CHAPTER 5

Managing in Developing Countries

Introduction

For decades the general consensus among Western policymakers involved with international economic development was that real progress was dependent on making sure that poorer countries implemented and followed “appropriate” fiscal, monetary, trade, and legal practices. While there is little dispute that national economic policies and rules are important for economic development, it has also been recognized that the managers in developing countries that have a hand in producing goods and services can have just as much impact on the pace of development.1 It is, therefore, essential to study and understand management practices and styles in developing countries; however, while developing countries represent an overwhelmingly large percentage of the world’s population, the relatively small portion of global business activities in those countries, as well as other factors, has led to a small and spotty body of research on management practices and styles in those countries.2 One researcher lamented that while “[d]eveloping countries offer potentially some of the most important growth opportunities for companies both from the developing as the developing world … [reviews] … of empirical research grounded in institutional theory [have] found that most studies focused on developed countries and that only a small portion of the studies tried to test institutional theory in developed countries.”3

The field of management studies was conceived and developed predominantly in the United States, with some recent inputs coming from other industrialized countries in Europe and Asia (e.g., the tremendous interest in researching Japanese management practices in the 1980s and early 1990s). As such, most of management-related theories that have been produced and researched are based on circumstances in developed countries and thus include biases and assumptions that will likely make them inapplicable in developing countries. One of the problems with studying management in developing countries is that the landscape is tremendously diverse and includes countries of all sizes and from all continents and peoples who with unique histories that practice numerous religions, speak hundreds of different languages, and live in a breathtaking sweep of geographic conditions. All of this makes it difficult to formulate accurate and useful generalizations about “developing country management practices” and/or the attitudes and preferences of employees in all of those countries as to how they would like to be managed.

Applicability of Western Management Theories to Developing Countries

One of the long-running issues within the research community focusing on developing countries has been the extent to which management ­theories and practices with roots in the industrialized world could be understood and effectively applied by organizational managers in developing countries.4 Not surprisingly, there are several different theories on this issue including the following5:

• Proponents of the “divergence” perspective argue that cultural differences between societies such as those that have been identified by Hofstede and others make it difficult for Western management theories and practices to be effectively applied in non-Western societal cultures that are typically found in the developing world. Scholars holding this view also reject the notion of a universal theory of management on the grounds that cultural differences cannot be overcome.6
• The “universal” perspective contrasts directly and sharply with the divergence perspective and holds that applicability of management theories and practices is not limited by culture and that certain similar management practices—universal practices—can be identified in organizations all around the world regardless of the level of economic development in the location where they are operating.7
• The “convergence” perspective argues that applicability of management theories is correlated with the level of economic development and industrialization of a society and that the adoption of Western-style management theories by developing countries is a function of their ability to overcome technical and economic difficulties rather than cultural constraints.
• The “situational,” or “contingency,” theory dismisses the claims of the proponents of the universal perspective and argues that applicability of management theories will depend on situational factors such as the personality of the manager, the ownership structure of the firm, hierarchy, and whether the firm is privately or publicly owned and operated.

One of the earliest formal studies of the applicability of Western-­style management theories to developing countries was conducted by ­Kiggundu et al. in the early 1980s and they concluded that those theories would only be applicable in situations where the organization in the developing country could behave as a closed system. In other words, when the theories related only to the core technology of an organization without reference to its external environment the theories tended to be applicable with conditions and results similar to those of organizations in developed countries; however, the theories would not be applicable in situations involving the external environment.8

In the decades following the publication of the Kiggundu et al. study a growing number of researchers turned their attention to empirically studying the effectiveness of attempts to introduce and implement Western managerial practices in developing countries. For example, Wood and Caldas conducted extensive research on the successes and failures associated with attempts to adopt imported managerial expertise into Brazil.9 They posited a model, or framework, for understanding the integration of foreign managerial techniques in Brazil that began with various external, or contextual, factors such as the historical roots and cultural heritage of the country, particularly “plasticity” and “formalism”; contemporary external influences, including globalization and the sudden need for Brazil to transition from a feudal, agrarian economy into a player on the world economic stage; and low national competitiveness due to protectionist policies and underdeveloped productivity tools. Wood and Caldas emphasized that the two cultural traits—“plasticity” and “formalism”—significantly influenced the receptivity of Brazilians to foreign managerial techniques. On the one hand, plasticity, or an “openness and permeability to foreign influences,” triggered an apparent acceptance of foreign items; however, the formalism in Brazilian societal culture meant there was a “tendency to adopt façade behaviors resulting in a discrepancy between the formal and the real,” including behavior designed to deceive foreigners that alien practices were being adopted when, in fact, they were being resisted or only being partially adopted.10 The framework also included intermediate factors, including diffusion agents (e.g., ­Brazilian government and its agencies, business schools, business media, and consultancies), that drove the promotion, dissemination, and legitimization of new ideas. For example, Caldas and Wood noted that initiatives to adopt imported managerial practices such as the ISO 9000 system were often driven by government programs that provided incentives to firms if they pursued ISO certification.11

Caldas and Wood found evidence that Brazilian managers perceived programs and projects based on ISO certification to be irrelevant and/or inappropriate and that efforts to develop ISO systems actually raised costs and contributed to organizational rigidity because the conditions that existed in Brazilian firms were not favorable to such systems (i.e., poorly skilled laborers, high power distance, and highly centralized decision-making processes). Reengineering programs launched in ­Brazil during the mid- and late-1990s also yielded minimal benefits, which Wood and Caldas blamed on a failure to take into account organizational culture, competencies, and strategies. Other unexpected and damaging consequences of reengineering in Brazil flowed from the tendency of firms to use the programs as an excuse for downsizing for its own sake, rather than enhancing productivity, and this led to “loss of leadership, deterioration of organizational climate, decrease of organizational memory, reduction of productivity and efficiency, decline of perceived product and/or service quality, and hammering of organizational reputation.” Finally, while the introduction of enterprise resource planning did result in some improvements with respect to integration and quality of information, gains in productivity and competitiveness were rare due to scope and planning mistakes and failure to customize the new systems to the specific organizational needs of Brazilian firms.

Wood and Caldas concluded that Brazilian firms often appeared to adopt foreign managerial practices in response to political, institutional, and substantive pressures but that cultural factors, notably formalism, and contemporary economic and social factors, such as poorly skilled workers, led to unsuccessful and unreasoned adoption of the practices with little added value.12 Wood and Caldas had also cited the “level of critical reasoning” as an important factor in predicting the success of effectively adopting foreign managerial techniques, noting that higher levels of critical reasoning would allow local managers to critically analyze the techniques and adapt them to local conditions in a way that would increase the changes of effective integration. Wood and Callas noted that the significant political and institutional pressures in Brazil to appear to adopt foreign methods quickly deprived local managers of the time or incentive to critically analyze the proposed solutions and the result was that “most adoptions tend to be uncritical, and the results for firms may be quite harmful.”13

In 2005, Hafsi and Farashahi decided it was time to take a fresh look at the research that had been conducted since the Kiggundu et al. article and undertook a review of 170 articles that were published from 1983 through 2002 to test their hypothesis that, despite the findings of researchers such as Caldas and Wood, circumstances had changed and that Western-based concepts of general management and organizational theories had achieved widespread applicability in developing countries.14 Their review led them to conclude that the “[r]esearchers working on organizations in developing countries will find a managerial behaviour that is similar to what may be seen in the developed countries.” Hafsi and Farashahi suggested that their conclusions could be traced to a mix of environmental changes since the early 1980s as well as to extension of organizational theory to cover an increasing variety of circumstances and organizations.15 In their view, the key environmental changes included the following:

• Major global political and economic institutions, such as the World Bank and the International Monetary Fund, imposed their structural adjustment framework on many emerging and developing economies.16 While this has not necessarily produced the economic growth that was anticipated and desired it has been successful from a process perspective and, as a result, local institutions—governments that insisted on continuous intervention in the economy and commercial markets—have been pushed aside and replaced by growing influence of global institutions dominated by Western countries.17 While this has sometimes caused resentment in developing countries it has also softened the view of Western management and organizational practices in those countries and they are now increasingly seen as being acceptable.18
• A number of events and innovations have accelerated globalization of markets, industries, and firms including reduction of tariff and non-tariff barriers, creation of the World Trade Organization and the emergence, growth, and maturation of large free trade areas (e.g., the European Union, ASEAN, and the North American Free Trade Agreement).19
• Barriers to cross-border communication have been struck down by rapid and often astonishing technological innovations thus facilitating the movement toward global uniformity of perceptions and understanding regarding fundamental financial and economic issues and potential solutions.20
• Most emerging and developing countries have embraced and launched privatization programs and the processes and practices of privatization have become more uniform around the world.21
• The rapid global growth of industries based on the application of common and complex technologies has pushed developing and emerging countries to learn and adopt the managerial rules, norms, and theories associated with those industries. This has been particularly true in instances where globalization has been led by multinational firms as has been the cases in industries such as banking and automobiles. The standardization that so often accompanies globalization has often clashed with strong local tastes and cultural constraints including religious practices; however, even in those instances multinational firms have generally found a way to make reasonable accommodations for local preferences while implementing managerial practices and administrative techniques that are quite similar in most parts of the world (e.g., automobile manufacturers use the same standards to manage production and train workers in every country where they build their products).
• More and more firms headquartered in countries around the world have adopted and implemented global growth strategies that has resulted in wider and freer access to markets, capital, human resources, and other assets and facilitated the transfer of managerial theories through actual practice in developing and emerging countries.22 Multinational firms, in particular, have taken the lead in introducing and popularizing effective management practices that other firms, including many in developing countries, want to emulate. The practice of multinational firms of entering into joint ventures and other strategic alliances with local partners in developing countries is another way in which those firms are leading the push toward convergence in management practices.23
• Managing training has become more uniform and standardized around the world and developing countries in particular has experienced substantial growth in the number of formal management training programs and business schools sponsored and staffed by Western-based organizations such as the Association to Advance Collegiate Schools of Business and the Association of MBAs.24 The result has been that managers being trained today in developing countries are more likely to be exposed to, and adopt, techniques, behavioral norms, and values that are substantially similar to those being introduced to their colleagues in the United States and other Western countries.25

Hafsi and Farashahi argued that, taken together, the changes listed earlier had led to the development and dissemination of shared knowledge and technical language among managers around the world regardless of the level of development of the countries in which they are practicing. They also noted that the global environment for business activities had been transformed by advances in technology and elimination of trade barriers that allowed great mobility of capital, labor, and other resources and wider and freer access to markets around the world. In addition, Hafsi and Farashahi felt that these trends had reduced the traditional ability of governments in developing countries to exercise inordinate amounts of control over their local economies and had forced public officials in those countries to begin acting in the same way as their colleagues in the industrialized world and adopt policies, such as privatization, that turned responsibility for commerce and innovation over to managers in the private sector. In their words: “To restate the obvious, we claim that an important process of institutional diffusion has taken place in the last decades. It has been pushed by international agencies’ regulatory processes; by powerful normative processes that have defined good economic practices, and determined the behaviour of economists and managers all over the world; and by dominant cultural-cognitive processes whereby western civilization mostly economic values take over traditional values (citations omitted).”26

Impact of Emergence of Global Competitors from Developing Countries

Interest in management outside of the United States, Europe, Japan, and other Asian countries such as Korea was fueled by the emergence of new global competitors such as the so-called “BRIC countries”: Brazil, Russia, India, and China, and it is now increasingly common to see articles and books comparing management practices in those countries to those used in the United States and other developed countries. In many instances, however, the primary thread of inquiry is on how US-based management practices, particularly in the human resources area, can be transferred to these developing economies, often with the anticipation that US multinationals will be establishing a large presence in those countries and are interested in importing their own management techniques as opposed to learning and applying indigenous practices. Many developing countries have their own body of research on local management practices compiled and recorded by academics, consultants, and policymakers in those countries—India is a particularly good example of a developing country with a substantial body of indigenous management literature; however, these materials are often difficult to access and may not have been translated to make it useful for interested parties from outside those countries.

The dichotomy between developed and developing countries, and the members of each of those groups, has a long history and has become deeply engrained in the minds of many scholars, policymakers, and ordinary citizens around the world. However, there is evidence of significant changes which, if taken to their seemingly logical conclusion, will disrupt orthodox thinking about the sources of best practices for managers and will generate new ideas among scholars researching management in developing countries. Already we are seeing large enterprises from countries still classified as “developing,” such as Brazil, China, and India, involved in battles to assume ownership and managerial control over valuable economic assets in industrialized countries—and sometimes the only serious bidders are firms from the developing countries. In addition, industrialized countries are seeing progressively higher levels of inbound foreign investment from developing countries, often accompanied by a transfer of managers and their own managerial styles and practices from the investing country. Observing these events, Punnett has commented: “What literature there is on management interactions between developing and developed countries implicitly assumes that managers from developed countries will be adapting to the environment in developing countries. The reverse may be more and more the reality of the management challenges of the 21st century.”27

Developing Countries as Testing Grounds for New Management Theories

There is no question that introduction and transfer of “foreign” management theories and practices into developing countries has been a long and challenging process that is far from ending and which has been complicated by various factors including the importance of history, values and unwritten rules, norms, and related practices that cannot be easily identified and understood by outsiders. However, globalization generally, as well as the specific factors emphasized by Hafsi and Farashahi, have become sources of change for values and institutions in developing countries and recent years have seen countries such as China, India, Korea, and Turkey willingly seek out and adapt various Western management practices in a way rarely thought to be possible in the past. As a result, Hafsi and Farashahi posited the somewhat radical suggestion that “the question, whether Western-based theoretical development is applicable to developing countries, may have become irrelevant,” and then went on to explain that if one does concede that Western management theories can be effectively applied in many ways in developing countries then it was time to include those countries as part of “normal” scientific development that simply expands the diversity of contexts and circumstances in which discoveries regarding organizational structures and management can be made.

Hafsi and Farashahi predicted that developing countries may, in the future, provide novel and interesting ideas for managers in more industrialized countries, particularly as managers in the United States and Western Europe struggle to compete in fast changing and relatively unstable environments that have long been the norm in developing countries. Hafsi and Farashahi noted: “What is discovered in organizations in Texas, France or Saudi Arabia may or may not apply to organizations in ­Bangladesh, California or the UK; but we can at least relate the reasons to well-known concepts and theories, in particular to developments that recognize the importance of perceptions, values, beliefs and other soft influences on decision-makers’ behaviour.”28 What this means is that in order for organizational management theory and research to be robust, timely, and useful in the future it should include study of practices in all of the geographical locations mentioned earlier coupled with rejection of the historical notion of management practices in developing countries being a degraded, or poor, form of management.

A. de Waal also expressed high hopes for the value of management studies in developing countries and argued that it could reasonably be assumed that the “highly dynamic environment … [in these countries] … is a good testing ground for new theory, techniques and concepts of business and management.”29 He was more cautious than Hafsi and Farashahi about the efficacy of Western management practices in emerging markets due to significant cultural differences, but pointed out that if such practices could not be easily transferred then it was imperative for management scholars all over the world to seek out new solutions to managerial issues that would suit the specific cultural, economic, and political conditions found in developing countries. It does appear that interest in this type of research is increasing with the initial work focusing primarily on topics such as human resources management, new public management, and management control and information systems.30

Challenges for Managers in Developing Countries

The environment for business activities in developing countries—economic, political, and social conditions—generally varies significantly from the environment confronting managers in developed countries and this imposes significant and unique challenges on managers in developing countries as they attempt to set and execute their operational plans and strategies for their enterprises. For example, managers in developing countries are typically faced with production difficulties, poor infrastructure conditions, market uncertainties and disruptions, unstable and ­turbulent macroeconomic conditions, financial restrictions, governmental controls, and unstable and under-developed political systems and institutions, inadequate access to reliable information, relatively primitive technology levels, and a lack of skilled and trained human capital. Managers in developing countries must also pay particular attention to the health and development of the natural resources sector in their countries since natural resources continue to play an important role in the economies of many of those countries as they embark on a transition toward greater reliance on jobs and economic activities in the manufacturing and ­services sectors. In addition, the opportunities and pressures of globalization raise difficult and emotional issues of business ethics and corporate social responsibility. Finally, like managers all around the world, managers in developing countries must understand how elements of societal culture may impact the efficacy of the managerial practices and styles that they attempt to employ.

Production Capabilities

While a significant percentage of the income and employment in many developing countries still comes from the “traditional” agricultural sector the consensus is that the path to development requires a transition to a continuously increasing level of activity in the manufacturing and services sectors. In order for this transition to occur, however, managers in developing countries must be able to tap into necessary and appropriate production capabilities. Unfortunately, production difficulties often arise in developing countries due to problems with identifying, acquiring, and assimilating necessary and appropriate technologies. In addition, the lower level of education found in many developing countries impedes efforts to train employees how to use technology and manufacturing techniques. Finally, managers and employees in many developing countries have different perceptions of, and attitudes about, quality controls in the production process.

Infrastructure Conditions

Managers in developing countries are also confronted by a wide array of infrastructure issues. Not surprisingly, many developing countries have been unable to make the necessary investments in fundamental infrastructure areas such as transportation, utilities and energy, and postal and telecommunications. Shortcomings in each of these areas can significantly impede economic development efforts in general and make it difficult for specific firms to operate their facilities, transport their goods and services to domestic markets and depots for export shipments, and maintain contacts with customers, suppliers, and other business partners. However, there is evidence of significant changes in many parts of the world. For example, it has been estimated that from 2001 to 2006 more than 5 ­percent of the total regional GDP in sub-Saharan African was invested in infrastructure improvements, including significant ­private sector investments in high-capacity fiber optic cable that have facilitated connectivity of southern and eastern Africa to the global Internet backbone. In addition, the cellular phone market in sub-Saharan Africa has become the fastest growing region in the world with 65 percent of the population within reach of a wireless voice network, up from just 1 ­percent 10 years ago. Unfortunately, while the improvements in communication and access to information have been impressive, the region has yet to figure out a good strategy for using information technology to modernize and transform other economic sectors.31

A related infrastructure issue for firms in developing countries has been their inability to rely on local suppliers to provide the necessary inputs for their products on a timely basis and/or at the quality levels that are required in order for the products to be competitive in domestic and international markets. If the government requires firms to use local inputs they must either tolerate the poor quality or invest their own capital and other resources in assisting suppliers with improving the quality of their inputs and the efficiency of the operational processes. If, on the other hand, the government allows firms to import required inputs the managers of those firms must be able to successfully navigate complex rules and regulations pertaining to import licenses that are often found in developing countries. Another issue for local firms engaged in import activities in developing countries is to obtain import financing since foreign firms may be reluctant to provide credit and will generally insist on payment in strong nonlocal currencies that are often in limited supply in developing countries.

Market Uncertainties

Managers in developing countries often encounter unforeseen disappointments in the projected markets for their finished products as a result of local government action or events outside of their control in the global marketplace. For example, a firm may have been planning on substantial sales to customers engaged in activities in a specific industry that the government had selected for special emphasis as part of the country’s national development strategy. If, however, the government decides to change it priorities and devote its attention, resources, and support to other industries the market for the firm’s products will quickly erode. Similarly, planned sales to local consumers may be suddenly derailed if the government announces plans to tighten credit as part of its efforts to reduce inflation. Firms in developing countries are also highly vulnerable to shocks in the global economy, such as the widespread and ongoing recessionary conditions in a number of industrial countries that began in 2008 and extended for several years, that can reduce foreign demand for the exports and/or the prices they are able to obtain for such exports in foreign markets.

Decades ago managers in developing countries with a product or service that was new to the local market generally had the advantage of being able to launch their product or service without significant immediate competition. This did not necessarily assure the commercial success of the product or service, since it was still necessary to develop local demand and settle on a price that satisfied local buyers and still generated a reasonable profit; however, managers usually had time to develop and implement their plans and secure the benefits of being the “first mover” in the marketplace. Today, however, the situation is often quite different as globalization of the economy, technological advances, and governmental policies conspire to create intense competition in developing countries, particularly in areas populated by consumers with income earned from jobs in rapidly growing industrialized sectors that have benefited from inbound foreign investment. Developing country managers must now contend with competitive imported products from developed countries and often find that their government has allowed large multinational retailers to set up local manufacturing and distribution operations in return for greater access to markets in developed countries. Finally, the Internet has changed the buying habits of consumers in developing countries who now have access to more information about products, particularly with regard to pricing and performance features, and the ability to buy products from anywhere in the world rather than being strictly reliant on local sources.

Developing countries have been attempting to implement policies that will reduce the risks associated with market uncertainties that have often hampered sustainable growth in those countries. For example, countries in Africa have been working to diversify their bets on economic growth across new, multiple sectors and statistics indicate almost two-thirds of the growth in Africa over the last decade has come not from the traditionally important natural resources sectors but from other sectors such as wholesale and retail, transportation, telecommunications, and manufacturing.32 Developing countries are also seeking to reduce their reliance on trading partners in the advanced industrialized countries by forging economic ties and trade relationships with other developing economic regions (“South-South” exchanges”).33 Domestic markets are also changing in developing countries as large workforces of younger workers migrate to urban areas, a phenomenon that creates business opportunities for firms to participate in projects designed to improve infrastructure conditions in the cities and, hopefully, leads to the creation of a class of “urban consumers” with sufficient spending power to support expansion of activities in the manufacturing and services sectors based on local demand.

Macroeconomic Environment

Relatively unstable and turbulent macroeconomic environments in development countries also contribute to the challenges confronting managers in those countries in their planning activities. For example, while many developing countries have been doing a relatively good job in recent years in managing inflationary pressures, they are nonetheless vulnerable to high inflation and when this occurs managers of local firms inevitably find themselves battling with changed assumptions about pricing, extending credit terms to their customers, negotiating terms of payment with their suppliers, and obtaining bank financing for both short-term cash needs and long-term investment. Foreign and balance-of-payment issues often impact the business plans of developing country managers. In many instances, governments of developing countries enlist the assistance of private sector firms in closing balance-of-payment gaps by requiring that they increase export activities as a condition to being allowed to continue importing raw materials need for their production processes. Finally, the macroeconomic environment confronting developing country managers is susceptible to the mandates of foreign governments and international financial organizations such as the World Bank, which routinely impose conditions on loans and other forms of economic aid to developing countries that have a significant impact on local firms and overall political conditions in those countries.

Availability of Capital and Credit

Developing countries, by definition, have low income levels and generally suffer from a lack of available capital and credit. The low income levels translate into low demand and this is an issue that local firms must be able to overcome in order to build their businesses. While local firms may be able to improve the quality of their products and the efficiency of the production processes, these advance will be of little help unless they can find ways to attract local customers. Managers in developing countries must act carefully in selecting items for their product lines to ensure that they are consistent with the immediate needs of consumers given their income levels. In addition, managers should focus on creating opportunities to purchase goods on credit, realizing that local financial institutions are likely to be underdeveloped and unable to provide consumer credit tools until the economy has achieved further development. A related issue in developing countries is skewed income distribution, a situation that impacts decisions on which types of products to focus on and how products should be marketed. Managers in developing countries must be particularly mindful of the existence of distinct marketing segments, such as an emerging “middle class” that may have more disposable income to spend on products that would simply not be a realistic purchase for ­consumers that remain at the lower levels of the income scale.

While the situation is improving and one can now observe relatively developed financial markets in developing regions such as Africa where the situation had been dire for decades,34 it is still generally true that financial systems and institutions in developing countries are much weaker than in developed countries. Formal capital markets, including stock exchanges, are primitive or nonexistent in many instances and developing countries lack the knowledge, technology, and trained personnel to establish banking systems that can attract and mobilize savings and this means that wealth is often held in the form on non-monetary assets such as precious gems and livestock. When banking systems do exist they are typically owned and operated by the national government and are thus “heavily bureaucratized and politicized.”35 All of this means that managers in developing countries are more likely to have to fend in a financial system where informal transactions are the norm; fewer financing options are available; and transactions, when they do occur, take longer and are more costly. In order to survive and thrive in such a situation, managers must learn to be innovative in financing their businesses and explore alternative sources such as members of their family and personal networks, suppliers, and customers.

Political Systems and Institutions

Managers in developing countries typically act, and must make decisions, in a political environment that is much different than what is normally found in developed countries. Political conditions in developing countries are often more turbulent than in industrialized countries, particularly in those developing countries that are struggling to adopt and institutionalize reforms of executive, legislative, and judicial activities. Armed conflict, and often outright civil war, is still commonplace in many parts of the developing world and managers attempting to operate in such an environment must deal with pressures from both the incumbent government and the “opposition.” Even when political conditions in a developing country are relatively stable, managers in that country must pay particular attention to the goals and strategies that the national government is pursuing in the name of economic growth and development. In comparison to industrialized countries, national governments in development countries can and do exert much more influence on the local business environment and, as such, it is imperative for managers in those countries to gather and analyze information regarding government-led initiatives and to gain access to government officials in a position to assist firms seeking financial support and opportunities to participate in preferred projects. However, the dominant role of the national government in many developing countries has contributed to the relatively high incidence of corruption found in such countries as both local and foreign firms seek access to government officials who can provide favors with respect to allocations of funds and contracts and issuance of required licenses and permits.

Austin noted that differences in the political environment can be tracked on at least four difference dimensions or variables: instability, which is generally inversely related to the level of economic development; ideology, which displays itself in the government’s beliefs, policies, and actions with respect to the role of the state and the private sector, the recognition of property rights and the choice of form of political system; institutions, which are generally weak and under-resourced in developing countries; and international linkages, with developing countries being largely dependent while developed countries enjoy greater autonomy.36 Austin correctly pointed out that economic and political development often does not proceed at the same pace and it is common to see countries progress relatively quickly with respect to economic growth while their political institutions mature much more slowly. In any event, the relatively uncertain political environment in many developing countries has a number of significant consequences for managers in those countries: opportunities for business partnership with foreign firms may be inhibited by their perception of an unacceptable level of political risk; instability raised concerns about shifting national goals and priorities and sudden and unforeseen shifts in allocation of public resources; security concerns; and changes in government may trigger changes in international linkages that impair available export and import channels for firms in developing countries. In order to survive and thrive, astute managers must develop and maintain relationships with a wide range of political actors and learn how to skillfully negotiate to protect the interests of their firms. Some firms in developing countries are able to insulate themselves from domestic political instability by forging relationships with key foreign investors.

Political instability has been repeatedly cited as a major impediment for attracting foreign investment to developing countries and there are signs that improvements are being made even in areas that have historically been viewed as especially problematic. In Africa, for example, governments have begun to improve their domestic regulatory environments by relying on public ratings such as the World Bank’s “Doing Business” surveys as a means for benchmarking their performance against other countries seeking foreign capital and technology.37 As a result, many countries in Africa implemented economic reforms that significantly eased the path for launching and conducting business activities.38 Leke et al. praised African countries for making tough decisions to implement an array of internal structural changes such as increasing political stability due to cessation of armed conflicts; and implementing “pro-market” policies such as privatization of state-owned enterprises, liberalizing trade opportunities, lowering corporate taxes, introducing improvements to regulatory and legal systems, and investing in initiatives that improved both physical and social infrastructure conditions.39

Access to Reliable Information

Planning by managers in developing countries is hindered by the lack of reliable information on issues that are relevant to the conduct of their businesses. In comparison to industrialized countries, the mechanisms for collecting, cataloging, and disseminating information in developing countries are rudimentary and often nonexistent. Governments do not have the resources and technology to act as a central repository of valuable information on key topics such as supply and demand, pricing, demographic data, availability of technology, and financing, and the content of governmental regulations and developing countries also suffer from a lack of the financial and human capital needed to support alternative sources of information such as trade associations and journals, newspapers, and television/radio outlets. Even in those developing countries where the information systems are relatively mature, many areas of the country, particularly rural areas far from the cities, remain fairly isolated. The consequences of poor information for managers have been succinctly described by Austin: “Imperfect information leads to market inefficiencies and increased transactions costs. Decisions must often be made with a smaller and less reliable data base. Word of mouth information and personal communications networks become more important in companies’ management information systems.”40

Technological Levels

Very often the technological level in developing countries is low; the technological development that does occur is concentrated, meaning that new technologies are generally not adequately disseminated throughout the country; and there is a heavy dependence on foreign technologies. Lack of financial and human capital explains much of the deficiency in the technological base of developing countries and such countries also lack the infrastructure to launch meaningful technological development activities. Some formerly developing countries, particularly in Asia, have overcome these challenges by implementing government-led initiatives to achieve competitiveness in specific technological areas through public-private sector collaborations. In general, however, the modern technology that is found in developing countries tends to be concentrated in larger companies and specific sectors and many of the firms in those countries seek to survive with rudimentary tools and production processes.

While managers in developing countries can attempt to develop their own technologies, assuming they are able to overcome the lack of other resources mentioned earlier, for the time being it is more likely that the main technological issue for those managers will be identifying appropriate technologies that can be licensed or acquired from other sources and, just as importantly, adapting those technologies to suit the specific requirements of their local environments. Adaptation can take a variety of forms including changes to the technology itself or investing in training and education programs for employees in developing countries that will allow them to effectively deploy the technologies in the operational activities of the firm. The need for adaptation dictates that licensing and similar arrangements much normally include technical assistance from the party that is providing the technology. Acquisition of technology from foreign sources, a process that is often referred to as “technology transfer” has been a consistent source of controversy in relations between the “North” and “South.” Many years ago, developing countries often insisted that foreign licensors cede almost all ownership rights in their technologies as a condition of allowing the licensor to conduct business in those countries. As it became clear that licensees from industrialized countries would resist such conditions and withhold new and valuable technologies from licensing arrangements developing countries began to ease their demands with respect to the conditions of technology transfer agreements. Nonetheless, the flow of technology from industrialized to developing countries remains problematic given that industrialized countries remain justifiably concerned about the existence and efficacy of laws and practices to protect intellectual property rights in many developing countries.

Quality of Human Capital

Many scholars and policymakers have bemoaned the relative deficiencies of human capital, as measured by factors based on education, training, health, nutrition, and housing, in developing countries. The quality of the human capital in a country is said to impact the level of human labor productivity in that country and is enhanced by investing in activities that will increase knowledge within the labor force and their ability to apply that knowledge to production. Interestingly, human capital was long ignored in the standard neoclassical production function; however, it is now generally accepted that investment in human capital can and does make a significant contribution to economic growth. Human capital is a complex issue even in developed countries and improvements in developing countries require not only attention to creating access to basic education for all members of society in developing countries but also providing those old enough to work productively with the training necessary for them to perform the jobs that are available in the economy. Food, health services, and housing must also be available to workers and their families to ensure that workers will be fit and available to report for work without concern for those who look to them for fulfillment of basic needs. Other issues relevant to human capital in developing countries include often controversial policies regarding the number of children each family is allowed to have and policies relating to the migration of workers from rural to urban areas. Moreover, productivity is not only an issue for manufacturing activities and human capital initiatives can but also must include training in technologies that will improve yields in the agricultural sectors that will continue to be significant contributors to growth in developing countries even as they transition toward greater dependence on manufacturing and services.

Managers in developing countries recognize that many of the inputs for the improvement of human capital in their countries must necessarily be provided on a large scale by governments of those countries, often in partnership with international aid organizations. For their part, governments of developing countries have often struggled to find the capital necessary to fund investments in human capital; however, there are signs that changes are occurring. In Africa, for example, governments realize that the large numbers of young people in their countries can serve as the foundation for strong increases in GDP per capita if they can provide education, training, and jobs to younger workers so they can become meaningful contributors to both production and consumption.41 Also of interest is the increase in private sector initiatives to expand and improve educational opportunities in developing countries.42 While all of this is encouraging, the reality for many developing country managers is that large portions of their workforce still do not have the basic education and specific technical skills needed to achieve productivity gains at the speed required to assure competitiveness.

Historically, enterprise training in developing countries was limited to larger firms that already employed an educated and skilled workforce, made investments in research and development, implemented quality control methods, and relied on foreign investment.43 The current challenge is for small- and medium-sized enterprises in developing countries to find ways to implement their own training and development programs; however, many proprietors of such enterprises are understandably concerned that their investments in training will be lost when workers take their newfound skills to other employers offering higher wages. Beudry and Francois commented on the difficulties that employers face in appropriating the anticipated returns on their investment in training their employers and noted that the issue turns on whether the countries in which the employers are operating have appropriate “institutions” in place such as the “labor markets with significant worker bonding” found in Japan and Korea or the “cooperative training system” often associated with Germany.44 Developing country managers in many countries must also contend with the migratory habits of local workers which often cause some of the more promising candidates to move outside of the country in pursuit of what are perceived to be better educational and professional opportunities.

One issue with respect to human capital confronting managers in developing countries is introducing modernized performance appraisal techniques that can be used for decisions regarding compensation and promotion. One commentator observed that while performance-oriented staff appraisal systems have been tried in many developing countries, “[t]hese have not been very successful because … in many developing countries promotion is still linked to seniority or to relations … [and] [a]ttempts to use performance targets have produced mixed results.”45 Another researcher focusing on Southeast Asia pointed out that the current practice in most countries in that region “is predominantly old-style performance appraisal in highly centralized, bureaucratic, hierarchical systems with inadequate management expertise.”46 He recommended that public and private enterprises in those countries need to grant more autonomy to the managers responsible for achieving results and allow them to make hiring, firing, promotion, and compensation decisions based on performance appraisal systems that are supported by a regular practice of informing subordinates about the anticipated competencies associated with their positions.

Role of Natural Resources

The contribution of natural resources to a national economy is a measure of the level of development and, in general, the evidence is clear that low-income developing countries tend to rely heavily on national resources and are often extremely dependent on global demand for a limited line of commodities (e.g., the economic health of oil-producing countries is tied to oil production and sales and Columbia’s prospects during the 1970s and 1980s rose or fell on coffee prices). Managers in developing countries are advised to stay focused on activities and developments in the agricultural sector even if their firms are not directly involved in agricultural activities. The performance of the agricultural sector will have a substantial impact on the overall growth of the entire national economy and it is likely that a significant amount of governmental resources will be showered on agricultural activities. A rise in the income-level of ­participants in the agricultural sector can and should have a positive influence on local demand in other sectors. In addition, managers should be diligent in identifying opportunities in ancillary industries which may be born to provide added value to country’s primary commodity export activities. In many cases, governments will provide incentives for entrepreneurs in ancillary industries as a means for diversifying the national economy. Savvy managers in developing countries can actually create their own incentives by bringing ideas to government officials that, if well executed, would further national economic goals.

The quantity and quality of natural resources are also important factors for many developing countries. For example, many developing countries are major sources for key basic and strategic minerals that are widely sought by other countries, particularly the wealthier industrialized countries. Agricultural land, timber, fuels, other energy sources and natural tourist attractions are also abundant in many developing countries, particularly in the larger nations of the developing world; however, progress in development of these resources is often slow or nonexistent for various reasons. One problem that is largely out of the control of these countries is that climatological and topographical conditions do not support productive and cost-effective use of land and other resources: there may be insufficient rainfall for farming or mountainous terrain may make it too expensive to access and develop parts of the country. In other instances, however, the main issue confronting managers in developing countries with respect to building businesses based on natural resources has been obtaining the necessary capital and technology since both of those factors of production are habitually in short supply in developing countries.

While gaining access to capital and technology was often seen as an overwhelming hurdle for companies in developing countries, managers who were competent in identifying and negotiating “politically acceptable” collaborative arrangements with foreign investors, such as joint ventures or technology licenses, have been able to advance quickly and establish important competitive advantages for their firms that became even more valuable as the local economy began to grow.47 Foreign investment in developing countries has often been a matter of great controversy and debate. Many developing countries initially resisted foreign participation in their economies and when such participation was allowed it was subjected to complex and restrictive regulation including the need for governmental approvals. In many instances, foreign investment would only be politically acceptable if a local partner was involved and the investment took the form of a joint venture that was majority-owned by the local partner. As time has gone by, however, developing countries have eased their restrictions on foreign investment after realizing that they were often counterproductive and inhibited access to badly needed capital, technology, and opportunities to train local workers.

Business Practices and Ethics and Corporate Social Responsibility

Ethics and corporate social responsibility, including the well-publicized issues surrounding “corruption” and “bribery,” are important considerations for managers all around the world; however, added complexity arises in developing countries where different societal values may apply to day-to-day activities and transactions in a business context. For example, the domestic lobbying activities carried out by US companies and industries may be considered unethical in other countries and the US practice of “tipping” for services often puzzles people from different parts of the world who wonder why someone is being given something extra for simply carry out the duties and responsibilities of their jobs. On the other hand, payments to government officials regularly made and expected in many developing countries, typically to receive some form of preferential treatment, are prohibited in the United States and other industrialized countries and the apparent need for such payments in developing countries is seen as an unsettling indicator of corruption and lack of ­transparency that frightens prospective foreign investors. There is tremendous external pressure on managers in developing countries to embrace notions of business ethics heralded in the industrialized countries and this will require attention to training personnel throughout the organizational structure of enterprises in developing countries and often overcoming local cultural norms.

A related pressure on managers in developing countries arises from exposure to the more extensive regulatory frameworks in industrialized countries. Puckett observed that “child labor is still common in many parts of the developing world, slavery continues, harmful pesticides are allowed, environmental protection is lax, [and] working conditions are poor.”48 There may be good, or least contextually reasonable, explanations for these circumstances such as the need for families in particularly poor countries to put their children to work in order to maintain even the most basic level of existence; however, as firms in developing countries continue to partner with foreign investors and/or join the supply chains of enterprises in industrialized countries they will need to modify their business practices to meet the standards of corporate responsibility that are achieving growth recognition and acceptance all over the world. Puckett noted that certain practices, such as hunting for endangered species, were not only considered to be morally problematic in industrialized countries but also widely opposed in the developing countries where they are occurring; however, developing countries often lack the policing resources necessary to prevent such activities.

Cultural Conditions

Culture plays a significant role in managerial styles and practices in every country and managers in developing countries need to understand how the cultural values of members of their societies will impact the strategies they select with respect to management of their firms. Cultural ­values influence the ways in which people see their relationships with one another (e.g., low or high power distance) and with larger environment in which they live and work (i.e., time and space orientation). Cultural values vary significantly around the world and it is dangerous for managers to rely on generalizations. Austin has suggested that in countries with the lowest levels of economic development one tends to find more rigid social structures, stronger religious influence, very distinct gender roles, and high diversity with respect to language.49 Austin also noted that while cultural values do change somewhat as economic development improves the rate of cultural change generally lags behind economic ­progress. While many suggest that certain cultural values are “better,” or more “progressive,” than others and urge societies to take steps to bring about cultural change in a certain direction, the more immediate challenge for managers is not necessarily changing the cultural values of their employees but understanding those values and the role that they play in transactions and communications in the workplace.

Management Processes in Developing Countries

Most of the popular models of managerial activities focus on certain key functions.50 In the early 2000s, Jones et al. referred to management as “the process of using an organization’s resources to achieve specific goals through the functions of planning, organizing, leading and controlling”51; however, long before that Henri Fayol pioneered the notion of “functions of management” in his 1916 book “Administration Industrielle et Generale” in which he identified and described five functions of managers—planning, organizing, commanding, coordinating, and controlling—that he believed were universal and required of all managers as they went about performing their day-to-day activities regardless of whether they were operating in the business environment or overseeing the activities of governmental, military, religious, or philanthropic organizations. In 1937, Gulick and Urwick added two additional items to Fayol’s original list: reporting and budgeting.52 Other management theorists working and writing during the 1950s and 1960s also embraced what has become known as the “process school of management” based on the notion that management should be viewed as a linear process that included an identifiable set of several interdependent functions. For example, Koontz et al. identified the following five activities as “major management functions”: planning, organizing, staffing, directing, and controlling.53

While the process school of management, and the accompanying similar lists of five to seven managerial functions, has remained a dominant analytical framework, others have criticized this approach. Perhaps the most well-known opposition came from Mintzberg and his suggestion of an alternative descriptive model of the 10 core “roles,” or organized sets of behaviors, that could be identified with a managerial position. Mintzberg divided these roles into three groups: interpersonal roles (i.e., figure-head, leader, and liaison offer), informational roles (i.e., monitors, disseminators, spokespeople) and decisional roles (i.e., entrepreneurs, disturbance handlers, resource allocators, and negotiators).54 Mintzberg’s work generated a fair amount of debate regarding the validity of the process school of management since it questioned the linearity of managerial activities and suggested that the manager’s life is more realistically viewed as a continuously changing set of roles that demanded different skills.

When studying management practices and styles in developing countries a threshold question is whether or not such a model of the management process, which was created by Western researchers working in largely developed and industrialized economies, is applicable and useful for understanding how managers operate in those countries. Punnett cautioned that the model had certain “Western biases” that must be accounted for when it is used for analysis of actions in developing countries. For example, she pointed out that “the process in the model is based on a sequential, logical, rational set of discrete activities” and also “assumes control over the environment so that making plans, designing structures, choosing people for specific jobs, and measuring outcomes are all reasonable activities.” While all of this is consistent with a Western view of the world, Punnett argued that non-Western developing countries “do not see the world in the same straight, sequenced pattern” and that the efficacy of the model in those countries may be undermined by different perspectives regarding time orientation and the role of fate and the degree of control that people actually have over their environment.55 To the extent that there is truth in Punnett’s words, which are supported by a good deal of empirical evidence on world views of managers and subordinates in many developing countries, it may well be that Mintzberg’s family of roles would be a better reference point for developing country managers looking to identify the skills they might need to carry out the full scope of their jobs.

Models of the management process in various countries must also take into account the impact of societal culture. This is true regardless of whether countries are developed and industrialized or developing. Generalizing about the profile of societal cultures for developing countries is difficult and problematic; however, it is probably fair to say that the cultural characteristics of many developing countries differ from those found in the United States and other industrialized Western countries and these differences will be reflected in how managers in developed countries approach activities such as planning, leading, and controlling. Punnett observed that “[d]eveloping countries have generally been found to be somewhat more collective than developed countries, somewhat more accepting of power differentials, somewhat more averse to uncertainty, and more fatalistic.” She also noted that in developing countries the “need for achievement” was generally lower and gender roles were more firmly delineated, a situation that often led to discrimination against women with respect to property rights (e.g., land ownership and inheritance rights), educational opportunities, and income.56

Punnett argued that the collection of societal culture characteristics described earlier tended to push managers in developing countries toward a “Theory X” management style that featured rigid hierarchies; direction from the top down, albeit with modest levels of input from subordinates and a touch of paternalism and parental benevolence; and tight controls and rare challenges to managerial instructions by subordinates. Punnett suggested that the cultural context in developing countries raised serious questions about how managers in those countries should approach the most commonly mentioned managerial functions and activities. For example, she questioned whether planning really necessary if events are predetermined, what good were organizational charts if power and responsibilities are based on personal influence and relationships, and were control systems irrelevant when subordinates are culturally conditioned to unquestionably act upon the instructions of their superiors?

In attempting to explain the foundation for the characteristics of societal culture in developing countries and attitudes in those countries toward various business-related activities, Punnett and others have emphasized the impact of the long periods of colonial occupation by European countries, many of which continue to play a strong role in the political and economic affairs of their former colonies even after independence. Punnett noted that the colonies were in subordinate positions in relation to their “colonial masters” from Europe and thus were dependent on ­European officials with respect to a wide array of decisions relating to politics, economic, and business. She suggested that this dependence has survived in the form of a lingering tendency among Africans to look to others for decisions and to unquestionably accept those decisions when they come from persons perceived to have legitimate authority in African culture. Remnants of the “top down” colonial authority structure, with little input from the local level, can also be found in the high power ­distance and tall organizational hierarchies that remain prevalent in post-independence African businesses. Another interesting observation is that the relative lack of marketing acumen among African businesses can be traced to the fact that colonies were generally exclusive producers for their overlords and thus there was no need to develop skills in business-­related functions outside of production.57

Many continue to believe that Western models of managerial functions and activities may not be totally applicable to developing countries and the study of managerial processes in developing countries must certainly take into account the unique challenges confronting managers in those countries. However, in spite of those limitations, the next sections discuss managerial processes in developing countries by reference to dimensions familiar to scholars from the West: planning, organizing, staffing, leading, and coordinating. Whether or not these dimensions are “universal” remains a matter for debate.58 Moreover, even if one can reasonably assume that managers in developing countries must devote some amount of their time and resources to planning, coordinating, and other activities listed earlier, they will necessarily bring a different perspective to due to factors such as societal culture, the level of training of their subordinates, their own prior exposure to managerial training and technology and, finally, the local institutional influences on business activities (i.e., national business systems). For example, Farashahi suggested that managers in developing countries have less sensitivity, or sometimes even no response, to competition and economic objectives given the reality that firms in developing countries remain so dependent on central governments that strictly control the allocation of resources and dictate plans to both public and private sector enterprises.59 Farashahi also suggested that managers in developing countries are very sensitive to social relations and political objectives, which may impact staffing policies and decisions, and that they are less used to making and implementing decisions.

Planning

Planning activities include identifying and working out the things that need to be done and the methods for doing them, in other words predetermining a “course of action,” to accomplish the goals and objectives that have been established for the firm. Budgeting, including fiscal planning and designing accounting controls, is an important part of the planning function.60 Punnett noted that the predominance of collectivist cultural values among developing countries makes it more likely that planning will be a group activity and that seeking and achieving a consensus among group members will be an important consideration in creating and implementing organizational plans. However, the desire for consensus must be considered in the context of an acceptance of power differentials, often referred to as “high power distance,” and this means that the planning process will likely begin with managers soliciting input from subordinates but will end with making the final decisions. Since aversion to risk and uncertainty is generally higher in developing countries subordinates will have a preference for decision making by their superiors since this reduces risk.61

Risk aversion is also likely to drive managers to proceed cautiously when making their decisions and support those decisions with detailed initial and contingency plans; however, when risk aversion is accompanied by fatalism, as is the case in certain developing countries, planning may be dismissed as unproductive given that societal values assume that events will occur based on some of external force that cannot be ­controlled by the members of the society. In fact, taken to the extreme, planning activities may be seen as a dangerous questioning of the will of a higher power and subject organizational leaders urging planning to criticism from their subordinates.62

Another potential impediment to certain types of planning is the society’s perspective on time, generally referred to as “time orientation,” since a large part of planning is time management (i.e., estimating the amount of time required to complete various tasks, identifying critical milestones or date when certain activities must be completed, allocating the time of the various persons involved in activities relating to a particular project, and tracking adherence to a schedule included in the plan). Many developing countries, particularly in Asia, have a relatively long-term time orientation and thus managers and employees in those countries may be less interested than their counterparts in a short-term oriented country such as the United States in slavishly following short-term plans. For example, Ayoun and Moreo found that compared to their short-term oriented American colleagues, Thai managers tended to have a long-term orientation that caused them to place a stronger emphasis on longer term strategic plans, a stronger tendency toward involving others when developing their business strategy, and a stronger reliance on long-term evaluation of strategy; however, the researchers concluded that there were no significant difference between US and Thai managers concerning openness to strategic change and commitment to strategic decisions.63

Organizing

Organizing activities include establishment of the formal structure of authority throughout the firm that determines how work subdivisions are arranged, defined, and coordinated to achieve defined goals and ­objectives. Put another way, when managers “organize” they are focusing on arranging the relationships among work units for accomplishment of the firm’s goals and objectives and granting responsibility and authority up and down the organization hierarchy to attain those goals and objectives.64 Punnett suggests that the combination of high power distance and collectivism generally found in developing countries dictates a hierarchical organizational structure with power residing at the top and work organized and carried out by groups or teams, rather than by individuals. In developing countries where fatalism is strong the model of strong directive leadership from the top of the hierarchy is a good fit since subordinates are likely to accept what happens “from above” without question.65

The higher levels of risk aversion and preference for certainty in developing countries would appear to provide fertile ground for the use of organizational charts and formal rules, policies, and procedures that reinforce the allocation of power within the hierarchical structure and provide those at the lower levels of the hierarchy with a clear and unambiguous of what is expected of them. However, the practicality of these measures might well be questioned in an environment in which personal influence and relationships, rather than formal titles, plays such an important role in making decisions, issuing directions, and allocating responsibilities. Similarly, when subordinates are culturally conditioned to receive instructions from their superiors and unquestioningly act upon those instructions the efficacy of implementing formal control systems to achieve results may also be challenged.66

Staffing

Staffing activities involve the entire personnel function of recruiting, selecting, and training the people needed for positions in the organizational structure and maintaining favorable work conditions.67 As noted in the discussion of organizing earlier, the preference for collectivism in developing countries means that groups and teams will be important and thus managers making staffing decisions will give particular weight to selecting and placing candidates based on their ability and willingness to work well with others. In many developing countries this leads to a strong reliance on specifically recruiting people with similar backgrounds, including family members, in a way that runs afoul of practices in the United States and other industrialized countries that emphasize diversity. In fact, “nepotism,” frowned upon in developed countries, is a common and accepted practice in many developing countries and one also sees a preference for persons with similar ethnic and/or religious characteristics. Consistent with the higher power distance found in developing countries the decisions of top managers regarding staffing are generally not challenged and managers will be expected to make decisions that reinforce their power and authority.68 Staffing practices in developing countries are also closely linked to issues surrounding age and gender, and many developing countries retain traditional values that afford great respect to age, seniority, and experience that comes into play when decisions are made regarding promotions and compensation. In addition, many developing countries are male-dominated, thus making it difficult for women to advance to positions of responsibility and/or acquire the education and training necessary to further their careers.

Leading

Leading, or directing, is a continuous task that requires making decisions and embodying them in specific and general orders and instructions, and also serving as the leader of the firm, business unit, or work group and creating an atmosphere that will assist and motivate people to achieve desired end results.69 In a cultural environment that is collectivist, risk averse, and high power distance, it can be expected that the predominant and expected leadership style will be, as described by Punnett, “paternal or benevolent autocracy.” Subordinates in developing countries with the aforementioned social culture profile prefer this style of leadership as providing security and generally place a substantial amount of trust in decisions made by their leaders. However, in developing countries where collectivism is particularly strong the ability of leaders to actively motivate subordinates may be less important given that subordinates are already conditioned to work hard for the group and group members will support and monitor one another without the need for large amounts of managerial intervention.70

Coordinating

Coordinating is the all-important duty of inter-relating the various parts of the work that is performed throughout the firm and includes establishing and administering systems for controlling, measuring, and evaluating performance of work activities against the planned goals and objectives. In order for coordination to be effective managers must be sure that they are kept informed about what is going through a reporting system that includes reports, records, research, and inspections.71 Controls are also an important element of the coordination function and Punnett observed that because developing countries tend to be more collectivist one is likely to find that “goals will be set for groups and teams, output will be measured at the group level [and] quality will be a group responsibility.” In addition, because developing countries generally have high power differentials, controls, rewards, and punishments will be set at the top of the organizational hierarchy and reinforced by rules, policies, and procedures from senior management. Subordinates will rarely challenge the controls that are imposed in this manner and, in fact, will often welcome them as providing security and clear direction.72

It should be noted, however, that while managers in developing countries are generally expected to implement and enforce controls as a legitimate exercise of their power and authority the impact and efficacy of formal controls may be less than anticipated in certain situations. For example, in many instances those in authority in developing countries will be allowed to make exceptions to rules, policies, and procedures. While subordinates in countries where fatalism will accept such exceptions as “actions from above” a continuous practice of ignoring controls, particularly when exceptions appear to favor those with special personal relationships to owners and senior managers, will ultimately undermine their effectiveness. The need for formal controls may also be challenged in contexts where subordinates accept and execute instructions from their superiors without question and/or peer pressure from direct work colleagues imposes sufficient discipline within the groups and teams that are so important in developing countries where collectivism dominates.73

There is a dearth of scientific and professional literature regarding the implementation and effectiveness of performance management techniques in developing countries; however, there appears to be growing interest in the topic.74 Research in Egypt indicates that performance management has yet to attract significant support and that Egyptian firms tend to rely on traditional financial measures such as return on investment and return on assets; however, firms in the manufacturing sector are experimenting with combining financial and nonfinancial measures of performance.75 Other developing countries, such as Zimbabwe, are being exposed to sophisticated performance management systems through the many transnational companies that have set up business in those ­countries.76 In countries such as Kenya, performance management is seen as increasingly important as local firms strive to qualify for ISO certification.77 Finally, while firms in Ethiopia have yet to wholeheartedly embrace suites of performance management techniques, managers are taking simple, preliminary steps such as scheduling and holding regular formal and information performance review meetings, using new technologies to communicate results throughout the organization and expanding performance management training.78 A major question yet to be answered, however, is the extent to which the sophisticated performance management systems have been developed for use in the West is suitable, in their present form, to deployment in developing countries.

Management Training in Developing Countries

Managers in all parts of the world, including developing countries, can be expected to be most effective when they possess certain fundamental skills—technical, human, conceptual, and design—that are necessary and appropriate for their particular managerial level and scope of responsibilities.79 It is reasonable and useful to think of managerial training in developing countries as having the important objective of building “management capacity” in those countries, both at the national level and within specific enterprises. A useful definition of management capacity has been provided by the European Commission, albeit in a different context: research and policy advice regarding support for the creation and growth of small- and medium-sized enterprises (“SMEs”) in the European Union. In a report on “management capacity building” the European Commission noted that “management capacity building has been understood broadly as encompassing all the means through which a start-up enterprise or an existing SME gathers and strengthens its knowledge and competencies in four main areas having an impact on a firm’s profitability: (1) strategic and management knowledge aspects (including human resource management, accounting, financing, marketing, strategy and organizational issues, such as production and information and technology aspects); (2) understanding the running of the business and of the potential opportunities or threats (including visions for further development of activities, current and prospective marketing aspects); (3) willingness to question and maybe review the established patterns (innovation, organizational aspects); and (4) attitudes toward investing time in management development or other needed competencies.”80 The report also identified three main categories of means that can be used to acquire the needed managerial skills, including training, advice from professionals and/or consultants, and “knowledge sharing” activities, such as networking and Internet research, aimed at finding out applicable information.81