Why American Firms Rule the World

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Why American Firms Rule the World

In a landmark study that was a decade in the making, researchers at Harvard Business School, the London School of Economics, McKinsey & Company, and Stanford University developed the first global database of management practices.

The group surveyed more than 10,000 firms in 20 countries about management practices. When doing so, they developed a tool to measure management practices in four broad categories:

  1. Operational management
  2. Monitoring
  3. Targets
  4. People management

The findings and conclusions of the aptly named World Management Survey1 were recently published.

Management Scores Across Countries

Management Scores Across Countries

Not surprisingly, the study reported that there are distinct differences among the management practices prevalent in firms in the world's many nations.2 Most notably, American firms outperform others in overall management, dominating the manufacturing, retail, and healthcare sectors. Not far behind the Americans are Japanese, German, and Swedish firms.

At the other end of the management spectrum are developing countries, such as Brazil, China, and India. Barely edging out these developing countries are firms in Southern European countries such as Portugal and Greece. Positioned in the middle of the spectrum are the UK, France, Italy, and Australia, which, according to the study have "reasonable but not brilliant management practices."

According to the study leaders, several key factors are responsible for the differences in levels of management effectiveness between countries.

  • First, the level of competition in product markets is a key differentiator. When competition is low, badly managed companies are allowed to survive. In countries with greater competition, the overall level of management is higher, because the badly managed firms are thinned out and the remaining companies are motivated to improve their practices.
  • Second, labor market regulations appear to affect the quality of management practices, since they constrain managers' abilities to hire, fire, pay, and promote employees. The World Management Survey study discovered that tougher labor market regulations resulted in lower management scores in this key management area of incentives...

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