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Competitive position, managerial ties, and profitability of foreign firms in China: an interactive perspective

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Abstract

Despite the prominence of the competitive strategy perspective, it remains unclear whether foreign firms entering China can still adopt a differentiation or low-cost position to achieve superior performance, given the unique market and institutional environments in China. Alternatively, should foreign firms follow conventional wisdom and actively build managerial ties with government officials and business community to enhance their performance? This study develops and tests an interactive perspective that highlights the moderating effects of managerial ties on competitive position–performance relationships. The results indicate that though both differentiation and low-cost positions foster foreign firm profitability, the benefit of a differentiation position is conditional on political and business ties in different directions: political ties impede and business ties strengthen the positive effect of a differentiation position on foreign firms' profitability. Moreover, foreign firms benefit from their use of business ties, but their profitability suffers when they rely increasingly on the heavy use of political ties.

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Notes

  1. Because Sino-foreign joint ventures usually structure their operations and management in parallel with foreign partners, researchers tend to classify them together with wholly foreign-owned firms within the category “foreign firms” (Ralston et al., 2006).

  2. We also conduct subgroup regressions for joint ventures and wholly foreign-owned firms. The results are similar for both groups.

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Acknowledgements

This study was supported by a Strategic Research Grant from City University of Hong Kong (Grant No. 7002147) and a research grant from the Belk College of Business, University of North Carolina at Charlotte. The authors thank the Departmental Editor, Professor Shaoming Zou, and the anonymous JIBS reviewers for their insightful and constructive comments.

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Authors and Affiliations

  1. Department of Marketing, City University of Hong Kong, Kowloon Tong, Hong Kong

    Julie Juan Li

  2. Department of Marketing, Belk College of Business, University of North Carolina at Charlotte, Charlotte, USA

    Kevin Zheng Zhou & Alan T Shao

Authors
  1. Julie Juan Li
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  2. Kevin Zheng Zhou
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  3. Alan T Shao
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Correspondence to Julie Juan Li.

Additional information

Accepted by Shaoming Zou, Departmental Editor, 19 February 2008. This paper has been with the authors for one revision.

Appendix

Appendix

See Table A1.

Table A1 Measurement items and validity assessment
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Li, J., Zhou, K. & Shao, A. Competitive position, managerial ties, and profitability of foreign firms in China: an interactive perspective. J Int Bus Stud 40, 339–352 (2009). https://doi.org/10.1057/jibs.2008.76

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