Strategic Choices And Performance Of Private Enterprises In China’s Transitional Economy

A transition economy or transitional economy is an economy which is changingfrom a centrally planned economy to a market economy. During the transition, oldinstitutions underpinning a plan economy have been damaged and weakened badly bythe process of liberalization, privatization and marketization, while new institutionsunderpinning a market economy have not yet been well established. The radical changebrings about great institutional uncertainty to organizations. Meanwhile, patterns ofresource dependence have been changed. Then how do organizations make strategicchoices in respond to the institutional uncertainty and changed resource dependencepatterns? This dissertation investigates the competitive strategy and strategic conformityof private enterprises in transitional China. It aims to find out the antecedents andconsequences of strategic choices of private enterprises of China by integrating theoriesof strategic leadership and institution-based view of strategic choice. Enlightenmentsfrom social capital theory, strategic contingency perspective, resource-based theory andinstitutional theory are also included.The study investigates:1. The antecedents of strategy choices of private enterprisesThe first objective of the study is to examine the managerial and institutionalenvironmental factors which influence private enterprise’s choices of competitivestrategy and strategic conformity. The effects of entrepreneur’s functional backgroundsgained from former centrally planned economy and social capital on firm’s choice ofcompetitive strategy are studied. And the relationships between entrepreneur’s socialcapital and strategic conformity are examined. From an institution-based view ofstrategy, institutional environment has direct impacts on firm’s strategic choices. Firmsin transition economies are constrained by market maturity which determines whether afirm can acquire resources from external environment as well as political and legalinstitutions which represent the institutional uncertainty a firm has to deal with.Therefore, the roles of market maturity and political and legal institutions in strategicchoices are examined. 2. Contributions of strategy choices on performance of private enterprisesWith regard to the relationship between competitive strategic type and performance,it is generally believed that certain types outperform others in specific contexts.Institutional theory and resource-base competitive advantage view of strategicmanagement have different hypothesis and explanations concerning strategic conformity.This study investigates the main effects of competitive strategy and strategic conformityon private enterprise performance.3. Effectiveness of strategic choices on performance of private enterprises: Thecontingency perspectiveFrom the points of strategic contingency theory and the institution-based view ofstrategy, institutional environments moderate the relationships between strategic choicesand performance. One of the objectives of the study is to investigate the conditionsunder which competitive strategy and strategic conformity are more or less effective.The roles of market maturity and political and legal institutions are investigated.Based on data of Chinese Private Enterprise Survey and NERI index ofmarketization of China’s provinces, empirical results show that:(1) privateentrepreneur’s functional backgrounds (except for managerial background), socialcapital (except for political relations) and institutional environment have significantimpacts on firm’s competitive strategic choice; institutional environment has significantimpacts on firm’s strategic conformity;(2) prospective strategy has negative impact onfirm growth and positive impact on firm’s product innovation while strategic conformityhas positive impact on firm growth and negative impacts on firm’s product innovationand profits;(3) institutional environment moderates the relationship between strategicchoices and performance and results are more complicated than expected. Institutionalenvironment influences the direction of the effect of competitive strategic type on firmgrowth as well as both the direction and strength of the effect of competitive strategictype on firm profits. The more marketized the institutional environment, the stronger theimpact of strategic conformity on firm growth and profits. And institutionalenvironment influences the direction of the effect of strategic conformity on firmproduct innovation.The study theorizes and empirically examines the influences of entrepreneur’sfunctional background, social capital and institutional factors on firm strategic choices and performance. The findings of the study have implications on the theory of strategicleadership and the institution-based view of strategy.