I. INTRODUCTION
Global lawsFootnote 1 are an important inspiration for commercial law reforms around the world.Footnote 2 Rather than waiting decades to distil commercial law from internal practices, many developing countries borrow laws based on Western commercial regulatory models (global laws).Footnote 3 Comparative law offers various explanations for this phenomenon. At one end of a theoretical continuum, scholars such as Alan Watson claim that laws have decoupled from their social moorings and transplant readily from one country to another. At the other end of the continuum, Pierre Legrand insists that: ‘a crucial element of the ruleness of the rule—its meaning—does not survive the journey from one legal culture to another’.Footnote 4 Occupying intermediate positions along the continuum, other scholars argue that laws transplant but their meaning is reshaped by power relationships among lawmakers,Footnote 5 misunderstandings and deference to prestigious legal systems.Footnote 6
Comparative law scholarship emphasizes the capacity of regulatory élites, such as lawmakers, courts and lawyers, to adapt and localize global laws to domestic conditions.Footnote 7 What is often absent from this top-down analysis is a wide-ranging consideration of what the regulated think about global laws.Footnote 8 Few scholars have moved their focus beyond regulatory élites to analyse the interaction between global laws and non-State actors, such as business networks.Footnote 9 This article aims to redress this shortcoming in the comparative literature by drawing fresh perspectives from bottom-up responses to global laws. It takes from socio-legalFootnote 10 scholarship a framework for analysing the interface between thought formation and social action and explores the question—how do the regulated conceptualize and localize global laws? If compliance is socially constructed from below, as this literature suggests, then attempts to understand legal globalization by focusing exclusively on regulatory élites misses much of the localization story.
There is another reason for moving the analysis beyond regulatory élites. Much has been written about the rise of multilateral and regional treaty obligations and the erosion of national sovereignty and the Westphalian State.Footnote 11 Studies show how regulatory standards developed by transnational businesses and non-government organizations bypass regulatory élites, and interact directly with non-State actors.Footnote 12 The knowledge transferred through supply chains and other transnational production regimes shapes how local businesses conceptualize and comply with law.Footnote 13 This article explores the comparatively under-researched transnational knowledge flows into East Asia—the region with the world's greatest concentration of transnational production regimes.Footnote 14 It advances the comparative literature by showing how transnational knowledge flows shape compliance options in this region.
Over the last two decades, international organizations, such as the World Trade Organization and World Bank, have joined with bilateral and regional development agencies, including the Association of Southeast Asian NationsFootnote 15 and the Southern African Development CommunityFootnote 16 to promote the global diffusion of competition law.Footnote 17 Measured in terms of formal legal convergence,Footnote 18 these projects have been highly successful. Twenty years ago only 30 countries had enacted competition laws; currently 111 countries regulate monopolies and cartels.Footnote 19
International development agencies supported the enactment of competition law regimes in the fast-growing economies in socialist Asia.Footnote 20 Vietnam enacted a competition law in 2004 and China followed by enacting an anti-monopoly law in 2007.Footnote 21 The key provisions of the Vietnamese Competition Law, which prohibit anti-competitive behaviour, abuse of market dominance and other monopolistic activities, were loosely modelled on the European Union Competition Law.Footnote 22 A survey conducted by the Vietnam Competition Administration Department (VCAD)Footnote 23 found that over 80 per cent of respondents, selected from a wide sample of businesses, understood the core principles in the law. Most respondents acknowledged the regulator's willingness to enforce the Competition Law,Footnote 24 but nevertheless concluded that the risk of detection and punishment for non-compliance remained low. Significantly for this article, although the perception of risk was uniformly low across the sample, different types of firms responded to the Competition Law in different ways. Large State-owned and small private businesses were the least likely to comply with it, whereas large private firms, especially those engaged in international trade, were the most compliant.
This finding is intriguing. If deterrence and legal education play a marginal role in compliance, what then accounts for the different responses to the Competition Law? This article takes up this inquiry by empirically examining whether transnational knowledge flows influence how Vietnamese firms interpret and comply with the Competition Law. The question here is not what motivates compliance, but rather what are the possible range of responses given the systems of meanings, values and norms that inform Vietnamese firms? This more subtle investigation probes the subdivision of knowledge and interpretive practices that fragment the interpretation of global laws in developing markets. It asks how access to global knowledge through transnational trading links might encourage compliance with the Competition Law. It also poses the broader question—what are the prospects for the global harmonization of competition law if compliance is fragmented within developing countries?
This article is arranged as follows. Part II turns to socio-legal theory for a theoretical framework to analyze how domestic firms interpret and respond to global laws. It adds to the macro-comparative law theories about legal transplantation a micro-level analysis that shows how individual firms localized global law. Part III offers an overview of competition regulation in Vietnam. In Part IV, the article first outlines the data and methods used to compile longitudinal case studies about three different types of business networks. It then draws on empirical research to explain why the business networks responded differently to the Competition Law. Applying the analytical framework, Part V demonstrates how the diffusion of knowledge through transnational trading networks transformed the way globally connected business networks interpreted and responded to the Competition Law. The Conclusion argues that compliance with global laws not only requires exposure to new transactional knowledge, it also entails an epistemological transformation that changes regulatory preferences. In Vietnam's emerging markets, only globally connected firms changed their epistemological frameworks and embraced global laws. These findings extend comparative law by explaining why transnational knowledge flows shape domestic responses to global laws; and why the formal adoption of competition law in developing markets does not necessarily signify functional convergence. They also shed light on the factors constraining the diffusion of Western commercial laws into developing markets.
II. BUSINESS NETWORKS AND THE INTERPRETATION OF GLOBAL LAWS
A. Disembedded versus Embedded Theories of Legal Interpretation
A key question in developing a bottom-up understanding of legal transplantation is determining why domestic businesses might comply (or not comply) with global laws. There is a clear theoretical division in comparative law and socio-legal theory between disembedded and embedded understandings of legal compliance. Friedrich HayekFootnote 25 influentially argued that entrepreneurs are disembedded from their social moorings. He insisted that entrepreneurs everywhere use similar cost–benefit calculations to decide whether to comply or not comply with law.Footnote 26
Some comparative theorists have enthusiastically embraced Hayek's disembedded understanding of legal compliance.Footnote 27 They link Hayek's ideas to the legal positivist notion that global laws are exogenous to domestic firms—‘a thing out there’—that are capable of conveying encoded meanings across geopolitical and cultural boundaries. According to this top-down view, global laws are a transparent means of communication and will only occasionally fail to convey the necessary information to domestic firms. To improve compliance with imported global laws, domestic regulators are encouraged to target the rational choices firms make in deciding whether to obey law.Footnote 28 Underlying this approach to legal transplants is the assumption that carefully targeted deterrents and legal education campaigns can influence the strategic rational choices made by domestic firms.Footnote 29
Three implications follow from this approach. One, local business cultures do not and should not influence how domestic firms comply with global laws. Two, the supply of global laws, coupled with deterrence strategies and education campaigns that target strategic rational choices will change domestic business practices.Footnote 30 Three, international development agencies and national regulators do not need to investigate and understand how domestic firms interpret global laws.
Challenging these assumptions, theorists from comparative lawFootnote 31 and socio-legalFootnote 32 backgrounds argue that the meaning ascribed to transnational knowledge transfers (such as global laws) is socially embedded. Comparative lawyers have long known that global laws are filtered through local misunderstandings, prior familiarities and cultural affinities.Footnote 33 They have also demonstrated that the social demand for global laws is linked to developmental stages in domestic political economies.Footnote 34 Socio-legal theorists advance comparative studies by providing a framework for analysing the uneven patterns of legal compliance observed in developing countries.Footnote 35 A unifying thread in this scholarship is that people construct the meaning of laws and regulatory systems according to the knowledge systems in which they are embedded.Footnote 36 It extends the analytical frame beyond regulatory élites to explore the multiplicity of bottom-up perspectives involved in localizing global laws.
A central claim in this article is that fragmented patterns of legal compliance reflect variations in the knowledge systems within countries.Footnote 37 Peter Berger and Thomas Luckman observed that different educational, market, legal and social experiences generate variations in the distribution of knowledge between and within societies.Footnote 38 Fragmentation of knowledge is especially pronounced in rapidly transforming societies that lack uniform markets.Footnote 39 Variations in the distribution of knowledge produce different social subsystems (or epistemic communities) that make sense of the world (and global laws) from different cognitive perspectives.Footnote 40 This can lead to legal pluralism where State and non-State legal systems conceptualize business regulation in fundamentally different ways.Footnote 41 To understand the variegated compliance patterns observed in developing countries it is necessary to compare how different social subsystems conceptualize and prioritize competing global and domestic regulatory systems.
B. Legitimacy Expectations and Compliance with Global Laws
Legitimacy theory offers a promising way of ascertaining how social subsystems, such as business networks, form regulatory preferences.Footnote 42 For Mark Suchman,Footnote 43 ‘[l]egitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions’. Used in this way, legitimacy functions like a type of social consensus that determines how global and local regulation is evaluated and prioritized. Theorists have identified three core aspects of legitimacy that shape regulatory preferences and the conceptualization of compliance.Footnote 44
1. Pragmatic legitimacy
Actors confer pragmatic legitimacy on regulators and regulatory regimes that convey material benefit. This form of legitimacy draws on the previously considered Hayekian cost–benefit calculations. For example, firms may choose to follow global laws that are considered more efficient than domestic modes of regulation.
2. Normative legitimacy
A broad range of theorists insist, however, that what constitutes a material benefit is conceptualized through understandings about ‘what is right, separately from judgments about what is personally beneficial’.Footnote 45 Notions of right and wrong are, in turn, assessed by reference to a deeper moral base—to normative legitimacy.Footnote 46 For example, firms might form different moral judgments about the fairness of global laws when applying self-regulatory notions of distributive justice, as opposed to State-based notions of procedural and substantive justice.Footnote 47
3. Cognitive legitimacy
What constitutes the collective good is also shaped by cognitive legitimacy. Cognitive legitimacy is often tacit and taken for granted and is consequently closely associated with identity.Footnote 48 As Victor NeeFootnote 49 observed in relation to firms in China, ‘[i]f the formal rules are aligned against the identity and perceived interests of members of close-knit groups, oppositional norms are likely to emerge to counter the formal rules’. When ‘people take on the same identity, experience the same reality, and observe one another's parallel emotions and collateral behaviour, a sense of common destiny and empathic connection arises’.Footnote 50 Collective identities serve as an organizational force that drives actors with common interests, experiences, ideas and emotional connections to create boundaries that exclude others. It compels group members to reject, ignore or reinterpret laws and regulations that challenge their core precepts and habits.Footnote 51 The thrust of this research is that collective identities shape how closely knit business networks conceptualize and respond to global and local regulatory regimes.
The legitimacy framework advances this discussion in three ways. One, it provides a nuanced method of comparing how business networks evaluate and prioritize global and local modes of regulation. Two, it offers a dynamic analytical model that overcomes the tendency in culture-based comparative analysis to assume static and immutable approaches to law.Footnote 52 Three, it provides insights into why transnational knowledge flows change regulatory preferences in domestic firms. Before examining at close range the three case studies, it is instructive to set the scene by briefly describing the competition regime in Vietnam.
III. COMPETITION REGULATION IN VIETNAM
A. Developing a Competition Regime
As in China, the transformation from socialism to a mixed market economy in Vietnam did not result in political collapse.Footnote 53 The Communist Party of Vietnam survived đối mỗi (renewal) reforms during the 1980s and continues to play a leading role in setting and implementing economic policy. Party leaders incrementally dismantled most components of command planning and, by the early 1990s, market signals structured the supply and price of most goods and services.Footnote 54 A gradual relaxation of State monopolies, accompanied by the decriminalization of private commerce in 1988, encouraged a rapid increase in the number of foreign and domestic firms entering previously protected economic sectors, such as service industries, construction and manufacturing.Footnote 55
Following China's lead, Vietnam ignored advice from the World Bank to rapidly privatize State firms.Footnote 56 Instead, the party encouraged large State-owned and State-controlled firms to dominate the ‘commanding heights’ of the economy in key sectors such as telecommunications and electricity generation. In both countries, party, State and corporate managers worked as partners in a network of relationships that aimed to mobilize ‘soft social resources’ such as knowledge, social capital and research and development to upgrade innovative capacities.Footnote 57 Despite the enactment of commercial law reforms that recognize private property, contractual rights and market competition, commentators have observed ‘the party-state's limited willingness to permit law to function as a framework to facilitate private transactions’.Footnote 58
Given the party-State's ambivalence towards market competition, the selective enforcement of the Competition Law in Vietnam is unsurprising. The VCAD investigated a total of 50 cases of anti-competitive practices between 2006 and 2013.Footnote 59 Although a few prosecutions have forced powerful State-owned enterprises, such as Vinapco, a subsidiary of Vietnam Airways, to curb market abuses, many other cases have been resolved through political intervention or quietly dropped.Footnote 60
B. Variegated Patterns of Compliance
Interviews with VCAD officialsFootnote 61 revealed that firms in Vietnam responded differently to the Competition Law depending on the market network within which they operated. The market networks are distinguished by a range of factors, such ownership structures, relational connections to the party-State, educational backgrounds of key personal and exposure to international markets.Footnote 62 These factors, it is argued, have produced different knowledge frameworks and responses to the Competition Law. Similar types of market networks have also been observed in China.Footnote 63
There are three main market networks in Vietnam. The first is State-owned or State-controlled firms that form cadre capitalist networks (CCNs). They draw on close connections with the party-State to control key economic sectors.Footnote 64 Collectively, they account for approximately 40 per cent of non-farm production (NFP).Footnote 65 According to VCAD officials, firms in these networks believe that the Competition Law does not apply to them.
The second distinct network is comprised of large private firms, both foreign and domestically owned.Footnote 66 Firms operating in large enterprise networks (LENs) are comparatively independent of party and State connections and consequently operate at the periphery of CCNs. They are often linked to transnational corporations through production chains,Footnote 67 which make them more receptive to global regulatory ideas than CCNs. Firms in this network generate about 30 per cent of NFP.Footnote 68 VCAD officials believed that firms in this network were the most likely to comply with the Competition Law.
The third network is made up of small and medium enterprises. Firms operating in small and medium enterprise networks (SMENs) are privately owned, rarely interact with CCNs, but sometimes transact with LENs. Research suggests that SMENs minimize contact with State agencies, preferring instead to form defensive and secretive business networks.Footnote 69 Conservatively, they contribute 30 per cent to NFP.Footnote 70 VCAD officials thought that members of these networks were the least likely to comply with the Competition Law.
The following sections discuss and analyse case studies selected from each of the three business networks.
IV. BUSINESS NETWORK CASE STUDIES
A. Data and Methods
David EngelFootnote 71 recently distinguished two types of research about the globalization of law. Most comparative law studies involve vertical research that examines how concepts and practices that developed in the industrialized North, such as competition law, are adopted by regulatory élites in the developing South.Footnote 72 He contrasts vertical research with horizontal research that examines how global legal ideas ‘actually manifest’ in everyday interactions within a social arena. EngelFootnote 73 observes that ‘scholars who conduct horizontal research tend to focus primarily on the shared interpretive practices of ordinary people and systems of meaning that are familiar to them—within villages, neighborhoods, business networks, trade associations, schools or other “social fields”’. This study adopts the underused horizontal approach, which promises micro-level insights into how domestic firms localize global laws.
The three case studies in this article form part of a longitudinal investigation into Vietnamese business networks. Over a nine-year period, from 2005 to 2013, the author conducted more than 400 in-depth interviews with the managers and/or owners of firms (and their legal advisors) operating in seven industries (copper wire, battery and sunglasses trading, footwear, furniture and computer manufacturing and building construction). Three Hanoi-based law firms assisted in arranging and conducting the interviews.Footnote 74
An initial group of 15 firms were selected from approximately 30 firms put forward by the collaborating law firms. The sampling strategy aimed for interlocutors who were prepared to discuss their anti-competitive practices. It also selected firm managers/owners with knowledge about the Competition Law and who were likely to have formed some view about compliance with the competition regime. After several years, some interlocutors lost interest in the project, leaving seven firms that participated over the life of the project.
Semi-structured interviews allowed the respondents freedom to reflect about the perceived risk of non-compliance with the Competition Law and to compare the legitimacy of their self-regulatory practices with the legitimacy of the competition regime. The interviews began with standard questions designed to facilitate comparison within and across case studies. Subsequent interviews were open-ended and encouraged reflection about the risk of non-compliance, as well as attitudes towards internal and external modes of regulation.
It took multiple interviews over nine years to gain insights into the evolution of compliance. Over time, it was possible to unravel the norms and epistemic assumptions ordering the firms’ responses to the Competition Law from the layers of sentimental and pragmatic discourse. To delve deeper and identify subtle shifts in the storylines, at least five managers/owners were interviewed from each firm. Findings from these interviews were then triangulated against interviews with VCAD officials, lawyersFootnote 75 and other entrepreneurs operating in similar business networks.
B. Cadre Capitalist Networks (CCNs): The Construction Industry Case Study
Following the dismantling of command planning in the late 1980s, the central government used tendering regulations to open State-funded construction projects to market forces.Footnote 76 In 2004, the Competition Law strengthened this regulatory policy by prohibiting State-owned construction companies from using their market dominance to gain a competitive advantage.Footnote 77
This case study explores how the senior managers of State-owned and controlled construction firms in Nam Định Province in northern Vietnam responded to the Competition Law.Footnote 78 Interviews with the senior managers revealed a bifurcated regulatory landscape. Business networks, called thau con xây dựng (construction groups), routinely circumvented market-based tendering and competition laws. The groups were typically comprised of several large State-owned or controlled construction companies supported by smaller private companies that were closely associated with the lead companies.
Leaders of the construction groups, which included the senior managers as well as senior provincial party and government officials, shared similar backgrounds. The senior managers spent their formative years during the 1970s and 1980s working together in the government or in State-owned enterprises (SOEs). Most were native to Nam Định Province, where they had spent their adult working lives. It emerged during the interviews that socialist regulatory traditions, especially quận lý kinh tệ nhà nước (State economic management) learnt during this period, remained influential two decades after đối mỗi market reforms began.Footnote 79
The senior managers met and socialized regularly with provincial and government officials to discuss construction planning and the allocation of tenders. Building on these close personal connections, they formed interlocking ownership and profit-and-loss-sharing arrangements. As one manager explained:
Even after có phần hoa [privatization] the government is still involved in making high-level appointments in the firm and the construction department is still the firm's controlling body. But in reality we have known each other for such a long time we are like brothers and I don't have a cấp trên (higher level) that I report to. The firm consults (xin ý kiến) about large construction tenders but when we meet we mix talk about business with talk about our families and other things that have nothing to do with business.
To avoid the appearance of collusion and prevent central government intervention, another manager admitted that: ‘construction groups are divided into different groups called “green and red armies” (quan xanh, quan do) that bid alternately for tenders. Members of the construction groups buy bidding dossiers (họ số mỗi thấu) and then distribute the work among themselves.’
As these interviews suggest, party and State officials did not dictate from above, but rather negotiated socio-economic objectives with the senior managers. The outcomes hinged on the bargaining power of the parties—a dynamic that shifted over time.Footnote 80 In return for regulatory protection and access to State resources, the provincial leaders expected the construction firms to stabilize markets, invest in key government projects and reinvest profits to innovate and upgrade technological competencies.
Senior managers did not acknowledge any contradiction between circumventing the Competition Law and maintaining their positions as party and State officials. They interpreted the Competition Law as a type of ‘state economic management’—a method of coordinating the economy. As one manager put it: ‘[i]f the higher level does not like our mở hình kinh doanh (business model) they can call a meeting and explain their position and we will listen’. In other words, legal compliance was negotiable.
The senior managers also questioned the moral legitimacy of the competition regime. They depicted market-based tendering principles as laws made by foreign governments for foreign investors.Footnote 81 For the managers, imported commercial laws lack legitimacy because they were incompatible with domestic regulatory practices. They argued that the Competition Law would undermine building standards, because only the construction groups possessed the technical knowledge required for large-scale construction projects.
Initially, these moral objections seemed contrived to legitimize the managers’ collaborative networks; however, over successive interviews another explanation emerged. During their formative years working in the command economy, senior party and State officials were accountable for administering socialist property. Rather than receiving high salaries as compensation for their added responsibilities, they benefited in a myriad of ways from socialist property. For instance, they lived in superior housing and received preferential access to travel, education and consumer products.Footnote 82 One manager recalled that ‘[a]fter đối mỗi we still felt a moral (hợp với luận lý)Footnote 83 obligation to preserve socialist property. The law said that socialist property belonged to the people, but we managed the property and we were entitled to benefit.’
Scott CheshierFootnote 84 observed instinctive feelings of entitlement to socialist property among the managerial élite in other State-owned industries in Vietnam. He argues that this group constitutes a ‘New Class’ of élite who derive their status and power from cadre capitalist business networks. As members of this New Class, the senior managers owed their allegiance to, and identified closely with, senior party and State officials at the provincial level. Their loyalties did not extend to the central level regulators, such as VCAD, who are responsible for enforcing the competition regime. Above all else, they exhibited an overriding sense of entitlement to State property and treated central-level tendering and competition laws with disdain.
C. Large Enterprise Networks (LENs): Computer Manufacturing Case Study
Contrasting with the previous study, the entrepreneurs in this network formed complex and contradictory attitudes about the Competition Law.Footnote 85 Four employees of FPT, a privatized firm that controls Vietnam's largest computer and software conglomerate, decided to establish their own separate firms. In 2000, they began assembling and selling personal computers in the northern Vietnamese market. They soon realized that individually they could not compete with FPT and the other large State-owned computer wholesalers that dominated this market.Footnote 86 In 2001, the four computer manufacturers (the manufacturers) combined their 400 employees into a computer network that bulk-purchased components and jointly assembled personal computers.
With the high end of the computer market monopolized by State firms linked to CCNs, the manufacturers aimed their products at small private retailers occupying the less profitable budget end of the market. To succeed in this intensely competitive market, they unlawfully appropriated the Dell brand name and imported components from Malaysia, Singapore and Taiwan without paying the full customs tariffs. In addition, the group maintained price and distribution agreements that contravened the Competition Law.
During initial interviews the manufacturers appeared to support the Competition Law as a means of prying open the profitable economic space controlled by the State firms dominating the CCNs. After numerous interviews, a more complex and mutable understanding of the Competition Law began to emerge. The manufacturers were clearly drawn to ‘rule of law’ imagery and rigorously enforced competition laws. They did not belong to the party and were cynical about the grandiose nation-building rhetoric emanating from the New Class. Like other Vietnamese born in the late 1970s,Footnote 87 their world view was informed by the post-đối mỗi mixed market economy, and they preferred the private economy to proactive State management. Reinforcing these attitudes, the manufacturers were university educated, well-travelled and admired the orderly world that law-based markets seemed to offer in Singapore, Malaysia and Japan.
At the same time, the manufacturers were concerned that the ‘rule of law’ ideal did not resemble the world in which they lived. As one manufacturer explained:
We tried to recover debts over USD1,000 in the district courts. We knew that law was weak in our country but did not expect judges to turn night into day. Even after making khoản thiên chỉ (goodwill payments) the judges let money decide the cases except where one party could apply pressure through cấp trên (higher levels).
Faced with corrupt State institutions, the manufacturers concluded that their long-term survival lay in tightly knit business networks. Joining CCNs to gain access to State tenders seemed a less risky strategy than trusting the State to enforce the Competition Law against the party élite.
The manufacturers met regularly to share market information and discuss production, distribution and the creditworthiness of customers. As the network developed, business relationships became intertwined with tình cảm (sentiment). They socialized frequently at weddings, funerals and other family gatherings and actively cultivated family-like relationships. For example, the manufacturers began referring to each other as anh em (an affectionate term for brother) and brought their families together by sending their children to the same schools and holidaying together. To build group solidarity, the manufacturers repeated the proverb ‘the family is above all else’ (giá định là trên hết) and other aphorisms to show that their management structure rested on trustworthy familial foundations. In effect, they constructed a business network that mimicked key features of CCNs.
Beginning around 2008, the manufacturers began to tell dual narratives: one about their domestic lives and the other about their transnational business personas. They downplayed the importance of relational networks (mang lưỡi) and instead began depicting themselves as professional managers. This shift coincided with deepening ties with offshore component suppliers and with expatriate market professionals, such as lawyers, accountants, financiers and the foreign business community in Hanoi. For example, the manufacturers joined sporting clubs frequented by expatriates, sent their children to international schools, and began holidaying overseas with their international business partners.
Especially in their dealings with foreigners, they shed the self-conscious sentimentality associated with domestic business networks. They also distanced themselves from the ‘backward’ working practices and traditional lifestyle associated with domestic Vietnamese firms. This shift in thinking accompanied their increasing knowledge about global business practices. During the initial interviews, the manufacturers communicated mostly in Vietnamese, using a few English phrases. Basic business concepts, such as financial charges on property rights, letters of credit and share prospectuses, required explanation. By 2012, the interviews were conducted entirely in English and the manufacturers demonstrated a sophisticated understanding about global business practices.
Asked to reflect on these changes in 2013, one manufacturer replied: ‘[we] don't understand how it happened, but over time we changed how we thought about ourselves and how we should deal with other businesses’. Their new identity as cosmopolitan professional managers not only shaped who they were, but also how they should regulate their business. For example, they began talking about kinh doanh một cách chính xác (doing business correctly) and consulted law and accountancy firms for advice about ‘legalizing’ (làm cho hợp lệ) their internal management structures in preparation for listing on the Hanoi stock market. They were also less ambivalent about the role of the Competition Law in dismantling market cartels and began to curb their own anti-competitive behaviour.
The computer manufacturers attempted to straddle two contradictory worlds. They wanted to inhabit a law-based world with a robust competition regime, but also sought the security and prestige associated with the CCNs. To function in the hyper-competitive computer market, the manufacturers oscillated between two identities. They used relational connections to manage the computer network and secure domestic contracts, while acting out the role of cosmopolitan business people in their dealings with foreign businesses and market professionals. In this guise, they looked to the competition regime to dismantle the CCN's monopoly over the profitable end of the computer market.
D. Small and Medium Enterprise Networks (SEMs): The Battery Trading Case Study
In 1997, a respected automotive battery shop owner contacted 25 other battery traders in the Hanoi area to establish the Northern Areas Battery Shops Group (Hiệp Hỏi Các Của Hàng Acquy Khu Vực Phía Bác).Footnote 88 Over the intervening years the shop owners forged a remarkably cohesive group. Through a combination of predatory pricing and supply restrictions—practices that violate the Competition Law—the group dominated the northern market.
Group members told each other storylines to explain their success in bringing order to the chaotic battery market. As one member observed:
In the market-oriented economy today, enterprises compete harshly, and ethical principles seem to be ignored. We have established this group to preserve people's sentimental and ethical principles. This group also wants to help all members to survive and develop in the face of competition.
Members believed that markets were tainted by pathologies that developed during the command economy. They were sceptical about the capacity of the Competition Law to bring order to the battery market and instead placed their faith in the group's ability to maintain stable trading conditions.
Further reinforcing their misgivings about the Competition Law, the members believed that State officials used competition regulation to promote rent seeking. As one member explained: ‘“black holes” in regulations should have warnings saying do not enter. We are kept uncertain so that officials maintain a hold [over us]. We are not forced to meet them, but we do so in order not to offend them so that they do not find a problem.’ Further questions revealed that the Market Management Control Authority, the local-level regulatory agency, used vague regulatory standards such as thì trường lãnh mạnh (healthy markets) to micro-manage the battery traders and extract bribes. This negative interaction with officials profoundly influenced the way the members evaluated the Competition Law.
A striking feature about this group was their strong sense of identity. Members worked hard to develop interpersonal relationships. They met frequently at social engagements such as dinners, karaoke nights and weddings, using the occasions to generate tình cảm (sentiment). Living significant parts of their lives together, group members influenced each other to act for collective interests. Although sometimes pursuing their own economic objectives, in general they worked towards common goals. Members repeated ‘creation myths’ to explain and justify why they collaborated. While differing in some details, the stories stressed the need to manage the market and depicted outsiders as ruthless, irrational and fraudulent. Over time, particular storylines about the nature of business problems and the correct regulatory solutions gathered authority.
To illustrate the process, a member with legal training proposed a written code of conduct to formalize the cartel that controlled the supply and distribution of batteries in the northern market. Other members indignantly rejected this move towards formality. Recalling this event, one member asserted that ‘[t]he group has been a success [in managing the market] because of our tu hieu (self-awareness) and a code of conduct will remind us that we cannot trust each other after all’. Tu hieu is a neo-Confucian term that literally refers to self-awareness and self-perfection. The member invoked the term as a reproach, because self-aware people are supposed to be in psychological sync with each other and do not need to codify their relationships.
Over the course of the interviews, members often used neo-Confucian imagery and concepts to describe their self-regulatory environment. For example, they referred to each other as quận từ (literally gentlemen, but meaning trustworthy or honourable people). This is a modern reinterpretation of a traditional identity—in the past, Confucian gentlemen would never have demeaned themselves by engaging in commerce. Other neo-Confucian concepts such as trung thành (loyalty), tình cảm (sentiment towards others) and tin (trust) were also regularly deployed.
During the initial interviews, the members stressed the need to form a group to manage the battery market. On reflection during later interviews, members conceded they were also searching for a quê hương (a homeland). As they explained, most members worked for State-owned firms or cooperatives before becoming battery traders. When the State closed underperforming enterprises in the mid-1990s, members lost their jobs and sought new commercial opportunities in the emerging private economy. This transition proved more traumatic than expected, because they not only lost income, but also the security, status and identity provided by State employment. During the 1990s, private traders were still widely regarded by the public as untrustworthy and immoral.
To find a new quê hương, the members created their own community. Members depicted themselves as neo-Confucian gentlemen to distinguish themselves from, and elevate themselves above malfeasant State officials and amoral market actors. Consistent with this collective identity, they vehemently denied that the group was primarily profit-oriented, claiming instead that the group had evolved beyond its mercantile roots.Footnote 89 From this high moral ground the Competition Law appeared alien, imposed and illegitimate.
V. REINTERPRETING THE COMPETITION LAW FROM THE BOTTOM-UP
The case studies reveal how the three business networks interacted with the Competition Law in different ways. They also demonstrate how transnational regulatory knowledge, which bypassed regulatory élites, shaped domestic responses to global laws. Network members did not just collaborate in the world of business, they also synchronized with each other psychologically—forming similar normative and cognitive views. They repeated creation myths and storylines that distilled and simplified the complex ideas about competition regulation that circulated within their networks. These exchanges clustered knowledge in ways that made particular responses to market competition appear coherent and amenable to network members. Ultimately, the networks functioned like epistemic communities in shaping how the members formulated responses to global laws.
A. Legitimacy Expectations and Compliance with Global Laws
A core question posed by the case studies that directly concerns comparative law is why did the business networks respond differently to the Competition Law? The findings suggest that the cost–benefit calculations underpinning pragmatic legitimacy shaped regulatory preferences. Business networks cannot defy economic gravity, and bestowed pragmatic legitimacy upon regulatory practices that facilitated profit making. In a core finding that challenges disembedded understandings of legal compliance, business networks conceptualized cost–benefit calculations within a broader normative and cognitive framework. Pragmatic legitimacy was ‘socially embedded’ and did not function in isolation from the other forms of legitimacy.Footnote 90 The clear implication for comparative law is that business networks draw on more than notions of profit and efficiency when responding to global laws.
The case studies provide ample evidence that the pragmatic, moral and cognitive legitimacy expectations shaping responses to global laws are interwoven. In some circumstances, normative expectations legitimized pragmatic expectations. The construction managers, for example, justified their monopolization of construction tenders by claiming that only the construction groups were capable of satisfactorily completing government construction projects. In their view, the competition regime lacked legitimacy because it threatened to disrupt public works construction. Private sector participation in government tenders would, they argued, reduce the capacity of the State to monitor construction standards, thereby jeopardizing infrastructure development. They used party-State development norms to legitimize the profits derived from market monopolization and delegitimize the Competition Law.
In other situations, normative and cognitive legitimacy expectations moderated the construction managers’ pursuit of personal gain. As members of the New Class, they were expected to subordinate personal gain to party socio-economic policies. For example, they were required to stabilize employment levels, comply with building standards and reinvest profits in competitive technologies—objectives that reduced the funds available for private distribution.
The battery traders also employed normative expectations to legitimize profits derived from a trading cartel. They considered self-regulated markets not only profitable, but in addition morally superior to unfettered competition. This reasoning subordinated the legal legitimacy of the CL to the moral legitimacy of the self-regulated market.
Normative and cognitive legitimacy expectations also changed how the computer manufacturers conceptualized material gain, market competition and the legitimacy of the Competition Law. Although the manufacturers’ material objectives remained constant—gaining access to the high end of the computer market—their strategy for pursuing this end changed. Without entirely abandoning their desire to join the CCNs, they gradually came to see compliance with the Competition Law as a means of opening the markets monopolized by CCNs.
The studies show that businesses do not make simple choices whether to receive or reject global laws. Rather their responses are guided by a legitimacy hierarchy in which pragmatic legitimacy is mediated by normative and cognitive expectations. This insight moves the discussion beyond the vague metaphors such as ‘assimilation’, ‘domestication’, ‘borrowing’ and ‘irritation’ used in comparative law to differentiate responses to global laws.Footnote 91 The legitimacy framework also shows why it is important to observe a multiplicity of perspectives when investigating the localization of global laws. Especially in rapidly transforming markets, the legitimation of global laws by the members of one business network may not necessarily correspond to an outsider's account of the same law.
This leaves the question—what factors might influence businesses to change their regulatory preferences and support global laws? If, as the analysis so far seems to suggest, businesses struggle to look beyond the epistemological assumptions in which they are embedded, then how do they change their regulatory preferences? One answer is found in the boundary narratives that define business identities.
B. Boundary Narratives and Legitimacy Expectations
It turns out that the boundary narratives—stories network members used to differentiate themselves from outsidersFootnote 92—are not just descriptions of fact. Boundary narratives in addition influence legitimacy expectations in two key ways: first, they determine whether regulatory practices are considered inside or outside networks; and second, the strength of the boundary narratives determines whether or not networks are cognitively open to global laws.
First, the construction managers created boundary narratives that identified strongly with provincial élites and the central party leaders who championed the New Class. The narratives, however, depicted central-level technocrats, such as the VCAD, as outsiders, by associating them with the international development agencies advocating market regulation. By distinguishing insiders from outsiders, the boundary narratives legitimized the relational governance promoted by the New Class, and delegitimized the Competition Law and other laws that promoted market competition.
Like the construction managers, the battery traders used clear boundary narratives to determine who was inside and outside of the group. To distinguish themselves from venal officials and predatory traders, the battery traders portrayed themselves as moral agents bringing order to the market. Their boundary narratives delegitimized the Competition Law by associating it with the immoral agents operating outside the group.
The computer manufacturers were the only group that changed their boundary narratives. Initially, they closely identified with each other and sought to morally differentiate themselves from competitors. Then, over time, their boundaries narratives expanded to reflect a growing identification with transnational business managers and market professionals. As their narratives changed, the manufacturers increasingly turned to the competition regime and other global laws to create the orderly law-based markets they desired.
Second, it is possible to infer from the case studies an inverse relationship between the strength of boundary narratives and the willingness of network members to embrace global laws. Put differently, strong boundary narratives prevented network members from experimenting with new regulatory ideas that threatened their collective identity.
Consider the construction managers—they identified strongly with other members of the construction groups and the New Class. Each of these communities established strong boundary narratives to circumscribe membership. The construction groups relied on close personal relationships to communicate the tacit rules required to govern competition, monitor compliance and prevent opportunistic behaviour. Managers were expected to regularly attend meetings and social gatherings, and non-attendance triggered misgivings about loyalty that undermined trust. Membership of the New Class not only entailed compliance with party rules, but also involved adherence to a set of tacit beliefs, such as an entitlement to State property. In this tightly scripted world there were few opportunities for managers to entertain new regulatory ideas, such as the Competition Law, which might challenge the established order.
The battery traders responded to a predatory trading environment by constructing strong boundary narratives. This finding is consistent with research showing that market complexity favours closely knit relational-trading networks.Footnote 93 To reinforce their moral superiority over outsiders, traders encouraged each other to act like honourable gentlemen and used tacit understandings rather than formal rules to order the battery market. Like the construction managers, the battery traders needed close relational connections to communicate the network's rules and to monitor opportunistic behaviour. They responded to a stressful and unpredictable trading environment by drawing comfort and meaning from their collective identity—a phenomenon that is increasingly common in VietnamFootnote 94 and China.Footnote 95 There was little latitude in this tightly knit community for heterogeneous ideas, such as market competition, which might challenge the collective identity. Like the construction groups, deviation from the collective identity carried the risk of expulsion and the loss of status and access to a secure livelihood.
The computer manufacturers told more diverse stories about their collective identity and were less preoccupied with group solidarity than the construction managers and battery traders. Comparatively weak boundary narratives gave them the latitude to experiment with new identities and regulatory ideas. Over time the personal interaction with international traders and market professionals opened their cognitive horizons to law-governed markets and competition regimes.
Rather than adopting an entirely new identity, the manufacturers acquired multilayered identities. They learnt how to be global traders, but did not forget how to interact with family and friends. This multilayered identity enabled them to draw on a diverse repertoire of norms and precepts in dealing with the global and domestic trading environments.Footnote 96 As traditional managers, they maintained the close personal connections that sustained their business networks and secured their position in Vietnamese society. As cosmopolitan professionals, they successfully interacted with the expatriate and transnational business communities.
In switching identities, the computer manufacturers could not entirely escape the cognitive assumptions ordering prior identities. Rather than forming fixed responses to the competition regime, they constantly adjusted their perspectives to suit the different regulatory environments in which they operated. This meant that compliance with the Competition Law assumed different meanings in different contexts.
C. Learning to Become Capitalists
If weak boundary narratives gave entrepreneurs the cognitive space to explore global laws, how did they learn and assimilate these new ideas? According to some scholars, the transition from socialism to mixed-market capitalism in China and Vietnam was simply a corollary of creating more domestic markets.Footnote 97 The implication of this thesis is that entrepreneurs learn how to become capitalists and assimilate capitalist global laws simply by participating in domestic markets. Challenging this narrative, other scholarsFootnote 98 argue that entrepreneurs in China and Vietnam need new kinds of knowledge to become capitalists and understand global laws. As Carol Rose observed in relation to post-Soviet Russia: ‘[C]apitalist production has a kind of moral and cultural infrastructure that we may have mistakenly thought was simply natural, whereas in fact it is learnt through sustained commercial practice.’Footnote 99 Taking the argument further, some claim that Western competition law reflects Western varieties of capitalism and is not necessarily suited to the mixed market capitalism operating in socialist Asia.Footnote 100
What follows is that the adoption of a competition law in socialist Asia not only requires exposure to global modes of production, in addition business networks must experience some kind of epistemological transformation. The institutional learning literature identifies two key factors that are essential to communicating and absorbing complex regulatory knowledge. First, tacit knowledge is vital to understanding how regulatory systems operate.Footnote 101 It sets the ground rules that give meaning to broad regulatory principles, such as the anti-monopoly provisions in competition regimes. Second, tacit knowledge is personal, context-specific and therefore hard to communicate through formalized processes such as law reform campaigns or training workshops.Footnote 102 Tacit knowledge is conveyed most effectively through the ‘thick’ relational linkages formed by close personal interaction.Footnote 103 These findings correspond to comparative law studies showing that legal transplants ‘float on a sea of implicit knowledge and understanding’.Footnote 104
Tacit learning about global laws is evident in the personal interaction between the computer manufacturers and market professionals. Hanoi-based lawyers, who eventually became personal friends with the manufacturers, described how imported commercial laws applied to local regulatory problems. For example, the lawyers explained the principles of private commercial rights that underlie the liberal notion that entrepreneurs can conduct any business that is not forbidden by law. This ideal underlies the competition law principle that in capitalist economies entrepreneurs are the primary market regulators and the State only intervenes to correct market failures. They also pointed out that market competition can grow economies and is not simply a zero-sum game where new market entrants displace exiting players. Market professionals acted like cultural intermediariesFootnote 105 in translating complex imported regulatory concepts involving tacit knowledge into familiar domestic idioms and contexts. Over time, the manufacturers came to understand the tacit underpinnings of market transactions—the logic behind market competition.
Other studies confirm the crucial role cultural intermediaries play in promoting tacit learning. For example, Chinese professionals working in the Beijing branches of transnational firms learned the tacit and unwritten linguistic conventions that govern global business regulations from their personal dealings with other Chinese professionals working outside China.Footnote 106 In another example, firms in the Thai car-parts industry were able to learn the workings of the production networks linking their industry to Japanese car assemblers through the assistance of cultural intermediaries who translated Japanese manufacturing know-how and logistics regulation into a Thai context.Footnote 107 Similarly, coffee farmers in developing countries learn the tacit knowledge underpinning fair trade rules from personal interactions with transnational non-government organizations.Footnote 108
Like the entrepreneurs in these examples, the computer manufactures straddled different regulatory worlds. Through close personal interaction with the ‘cultural intermediaries’ they absorbed the tacit knowledge that gave meaning to the imported regulatory regimes. During this process, they gradually assumed new identities and came to see themselves as bicultural and cosmopolitan. Rather than adopting a fixed identity, they switched between global and local identities to deal with different regulatory issues.
The computer manufacturers did not report the psychological stress that has been observed in some transnational managers who routinely switch between regulatory cultures.Footnote 109 Nevertheless, the switching seems to have highlighted conflicting regulatory logics in ways that catalysed cognitive change. For example, they claimed that the process of reconciling differences between traditional workplace regulation and the new governance systems gave them a deeper insight into imported regulatory principles.
What these case studies demonstrate is that the knowledge required to understand and comply with legal transplants, such as the Competition Law, is communicated through global trading networks. They also reveal the vital role that ‘cultural intermediaries’ play in conveying the tacit knowledge required to integrate legal transplants into everyday business practices.
Further research is needed to investigate what happens when domestic firms are exposed to knowledge flows from transnational firms that do not privilege global laws. This is an important question given the rapid shifts in trading patterns in East Asia that have seen a decline in Western and Japan lead firms and a corresponding increase in trading networks anchored around Chinese and ASEAN firms.Footnote 110 Key research questions include: does the tacit knowledge communicated through these trading networks reflect the regulatory conditions that shaped the lead firms?Footnote 111 Will the tacit knowledge communicated by these lead firms promote functional convergence with global laws?
VI. CONCLUSION
This study looks beyond macro-level comparative law to understand why global laws transplant unevenly into transitional economies. It uses micro-level studies to show that formal convergence with global competition law occurred in Vietnam without meaningful functional convergence by large sections of the business community. Various reasons are advanced in comparative law to explain the uneven compliance with global laws, such as incomplete domestic laws and institutions, limited regulatory capacities and low demand for formal laws by the business community.Footnote 112 By exploring bottom-up regulatory understandings, this article provides fresh insights into the variegated responses to global laws.
Legitimacy expectations were used to analyse the interface between thought formation in business networks and responses to legal transplants. Different legitimacy expectations generated different patterns of compliance. Firms did not strategically choose to comply or not comply with the Competition Law; rather, compliance with legal transplants was socially constructed and assumed different meanings in the different business networks. Although firms possess agency to comply or not comply with legal transplants, their capacity to decide was shaped by factors that are endogenous to their business networks, such as legitimacy expectations and collective identity. This means that the Competition Law did not function like an exogenous variable—‘a thing out there’—that the business networks could freely choose to follow. What this suggests is that legal globalization projects that treat domestic entrepreneurs as rational calculators miss much of the transplant story.
Compliance with global laws not only requires exposure to global modes of business, but also an epistemological transformation. Two key factors influence this change. One, business networks with strong boundary narratives and collective identities are the most resistant to new regulatory ideas and change. In contrast, business networks with weak collective identities are more cognitively open and willing to learn. Two, business networks not only require global regulatory knowledge, they also need cultural intermediaries who are capable of translating global laws into local idioms and contexts. This relational interaction plays a vital role in conveying tacit knowledge about global laws.
Collective identities are linked in a mutually reinforcing relationship with tacit learning. Tacit learning constructs new identities, while the new identities facilitate tacit learning. In the computer manufacturing case, for example, the manufacturers learnt about global laws from market professionals. As the manufacturers assumed the persona of global managers, they interacted more closely with market professionals—and through these personal exchanges rapidly absorbed the tacit knowledge that gave meaning to global law. At the same time, their identity shift predisposed them to the rule-based hierarchies, politically neutral institutions and the market competition promised by global laws.
This study also demonstrates why cultural-based comparative law analysis is often static and fails to capture dynamic local responses to legal transplants. The collective identities that shape cultural attitudes are not fixed and immutable, but rather change in response to external conditions. Anthony Giddens popularized the notion that layered identities develop in response to the regulatory complexity created by globalization.Footnote 113 In this view, social complexity compels people to step outside traditional identities and experiment with new concepts of the self.Footnote 114 Research also shows that complexity creates competition for resources that strains intragroup relations.Footnote 115 Rather than stimulating a search for new identities, complexity sometimes has the opposite effect and strengthens collective identities.
The construction managers, for example, had few reasons to search for new identities. As members of the New Class, they were shielded from the complexity of global competition. Moreover, the New Class inculcated ideals that were inimical to the principles of market competition underpinning the Competition Law. The managers consequently had little incentive or cognitive space to think themselves out of the New Class identity.
In contrast, the computer manufacturers were exposed to the full force of global competition. They were torn between two contradictory ways of ordering the world and needed a new identity to minimize conflict and respond to complexity. As global professionals, they not only learnt about transnational business transactions, they also acquired the cultural knowledge and social skills required to interact on a personal level with other global professionals. This cosmopolitan world provided the cognitive space to absorb global regulatory ideas and respond flexibly to new trading opportunities.
The battery traders were also exposed to intense competition, but rather than experimenting with new identities, they responded to complexity by withdrawing into a self-referential identity loosely modelled on village norms and practices. Though opposing imported laws, they were unwilling to openly acknowledge the foreign origins of many of the regulatory practices that were considered constitutive of their collective identity. Membership of their network was so closely bound up with identity that regulatory preferences could not be put aside and contemplated at a distance. There was consequentially little cognitive space to consider imported regulatory solutions to business problems. Imported ideas that threatened their collective identity, such as the competition regime, were rejected out of hand.
It is interesting to speculate what might happen if the Vietnamese government decided to more vigorously enforce the Competition Law. The challenge for regulators is developing enforcement strategies that punish the worst offenders while encouraging other firms to compete. Movement away from a ‘one size fits all’ towards a more contextual and discretionary approach that reflects differences among the business networks has intuitive appeal. A difficulty with this kind of responsive regulation, which encourages a judicious mix of deterrence and persuasion,Footnote 116 is that in Vietnam's fragmented markets business networks have different levels of tacit knowledge about the Competition Law. To overcome this knowledge disparity and provide information to firms that do not operate in the global economy, regulators could develop programmes that convey tacit knowledge about the Competition Law. But as we have seen, raising levels of legal knowledge is challenging. Conventional legal training programmes are too impersonal to convey tacit knowledgeFootnote 117 because effective communication requires some form of personal interaction and cultural intermediation. In short, responsive regulation involves a level of technical expertise and resources that may be absent in developing countries.Footnote 118
This article explores how Western knowledge flows influence responses to global laws. But as China and other East Asian economies internationalize, transnational knowledge will increasingly flow from non-Western sources. The kinds of micro-level studies required to investigate this under-researched phenomenon are rare in comparative law because they require socio-legal methods and extensive fieldwork. If comparative law is to better understand how different kinds of transnational knowledge flows are reshaping domestic regulatory systems it will need to shift its gaze beyond regulatory élites and examine bottom-up perspectives to global laws.
