The Possibility of Corporate Societal Strategy in China

Levitt, Catherine E., Fok, Lillian, Kwong, Kern, Journal of International Business Research

ABSTRACT

In the transition from a command economy based on a strong, socio-political ideology to a free market economy, the entrepreneur or corporate executive finds himself in an environment in which the values fundamental to business are questioned and questionable. Entrepreneurial opportunities to profit in the near term tend to obscure the tong term need for a corporate societal strategy in order to sustain and maximize future profit potential. Many of the issues facing joint ventures and enterprises in China stem from this situation. An examination of business performance in China spotlights the need for developing strategies to bind profit maximization to societal value. Recent studies in ethical decision making indicate that a convergence of societal values is in process.

INTRODUCTION

Transition from a command economy based on strong, socio-political ideology to a free market economy, creates an environment in which the values fundamental to business operations are both questioned and questionable. Gross market imperfections, which may be viewed as the product of the uncertainty surrounding socio-economic values, characterize the transition and appear to provide tremendous numbers of opportunities for firms to earn instant profits. (Shi, 1996.) In transitional economies, and in particular in China, it is the perception of profit potential that attracts international joint-venture investment. (Yan, 1995.) The expectation of many Western joint venture participants (and their governments) is that as profits are made, as market practices and systems are established, the popular political conscience will necessarily become democratized. In other words, the value set that underlies Western market capitalism will be validated and adopted.

Speaking before the Asia Society's "Asia Goes Global Conference in Seoul, Madame Li Guohua, Vice-Minister of Foreign Trade and Economic Cooperation, reported a 16.5% annual rate of expansion for China's economy. She credited foreign investment and joint ventures as the engine driving this growth. By the end of 1995, a total of 120,000 projects with foreign investment had started operation with paid-in investment amounting to $135.4 billion USD. "China must stick to the policy of reform and opening--up in order to keep the momentum of the Chinese economy only by maintaining social and political stability can we guarantee the success of up-up." The implication was, that if growth falters, frustration of popular expectations of middle class life styles coupled with growing political consciousness would result in social and political unrest. To keep power in the hands of the current regime, China will continue to improve the investment climate, perfect relevant laws and regulations, and enable foreign invested enterprises to gradually enjoy national treatment." At the same time, the government will stay active in the loop in that:

Industrial guidance and regional orientation of foreign investment will be put into practice." (Li, 1996.) Growth and profitability are the means to an end rather than the end itself.

The theory of corporate societal strategy suggests that maximization of current profit and the optimization of future profit potential are dependent on the ability of the enterprise to balance power and to develop legitimacy by satisfying stakeholder aspirations and expectations (Ansoff, 1979; 1985) Raymond Kao suggests that, in as much as "a corporation is a community of entrepreneurs created for the purpose of creating wealth for the individual and adding value for society", part of the mandate of corporate strategy is the linking of the corporation to the environment through the establishment of understandable realistic stakeholder expectations. From this perspective, the joint venture corporation plays a significant and active role in determining the new value set and preferred rules of the game that will evolve from the transition. (Ansoff, 1985; Kao, 1995) An examination of joint-venture experience in China along the dimensions of power balance and legitimizing activity follows.

LEGITIMACY: MEETING EXPECTATIONS

Any discussion of corporate legitimacy must begin with an analysis of who the stakeholders are and what their expectations are. In the context of a transitional economy, such discussion must also include an examination of what changes are probable and possible in the construct of the group of stakeholders and how the discontinuities of transition may effect their expectations

Recent studies of the dynamics of U.S.-China joint ventures indicate that the principles or joint venture partners have different but not incompatible expectations (Yan and Gray, 1994; 1995. and Yan ,1996), as well as different criteria for evaluating performance of the venture, (Hill and Hellriegel, 1994). In a study of 90 joint ventures (Levitt, 1997), formed between 1990 and 1992, located across 17 Chinese …

Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: The Possibility of Corporate Societal Strategy in China. Contributors: Levitt, Catherine E. - Author, Fok, Lillian - Author, Kwong, Kern - Author. Journal title: Journal of International Business Research. Volume: 3. Issue: 2 Publication date: July 2004. Page number: 21+. © 2008 The DreamCatchers Group, LLC. COPYRIGHT 2004 Gale Group.

This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.