Dr Zhen YeThe University of HertfordshireBusiness School

Evolutionary and Institutional EconomicsEvolutionary and Institutional EconomicsLecture 3 Applying Evolutionary and Institutional Theories

Xiamen University The School of Economics April 2007

Postgraduate Lecture Series

Why is it difficult to hire a taxi between Why is it difficult to hire a taxi between 5:00-5:30 in Xiamen?5:00-5:30 in Xiamen?

• What do you think of this phenonmenon?• What are the roles of individual habit and organisational

routines underlying this problem? • What could have induced a change in individual habit and

organisational routines?• Is there any other ways that this problem could be resolved?• What does this problem tell us about similar problems

confronting reformers who are eager to change or re-design the existing institutions?

Structure of presentationStructure of presentation

• ABB• The Indian software industry• Global outsourcing of services• Evolving business model: outsourcing to insourcing• Technology and organisation• Industrial upgrading and evolution • The case of creative industry

ABB in China and PolandABB in China and Poland

• Importance of routines – how does it matter?• Same firm, different countries, what are the outcomes and

implications for economic development?• Contesting different assumptions about the role of Foreign

Direct Investment (FDI) on economic development• ‘Firm bending’ institutions and embeddedness • Key dimensions of embeddedness

– Cultural– Political– Cognitive– Structural

Indian software industryIndian software industry

• Dynamic capabilities enhancement• Human capital investment• External economies of Bengalore• Export promoption• Import substitution • Telecom revolution

– A story from Ferrarra in the Emile Rogmania region of Italy • Rapidly evolving business models

– From outsourcing to insourcing

Evolution: global outsourcing of servicesEvolution: global outsourcing of services

Source: WTO, WTR 2005

Evolution: global outsourcing of servicesEvolution: global outsourcing of services

Source: WTO, WTR 2005

Business model: outsourcing → insourcingBusiness model: outsourcing → insourcing

• The process starts with an accountant in the US scanning your tax returns into a computer server, which is physically located in California…The accountants in India call up all the raw information directly from the server in America, and they complete tax return. In 2005, the number (of tax return done in India) was 100,000 (Friedman, 2005:p. 142-3).

Business model: outsourcing → insourcingBusiness model: outsourcing → insourcing

• If (your Toshiba laptop breaks) you call Toshiba to have it repaired, Toshiba will tell you to drop it off at a UPS store and have it shipped it to Toshiba, and it will get repaired and shipped back to you. But here’s what they don’t tell you: UPS doesn’t just pick up and deliver your Toshiba laptop. UPS actually repairs the computer in its own UPS-run workshop. It’s now possible to send your Toshiba laptop in one day, get it repaired the next, and have it back the third day…(Toshiba’s) customer complaints went down dramatically. (ibid.)

Business model: outsourcing → insourcingBusiness model: outsourcing → insourcing

• “Ford’s problem was that they lose track of what was in inventory. UPS engineers redesigned Ford’s entire North American delivery network, streamlining everything.” As a result, UPS cut the time it takes autos to arrive at dealer lots by 40 %. That saved Ford millions in working capital each year and makes it easy for its 6,500 dealers to track down the models most in demand.” (ibid.).

Technology and OrganisationTechnology and Organisation• Adam Smith (1776): ten men could

make 48,000 pins a day, or almost 5,000 per person per day.

• Karl Marx (1867): one woman or girl could supervise four machines, each making 145,000 pins per day, for almost 600,000 per person per day.

• Pratten (1980): one person could supervise 24 machines, each making 500 pins a minute, or about 6 million pins per person per day. (Source: Langlois)

Division of Labour

Specialisation

Co-ordination

Market Organisation

Evolution of ideasEvolution of ideas C

oord

ina t

ion

nee d

s .

Thickness of markets

Invisible hand

Visible hand

Vanishing hand

1880

1990

Source: Langlois, 2003

Dynamic industrial upgradingDynamic industrial upgrading

• Information and tacit knowledge• The role of the state• Cumulative causation • Kaldorian process• Catch up and industrial upgrading• Endogenous growth• Creative thinking - redefining the industry • The case of creative industry

Upgrading: developing and transition countriesUpgrading: developing and transition countries

Upgrading: developing manufacturing exportUpgrading: developing manufacturing export

What kind of export?What kind of export?

Creative industryCreative industry• The creative sector (ONS, 2006) is a term used by the Office

of National Statistics (ONS) in the UK to describe a collection of cultural clusters and its representation as economic linkages within the 123 x 123 industry input output table. Also known as ‘creative industries’ as defined by the UK Department of Culture, Media and Sports (DCMS, 2006).

• The creative sector is one of the fastest growing export sectors within the UK economy (UKTI, 2005). In 2004, the creative sector shared on average 10.3 per cent of total export (ONS, 2006). Between 1993 and 2004, it has grown on average close to 8 per cent per annum.

• Re-defining industry and national competitiveness

Source: Office of National Statistics (ONS) 2006

Conclusion Conclusion

• Evolutionary and institutional theories as “a general theory” on “how to develop specific and varied analyses of specific phenomena” (Hodgson, 1998)

• 不合理的经济‘制序’之所以存在有其合理的客观和主观原因。不能简单的用‘交易成本’的大小和是否合乎理性原则来衡量某种制序的优劣。

• 演化和制序经济学的分析方法主张通过对特定‘制序’形成的主观和客观原因进行多层次的具体分析。这其中包括对历史演进过程在宏观层面的结构分析及在微观层面上对习惯因素和规范形成的研究及其差异分析。