nepotism and corruption.
21
Research
Research questions & hypotheses
The research summarized in the previous section implicates that culture influences the
behavior and actions of individuals and organizations alike. This behavior in turn will in part
determine the outcome of organizational efforts. This reasoning seems plausible, especially
considering the aforementioned Culturalist research that explicitly linked behavior to
attitudes. However, no research that I am aware of has linked these attitudes empirically to
Confucianism, and as such, the argument is incomplete. Secondly, no Culturalist research has
demonstrated an explicit link between Confucianism and financial performance.
The objectives of this research then are to answer the aforementioned questions, following the
approach presented below.
Figure 4: Interrelation between the research questions
Question a.1: Is there anything particular about the organization
and behavior of East Asian business organizations?
YES
NO
Impli
Implications
Question a.2: Are these traits influenced by
Confucianism?
NO
Are these traits then a result of the stage of
development of the institutional environment?
YES
Question b.1: Does Confucianism then bear on firms’ abilities to
extract returns from their investments?
NO
YES
Why?
Question b.2: Is the relationship between Confucianism and
financial performance a positive or a negative one?
22
Why?
Implications
Question a.1 has been examined at length in the previous section and thus need not be
subjected to further scrutiny. There are commonalties between say, the practice of guanxi and
nepotism and the concept of paternalistic headship and the autocratic organization. But to
argue that they are the same would be to disregard the intricate social structures and reciprocal
mechanisms that underlie the two (Kathri et al., 2006). As for the latter part of the first
question, the close association of Confucianism and certain types of behavior and
organization in much of the literature is bolstered by the intuitive logic of a causal mechanism
between the two. Therefore, I propose that:
A positive correlation exists between Confucianism and the distinctive behavior of East Asian
business organizations
Results of Neo-classical analyses conducted on the macro-level would suggest that the
influence of Confucianism on financial performance is non-existent or negligible. However,
behavioral and organizational studies on the meso level make a strong case for a
differentiating influence of Confucianism on intra and inter firm behavior. Moreover, given
that the outcome of this behavior is somewhat of a mixed bag, it is difficult to hypothesize
about the direction of any possible relationship between Confucianism and performance.
Therefore I will refrain from making predictions pertaining to the second research question.
Data Collection
When comparing the economic performance to cultural traits, the influence of other factors
such as resource endowments, economic and political stability and protectionist measures are
ignored. By limiting the assessment to the firms operating in a single national economy, the
aforementioned factors are homogenized, so that any relationship between Confucian
ideology and financial performance can be measured more accurately.
Although China is the origin of Confucian thought, measurement of Confucian values there is
likely to be impeded because of political considerations (the Chinese Communist Party is still
reluctant to permit the public propagation of traditional ideas). Also, reliable and complete
financial performance data is notoriously difficult to come by. Instead, this assessment will
take Taiwanese enterprises as its focus. The Republic of China is representative of the East
Asian region because it has a distinct Chinese cultural heritage and a development trajectory
similar to the other ‘little dragons’ (Hong Kong, Singapore and South Korea).
23
A sample of TSEC-listed companies (n=115) was selected from within four different
industries (the commodities, consumer electronics and service industries and financial sector).
I used the industrial categorization employed within the ISIN code query system.
Research Design
Research on the firm level has focused on describing and explaining causal relationships
between culture, behavior and outcome. In this instance, I examine a particular cultural
expression, Confucianism. I seek to measure the degree to which Confucian ideas are
prominent within the Taiwanese business organization (i.e. Confucian Orientation). This is
linked to a type of behavior that has been ascribed to Confucian influences, nepotism. The
relatedness of members of top management to the company Chair may serve as a proxy for
nepotism. Subsequently, I will asses the relation between Confucian orientation and these
companies’ financial performance. I chose to directly correlate Confucian Orientation to
performance rather than examining the relation between behavior and performance because it
would be near impossible to adequately capture all organizational behavior that might be
subject to Confucian influence. It would be impetuous and uneconomical to try and construct
a complex model which aims to describe the specific effects of any particular kind of
Confucian influenced behavior before having determined whether any relationship between
the prevalence of Asian values and financial performance can be discerned at the aggregate
level. Moreover, this allows for the unlikely but not impossible instance that Confucianism
influences performance even if the behavioral traits that are particular to the East Asian
business organization cannot be accounted for by Confucianism.
Figure 5: Scrutinizing the relations between culture, behavior and outcome
Underlying logic
Research Design
Culture
Confucian Orientation
Behavior
Nepotism
Outcome
Financial Performance
24
Confucian Orientation
To identify organizations with a Confucian orientation (CO), I relied on linguistics, using a
methodology similar to that employed by Yadav et al. in their 2007 article “Managing the
Future: CEO Attention and Innovation Outcomes”. They conducted a content analysis of
CEO’s statements to shareholders. Sentences indicative of a forward looking and in- or
external orientation were counted and adjustments were made to accommodate for the
comparison of letters of unequal lengths. Yadav et al. recognize the possibility that these
letters are simple propaganda tools with little or no relevance to the actual strategy, but
conclude that if this is the case, consequent analysis using statements as a proxy should yield
no results. The obvious merit of this approach is that it allows for the collection of
information on the orientation of a great number of business organizations without having to
hold time-consuming interviews. Moreover, by quantifying these orientations, they can be
directly compared to a great number of business metrics.
The contention of Chinese business researcher Tu Wei-Ming confirms the suitability of a
linguistic approach to assessing Confucian Orientation within companies:
…prior to the impact of the West in the mid-nineteenth century, Confucian culture seems to have
dominated East Asian education both for the elite and the general public, family relationships, social
organizations, and bureaucracy, at both central and local levels (China since the thirteenth century,
Yi Dynasty Korea since the fifteenth century, and Tokugawa Japan since the seventeenth century).
Even in world views and cosmologies, Neo-Confucian metaphysics seem to have left an indelible
imprint in the verbal expressions and thought patterns of East Asia.
To compile an index of key Confucian vocabulary, I first enumerated the most important
philosophical and ethical Confucian concepts in academic expositions of Confucianism and
authoritative Confucian texts. To ensure the centrality of these terms their incidence in the
Confucian canon was indexed.4 Only those terms that were regularly recurring in the
Confucian discourse were considered. I proceeded to cross reference these with a Confucian
lexicon, the 孔子大辞典 (kong3zi da4 ci2dian3), taking care to leave out any terms that were
overly esoteric or peripheral. Because in some instances usage of classical Chinese idiom
might lead to grammatically incorrect modern day Chinese, I listed modern synonyms
whenever available, using the Standard dictionary of Chinese (han4 zi biao1 zhun3 zi4 dian3).
The English translations and explanations were taken from the Li’s translation of The
4
For this research I used the versions from http://chinese.dsturgeon.net, which has an excellent collection of
Classical Chinese texts
25
Analects, Legge’s translation of Mencius, and RoutledgeCorzons Encyclopedia of
Confucianism. I further provided references to various passages in the Confucian canon in
which these terms occur, so as to provide a backdrop for the reader. References have the
format X 1.2. The letter (‘X’) refers to the particular literary work (see table below). The ‘1’
and ‘2’ refer respectively to the chapter and paragraph. The index is included in the Appendix
II.
The particularities of this research topic necessitated some adjustments to Yadav’s et al.
research methodology. Although content analysis is a suitable means for detecting Confucian
orientation, it would be presumptuous to assume that this would allow for a completely
accurate representation of the degree or strength of this orientation within a particular
organization. The great differences in the length of the various statements further decrease the
precision of this type of measurement. Therefore, I opted for categorical rather than
continuous measurement of Confucian Orientation.
The aforementioned index was employed to record usage of Confucian terminology in
corporate documents and statements. Only the terms and synonyms included in the index
were registered to ensure a minimal level of subjectivity. The absence of conjugations or
suffixes in the Chinese language further enabled me to avoid deviations. Given the brevity of
many statements, I decided that the incidence of one Confucian term would be sufficient
proof of CO. If subsequent statistic analysis would yield no results, the prerequisite number of
used Confucian vocabulary would be increased to determine whether lack of accuracy was an
issue. Initial analysis of twenty-five random letters to shareholders yielded no results. This
isn’t wholly surprising since the content of these letters generally has a tactical focus,
summarizing the various relevant developments and results of the previous year and outlining
operational strategy for the near future. Confucianism, being a worldview and system of
ethics, is pertained less with the “what” than with the “how”. Although profitability and
growth can be held to be universal objectives of business organizations, views on how these
objectives should be brought about can differ considerably. In a departure from Yadav’s
methodology, I thus chose to work with corporate vision statements (企業愿景, qi3ye4
yuan2jing4) and management philosophies (經營理念/哲學 jing1ying2 li3nian4/zhe3xue2),
because they describe the organization holistically, i.e. in terms of corporate values and raison
d’être.
26
Nepotism
Even though the enumeration of (supposedly) Confucian influenced behavior presented in
figure 3 isn’t exhaustive, it would be beyond the scope of this thesis to scrutinize all of the
above elements. Instead, I will focus on nepotism and see whether it is indeed more prevalent
in Confucian organizations. Corporate governance requirements in Taiwan stipulate that
companies include an overview of related members of top management in their annual report.
For the purpose of this research I chose to focus only on kinship relations between the
company chairman, whose role in the company is more akin to than of the Western CEO and
top management. This decision was motivated by the Chair’s central position within the
company (Chung, 2003) which would allow him to be relatively unhampered in making
hiring decisions. The presence of members of top management related to the Chair then might
serve as an indication of personalistic tendencies within the organization. Although the
Chinese notion of implicit interpersonal relationships (guanxi) is far more intricate than
Western understandings of kinship, encompassing for example also bonds between those who
share a common geographic origin, information about such relations is much harder to obtain
and therefore they shall be omitted from this research. Companies having one or more
members of top management related to the Chair are coded one and those having none are
coded zero. A chi-square analysis will serve to determine whether there is indeed a
discernable correlation between Confucian orientation and top management relatedness.
Because the measured dimensions originally are continuous categorical variables rather than
true binomial values, I deemed the chi square test more appropriate than the binomial model.
Confucian orientation and financial performance
The inquiry pertaining to the relationship between Confucian orientation and financial
performance is of a more explorative nature. In light of the widely diverging opinions about
the influences of Confucianism, no a priori contentions were made about the strength or the
direction of the supposed correlation between the two variables.
For each company I calculated average ROE over a four year period (2004-2007), using data
from the Wharton Research Data Service, or from the respective company’s annual reports.
I chose ROE as an indicator of financial performance because it is a measurement of the
efficiency of entrepreneurial activity. Using ROE then might serve to elucidate whether
Confucianism indeed influences organizational behavior in a way that bears on the company’s
ability to extract returns on their investments.
27
The existence of a relationship between CO and ROE is tested using an independent samples
t-test. The sample is divided in companies with and without a Confucian influence. If CO
indeed has an influence on the financial performance of companies, then this ought to result in
a significant divergence between the performance of the companies within the two categories.
Limitations
In spite of the insights that this research might provide, it is subject to some important
limitations. Some of these pertain to the methodology. A simple methodological construct as
the one employed in this study can never achieve an exhaustive description of the intricate
interplay between business strategy and traditional cultural heritage. Because of the
exploratory nature of this research, Confucianism is treated as a discrete variable. Depending
on the results of the research, a more detailed model addressing the influence of Confucian
individual attitudes and behavior may be called for.
Most importantly, the study doesn’t consider non-financial measurements to assess the
influence of Confucianism on business performance. Obviously, only considering the
financial effects of a value system primarily concerned with ethics will result in a incomplete
and one sided assessment. A full account of the merits and demerits of Confucianism to
businesses requires a very comprehensive and in depth evaluation of its influence on a
multitude of aspects such as financial performance, stakeholder relations, international
competitiveness etc.
A final limitation pertains to cultural scope. Although Confucianism is an important
constituent of the national cultures of Korea, Japan and those countries with a predominantly
Chinese population, the amalgamation with extant cultural values in Korea and Japan led to
diverging interpretations of Confucianism. Furthermore, the economical organization in Japan
and Korea differs significantly from that of Taiwan. This reservation should be extended to a
degree to mainland China, being a transitional economy, and Singapore, where Western
business models have had arguably more impact on the organization of firms then elsewhere
in East Asia (Redding, 1995). Nonetheless, the cultural proximity, a result of the cohesiveness
of Chinese society, renders it plausible that results from this research are also significant for
these nations.
28
Research Results & Discussion5
Figure 6: Summary of the research results
Research Results
Confucian Orientation
+
Nepotism
o
o
Financial Performance
Linguistic analysis yielded fifty-four companies with a Confucian Orientation out of the total
sample of one-hundred and nineteen. The most frequently used terms were 誠 (cheng2,
sincerity) 信 (xin4, trust) and the baihua (modern-day) variant for cheng, chengxin, a
combination of the two characters.
One might hypothesize that the organizational cultures of older companies exhibit more
traditional values. However, according to the results of an independent samples t-test there
was no statistically significant difference between the average age of companies with
(M=73.4, S=15.6), and without (M=77.9, S=16.5) Confucian Orientation (t(113)= 2.529, p >
.10).
Members of top management with a kinship relation to the Chair where found in fifty-nine
instances. The Chi square analysis indicated a significant effect (2(1, N= 115) = 4.525, p<
.05). Indeed, within companies with a Confucian Orientation members of top-management are
more often related to the Chair then in companies without CO. The proposition in the
‘research questions’ section was that a positive correlation exists between Confucianism and
5
Detailed statistical output can be found in the Appendix IV
29
the distinctive behavior of East Asian business organizations. The findings pertaining to
nepotism support this proposition.
Figure 7: Distribution of Nepotism (TMT) over companies with and without a Confucian
Orientation (CO)
TMT
70.0%
0
1
6 0.0%
P e rc e n t
50.0%
40.0%
30.0%
2 0.0 %
0= Does not possess said trait
1= Possesses said trait
1 0.0 %
0.0%
0
1
CO
__
The second research question pertained to the relationship between Confucian orientation and
financial performance. The results for the independent samples t-test demonstrates that there
is no significant difference between the ROE of companies with a Confucian Orientation
(M=.091 S=.097) and without (M=.056 S=.015) (t(113)=1.409, p> .10). If the conclusion is
that Confucian Orientation is inconsequential to financial performance, then Confucian
influenced behavior cannot moderate financial performance either. Indeed, a control test
measuring the correlation between nepotism and ROE yielded no significant results6.
The outcome of this research thus refutes a crucial assumption held by many researchers of
the East Asian business organization; namely that Confucianism is an important moderator of
financial performance. Confucianism indeed still is an important element of contemporary
East Asian culture and as such has a clearly discernable influence on the values and
perspectives held within many East Asian business organizations. The research findings
suggest that these values do indeed promote certain attitudes and behavior. However, the
particular interpersonal dynamics within the East Asian business organization are
6
See Appendix 4.4
30
inconsequential to performance. As such, the apparent juxtaposition between the Neoclassical and Culturalist perspectives can be accounted for; it is plausible that Confucianism
can explain to a great extent certain modes of organization and interpersonal dynamics
particular to East Asian businesses, but it certainly doesn’t affect conduct in such a way as to
have a distinguishing influence on the ability to extract returns.
Although perhaps surprising, these conclusions are by no means new. d’Iribarne reported
similar findings when researching the organizational culture of one company’s subsidiaries in
the Netherlands, France and the UK in the late eighties. While recognizing the marked
differences in organizational culture, he found that there was little divergence in the efficiency
and performance of the respective businesses. Differences in culture then ought to be regarded
as historically dependent mechanisms for coping with varying environments, both natural
(resource endowments) and manmade (social exchange)7, while serving the universal
objectives of wellbeing and proliferation. As a point in case, the potential detrimental effects
of nepotism on the performance of Taiwanese businesses seem to be offset by a traditional
emphasis on education. Within this era of global competition, Darwinian mechanisms decide
the success or demise of the business corporation. Those companies that propagated values
that are severely detrimental to financial performance have surely been ousted of the business
arena during the six decades of East Asian development.
An examination from the knowledge based view (KBV) of the firm further confirms the
validity of the research results. An extension of the resource based view of the firm, the KBV
asserts that firms are able to extract above-average returns because they possess knowledge
that is valuable, rare, cannot be perfectly imitated and is non-substitutable. Based on the
understanding of culture presented above, Confucianism may be considered a form of
knowledge. Its values implicitly embedded in an intricate thought-system which is historically
bound to the East Asian region and exotic to those without a Chinese cultural heritage, it most
certainly seems sticky and ambiguous. But even if one would allow for the contention that the
attitudes and behavior related with Confucianism is rare (a dubious statement considering the
size of the East Asian population) and inimitable, many of its values are not. For example,
within a random sample of mission statements of twenty European and American firms, eight
7
Although this argument might seem tautological, culture isn’t static and thus is prone to be change in reaction
to prevalent ideologies, social occurences etc. For example, the Reformation is considered to have been
instrumental to the propagation of equalitarian principles, which are a fundament of contemporary WestEuropean culture.
31
mentioned the centrality of trust and integrity. Although no doubt important prerequisites to
good business conduct, these values can hardly be considered to be particular to companies
with a Confucian orientation. Important idiosyncrasies do exist. For example, whereas in the
West, contracts are deemed essential to engender trust, personal relationships supersede the
importance of contracts in much of Asia (Lovett et al., 1999). In any case, the values that
delineate the business arena are the same. Trust is a universal requirement for commercial
activity. Diverging behavior and modes of organization ought to be regarded as a
manifestation of the unique historical and cultural experiences of the different regions.
Research has pointed out that these mechanisms have their specific merits and drawbacks
(Redding, 1993, Das, Bing, 1998), but no-one has proven the superiority of the one to the
other.
Finally, it should be noted that although many of the researched companies propagated
Confucian values, a small majority did not. These non-Confucian companies rather
emphasized business objectives such as value creation, company profitability and growth.
Researchers have claimed that globalization causes the values held by East Asian managers to
approximate those prevalent in the West (Pascale, Maguire, 1980). Indeed, in many
companies members of top management held degrees from American universities, which
might well have influenced them to adopt Western business models and practices. Due to the
cross-sectional design of this research, no assertions can be made as to whether a tendency
towards the abandonment of traditional values in favor of Western values and business
practices is taking place. In any case, the age of a company is unrelated to its Confucian
orientation. It would seem plausible that the companies or industries that were already firmly
established before or early on during the internationalization of the Taiwanese economy might
retain more traditional characteristics. The research results however indicate that there is no
such simple characterization of the Confucian company. However, since Confucian values are
as prevalent amongst the more recently established companies as older firms, it seems
unlikely that they will rapidly give way to Western business practices.
32
Conclusion
If Confucianism is neither consequential to financial performance nor apparent in every East
Asian company, then should it from here on be ignored?
Obviously, the answer is no. This thesis merely proposes that what East Asian companies do
doesn’t differ significantly from their counterparts from around the world. Therefore, the
‘how’ might actually be the more important question. Although there is ample proof that
intensified international contact has led to the exchange of cultural values and effectuated a
shift in thinking and behavior, it would be presumptuous to assume that this trend will result
in ubiquitous ‘Westernization’. East Asian business professionals might have adopted
American management philosophy and terminology, but such terms and ideas are but at the
surface of culture and of a transient nature. Pragmatic by nature, the Chinese have a history of
adopting Western science and technology while ‘retaining their core’, dating back to the late
Qing Dynasty (Feuerwerker, 1958). Confucianism seems to convey many values crucial to
Chinese society, which might serve as an explanation for its tenacity. Concepts like mianzi
(face), guanxi (reciprocal relation), xinyong (trust) and hexie (harmony) will persist as
important implicit elements of social interaction and organization. Therefore, studies
reporting large shifts in managerial attitudes should not be taken at face value.
Finally, the results should warn Culturalists who all to readily proclaim the superiority of one
culture (and its concomitant institutions and practices). This warning ought to be extended
also to those Culturalists that hold the Asian institutions with a relational orientation to be
inferior to Western contract based market-mechanisms. The complex organization of social
relations propagated in many East Asian nations are as far from the primitive kinship ties
described by North (1991) as are the modern day institutions in the West. Moreover, whereas
regulations and contracts can only serve to deter undesirable behavior, Confucianism contains
a holistic system of ethics, which has the potential to inspire virtuous conduct. The teachings
of Master Kong just might hold some lessons, which the West cannot afford to ignore.
33
Suggestions for future research
The results of this study have been instrumental in demonstrating the potential of using
linguistic analysis also with complex concepts. Such analysis can be a time-efficient
instrument for detecting and measuring cultural orientations, which can prove useful both in
practice and in research. It contributes a means of explicitly identifying Confucian thought
and expressions and assessing the relation which was assumed to exist between this ideology
and characteristically East Asian modes of organization and behavior. To those who readily
accept such a relation, this might seem trivial. However, if this assumption wouldn’t have
been subjected to further scrutiny, it would have been impossible to refute Singh’s contention
that modes of organization and behavior ought to be attributed to the stage of development of
the economic institutional environment. Moreover, it allows for an objective assessment of
the relation between culture and performance.
But because deep-held values and beliefs will often not be articulated, linguistic analysis is a
crude instrument, uncovering only the tip of the iceberg. A more sensitive and elaborate
methodology might yet improve the power of such analysis. In particular, analyzing a greater
amount of internal and external communications over an extended period of time would yield
a more accurate representation of a company’s Confucian Orientation and would allow for the
detection of longitudinal tendencies. Moreover, it would enable analysis of Confucian
Orientation on the ratio level, something which, because of the large disparity in length of the
mission statements, I was unable to do for this research. This would further improve any
subsequent analysis of the correlation between Confucianism and the attitudes and behavior
attributed to it.
More importantly still, due attention ought to be given to the non-financial effects of
Confucianism. In particular, research should examine the influence Confucianism exerts on
the ethical standards on East Asian business. As noted before, ethics are the focal point of
Confucianism. But like most ideologies, the desirability of its outcomes are contingent on
interpretation. Such research might prove much more useful to our understanding and
appreciation of Confucianism in the business context.
34
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38
Appendix I: Confucianism8
For a subject that has received much attention over the last decade (a database search yielded
19,100 articles that were specifically pertained with “Confucian Capitalism” and 7,780 that
addressed the topic of Asian Values), Confucianism is generally poorly understood by
Western researchers. This can be partially attributed to the fact that research of Confucianism
has been directed at specific texts and as such has provided a particularly eclectic composition
of Confucianism. The resulting lack of clarity has all to readily been mistaken for Eastern
mysticism and thus obstructed attempts to provide a structured overview of the Confucian
ideology as it relates to the greater society. Fortunately, the enduring interest for this topic has
prompted Eastern scholars to provide more comprehensive accounts in Western languages.
This paragraph will provide a brief historical overview of the life of Confucius and the spread
of his teachings.
History of Confucianism: a synopsis
The origin of Confucianism lies with Confucius (Chinese: 孔子, kong3zi), who was born into
a family of lower aristocracy 551 BC in the state of Lu (鲁). This period was one of great
social upheaval, which might explain the emphasis on harmony and ritual that is pervasive
throughout his teachings. A fervent student of a plethora of subjects and a gifted teacher,
Confucius’ reputation attracted a following of younger noblemen who sought to be accepted
as his disciple. In the meantime, Confucius himself sought employment at the high office of
one of the many states, hoping that such a post could provide him with a platform from which
he could subdue the prevalent chaos and turmoil. Even so, Confucius never held a position of
political significance, be it because he refused to work under rulers of questionable moral
quality (which is the traditional reading) or otherwise. His main legacy consists of a collection
of texts which Confucius edited and thought essential literature for those who sought to attain
the posture of a true gentleman. Amongst these are the Five classics (五经, wu3 jing1) and a
collection of aphorisms and dialogues with his students which is known as the Analects
(论语, lun4yu3). Although he gathered a great body of students during his lifetime, and his
8
This paragraph draws on ChaBong Kim’s “Ä Confucian Theory of Leadership”, and David Lee’s translation of
“The Analects of Confucius”
39
ideology was carried on by such influential teachers as Mencius (孟子, meng3zi) and Si
Maqian (司马迁, si1 ma3qian1) who, in a departure from traditional Confucianism, provided
the moral antecedents for the pursuit of profitable activity. But it wasn’t until the Song (宋,
960-1279) Dynasty, when Confucianism replaced Buddhism as the state ideology, that
Confucianism firmly established itself as a fundament of Chinese society. At this time,
scholars Zhu Xi (朱熹, zhu1 xi1) and later Wang Yangming (王阳明, wang3 yang2ming2)
consolidated Confucian rethoric and infused it with Daoist elements so as to arrive at a
complete metaphysical worldview and concrete template for political and individual conduct.
It was also during this period that Confucianism became an ubiquitous ideology and
predominant influence in the political philosophy of Korea. However, it was only during the
Edo period (1603-1879), that Neo-Confucianism traversed the sea to become a major
constituent of Japanese society, although Confucianism had already made forays in both
nations long before.
40
Appendix II: Index of ConfucianVocabulary
Abbreviation
Text
A
The Analects of Confucius (Li, D., ed.).
G
Guanzi
M
The Analects of Mencius
L
The Book of Rites
X
Xunzi
H
Han Shi Wai Zhuan
Translation
Exposition
Synonyms, related
concepts
Sources
Translation
Exposition
Synonyms, related
concepts
Sources
礼, li3
Translation
Exposition
Synonyms, related
concepts
Sources
Translation
Exposition
Synonyms, related
concepts
仁, ren2
Benevolence, Humanness, Humanity
See p. 16
博爱, bo2ai4, love for humanity, fraternity
慈, ci2, benevolence, benignity, affection
A 13.19， A 12.2， A 17.6
义, yi4
Rightness, Righteousness, Appropriateness
See p. 16
A 4.10, M 8:39 M 5:11
Ritual, Propriety
See p. 16
A 3.4, A 6.25, A 8.2
智, zhi4
Wisdom, Understanding, Prudence
See p.16
知 zhi1 (knowledge, understanding)
Sources
慎 shen4 (prudence)
A 7.19, A 6.11, A 19.22
Translation
信, xin4
Trust, Trustworthiness
41
Exposition
Synonyms, related
concepts
Sources
Trust was designated the fifth virtue by Neo-Confucian scholar Zhu
Xi, but already had an important position in the discourse of
Confucius and Mencius.
A 1.13, A 17.6, M 11.16
爱, ai4
Translation
Exposition
Love, affection
In Neo-Confucian rhetoric, the original four virtues were expanded
with four complementary values. Ai was paired with ren. In the
Confucian sense, ai signifies boai, love for humanity, similar to the
Christian notion of love. Therefore, the more specific notion of boai
and the related concept of ren will be used for the purpose of this
research.
Synonyms, related
concepts
Sources
忠, zhong4
Translation
Exposition
Loyalty, Fidelity
Within Confucianism, appropriate relations are defined through the
wulun. Because each of these relations are between different
constituents, they are governed by slightly dissimilar reciprocal
principles. The superior-subordinate relationship demands zhong,
between siblings there should be fraternity(悌, ti4) etc.
Synonyms, related
concepts
Sources
孝
Translation
Exposition
Synonyms, related
concepts
Sources
和, he2
Translation
Exposition
Synonyms, related
concepts
Sources
道, dao4
Translation
Exposition
A 1.8, A 4.15, A 9.25
孝, xiao4
Filiality, Filial Piety
The concept of Xiao is similar to that of zhong, but refers specifically
to the reverence and dedication a child should have for his parents.
Because of its specific focus, it will be excluded from this research.
忠, zhong4, loyalty, fidelity
Harmony, natural ease, to harmonize,
He, in the Confucian sense refers to act of applying concepts and
opposites to their appropriate measure, and the situation that is a
result thereof.
平, ping2, Balance, to balance
L 6.6, L 19.12, X 17.3
Way, Path, Governing Principle
Dao, in pre-Confucian references, referred specifically to virtuous
42
rulership. Later, its meaning was extended to signify the path to
virtuous living for all humankind. In Neo-Confucianism, this concept
was infused with the Taoist understanding of Dao being the
Governing Principle of the universe and everything therein. This
notion resonated with the Confucian concept of the Heavenly
Mandate (天命, tian1ming4), which refers to those universal
principles which man can’t change, and men’s personal calling,
which could be known through moral conduct.
Synonyms, related
concepts
Sources
德, de2
Translation
Exposition
Synonyms, related
concepts
Sources
恕, shu4
Translation
Exposition
Synonyms, related
concepts
Sources
勤, qin2
Translation
Exposition
天命, tian1ming4, Heavenly Mandate, Direction
道德, dao4de2, Moral Virtue
A 4.9, A 4.15, A 8.13
Virtue, Morality
道德, dao4de2, Moral Virtue
品行, pin3xing2, Moral conduct
A 6.29, A 12.10, A 16.12
Reciprocity, Altruism, Considerateness
Shu is the conduit which enables proper relations and a harmonious
society. Within Confucianism, all relationships are dyadic. The
centrality of the concepts of balance and harmony (he, ‘the doctrine
of the Golden Mean’) clearly feed back into the notion that all
relationships are reciprocal (even distinctive concepts such as ‘truth’
and ‘good’ are dualistic in nature, always being relative to their
opposite). Relationships are focused on each constituent playing the
appropriate role and fulfilling his or her duties to the proper degree.
A 4.15, A 15.24, M 13.4
Diligence, Attentiveness
Qin is popularized as one of the eight virtues, but these are a
contemporary construct. Therefore references of qin in the classical
Confucian canon are very limited.
Synonyms, related
concepts
Sources
俭, jian3
Translation
Exposition
Frugality, Temperate, Economical
Jian is popularized as one of the eight virtues, but these are a
contemporary construct. Therefore references of jian in the classical
Confucian canon are very limited.
Synonyms, related
concepts
43
Sources
诚, cheng2
Translation
Exposition
Synonyms, related
concepts
Sources
Sincerity, Honesty, Integrity
真心, zhen1 xin1, Integrity, Honesty
实意, shi2 yi4, Honesty
X 3.9, X 11.15, H 6.24
Appendix III: Elaboration on terminology
Much research has interchangeably used the terms “Asian development model”, “Asian
Values” and “Confucian capitalism”. Although these concepts overlap to a certain extent,
there are important distinctions between them which, might well have led to much confusion
about, and elusiveness of the modus of economic development in East Asia within the
scientific discourse. In lack of a generally accepted common parlance of economic and
business research of East Asian nations, the definitions below will serve to clarify the inquiry
into the topic at hand.
The Asian Development Model
After the second world war, Japan, and later South Korea, Hong Kong, Taiwan and Singapore
all adopted Smithian strategies, producing labor intensive consumer goods for the
international market, allowing them to fully capitalize on their low labor costs (Harvie, Lee,
2002). This in stark contrast to the Western nations who, with the Great Depression still fresh
in mind, relied on import-substituting industrialization. Capitalizing on competitive labor
costs while emphasizing export indeed proved to be a very successful growth strategy for
many East Asian nations (Freeman, Hew, 2002). Furthermore, these nations possessed
sociopolitical characteristics that are prerequisites or catalysts for stable economic
development. The processes of capitalization in these nations weren’t paired by the social
upheaval that was characteristic of the same transformation in the West. An authoritative
government allowed for efficient mobilization and allocation of resources (Richter, ed., 2000,
Ahn, Choong, Yong, 2001)
Another commonalty is that many of these economies initially relied on strong industrial
policies targeted at developing the technology industry. Closed intra industry competition
ensured that these sectors developed the prerequisites for good performance on the global
market. Intensive cooperation didn’t exist only between the government and the technological
44
industry, but also between business sectors. The Japanese and Korean economies up to today
are characterized by intricate systems of vertical and horizontal industry integration
(Wilkinson: 1996). These conglomerates facilitate access of equity for insiders, and provide
substantial economies of scale and competitive clout. Industrial development was paired with
high investments in education. This greatly facilitated the transition from a labor driven to a
knowledge based economy, when rising labor costs adversely affected economic growth.
Although the economic development of the East Asia has by and large followed this pattern, it
is the result of a particular mode of political economy, and none of its constituents, nor any
combination thereof is exclusive to nations with a Confucian heritage. Indeed the same
combination of trade policies and active government control was characteristic of many of the
South East Asian economies prior to the financial crisis of 1997 (Phongpaichit, Pasuk, Baker,
1995, World Bank, 1993).
Asian Values
Western scholars have used the concept of Asian Values to denote primarily Confucian
induced attitudes that are prevalent within societies with a common Chinese cultural heritage.
(Pye, 2000). A detailed exposition of the these values and the behavior they engender will
follow in the subsequent section.
Confucian Capitalism
The term “Confucian Capitalism” can be traced back to the publications of early Western
admirers of the achievements of the Eastern nations such as Kahn. They postulated that the
model of economic development was explicitly driven by cultural factors. Subsequently, this
postulation was adopted by several Japanese and Korean researchers who fortified it by
linking it explicitly to the Confucian tradition.
Inquiries into the development of the economy of the East Asian nations made under the
header of Confucian capitalism have in fact by and large focused on Asian Values.
The syntax of the term itself suggests that Confucian capitalism is first and foremost a model
of political-economic organization which is infused with elements of a particular ideological
system. I therefore take Confucian capitalism to be the summation of Asian values and the
Asian development model. Although both the cultural and political –economical constituents
exist independently, together they designate and describe a modus of economic activity which
is
particular
to
the
two
45
dragons
and
four
tigers.
Appendix IV: Statistics
4.1 Properties of data set “ROE”
Descriptives
ROE
ROE
Mean
95% Confidence Interval
for Mean
5% Trimmed Mean
Median
Variance
Std. Deviation
Minimum
Maximum
Range
Interquartile Range
Skewness
Kurtosis
Descriptives
Kolmogorov-Smirnov
Statistic
Df
0.122
115
Lower Bound
Upper Bound
a
Sig.
0.000
Statistic
0.07295
0.04879
0.09710
0.08059
0.08128
0.017
0.13077
-0.47654
0.34273
0.81928
0.12469
-1.187
3.712
Shapiro-Wilk
Statistic
df
0.921
115
Standard Error
0.01219
0.226
0.447
Sig.
0.000
a Lillefors Significance Correction
Histogram: ROE
__
46
4.2 Chi-Square
Test
CO
Total
Confucian Orientation and Nepotism
CO* TMT Cross Tabulation
TMT
0
1 Total
0 Count
39
26
65
Expected
33.3
31.7
65
Residual
5.7
-5.7
1 Count
20
30
50
Expected
25.7
24.3
50
Residual
-5.7
5.7
Count
59
56
115
Expected
59
56
115
Chi-Square Tests
Pearson Chi-Square
Cont. Correction
Likelihood Ratio
Fisher’s Exact Test
Linear Association
N of Valid Cases
Value
df
4.525
3.760
4.553
4.485
115
1
1
1
1
Asymp.
Exact Sig. Exact Sig.
Sig.
(2-sided) (2-sided) (1-sided)
0.033
0.052
0.033
0.040
0.026
0.034
47
Confucian Orientation and Return on Equity
4.3
T-Test
Group Statistics
N
Mean
Std. Dev. Std. E. M.
1
51
0.091
0.097
0.0139
0
65
0.056
0.152
0.0189
CO
ROE
Independent Samples Test
Levene's Test
F
ROE
Equal Var. Assumed
Equal Var. Not Ass.
2.970
Sig.
0.088
Boxplot: Confucian Orientation and Return on Equity
0.40
108
0.20
ROE
0.00
-0.20
15
87
36
-0.40
77
-0.60
0
1
CO
__
t-test for Equality of Means
T
-1.409
-1.483
df
113
109.804
Sig. (2- Mean Diff. SE Diff.
tail)
0.162
-0.035
0.025
0.141
0.035
0.023
95% Conf. Interval
Lower
Upper
-0.083
-0.081
0.014
0.012
Nepotism and Return on Equity
4.4
T-Test
TMT
ROE
Group Statistics
N
Mean
Std. Dev. Std. E. M.
1
57
0.716
0.118
0.0157
0
59
0.711
0.144
0.0187
Independent Samples Test
Levene’s Test
F
ROE
Equal Var. Assumed
Equal Var. Not Ass.
Sig.
0.235
0.629
t-test for Equality of Means
t
-0.020
-0.021
df
114
111.246
Boxplot: Nepotism and Return on Equity
0.40
10 8
65
0.20
R OE
0.00
-0.2 0
15
87
36
-0.4 0
77
-0.6 0
0
1
TMT
____
50
Sig. (2- Mean Diff. SE Diff.
tail)
0.984
-0.001
0.0245
0.984
-0.001
0.0244
95% Conf. Interval
Lower
Upper
-0.049
-0.049
0.048
0.048
Confucian Orientation and Firm
4.5
T-Test Age
CO
Age
Group Statistics
N
Mean
Std. Dev. Std. E. M.
0
64
77.88
16.482
2.06
1
55
73.38
15.645
2.11
Independent Samples Test
Levene's Test
F
Age
Equal Var. Assumed
Equal Var. Not Ass.
0.097
Sig.
0.756
t-test for Equality of Means
t
df
2.529
2.494
113
99.410
51
Sig. (2- Mean Diff. SE Diff.
tail)
0.13
6.918
2.735
0.14
6.918
2.774
95% Conf. Interval
Lower
Upper
1.499
1.415
12.338
12.422
Boxplot: Confucian Orientation and Firm Age
E s ta b lis h e d
100
80
60
40
89
0
1
CO
__
52