Development of China's State-Controlled Firms. the Case of the Consumer Electronics Sector**

Article excerpt

The aim of the paper is to investigate the development of China's state-controlled firms in the consumer electronics sector, where 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 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. This paper 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 paper that there exist different ways of development of China's state-controlled firms with different competitive position.

Key words: development, state-controlled, China, qualitative research

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 percent of the listed firms are state-controlled firms in which the state is the largest shareholder (Securities Daily, 20/12/2009). Although the state owns a majority of the stake, many of statecontrolled firms have been given some market or market-like incentives (World Bank Group 2001). Such newly acquired autonomy and flexibility have motivated the statecontrolled 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 exploit strategically, firstly the internal resources of the firm, and secondly position the firm to better explore external resources, thus to improve the performance of the firm Qefferson/Su 2006; Thomsen/Pedersen 2000).

Here the following questions are asked: how does the exploitation and exploration construct apply in the China's state-controlled firms in CE sector? …