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Managers’ Context: How GovernmentCapability Affects Managers
Jone L. Pearce, Katherine M. Xin,1 Qiumei Jane Xu2 and Alaka N. Rao3
The Paul Merage School of Business, University of California, Irvine, CA 92697-3125, USA, 1Chinese–
European Institute for Business Studies, Pudong, Shanghai, PR China 201206, 2College of Business and
Management, Northeastern Illinois University, Chicago, IL 60625, USA, and 3Organization and Management
Department, College of Business, BT 450D, San Jose ´ State University, One Washington Square, San Jose ´ , CA
95192-0070, USA
Email: [email protected], [email protected], [email protected], [email protected]
We draw attention to two changes in management research over the past 25 years: morefocus on the different contexts that constrain management action, and applications of
management knowledge to non-business societal challenges. There has been muchspeculation but little comparative empirical research on how government quality affectswhat managers do. Building on theory and research from international business,organization theory and organizational behaviour we propose and test an account of theways government capability affects organizational performance through its effects onmanagerial assumptions and actions. In a sample of managers working under fourdifferent governments, we find that the more capable the government the less managersdepend on their personal relationships to get their work done, and these in turn mediategovernments’ effects on the managerial cultivation of relationships with governmentofficials, their use of personal relationships for competitive business advantages, andtheir greater distrust, secrecy and withholding of information from business associates.The implications for cross-national management research and public policy foreconomic development are highlighted.
The study of management has matured over the
past 25 years in many ways. Here we draw
attention to two of these. First, research has
developed from a focus on the manager as an
autonomous actor to a more nuanced attention
to the constraints and context within which
managers do their work. Other papers in this
anniversary issue also draw attention to this shift;
for example, Segrestin and Hatchuel note that
managers are weaker and have less latitude than is
often assumed, and Whittington and colleagues
and Sturdy report that managers’ very identities
have eroded as management becomes conflated
with other professions. Second, managerial re-
search has developed an impressive body of
knowledge about how individuals organize for
work, and more recently this knowledge has been
extended from its initial focus on business and
governmental organizations to address other socie-tal challenges. In this special issue Broadbridge and
Simpson summarize that development in addres-
sing the challenge of combating workplace sexism,
for example. In this paper we hope to advance our
understanding of managers’ contexts and further
extend business-based managerial knowledge to
important societal challenges by proposing and
An earlier version of this paper was presented at theAcademy of Management Annual Meeting. The authorswish to thank Kevin Steensma, Corey Phelps, BrandonFleming, Greg Bigley, Dick Peterson, Cris Gibson,Martha Feldman, Judy Stepan-Norris and Paul Martor-ana for their comments on an earlier draft. Much of thiswork was completed whilst the first author was HansenVisiting Professor at the University of Washington’sBusiness School, and she wishes to thank them for theirsupport.
British Journal of Management, Vol. 22, 500–516 (2011)
DOI: 10.1111/j.1467-8551.2011.00756.x
r 2011 The Author(s)British Journal of Management r 2011 British Academy of Management. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
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testing theory about how governments may affect
managerial actions that are important to large,
innovation-leading organizations.
Here we illustrate these two developmentswith a study building on growing research on
the importance of governments for managerial
strategies and actions (for recent reviews seeKeister and Zhang, 2009; Pearce, Dibble and
Klein, 2009). Theorizing and research on the role
of governments began by documenting relation-
ships among institutions, with little research that
has tested speculations about the individualmanagerial actions driving these system-level
effects. Here we extend that research and test
a theory addressing the question: how does
national government capability affect managerial
actions? In keeping with the maturing of manage-
ment theories, we draw on a range of social
sciences: classic theories of bureaucracy, institu-tion-based strategy theory and organizational
behaviour research on interpersonal trust. We
propose and test the mediating managerial and
employee behaviours that foster certain firm
strategies and organizational inefficiencies with
important implications for innovation and
economic development.
The importance of government capability in
international business research is reflected in the
growing number of definitions of government
capability. Pearce, Dibble and Klein (2009)
recently reviewed the varying ways in whichgovernments have been categorized in organiza-
tion and management research and grouped them
into differences in governments’ ideology and
capability. Governments’ ideologies vary in their
policies toward firms, with governing ideologies
as various as corporatist or liberal market, and
relative hostility toward independent organiza-
tions. Here we focus on their second category:
relative government capability.
Government capability concerns government’s
ability to assert its authority over its own
territory. The less capable a government the lessable it is to enforce the rule of law, commercial
contracts and property rights, and to ensure
that government officials at all levels implement
policy and refrain from taking bribes or partici-
pating in other forms of corruption. North (1990)
and Fligstein (1996), among many others, de-
scribe how capable governments are necessary to
the management of large complex organizations.
To cite just one example, capable governments
support large independent legal-rational organi-
zations by legalizing and regulating independent
financial markets, so organizations can compete
for financing based on their performance,not political influence (see Evans and Rauch,
1999). Capable governments effectively invest
in education, prevent officials from capriciouslyinterfering in management practices, and build
supportive systems that reduce the cost to
individual organizations of providing security
and infrastructure for themselves.
There is accumulating evidence that nationalgovernment capability affects firm performance.
Makino, Isobe and Chan (2004) found that
country differences do matter and matter signifi-
cantly for firm performance. Young (2005) has
detailed the efficiency-damaging effects of poorly
specified property rights. Chen, Fan and Wong
(2006) found that, as China has shifted to a moremarket-based economy, having government offi-
cials on the firm’s board of directors results in
poorer firm performance because firms find they
must respond to government policy directives as
well as market signals. Further, La Porta et al .
(2002) found that better legal protections for
investors lead to higher stock market valuations,
and Kumar, Ragan and Zingales (1999) report
finding larger listed firms by sales and assets when
there is more reliable legal protection of investors.
Finally, Fogel (2006) found that a country’s
dominance by oligarchic families was associatedwith less capable national governments and greater
corruption. Here we bring research from different
subfields and levels of analysis together to propose
the managerial behaviours that produce these
documented organizational performance effects.
Those scholars that have begun to address
how relatively less capable governments affect
managerial action have focused on how they
drive managers to seek sufficient predictability
and security to do business through their
personal relationships. Redding (1990) was
among the first to describe the effects of govern-ments on managerial practices, observing that the
hostile local governmental officials under Imper-
ial China and for overseas Chinese in Southeast
Asia led Chinese executives to keep their organi-
zations small (to better hide from predatory
officials) and to rely on business dealings with
family and clan members (relying on personal
trust relations to sustain their businesses when
they could not rely on contract enforcement or
How Government Capability Affects Managers 501
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rule of law). Xin and Pearce (1996) found that
private business executives in China who could
not rely on impersonal governmental protection
were more likely to defensively cultivate perso-nal-trust relationships with governmental officials
for protection. Luo and Chung (2005) deter-
mined that in Taiwan during its early institu-tional transition executives with more personal
relationships with the powerful had better per-
forming firms. These scholars all argue that when
governments are less capable, managers rely on
their personal relationships with the powerful forthe trust and predictability they need to run their
organizations.
This recent research is consistent with long-
standing sociological and economic scholarship
asserting that impersonal legal-rational organiza-
tions produce superior performance to traditional
or neo-traditional organizations dominated bypersonal relationships (North, 1990; Perrow,
1979; Weber, 1947). North (1990) proposed that
governments reduce unpredictability in economic
exchange by establishing stable structures for
interaction. Fligstein (1996, 2001) argued that
stability is produced by reliably enforced written
legal codes, licensing systems that can be trusted,
tax money spent on roads and schools rather than
deposited in officials’ foreign bank accounts, and
so forth. Governmental incapacity can be doubly
costly – both in the absence of necessary facilitat-
ing functions and in the unpredictability of erratic,partial enforcement. The more capable the govern-
ment, the less time and money managers must
spend finding their own personal substitutes for
these organization-supporting governmental ser-
vices. Peng (2003) called this reliance on personal
relationships a network-based strategy.
We test the argument that managers’ reliance
on personal relationships fosters less effective
actions that undermine organizational inno-
vation and efficiency. We test the argument
that relatively stronger national governmental
capability frees managers from dependenceon their personal relationships; it allows man-
agers to focus on maximizing organizational
performance rather than on securing protection
from government officials; it creates an environ-
ment in which competitive advantages accrue
from better products and services rather than
personal connections; and it fosters organizations
with more effective internal managerial organiza-
tional behaviours.
Less capable governments and managerial
dependence on personal relationships
A hallmark of stronger government capabilityhas been the institutional arrangements that can
produce impersonal transactions among stran-
gers – when the scope of business activityexpands beyond what can be accommodated by
a friendship or kinship circle (Parsons and
Smelser, 1956; Weber, 1947; Zucker, 1986). If
governments cannot or do not facilitate imperso-
nal business relationships individuals have nochoice but to continue to rely on the only means
available to them – the personal relationships
they build themselves. This is in many ways a
return to Weber’s (1947) traditional practices,
albeit with organizations that Walder (1986)
called ‘neo-traditional’ because they superficially
look like large legal-rational organizations but inpractice operate as webs of personal obligations.
Therefore, the less capable the governments,
the more personal relationships become critical to
managers because they are the primary available
way to build and sustain organizational work.
Individuals must rely more on those they have
known for a long time through youth, family or
communal ties as a defence against the insecurity
created by relatively less capable governments.
For example, if they have no confidence in the
courts, managers will restrict trade to those they
personally know will not cheat them. If there isno reliable trademark protection, factory owners
will make sure that only relatives have access to
their designs. If bookkeepers may steal with
impunity, only those whom managers personally
trust may authorize payments. Although these
insights are several decades old, they languished
in sociology, largely ignored by management
scholars until the more recent interest in man-
agers’ contexts.
Managers’ dependence on personal relation-
ships undermines firm performance in several
ways. First, dependence on relationships meansthat these managers are not free to act imperson-
ally, based on others’ contribution to product
and service quality. Further, dependence on
personal relationships limits organizational size
by restricting an organization’s potential growth,
eliminating possible economies of scale. This is
because managers must keep their organizations
small enough so they can personally know
everyone with whom they work. Some support
502 J. L. Pearce et al.
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for the increased importance of personal relation-
ships under single-country less capable govern-
ments has been found in interviews by Pearce and
Branyiczki (1997) and Whiteley et al . (1996) intransitional Hungary, and by Pearce (2001) and
Hitt et al . (2006) in China. We begin by testing
these arguments in our four-nation sample beforebuilding new theory from this base.
H1: The less capable the government, the more
dependent managers will be on their personal
relationships with others.
Less capable governments and protection from
arbitrary officials
Under less capable governments officials become
a particularly critical dependence for managers.
Unpredictable government officials may expro-priate businesses, levy unexpected taxes and fees,
and threaten one’s personal safety. Gambetta
(1988) observed that the capture of the powerful
via personal relationships with them provided the
only protection available under the incapable
governments of Sicily. By contrast, those who live
under the protection of capable governments are
freer to work with strangers who might help with
a new market or provide funds; they do not need
to cling to those who can protect them from the
threats posed by erratic governments unable or
unwilling to control their officials.In other words, the less capable governments
are of enforcing contracts and controlling local
officials, the more these officials become critical
dependences that managers must manage in a
way that ensures the organization’s survival
(Hambrick, 1981; Hickson et al ., 1971). While
personal relationships are useful for virtually any
critical dependence, they are particularly well
suited to managing the insecurity posed by less
capable governments. Such environments are
significantly more threatening and opaque, and
so the protection and information that relation-ships with the powerful provide become indis-
pensable. When government officials administer
laws particularistically, rather than universally,
managing those officials must take precedence
over any other strategic consideration. These
officials’ support must be maintained if organiza-
tions are not to be mired in audits, seizures of
assets, or other interference at the discretion of
these officials. Such dependence relationships are
managed through practices like sharing profits
through partnerships, placing officials on boards
of directors, paying officials ‘special fees’ or
providing scholarships for their children to studyoverseas. Indirect evidence of this active cultiva-
tion of government officials under less capable
governments comes from Peng and Luo (2000)and Li and Zhang (2007) who found that the
executives of Chinese firms with more personal
ties to government officials had greater market
share and return on assets. However, board
placements are only one (easily measured) wayto cultivate officials, and so we directly assess
whether managers report that they cultivate
government officials more assiduously when
working under less capable governments.
H2: The less capable the government the more
likely managers are to actively cultivate rela-
tionships with government officials.
Less capable governments and a state-capture
strategy
When working under relatively less capable
governments managers who have built personal
relationships with the powerful have secured a
powerful competitive advantage. Such well-con-
nected managers have invested in something very
valuable in these countries: the ability to shape
laws and regulations, and governmental dispen-sations that can be used offensively as well as
defensively. While less capable government un-
dermines legal-rational efficiency, we contend
that proactive managers can individually profit
handsomely from their ability to influence
government. Hellman, Jones and Kaufmann
(2003) and Kaufmann and Kraay (2002) have
provided rich data on such ‘state capture’ under
less capable governments, in which powerful
business elites succeed in capturing government
policy and personally favourable enforcement.
Using survey data in which country nationalsidentified those firms widely believed to have
captured government policy in a study covering
175 countries they found that firms with a state-
capture strategy had higher output and invest-
ment than firms that did not have this strategy.
The ability to gain favourable treatment from
government officials can be a powerful competi-
tive advantage for captor firms, and less capable
governments provide more scope for gaining
How Government Capability Affects Managers 503
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these advantages. Capable governments make it
more difficult for local authorities to grant
favours, because officials are themselves more
constrained by law (Evans and Rauch, 1999),making managers’ organizational successes more
dependent on providing improved services and
producing better products or more innovativebusiness processes, rather than fostering and
maintaining relationships with the politically
powerful. The less capable the government the
more competitive advantages can be obtained
from personal support from government officials,a powerful competitive advantage, and so the
more likely managers will be to try to make their
organization’s core strategic competence the
capture of powerful government officials.
H3. The less capable the government, the more
managers will proactively use their personal
relationships to obtain a strategic advantage.
Less capable governments and efficiency-
undermining organizational behaviours
While the above hypotheses have all been
proposed (if not tested) in the international
strategy literature, governmental effects on man-
agers’ internal organizational actions have not
received much attention. Here we propose three
distinct internal dysfunctions under less capable
governments. First, if less capable governmentsmake managers more dependent on personal
relationships with government officials, managers
are less able to build relationships with those who
can help the organization to find a new market,
be technically successful and to improve its
efficiency. Managerial attention is finite, and so
the less managerial attention to building relation-
ships with those with useful product and service
knowledge and skills, the less technically compe-
tent their organizations will be, and so the less
able to compete based on organizational perfor-
mance. Therefore, we would expect managers tohave proportionally fewer important business
relationships developed with those who can
provide product or market technical assistance
under less capable governments.
A second performance-enhancing management
practice is the movement of information to those
who need it (Baskin and Aronoff, 1989). With-
holding information has long been considered a
dysfunctional organizational practice, resulting in
bottlenecks and decisions made without relevant
information (Galbraith, 1973; Lawrence and
Lorsch, 1967). Many consider withholding in-
formation an organizationally dysfunctional po-litical tactic used to gain power over others by
making the withholder the sole necessary source
of the information (Feldman, 1988; Mulder et al .,1986). Certainly, if information is withheld, it is
more likely that decisions will be made with
incomplete information. In addition, if managers
withhold information from others and fear that
others are doing likewise, they will have littleconfidence that they have sufficient information
to make risky decisions. Such managerial con-
servatism impedes decentralization and employee
empowerment, since those at lower organiza-
tional levels do not have the information they
need to take responsibility for decisions. Also, if
specialists do not share the information theyhave, organizations cannot gain the benefits of
specialization. Less specialization and decentrali-
zation keep organizations small, inhibit innova-
tion, and reduce their ability to respond in
complex environments.
Third, the withholding of information and
other forms of secrecy are all behavioural
manifestations of distrust, and trust has long
been considered crucial to organizational innova-
tion and performance. Classically, Arrow (1974)
argued that trust allowed organizations to avoid
costly controls. Coleman (1990) found that thosewho did not trust were less willing to take risks,
and Nooteboom, Berger and Noorderhaven
(1997) and Bromiley and Cummings (1995)
reported that those who trusted more were less
likely to behave opportunistically toward others.
Hardin (1993) proposed that those who do not
trust limit their cooperation with others, and
Shapiro (1987) argued that those who do not
trust only work with those they know well.
Zucker (1986) noted that the rules and hierarchy
of legal-rational organizations are designed to
foster a generalized trust among co-workers whodo not have frequent interactions with one
another, and Rao, Pearce and Xin (2005) and
Pearce (2001) found greater distrust of co-work-
ers in the less capable transition countries than in
the relatively more capable USA.
To summarize, there are a constellation of
dysfunctional managerial actions proposed to
arise under less capable governments: fewer
managerial relationships with the technically
504 J. L. Pearce et al.
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useful, more withholding of information and
greater secrecy and less trust of others. These
prevent the use of less costly and more flexible
control systems, limiting organizational size; andresult in a conservatism that makes organizations
slow to develop complex innovations and re-
spond to environmental events. We propose thatsuch managerial actions are among the possible
reasons for lower organizational performance
under less capable governments documented by
Fogel (2006), Hitt et al . (2006); Kumar, Ragan
and Zingales (1999), La Porta et al . (2002) andMakino, Isobe and Chan (2004).
H4. The less capable the government the more
managers will engage in performance-under-
mining organizational behaviours of fewer
relationships with the technically useful, with-
holding information, and distrust.
The centrality of managerial personal relationships
All of the above hypotheses posit a direct
relationship between relative government cap-
ability and managerial actions. However, most
theorists argue that personal relationships med-
iate the relationship between relative government
capability and dysfunctional managerial actions.
Redding (1990) proposed that when executives
fear capricious government officials they sought
personal relationships with others as a basis forthe predictability they needed, and this depen-
dence on personal relationships dominated their
organizations. Banfield (1958), Gambetta (1988),
Putnam (1993) and Redding (1990) all described
environments in which dependence on personal
relationships with the powerful was self-reinfor-
cing. Pearce (2001) argued that dependence on
personal relationships mediated the relationship
between incapable government and organizational
behaviours associated with ineffective organiza-
tions. Yet, while she found that these dysfunctional
organizational behaviours were more prevalent inthe countries with less capable governments, she
did not directly test her mediation argument. Thus,
to these theorists managerial dependence on
personal relationships is the mediating factor
between government capability and managerial
practices associated with connections-dependent
and poorer performing organizations. Alterna-
tively, as described above, relative government
capability may directly lead to the cultivation of
government officials, relationship-dependent busi-
ness strategies and dysfunctional organizational
behaviours. Here we test whether or not our
proposed direct relationships, or Redding’s (1990)and Pearce’s (2001) personal relationship media-
tion arguments, best explain these performance-
damaging managerial organizational behaviours.
H5. The negative relationships between gov-
ernment capability and seeking the protection
of government officials, using personal rela-
tionships for strategic advantage, and perfor-
mance-undermining organizational behaviours
will be mediated by managers’ greater depen-
dence on their personal relationships under less
capable governments.
Methods
Government capability
The Government Capability Index for 1995 (GCI
1995) was constructed from archival data using
the survey data from the World Economic
Forum and the Institute for Management Devel-
opment 1995 World Competitiveness Report; this
year was selected to sample a wide range of
government capabilities. The survey is sent to
about 21,000 executives in top and middle
management in all the countries covered by theReport of which more or less 20% return the
completed questionnaire. The executives sur-
veyed form a cross-section representing the
business structure of their countries and rated
only the country where they were currently
working (World Economic Forum and Institute
for Management Development, 1995). We started
with the 32 items from the 1995 IMD World
Competitiveness yearbook. These items were
selected to reflect the concept of relative govern-
ment capability. A series of factor analyses were
conducted using oblimin rotation with Kaisernormalization, dropping items that cross-loaded
(loaded less than 0.40 on the target factor or
showed less than a 0.10 difference in loadings on
more than one factor). This process resulted in
two final ten-item scales with strong convergent
and discriminant validity, one the GCI1995 scale.
The final factor loadings for both scales appear in
Appendix A, and the standardized GCI1995
scores for the 46 countries appear in Appendix B.
How Government Capability Affects Managers 505
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Managerial actions
Sample and procedure. The self-reports of de-
pendence on personal relationships, cultivationof officials, strategic use of relationships and
dysfunctional organizational behaviours were
taken from a sample of 399 managers fromChina, Hong Kong SAR, Taiwan and the USA
(hereafter referred to as ‘the four governments’)
collected in 1995 to correspond to the year
capability was assessed. Respondents worked as
full-time supervisors and directors from a broadrange of organizations and industries, including
financial services, telecommunications, pharma-
ceuticals, manufacturing and medical services. In
this sample, 42% worked in publicly traded
companies, 32% worked in privately held and
13% worked in state-owned businesses. Their
organizations ranged in size from 30,000 employ-ees and $100 billion in total annual revenue to
eight employees and $5000 in annual sales. The
average age of the respondents was 31.67 years,
their mean tenure in the organization was 5.31
years, and they were predominately male (71%).
All of those asked to complete the surveys in class
did so and were fed back comparative data for
classroom discussion. To test the hypotheses, the
four country GCI1995 scores are assigned to each
respondent from that country. Since we cannot
separate national governments from national
cultures and we would expect relative govern-mental capability to be influenced by national
culture, this sample including managers from
three countries sharing Chinese culture helps give
us confidence that we have at least partially
isolated the effects of government capability. As
can be seen in Appendix B, the three culturally
Chinese locations (China, Hong Kong SAR and
Taiwan) have GCI1995 scores that vary more
than a standard deviation from one another
(À 1.23, 0.65 and 0.13, respectively), suggesting
confidence that GCI1995 measures differences in
government capability, not culture.Each respondent was asked to identify three
non-subordinate business associates who were
most useful to them in either solving day-to-day
problems or achieving long-run career success.
The respondent then answered a series of
questions about each of these relationships,
resulting in data on 1197 business relationships.
The English version of the survey was translated
into Chinese, with the back-translation indepen-
dently confirmed (Brislin, 1986). Multiple mea-
sures of each dependent variable are proposed,
and then tested in a confirmatory factor analysis
using structural equation modelling.
Dependence on relationships. Respondents were
asked to describe the nature of their dependence oneach of their business relationships. To measuredependence, the question ‘How would you char-
acterize your dependence on one another?’ was
asked, with respondents then choosing one of the
following responses: (1) we are both very depen-
dent on one another; (2) I depend a great deal on
this associate while he/she is not very dependent on
me; (3) this associate depends a great deal on me
while I am not very dependent on him/her; (4)neither of us is very dependent on the other. In this
study, (1) is called ‘Mutual dependence’ and (4) is
‘Neither are dependent’; these are dummy codedand used as measures of high dependence and low
dependence, respectively.
Cultivate government officials. Four measures
assess the extent to which respondents cultivate
government officials. The first one is a question
asking respondents to characterize their most
important relationships, and the respondents
were given the following choices: this business
associate is (1) a peer of my supervisor; (2) a
colleague or peer in this organization; (3) acolleague in another organization; (4) a customer;
(5) a business partner; (6) a service provider or
supplier; (7) a government official; (8) other. The
measure ‘Government officials’ was created by a
dummy coding of (7) above as 1, and all other
responses were coded as 0. The second measure is
the question ‘What is the primary reason for this
associate’s usefulness?’ Respondents were given
the following choices: important connections (1)
in government; (2) in key companies; (3) else-
where in this organization; (4) controls financial
resources; (5) access to customers; (6) technical orprofessional knowledge; (7) I have to go through
this person. This measure is called ‘Useful in
managing government’ and is created by dummy
coding the (1) response as 1 and all other responses
as 0. The third measure of the cultivation of
government officials is constructed from respon-
dents’ answers to the question ‘People in business
relationships often give one another gifts. Could
you characterize these relationships by the gift-
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giving between you?’ Respondents were asked to
choose one of the following responses: (1) this
associate gives me valuable gifts; (2) this associate
gives me token gifts; (3) we give each othervaluable gifts; (4) we give each other token gifts;
(5) I give this associate token gifts; (6) I give this
associate valuable gifts; (7) we don’t exchange gifts.This variable ‘Give valuable gifts’ is the dummy
coded response to (3) and (6) above as 1 and all
other responses as 0. The final measure of the
cultivation of government officials seeks to capture
the use of relationships with government officialsto manage threats, and is called ‘Useful in
managing threats’. It consists of responses to the
question ‘My relationship with this associate is
useful to me as defence against unexpected threats’
on a five-point Likert scale ranging from
15strongly disagree to 55strongly agree.
Strategic use of personal relationships. Four mea-
sures assess the use of managers’ most important
personal relationships for strategic advantage.
Three were developed from the question ‘The last
time you asked this associate for assistance, could
you indicate which of the following circumstances
describe that situation?’ Respondents were asked
to choose from the following responses: (1) obtain
capital/money; (2) obtain an ‘exception’ to a rule
or policy; (3) obtain customers. Each of the three
responses is dummy coded, to create three different
variables, in order ‘Useful to obtain capital’,
‘Useful to obtain government dispensations’ and
‘Useful to obtain customers’. The fourth measure
of the strategic use of relationships, called ‘Useful
in the expansion of the business’, is built from
their answer to the question ‘My relationship
with this associate is useful to me in the expansion
of my organization’s business’, rated on a five-
point Likert scale with 15strongly disagree to
55strongly agree.
Dysfunctional organizational behaviours. Mea-sures of the dysfunctional managerial organiza-
tional behaviours are based on six different
questions. Relationship with technically capable
associates was assessed with two questions.
‘Useful in providing technical advice’ was based
on the question ‘The last time you asked this
associate for assistance, could you indicate which
of the following circumstances describe that
situation?’ One of the responses is ‘provide
direction or guidance’ with ‘no’ coded 1 and
‘yes’ coded 0 (reverse coded because it reflects a
use of relationships to improve technical perfor-
mance). The second measure, ‘Capable people innetwork’, is created from the question ‘How
many highly capable people are included in your
network of business associates?’, reverse coded to15all are highly capable to 75none is capable.
There are three measures of the extent of with-
holding information. The first, ‘I withhold
information’, is taken from the question ‘Do
you ever withhold information from this associ-ate that he/she might be interested in?’ This is
dummy coded ‘yes’ (coded 2) and ‘no’ (coded 1).
‘Other withholds information’ is taken from the
question ‘Do you suspect this associate might be
withholding information from you that you
might be interested in?’ Three choices were given:
‘yes’ (coded 3), ‘not sure’ (coded 2) and ‘no’(coded 1). Finally, ‘Relationship secret’ is created
from ‘How open is your relationship with this
associate?’ Respondents were asked to choose
one of three responses: ‘The relationship is public
knowledge’ (coded 1), ‘The relationship is known
in our circle of business associates’ (coded 2), and
‘We keep the relationship private’ (coded 3).
Finally, ‘Distrust’ is measured by the response to
the question ‘To what extent do you trust this
associate?’ reverse coded here as 15 strongly
agree to 55 strongly disagree. Table 1 contains
the means, standard deviations, ranges andintercorrelations among all variables used in the
initial measurement model.
Analyses and results
To test the hypotheses we have data at three
levels of analysis: government (n54), managerial
respondents (n5399) and managers’ most im-
portant business relationships (n51187). Hier-
archical linear modelling, allowing analyses at all
three levels simultaneously, is inappropriate dueto the small sample size at the government level
(Snijders and Bosker, 2002). In order to test
whether the non-independence of the relation-
ship-level data precluded hypothesis testing at
this level we conducted a within-and-between
analysis (Dansereau, Alutto and Yammarino,
1984; Yammarino and Markham, 1992). The
corrected F from the within-and-between analysis
was non-significant for all self-report variables
How Government Capability Affects Managers 507
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T a b l e 1 . M e a n s , s t a n d a r d d e v i a t i o n s a n d i n t e r c o r r e l a t i o n s a m o n g v a r i a b l e s
V a r i a b l e
M e a n
S D
1
2
3
4
5
6
7
8
9
1 0
1 1
1 2
1 3
1 4
1 5
1 6
1 .
G C I 1 9 9 5
À
0 . 1 0
1 . 0
8
2 .
M u t u a l d e p e n d e n c e
a
0 . 3 2
0 . 4
7
À
0 . 0
9 * *
3 .
N o n - d e p e n d e n c e
a
0 . 6 4
0 . 4
8
À
0 . 1
5 * *
0 . 5
1 * *
4 .
G o v e r n m e n t o ffi c i a l s a
0 . 0 3
0 . 1
6
À
0 . 1
4 * *
À
0 . 0
5
0 . 0
1
5 .
U s e f u l i n m a n a g i n g
g o v t a
0 . 0 3
0 . 1
7
À
0 . 1
2 * *
0 . 0
0
0 . 0
1
0 . 4
0 * *
6 .
G i v e v a l u a b l e g i f t s a
0 . 1 1
0 . 3
2
À
0 . 0
7 *
0 . 0
2
0 . 0
6 *
0 . 0
1
À
0 . 0
2
7 .
U s e f u l i n m a n a g i n g
t h r e a t s b
3 . 3 7
1 . 1
9
0 . 0
0
0 . 2
1 * *
0 . 2
3 * *
0 . 0
2
0 . 0
6
0 . 0
7 *
8 .
U s e f u l t o o b t a i n c a p i t a l a
0 . 0 6
0 . 2
3
À
0 . 0
2
0 . 1
1 * *
0 . 0
8 * *
0 . 0
0
À
0 . 0
4
0 . 0
0
0 . 0
7 *
9 .
U s e f u l t o o b t a i n g o v t
d i s p e n s .
a
0 . 0 6
0 . 2
4
0 . 0
3
0 . 0
3
0 . 0
8 * *
0 . 0
2
0 . 0
4
À
0 . 0
3
0 . 1
2 * *
0 . 1
2 * *
1 0 .
U s e f u l t o o b t a i n
c u s t o m e r s a
0 . 0 8
0 . 2
8
À
0 . 0
8 * *
0 . 0
5 * *
0 . 0
8 * *
À 0 . 0
1
0 . 0
0
0 . 0
5
0 . 0
5
À
0 . 0
2
0 . 0
4
1 1 .
U s e f u l i n e x p a n s i o n
b
3 . 4 2
1 . 2
7
À
0 . 0
2
0 . 1
6 * *
0 . 2
8 * *
À 0 . 0
5
À
0 . 0
1
0 . 0
3
0 . 3
7 * *
0 . 1
0 * *
0 . 1
3 * *
0 . 1
1 * *
1 2 .
U s e f u l i n t e c h n i c a l
a d v i c e a
0 . 6 1
0 . 4
9
À
0 . 2
0 * *
À
0 . 0
1
À
0 . 0
5
0 . 0
1
À
0 . 0
3
0 . 0
5
À
0 . 1
5 * *
À
0 . 0
1
0 . 1
3 * *
0 . 0
7 * *
À
0 . 0
6 *
1 3 .
N e t w o r k i s c a p a b l e c
3 . 4 8
1 . 1
5
À
0 . 1
5 * *
À
0 . 0
3
À
0 . 0
2
À 0 . 0
2
À
0 . 0
6 *
0 . 0
2
À
0 . 1
0 * *
À
0 . 0
3
À
0 . 0
4
0 . 0
1
0 . 0
8 * *
0 . 1
2 * *
1 4 .
I w i t h h o l d i n f o d
1 . 4 5
0 . 5
0
À
0 . 1
8 * *
0 . 1
2 * *
0 . 1
3 * *
0 . 0
2
0 . 0
0
À
0 . 0
1
0 . 0
6 *
0 . 0
5
À
0 . 0
2
0 . 1
0 * *
0 . 0
7 *
0 . 0
6 *
0 . 0
7 *
1 5 .
O t h e r w i t h h o l d s i n f o e
1 . 9 2
0 . 8
4
À
0 . 3
3 * *
0 . 0
7 *
0 . 1
3 * *
0 . 0
4
0 . 0
2
À
0 . 0
7 *
0 . 0
6 *
0 . 0
6
0 . 0
2
0 . 1
0 * *
0 . 1
3 * *
0 . 0
9 * *
0 . 1
2 * *
0 . 4
7 * *
1 6 .
I d i s t r u s t o t h e r
b
2 . 0 9
0 . 8
3
À
0 . 2
1 * *
À
0 . 0
7 *
0 . 0
4
0 . 0
5
0 . 0
2
À
0 . 0
8 *
À
0 . 1
3 * *
0 . 1
2 * *
0 . 0
0
0 . 0
6 *
0 . 0
1
0 . 1
4 * *
0 . 1
2 * *
0 . 2
8 * *
0 . 3
7 * *
1 7 .
R e l a t i o n s h i p s e c r e t f
1 . 9 3
0 . 7
7
À
0 . 4
4 * *
0 . 0
6 *
0 . 0
7 *
0 . 0
2
0 . 0
3
À
0 . 0
3
0 . 0
2
0 . 0
1
À
0 . 0
1
0 . 0
1
0 . 0
6
0 . 1
3 * *
0 . 1
2 * *
0 . 2
2 * *
0 . 2
8 * *
0 . 1
7 * *
n 5
1 1 8 7 .
a D u m m y v a r i a b l e s .
b F i v e - p o i n t s c a l e .
c S e v e n - p o i n t s c a l e .
d 1 5 n
o ; 2 5
y e s .
e 1 5
n o ; 2 5
n o t s u r e ; 3 5
y e s .
fF
o r r e l a t i o n s h i p s e c r e t , 1 5
p u b l i c ,
2 5
k n o w n t o s m a l l c i r c l e ,
3 5
p r i v a t e .
* * p o 0 . 0
1 ; * p o 0 . 0 5 .
508 J. L. Pearce et al.
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except for ‘Capable people in network’, resulting
in the removal of this variable from all remaining
analyses. For the remaining variables variance
exists both within and between respondents,suggesting sufficient independence among rela-
tionship-level data to conduct the hypothesis tests
at the relationship level.The two-step method for structural equation
modelling recommended by Anderson and Gerb-
ing (1988) was conducted. First, we performed
confirmatory factor analyses to assess the ade-
quacy of the proposed measurement model.Then, we tested our hypotheses through an
evaluation of three alternative structural models:
Model 1 with dependence partially mediating the
relationships between government capability,
cultivation of officials, strategic use of relation-
ships and dysfunctional organizational beha-
viours (the least constrained of the hypothesizedmodels), tested against the more constrained
Model 2, in which dependence on relationships
fully mediates the relationship between govern-
ment capability and the dysfunctional organiza-
tional practices, and the most constrained Model
3 with only direct paths between government
capability and dependence on relationships,
cultivation of officials, relationship-based strate-
gies and dysfunctional organizational beha-
viours. In our analysis, we partitioned the total
effects of the independent variable on the
dependent variable into direct and indirectcomponents in the mediation models (Brown,
1997). A significant indirect effect indicates that a
mediator reduces the direct effect of the indepen-
dent variable on the dependent variable.
The initial measurement model consists of the
observed variables predicted by corresponding
underlying first-order factors (i.e. dependence on
relationships, cultivation of officials, relationship-
based business strategies, and inefficiency). Al-
lowing the error terms for the items for each
latent variable to co-vary, fit index values showed
that three of the measures needed to be dropped.The factor loading of item ‘Give valuable gifts’
was not significant, and thus this item was
dropped. The item ‘Useful in managing threats’
had a very low factor-loading on Cultivate
Officials (0.15) and so it was deleted. The item
‘Useful to obtain capital’ had negative error
variance and a factor loading more than 1, and
thus it was dropped. These variables may have
failed because they were expected to predict
Cultivate Officials but did not directly ask about
government officials. After dropping these three
measures all of the models fit the data well (see
Figure 1). All factor loadings for the measure-ment model were significant at the po0.01 level.
The second major step in our analysis involves
creating a series of four structural models to testour hypotheses. The first model is the fully
saturated one. Comparing our least-constrained
(partial mediation) Model 1 to the fully saturated
model we find that the root mean square error of
approximation increases from 0.048 to 0.049;thus, our more constrained Model 1 is a better fit
to the data. For this reason all subsequent models
are compared with the theoretically plausible
Model 1 rather than the atheoretical fully
saturated model. Models 1, 2 and 3 are shown
in Figure 1. Table 2 shows the tests of the w2
changes comparing the least-constrained (partialmediation) Model 1 to the less constrained (full
mediation) Model 2, and also the w2 changes
comparing Model 1 to the most constrained
(direct relationships) Model 3.
As can be seen in Figure 1 and Table 2 all
models are excellent fits to the data with good-
ness of fit index, non-normed fit index and
comparative fit index for all three models ! 0.99.
We used a w2 difference test to determine whether
there was a significant difference in the w2
between the more constrained Models 2 and 3
and the less constrained Model 1. However, withsuch a large n51187 even the comparatively
modest changes in w2 all reach statistical signi-
ficance. Further, Table 3 shows that Model 1 and
Model 3 have some paths which do not reach
statistical significance. Therefore, we conclude
that Model 2 is the best fit and that all hypotheses
have been supported. We found a negative
relationship between relative government cap-
ability and managers’ active cultivation of
personal relationships, managers’ use of these
relationships for a strategic advantage, and their
reports of the dysfunctional actions of relation-ships with technically incapable associates, with-
holding information and distrust. These
relationships are fully mediated by managers’
dependence on relationships.
These results are consistent with what man-
agers working under these different governments
told us. For example, managers working under
the most capable government in our sample
(USA) had trouble answering questions asking
How Government Capability Affects Managers 509
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Measurement Model
Model 1: Partially Mediated Model
Dependence
(a)
(b)
Mutual Dependence
Non Dependence.99
.99
Inefficiency Behaviours
Relationship Strategy
Cultivate OfficialsUseful in Managing Govt
Useful-Gov. Dispen
Useful to Obtain Custom.
Useful in Expansion
Useful in Tech. Advice
I Withhold Info
Trust Others
Relationship Secret
Government Official
Other Withhold Info
.71
.32
.90
.90
.44
.42
.20
.74
.87
.59
237.32 (61)
3.89
GFI 1.00
NNFI 1.00
CFI 1.00
AIC 337.47
RMSEA 0.049
168.52 (50)
3.89
GFI 1.00
NNFI 1.00
CFI 1.00
AIC 224.52
RMSEA 0.045
.02
.44
GCI
–.17
–.22
–.38
Cultivate OfficialsDependence
Relationship Strategy
Inefficiency Behaviours
Model 2: Fully Mediated Model
Model 3: Direct GCI Effects Model
–.28
–.38
–.22
GCI
Relationship Strategy
Cultivate Officials
Inefficiency Behaviours
Dependence
GCI
Cultivate Officials
Relationship Strategy
Dependence
(c)
(d)
Inefficiency Behaviours
–.07
–.05
.38
–.32
.24
. .43–.10
Model 2 Fit Statistics
394.52 (64)
6.16
GFI 1.00
NNFI 1.00
CFI 1.00
AIC 448.52
RMSEA 0.066
Model 3 Fit Statistics
343.84 (64)
5.37
GFI 1.00
NNFI 1.00
CFI 1.00
AIC 397.84
RMSEA 0.060
510 J. L. Pearce et al.
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them if the relationship ‘was secret’. It simply did
not make sense to them; they would frown, look
puzzled and then say something like, ‘Well a lot
of people may not know about the relationship,
because they don’t care’. In contrast, to the
managers working under our least capable
government (Mainland China) the question made
perfect sense, and many of them described why
they needed to keep certain relationships (parti-
cularly with government officials) secret to
protect their connection from charges of corrup-
tion. In another example, the managers working
under the least capable government would go on
to describe how they had to be careful who they
invited to their New Years’ banquets (an
important time to cultivate business relationships
in China), to be sure that their government-
official relationships were not invited to the same
banquet as those whom they could not trust not
to use knowledge of that relationship against
them or the official. Managing personal relation-
ships is a very demanding, highly labour intensive
Table 3. Standardized path coefficients
Variables Fully saturated
model
Model 1: Partially
mediated model
Model 2: Fully
mediated model
Model 3: Direct
effects model
Direct effects of GCI1995
Dependence À 0.17 ** À 0.17 ** À 0.32 ** À 0.22 **
Cultivate officials À 0.40 ** À 0.38 ** À 0.38 **
Relationship strategy À 0.03 ns 0.07 ns À 0.05 ns
Inefficiency behaviours À 0.24 ** À 0.22 ** À 0.28 **
Direct effects of dependence
Cultivate officials À 0.08 (ns) 0.38 **
Relationship strategy 0.44 ** 0.43 **
Inefficiency behaviours 0.12 ** 0.24 **
Indirect effects of GCI1995
Cultivate officials 0.01 (ns) À 0.07 **
Relationship strategy À 0.07 ** À 0.10 **
Inefficiency behaviours 0.02 (ns) À 0.05 **
**p 0.01; ns, not significant.
Table2. Structural model comparisons
Model w2 (df) w2/df Dw2 (Ddf) GFI NNFI CFI AIC RMSEA Model comparisons
Fully saturated 217.14** (58) 3.74 1.00 1.00 1.00 283.14 0.048
Model 1: Partially mediated 237.32** (61) 3.89 20.18** (3) 1.00 1.00 1.00 297.32 0.049 Model 1 vs fully saturated
Model 2: Fully mediated 394.52** (64) 6.16 157.20** (3) 1.00 1.00 1.00 448.52 0.066 Model 2 vs Model 1
Model 3: Direct effects model 343.84** (64) 5.37 106.52** (3) 1.00 1.00 1.00 397.84 0.060 Model 3 vs Model 1
df, degrees of freedom; GFI, goodness of fit index; NNFI, non-normed fit index; CFI, comparative fit index; RMSEA, root mean
square error of approximation. **po0.01.
Figure 1. Structural models: (a) measurement model; (b) Model 1, partially mediated model; (c) Model 2, fully mediated model; (d)
Model 3, direct GCI effects model
Note: Path coefficients are standardized weighted least squares estimates. All reported path coefficients are significant at po0.01;
those not reported are not significant. N51197.
F, direct effect of GCI; —. indirect effect of GCI; to simplify the presentation, the measurement model and the disturbance errors
effects are not shown.
df, degrees of freedom; GFI, goodness of fit index; NNFI, non-normed fit index; CFI, comparative fit index; AIC, Akaike
information criterion; RMSEA, root mean square error of approximation.
How Government Capability Affects Managers 511
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and critical job for the Mainland Chinese
managers in our study. In these relationships
managers are expected to share important in-
formation, even secret information, with thoseconsidered insiders (Chen, 2008). By contrast, for
the American managers relationship cultivation
was less important, and was usually efficientlyhandled through public professional and com-
mercial association events. For our Hong Kong
SAR and Taiwanese managers, relationship
management fell between these two extremes –
they were not as critical to personal andorganizational success as they were for the Main-
land Chinese managers, but these non-Mainland
Chinese managers still invested heavily in rela-
tionships, perhaps as a residual cultural practice
rather than as a functional management task.
Discussion
Here a theory of how government capability
affects the managerial attitudes and behaviours
necessary to innovative, high-performing large
organizations was proposed and empirically
tested in a sample of managers working under
four governments varying in their capabilities.
We provided evidence that government capability
predicts less managerial dependence on personal
relationships for job and career success, less
cultivation of relationships with governmentofficials rather than technically useful relation-
ships, less proactive use of personal relationships
for strategic reasons, and less organizationally
dysfunctional distrust, secrecy and the withhold-
ing of information. The results are strong, with
the preponderance of evidence supporting man-
agers’ dependence on their relationships as
mediating between government capability and
managerial perceptions and actions that foster
better organizational performance.
Cultivation of officials and the pursuit of
relationship-based strategies
The poorer the government capability the more
likely managers were to build relationships with
government officials and to rely on their most
important work relationships for assistance in
obtaining government favours, and the less likely
they were to rely on them to find customers or to
aid in business expansion. All of these reflect the
use of such corporate strategies, and support
Peng’s (2003) theorizing about the costs of
relationship-based strategies. They also provide
strong cross-national comparative evidence forXin and Pearce’s (1996) claim that relatively less
capable governments drive managers to rely on
relationships with government officials as sub-stitutes for the predictability provided by capable
governments. These data support the claim that
dependence on relationships is not necessarily the
result of managers’ cultures or personal socia-
bility, but is a sensible way to manage whengovernments do not provide the security and
infrastructure managers need.
International management research has docu-
mented that relationship-based strategies are more
prevalent in countries with less capable govern-
ments and result in better organizational perfor-
mance in those jurisdictions. There is growingevidence that relationship-based management is
inherently self-limiting. Hitt et al . (2006) found
that the greater executives’ reliance on relation-
ships with government officials for competitive
advantages the poorer their performance. Under
less capable governments complex organizations
cannot easily grow in size (since that would
depend on delegation), and any attempts to
expand into other regions or nations would
require a laborious building of a new network of
officials, suppliers and customers. Following
organizational theory, these strategies shouldmake it difficult for these organizations to perform
well when competing on their performance outside
the settings where their managers have built their
personal relationships. A focus on managerial
behaviour helps highlight how limiting these
strategies are when working under capable gov-
ernments. First, it takes a great deal of time to
build and sustain personal relationships, which
necessarily means that their organizations are
restricted to those areas where managers have
invested in those relationships. While managers
may have developed general relationship-cultiva-tion skills, each relationship is very labour
intensive to establish and to sustain, so these skills
do not travel well. Such relationship-based strate-
gies may succeed in keeping foreign competitors at
bay when governments are less capable (see
Rodriguez, Uhlenbruck and Eden, 2005), but they
come at the cost of keeping organizations localized
and dependent on government officials (see also
Chen, Fan and Wong, 2006). Building on Drori,
512 J. L. Pearce et al.
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Jang and Meyer (2006) who found that greater
out-nation linkages drove the rationalization of
governments, relationship-based firm strategies
seem to promise limited economic development,especially that arising from innovative complex
organizations.
Dysfunctional organizational behaviours
We also found that the less capable the govern-
ment the less likely managers were to rely on their
relationships for useful technical advice, and themore likely they were to believe their associates
withheld information from them (and to with-
hold information from them in turn), and to
distrust their most important associates, all
consistent with the predictions about the effects
of weak government capability on dysfunctional
organizational behaviours.Withholding information and distrust have been
associated with poorer organizational performance.
They reduce organizational speed and flexibility,
require the use of more costly and less flexible
control systems, and reduce attention to projects
and investments with longer term payoffs. These
managerial attitudes, perceptions and actions make
for passive organizations slow to innovate and
respond to external shocks. Based on what we
know from the organizational behaviour literature,
managers who distrust their closest business
associates would not be expected to build large,decentralized organizations and so gain the ad-
vantages of specialization, scale and scope.
Managerial actions, economic development, and
the maturing of management research
Attention to the role of managerial attitudes and
expectations that support organizational perfor-
mance suggests policy implications for economic
development, and reflects the growing interest in
how management research can address societal
challenges. Economists and sociologists havelong reported that capable governments are
important to economic development. However,
when these scholars address why, they focus on
individuals, implying that autonomous indivi-
duals, not those running and working throughout
large organizations, should be the focus of policy.
If organizations and their managers do matter,
then policies need to address them as well. For
example, policies to foster large ‘national cham-
pions’ help create a cadre of expert middle
managers and professionals. However, as long
as large organizations are dependent on govern-
ment favour, these middle managers and profes-sionals are constrained in their abilities to leave
and found and grow their own spin-off organiza-
tions, the basis of innovative clusters likeCalifornia’s Silicon Valley. Policies fostering
economic development need to attend to how
organizations can be founded and grow large
based on producing better products and services,
not just on incentives for individuals. Despitepopular press praise of the rapid growth in some
developing countries, the richest countries still
are those with large organizations that compete
based on performance, not favours from the
powerful.
Limitations
This research has limitations. We developed
plausible theory from literature that was sup-
ported, but the theory remains incomplete. For
example, there probably are numerous other
managerial beliefs and behaviours affected by
relative government capability not tested here.
For example, Pearce, Dibble and Klein (2009)
have recently argued that government incapabil-
ity has especially deleterious effects on technol-
ogy-based entrepreneurship, and a more detailed
analysis of the role of government capability oninnovation and entrepreneurship is needed.
Further, because the data depend on managers
working under only four governments, we would
want to see research extended to other countries
to be more confident of the conclusions. Finally,
the theory proposed was causal, but it was tested
using data from one time period. Future research
could capitalize on the recent changes in national
governance to test the effects of changes in
governance capability on organizational growth
and development.
Conclusions
Managerial research has matured in the past 25
years in many ways, and here we build on two of
those developments. First, managerial research
has moved beyond a manager-flattering view of
managers as autonomous agents, in control of
their destinies. Increasingly research sees man-
agers as operating in complex contexts and has
How Government Capability Affects Managers 513
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begun to deconstruct and understand those
contexts as drivers of managerial action. Here
we focused on the governmental context and
found that managerial reports are consistent withmany of the speculations of institutional theorists
about why large, complex, innovative organiza-
tions grow and prosper in some countries but notothers. Second, we contend that managerial
research has developed a large body of knowl-
edge that is useful in addressing questions other
than their original focus on business and in-
dividual managers’ success. In the past 25 yearsmanagerial research has produced increasingly
sophisticated knowledge about the operation of
organizations, information that is useful in
addressing a broad number of societal challenges.
We illustrated these developments with this study
of governmental effects on what managers do to
try to manage under relatively less capablegovernments. We look forward to what awaits
us in the next 25 years.
Appendix A: Factor analyses of 1995world competitiveness questions
Government Capability Index 1995 1 2
Intellectual property (7.22) 0.88 0.05Improper practices – bribery or corruption
(3.32)
0.84 0.07
State control of enterprises (3.18) 0.84 0.05
Political risk rating (3.51) 0.83 À 0.12
Protectionism (2.42) 0.80 À 0.18
State interference (3.17) 0.78 0.19
Legal regulation is adequate (4.35) 0.75 0.18
Fair justice (3.52) 0.73 0.16
Investment (3.19) 0.72 0.13
Bureaucracy hinders (3.31) 0.67 0.26
Internal organizational effectiveness 1995
Value competitiveness (8.56) À 0.07 0.89
Managerial rewards long term (6.32) 0.02 0.88
Retraining willingness (8.50) À 0.02 0.86Fiscal policy encourages entrepreneurship
(3.48)
À 0.13 0.79
Corporate credibility (6.20) 0.17 0.72
In-company training (8.38) 0.22 0.68
Worker motivation (8.51) 0.26 0.64
Industrial relations (6.36) 0.37 0.62
Parallel economy – impairs (1.10) 0.04 0.62
Hiring and firing restrictions (3.25) À 0.04 0.57
Strategic all iances common (2.46) 0.26 0.45
Eigenvalues 11.72 2.04
Appendix B: Government CapabilityIndex (CI1995) by country
Country Country
ranking
Standardized
Government
CapabilityIndex 1995
Unstandardized
Government
CapabilityIndex 1995
New Zealand 1 1.43 1.62
Switzerland 2 1.30 1.51
Denmark 3 1.27 1.48
Singapore 4 1.23 1.44
Netherlands 5 1.19 1.41
Finland 6 1.17 1.40
Norway 7 1.13 1.37
Sweden 8 1.13 1.37
Germany 9 1.06 1.31
Canada 10 1.03 1.28
Australia 11 1.02 1.28
UK 12 1.02 1.27
USA 13 0.99 1.25
Ireland 14 0.94 1.21
Austria 15 0.92 1.19
Hong Kong 16 0.65 0.97
France 17 0.58 0.91
Belgium 18 0.50 0.84
Japan 19 0.45 0.80
Chile 20 0.36 0.72
Israel 21 0.30 0.68
Portugal 22 0.25 0.63
Taiwan 23 0.13 0.54
Malaysia 24 À 0.10 0.34
Spain 25 À 0.10 0.34
Czech
Republic
26 À 0.19 0.26
Hungary 27 À 0.25 0.22
South Korea 28 À 0.34 0.14
Italy 29 À 0.39 0.10
Greece 30 À 0.42 0.08
South Africa 31 À 0.53 À 0.02
Poland 32 À 0.56 À 0.04
Argentina 33 À 0.59 À 0.06
Thailand 34 À 0.79 À 0.23
Jordan 35 À 0.81 À 0.25
Egypt 36 À 0.92 À 0.34
India 37 À 1.18 À 0.60
Brazil 38 À 1.22 À 0.59
Mexico 39 À 1.23 À 0.60
China 40 À 1.23 À 0.61Philippines 41 À 1.26 À 0.63
Colombia 42 À 1.28 À 0.64
Indonesia 43 À 1.32 À 0.68
Turkey 44 À 1.35 À 0.70
Venezuela 45 À 1.85 À 1.12
Russia 46 À 2.16 À 1.37
Mean 0.42
SD 0.83
Range 2.99
Median 0.44
514 J. L. Pearce et al.
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Jone L. Pearce, Dean’s Professor of Leadership and Co-director, Center for Global Leadership at
the Paul Merage School of Business of the University of California, Irvine, is the author of four
books and over 90 scholarly articles on such topics as motivation and leadership, merit pay, trust,
and international management. She has served as President of the (American) Academy of
Management and a fellow of numerous scholarly associations, and serves on the editorial boards of
prominent scholarly journals.
Katherine Xin is Professor of Management and the Associate Dean at the China Europe
International Business School (CEIBS) in Shanghai, China. She is also the editor-in-chief of the
Harvard Business Review (China) magazine. She holds a PhD from the University of California and
was previously on the faculty of the International Institute for Management Development,
Switzerland, the University of Southern California and the Hong Kong University of Science andTechnology.
Qiumei Jane Xu received a PhD in management from the Paul Merage School of Business,
University of California, Irvine. She is currently an assistant professor of management at the College
of Business and Management of Northeastern Illinois University. Dr Xu has conducted research on
diversity, organizational citizenship behaviour and employee development.
Alaka Rao is an assistant professor in the College of Business at San Jose State University . She
received her PhD at the Paul Merage School of Business, University of California, Irvine. Her
research centres on the management of complex collaborations across geographical and cultural
divides. Her current research interests include the role of national culture, employee cognition and
trust in the management of global collaborations.
516 J. L. Pearce et al.
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