The Epistemology of Business

17 June 2011

Friday


Globalism and Localism:

...the great Globe it selfe, Yea, all which it inherit...

Expertise and Epistemic Skill Sets


In my Political Economy of Globalization I introduced the idea of market diversity:

“As states identify themselves with the codifications of the restrictions of commerce (cf. Thesis 10), peoples identify themselves, if only in part, with their unique commercial culture, the production and sale of their local commodities, and their colorful markets which are as much centers of social life as of commerce. Thus, “…even the simplest economies do not exist solely to take care of biological needs, such as food, shelter, and clothing, but also to contribute to the satisfaction of social needs as determined by such considerations as kinship obligations, hospitality rules, or prestige requirements.” Such unique traditions of commercial culture we may call market diversity.”

The quote in the above was cited in a footnote:

Creighton Gable, Analysis of Prehistoric Economic Patterns, New York, et al.: Holt, Rinehart, and Winston, 1967, p. 1.

I expanded on market diversity in the following paragraph:

“Since markets are social phenomena, and a social milieu is precisely that which must be negotiated — if it is to be negotiated successfully — by tacit knowledge, it follows that local markets will always be dominated by local individuals, and foreign businesses that wish to penetrate the local market will always stand in need of local expertise to do so. Market diversity dictates that successful business enterprise must itself be diverse.”

There are further footnotes and internal references to other theses in the work, but I will leave these aside at present for simplicity’s sake. Later in the book (in theses 22, 57, and 70) I further develop the idea of market diversity. The exposition of thesis 70 offers the fullest exposition of the epistemic factors involved in market diversity, and this runs for many paragraphs, so I won’t quote the whole thing here. But in thesis 70 I introduced the idea of epistemic horizon, and its distinction into an internal epistemic horizon and an external epistemic horizon:

“The horizon defines an epistemic process in which the individual knower approaches the horizon of the knowable. Horizons change; they may contract or expand, and the total epistemic field is circumscribed differently accordingly as the horizons, internal and external, are drawn. The internal epistemic horizon embraces all that is definitely known, and which is gradually transformed into tacit knowledge. This is the deepening of explicit knowledge into second nature. The external epistemic horizon comprises all that which is coherently knowable by the knower, even if not yet known, in virtue of his or her epistēmē.”

Earlier, in thesis 46, I alluded to the idea of an epistemic horizon:

“…the gradual replacement of foreign by local contractors would achieve sustainable increases in efficiency through the steady integration of progressively more asymmetric knowledge derived from the epistemic horizon of local peoples.”

I hope that these quotes have adequately suggested the role that local knowledge plays in an economy. My book gives a fuller exposition, but the basic idea is that, when it comes to globalization, one size does not fit all. The hubris of some large business enterprises has been to assume that their business model will work in every environment, and to take that model whole and use it as a template when starting a local division. In some industries this works well, but in many industries it is counter-productive.

A particular business model is like a species, while a commercial milieu is like an ecosystem. Some species are equally successful in almost any ecosystem (these become invasive or weedy species), but most species have been shaped for millions of years by natural selection to be as close to optimal for a particular ecosystem as is possible. If we introduce a particular business model into an alien commercial environment, it might survive, and if it does survive it will eventually adapt to the local conditions. However, a local species is already adapted to local conditions. So too for local commercial conditions: a local business model is already adapted to these conditions. If you adapt this business model, you will hit the ground running. If you do not make use of local business knowledge, the time spent adapting to it will be time lost.

If a business insists upon the imposition of a cookie-cutter, one-size-fits-all business “solution” when entering a new market, then that business will be at an immediate disadvantage. Since it tends to be large business enterprises that enter new markets, however, these large enterprises bring with them large capital reserves, giving them a disproportionate advantage. But this disproportionate advantage is often merely frittered away by continuing adherence to a less-than-optimal business model.

I am not usually the kind of person to say “I told you so,” but I couldn’t help but notice an article in yesterday’s Financial Times, Working in East Asia: experience of the region becomes a vital asset by Natasha Stidder, in which the cultural differences between businesses in the west and those in east Asia are discussed.

Stidder writes in conclusion:

“The fact is that while skills might appear valuable, without experience in the region, companies are rarely prepared to make the first move.”

I find this formulation in terms of skills to be telling, especially in light of an earlier formulation in the same article:

“A saturated market also means companies no longer need to look outside their own region for talent. Mr Lynch admits external moves are rare, unless an applicant possesses a niche skill-set.”

This quote is interesting for its use of “niche,” which implies that there is already an understanding that a commercial climate is like an ecosystem, but also because it implies that there are such things as niche skill-sets. Local knowledge of business practices is just such a niche skill set, so that the immediately preceding quote appears to be using “skill” in a narrower sense.

Knowledge of cultural practices, of language, of intentions and expectations of human interaction within a given social milieu, and all the layers of subtle know-how that make it possible for an individual to act effectively in a given context constitutes an epistemic skill set. An epistemic skill set has great value, though that value often goes unrecognized, and is rarely fully exploited. If we look at the training and education of intelligence agents, for example, it is almost entirely a matter of acquiring an epistemic skill set. This epistemic skill set is necessary to operating within a given environment. This holds true whether those operations are spying or making money.

Regardless of the semantics of skills, people who know the local culture and know the local business climate are uniquely positioned to understand how to do business in that context. This is specialized knowledge. This is a skill set. In this article in the Financial Times we can see businesses beginning to come to an understanding of these factors, though it is evidently still seen through a glass, darkly. What is lacking here is a comprehensive theoretical context to understand such matters. This is precisely what I attempted to provide in my book.

People in business tend to be pragmatic to a fault, willing to take chances, willing to risk, and therefore willing to make mistakes and learn from these mistakes. This is a virtue, but a lot of the fumbling around that is interpreted as part of the inevitable learning curve is wasted effort. A little attempt at understanding what is going on before the fact, a minimal level of epistemic due diligence, would go a long way in minimizing the fumbling around and reducing the learning curve.

The entrepreneur or business enterprise that grasps this simple truth and acts upon it in a systematic fashion will enjoy a not inconsiderable competitive advantage.

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Grand Strategy Annex

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