Business Strategy and Corporate Governance in the Chinese Consumer Electronics Sector

Hailan Yang, Stephen Morgan

• Publisher: Chandos Publishing
• Year: 2011
• Print ISBN: 9781843346562
• eBook ISBN: 9781780633299
• Topic: Business
• Subtopic: Management
• Index: Business

This book analyses how China's firms in the consumer electronics (CE) sector have developed their business strategy and corporate governance during the reform process. The CE sector is one of China's most important and dynamic manufacturing sectors. As one of the earliest market-oriented sectors after 1978, its experience illustrates the adoption of the Western model of management in China. This is the first book to analyse the link between business strategy, corporate governance and performance of firms, explicitly comparing state-, collective-, and privately-owned firms. This book argues that the competitive dynamics of the market are central to the survival of firms in contemporary China.- Focuses on the state, collective and private Chinese firms in the consumer electronics sector- Provides insights into the interactions among political, economic and corporate factors in the China business environment that influence the strategies and performance of these firms- Compares the corporate governance of these Chinese firms across different ownership forms

1

Introduction to strategy, corporate governance and corporate reform

Abstract:

As the largest and fastest growing transition economy in the world, China’s economic achievement has received much attention. Economic development over the past three decades has been astonishing. From a country largely irrelevant to global trade and investment, China became the second largest economy in 2010. Among the many developments has been the transformation of enterprise organization and ownership. Our focus in this book is to first analyse how Chinese firms have developed their business strategies and corporate governance; and second, the interrelationship between the two at this point in the economic reform process.The aim of this chapter is to provide a framework for the book. It begins with an overview of Chinese economic reform and specifically the reform of Chinese firms. The Chinese consumer electronics sector is used for the study, partly on the basis of its significance in national economy, but also because its growth experience is typical of many industries in the Chinese economy as a whole. Next, the business strategy (BS) and corporate governance (CG) of Chinese firms is described and research issues identified. During the transition process, managers have progressively come to exercise their greater decision-making power and to introduce a modern corporate system in order to enhance performance of the firm. Finally we outline the research objectives and the methods used, and conclude with a summary of the structure of the book.

Key words

strategy

governance

reform

China

The fundamental problem of China research is that the concepts theories favoured in the disciplines were developed out of assumptions about systems which operate quite differently from China which is more a civilization pretending to be a nation-State.

(Lucian Pye)

Overview

The Chinese transition from a planned economy to a market-oriented economy over the past three decades has seen considerable research focused on the reform of firms.¹ Research has examined questions such as: how do the Chinese firms improve their competitive advantage using internal resources to meet the challenges of the reforms? What is the respective role of new rules of the market economy and remaining legacy of the planned economy on Chinese firms? And how have managers sought to develop organizational structures to compete more effectively in the emerging market? This book aims to analyse how Chinese firms in the consumer electronics (CE) sector have developed their business strategy and corporate governance – two aspects of their internal organization crucial for competitive advantage – during the reform process. Chinese transition to an increasingly market-oriented economy has given birth to a new diversity in firm ownership types. The book focuses on three broad ownership forms: the State-owned, collectively-owned and domestic privately-owned firms. As will become apparent, there is frequently difficulty in clearly classifying firm ownership structure in China. These three firm types best enable a comparative analysis of business strategy and corporate governance in this industry sector, which has been one of the leading sectors in the growth of Chinese-produced consumer manufactured products for domestic and export markets (OECD, 2002; CCIDConsulting, 2007).

Development of business strategy and the appropriate form of corporate governance are two of the major internal means to achieve the competitive advantage of the firms (Child and Pleister, 2003; Filatotchev and Toms, 2003). Competitive advantage comes from either lowering costs relative to competitors (doing the same better or more efficiently) or differentiation (do something different that provides more value to the user than the competitor), which enables the firm to outperform others in the sector (Porter, 1985). The transition from a central planned to a market-oriented economy in China has increased the autonomy of managerial decision-making in strategies that represents a genuine transformation of the business (Tan, 2002; Tan and Tan, 2003). Chinese firms in general have become more market responsive and in turn competitive. The strategic decision-making capability of managers should further be analysed with reference to the firm’s governance arrangements (Dalton et al., 1999; Filatotchev and Toms, 2003; Thomsen and Pedersen, 2000), which are related to the abilities of managers, their incentives to develop effective strategies and their accountability to stakeholders. Driven by the fierce market competition in the sector, firms have strived to reform their corporate governance (Liu and Woo, 2001). Improved corporate governance, and greater rewards for managers, are seen as the means to better enable the managers first to exploit strategically the internal resources of the firm, and second to position the firm to better explore external resources, thus to improve the competitive advantage of the firm (Jefferson and Su, 2006; Thomsen and Pedersen, 2000).

Past empirical studies of Chinese firms have largely neglected the link between the three elements of business strategy, corporate governance, and performance in a transition economy such as that of China. These elements are related in a series of cause–effect interactions that start with the transition of the business environment and the response of firms in allocating resources. Changes in these elements may cause a fit or misfit between the strategic choices of firms and the external environment (Grant, 1999). Analysing the interaction between various internal and external elements helps enrich our understanding of the different processes that influence firm growth in the CE sector in China during the transition period.

We examine the CE sector in particular because it is one of the country’s most important and dynamic manufacturing sectors; it was also one of the earliest market-oriented sectors. Thirty years ago the sector did not exist. China is now one of the world’s biggest producers and exporters of CE products (CCID Consulting Report, 2008). The sector is therefore useful for examining how firms develop their business strategy and corporate governance in China, which is undergoing the transition to a market-oriented economy domestically in which firms face challenges from multi-national corporations (MNCs) globally. Many Chinese firms in this sector over the past decade have also been pioneers in venturing abroad, setting up subsidiaries in both advanced market economies and developing economies.

For Chinese managers who have been so enthusiastic to embrace Western theories and practices for the past 30 years, the challenge is how to adopt and implement approaches to management in a very different institutional and political context to that in which they were developed. This book investigates the generalizability of the Western model of management in China. The transfer, adaptation and implementation of Western management practice is not only important for Chinese firms, which are eager to integrate themselves with the world, but also important for MNCs, which have tremendous incentives to succeed in the Chinese domestic market as local consumers acquire increasing levels of discretionary income.

Business strategy and the corporate governance of Chinese firms

Empirical studies on business strategies

Empirical studies of business strategies in transition economies are relatively sparse. Modern literature on strategy in the second half of the twentieth century was dominated by a focus on Western firms mostly in advanced market economies (Child and Pleister, 2003; Peng, 2005; Tsui et al., 2004). The role of emerging economies’ operations as part of a ‘global strategy’ is occasionally discussed, but the literature typically treats the subject from the perspective of multinationals pondering major corporate incursions into or retreats from foreign environments (Nelson, 1990). Strategy within the business environment of emerging countries has been largely ignored. Yet the challenges in these environments are huge. Emerging economies are in a state of dynamic flux, whereas business strategies based on Western industrialized economies assume that the business and institutional environment is sufficiently predictable to make medium and long-term plans reliable.

The heterogeneity and dynamic changes found in emerging economies magnify the challenge to the wholesale adoption of developed economy-based theoretical and methodological approaches in these countries (Wright et al., 2005). For example, it is difficult to compare the enterprise reform in China with European countries because of the different approach to the respective market-institutional environment and because of the very different historical, economic and cultural contexts (Buck et al., 2000). Thus, the theories driving the strategy research agenda are not equally effective in or even relevant for studying different economies (Wright et al., 2005).

Until recently, China was not on the radar screen of research of business strategy (Tsui, 2004; Peng, 2005). The few management journals that considered the problems of management research in China called for a new approach.² The dynamics of the Chinese market raises questions about how firms use resources and the performance consequences in changing environment (Zhou and Li, 2007). In the Chinese context, the environment–strategy relationship holds, as it did in a study of Tan and Litschert (1994) in the same setting more than a decade earlier (Tan and Tan, 2004). However, the optimal choice of firm strategy had changed in terms of the deployment of resources and the choice of developing alternative resources and capabilities (Tan and Tan, 2004; White and Xie, 2006). More recent developments of business strategies in China emphasize the ‘strategic flexibility’ of firms, which depends jointly on the inherent flexibility of resources available to the organization, and on the flexibility of managers in applying those resources to alternative courses of action (Wright et al., 2005).

Empirical studies on corporate governance

Although the role of corporate governance has been a central issue in the management literature of developed economies for some time, many findings from developed countries should not be considered conclusive or universally applicable if the transition ...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• List of figures
• List of tables
• Abbreviations and acronyms
• Preface
• Chapter 1: Introduction to strategy, corporate governance and corporate reform
• Chapter 2: Business strategy and corporate governance: theoretical and empirical perspectives
• Chapter 3: The economic background in China
• Chapter 4: Business strategies in the focal companies
• Chapter 5: Ownership structure and the characteristics of the board in the focal companies
• Chapter 6: Links between institutions, business strategies and corporate governance
• Chapter 7: Conclusions
• Bibliography
• Index