pearce, j. l.; xin, k. m.; xu, q. j.; rao, a. n.---2011--- managers' context, how government...

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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.

mailto:[email protected]

mailto:[email protected]



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

r 2011 The Author(s)British Journal of Management r 2011 British Academy of Management.



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.




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





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





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.





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-





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





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 .





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





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



Model 2: Fully Mediated Model

Model 3: Direct GCI Effects Model

–.28

–.38

–.22

GCI


Cultivate Officials


Dependence

GCI

Cultivate Officials


Dependence

(c)

(d)


–.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





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.





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,





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





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





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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.


r 2011 The Author(s)

pearce, j. l.; xin, k. m.; xu, q. j.; rao, a. n.---2011--- managers' context, how government...

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