The Strategies of China's Firms

Resolving Dilemmas

Hailan Yang, Stephen Morgan, Ying Wang

• Publisher: Chandos Publishing
• Year: 2015
• ISBN:
  9780081002766
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

This book aims to analyze how China's firms in the consumer electronics (CE) sector have developed their business strategy and corporate governance during the reform process. This book examines the CE sector in particular because it is one of the country's most important and dynamic manufacturing sectors and one of the earliest market-oriented sectors.

• focuses onfirms with different ownership
• provides cases that offer insights into the interactions among key factors of environmental changes, exploitative and explorative strategies, and performance in a transition environment
• explains why the strategies of some firms do not fit with their environments, which leads to their poorer competitive position.
• compares the corporate governance of the China's firms with different ownership
• explores the different ways of development of China's firms in the consumer electronics sector from the perspectives of business strategy and corporate governance
• includessome wider policy-related implications related to the reform of China's firms

1

Development of China’s state-controlled firms

The case of the consumer electronics sector

H. Yang^a; S.L. Morgan^{b a} Shandong Jianzhu University, Jinan, China
^b University of Nottingham, Ningbo, China

Abstract

The aim of the chapter is to investigate the development of China’s state-controlled firms in the consumer electronics (CE) sector; we focus on the evolution of firm business strategy and ownership structure, two aspects of a firm’s internal organization crucial for competitive advantage. The Chinese CE sector is used for the study partly on the basis of its significance in the national economy, but also because its growth experience is typical of many industries in the Chinese economy as a whole. This chapter uses case studies to identify the specific characteristics of China’s firms that operate in a transitional society undergoing social and economic transformation. It is argued in this chapter that there exist different ways of development of China’s state-controlled firms with different competitive positions.

Keywords

Development

State controlled

China

Qualitative research

1.1 Introduction

China’s state-owned enterprises (SOEs) have experienced radical transformation during the transition from a planned economy to a market-oriented economy over the past three decades. At the end of 2009, 1604 large enterprises had become listed firms on the Chinese stock exchanges of Shanghai or Shenzhen (Shanghai Stock Exchange, 2009; Shenzhen Stock Exchange, 2009). More than 70% of the listed firms are state-controlled firms in which the state is the largest shareholder (China Securities Daily, 2009). Although the state owns a majority of the stake, many of the state-controlled firms have been given some market or market-like incentives (World Bank Group, 2001). Such newly acquired autonomy and flexibility have motivated the state-controlled firms to build resources and capabilities to compete.

Development of business strategy and appropriate form of ownership structure are two of the major internal means to achieve the competitive advantage of the firms (Child & Pleister, 2003; Filatotchev & Toms, 2003). Past empirical studies have largely neglected the link between institutions, business strategy, ownership, and firm performance in a transition economy such as China. Changes in these elements may influence the degree of strategic fit between the choices of firms and their external environment. An examination of the interaction between various internal and external elements helps enrich our understanding of the processes that influence the growth of the state-controlled firms in China during the transition period.

Our focus on only one industrial sector—the consumer electronics (CE) sector—enables us to minimize the influence of industry and technology on the management attitudes and organizational behavior of the firms. Different industrial sectors will display different characteristics regarding the adoption of market orientation since they operate under different conditions and with varying degrees of government regulations (Deng & Dart, 1999). The focus on one industry avoids conflicting conclusions based on the aggregate discussion of various industries.

This study integrates exploitation–exploration framework with the institution theory to propose a dynamic strategic fit of the firms in a transition environment. The formation of a firm’s strategies is dependent on the environment in which the firm operates. The matching of strategy and environment can obtain better performance—a poor match can hurt performance (Miller, 1988). Business strategy is a necessary but not sufficient condition for performance. Performance is also influenced by the ownership of the firms (Filatotchev & Toms, 2003). The appropriate ownership structure is seen as the means to better enable the managers to first strategically exploit the internal resources of the firm, and second to position the firm to better explore external resources, thus improving the performance of the firm (Jefferson & Su, 2006; Thomsen & Pedersen, 2000).

Here, the following questions are asked: How does the exploitation and exploration construct apply in China’s state-controlled firms in the CE sector? How do the state-controlled firms in China evolve their ownership structure? This chapter sets out to investigate the development of China’s state-controlled firms using case studies of firms in the CE sector; we focus on the evolution of firm business strategy and ownership structure, two aspects of a firm’s internal organization crucial for competitive advantage. The study is organized as follows: First, the institutional situation in the Chinese CE sector is provided. Second, the different ways of firms have developed are described, followed by a description of the exploitation and exploration learning strategy in transition economies. The fourth part deals with the efficiency of the state ownership. Next, the research design is explained. The sixth part focuses on findings on strategy and ownership evolution of the case study firms and includes a discussion. The chapter concludes with a summary of theoretical implications and future research.

1.2 The institutional situation in the Chinese CEs sector

The CE sector in China has been one of the fastest-growing industrial sectors during the past three decades. It has experienced many changes in production, market composition, firm behavior, ownership structure, and level of government intervention (Jiang, 2001). For this reason, the sector is broadly representative of the manufacturing sectors at large in the process of economic transition.

The development of China’s firms in the CE sector has evolved through two broad stages with a turning point in 1993 when China’s State Council issued its Decisions on Some Problems in the Establishment of a Socialist Market Economic System. Since the start of economic reforms in 1978, the government has sought to improve the management and performance of SOEs (www.China.org.cn, 07/11/2003). During the first stage, the reform aimed to grant SOEs more autonomy by allowing SOE managers increased authority over the allocation of their profits and decisions about production (Naughton, 1995; Peng, 2004). Shanghai and Shenzhen stock exchanges opened in 1990 and 1991, respectively. At this stage, however, the state-owned distribution organizations were highly rigid and inefficient for manufacturers. For the CE sector, this meant that the sales of products were centralized, and companies did not have their own distribution outlets. Consequently, the firms were unable to respond to changing customer needs promptly and flexibly (Simon, 1992). The increasing misfit between the distribution system and consumer demand led some firms in the CE sector to adopt corresponding business strategies to rectify the problems in the economic system.

The year 1993 was a watershed for the conversion of China’s SOEs because central government initiatives spurred on a more supportive economic and social environment that provided incentives for firms to engage in technological learning (Xie & Wu, 2003). Both central and local governments became less directly involved in commercial activities and further deregulation of production and circulation of products. The control rights over state-controlled firms were gradually devolved from the central government to local government. The decentralization of economic authority triggered increased competition. Accordingly, the manufacturers had more freedom and willingness to innovate according to market liberalization, competitive pressure, and consumer demand (Jefferson & Su, 2006; Song & Yao, 2003). In addition, the government allowed international firms easier access to the Chinese market. The entry of new firms—not only foreign-invested but ostensibly private-owned firms—intensified competition in the CE sector (Jiang, 2001). Although the government was deeply involved in bailing out large, failing state firms, such cases were more the exception than the norm. Increasingly, only in extraordinary circumstances do state firms obtain such support from the government (Jiang, 2001). Increased market competition, globalization, and technological innovation have resha...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• List of contributors
• Preface
• About the editors
• Contributing authors
• 1: Development of China’s state-controlled firms: The case of the consumer electronics sector
• 2: The relationship between the share structure of business groups and the performance of the listed affiliated firms
• 3: Labor litigation in China
• 4: Location patterns of Chinese transnational corporations: A comparative study of Chinese and foreign transnational corporations
• 5: Research on the relationship among large shareholders and its economic consequences of listed companies in China
• 6: Efficiency evaluation of listed real estate companies in China
• 7: An appraisal of Xi’an real estate developers core competence
• 8: Empirical study of eWOM’s influence on consumers’ purchase decisions
• 9: Research on online shopping problems behind the “Double Eleven” shopping festival
• 10: The way to globalized transformation of the photovoltaic industry: inspiration from the Suntech bankruptcy reorganization
• Index