Political Strategy of Chinese Private Ventures: An Organizational Life Cycle Framework

Li, Jun, International Journal of Entrepreneurship

ABSTRACT

Drawing upon insights from multiple theories on corporate political strategy, this study proposes an organizational life cycle framework for explaining Chinese ventures' political strategies. The model suggests that Chinese private ventures exhibit different motivations, objectives and approaches in their political strategies at different life-cycle stages, due to changes in the environmental and institutional constraints and their organizational dominant problems. To better understand Chinese private ventures' political strategies, researchers need to take into account both the environmental and organizational contexts at each stage under which the venture's political strategies are developed.

INTRODUCTION

Scholars have long recognized the importance of political strategies in affecting firm behavior and performance (Getz, 1997; Hillman & Hitt, 1999; Hillman, Keim & Schuler, 2004; Hillman, Zardkoohi & Bierman, 1999; Keim & Baysinger, 1988; Masters & Baysinger, 1985; Masters & Keim, 1985). Because government policies have significant effects on competitive environment of firms, companies may employ political strategies or actions (such as lobbying, advocacy advertising, political campaign contribution, etc.) to create a favorable external environment, and to gain competitive advantages over their rivals. Current research on corporate political strategy, however, is largely conducted on Western companies, especially in the setting of multinational corporations (e.g., Blumentritt & Nigh, 2002; Chen, 2007; Hillman, 2003; Kennedy, 2007). The political strategy of private ventures in a non-Western country (such as China) is a much-understudied area. Given the increasing influence of private sector in Chinese national (ADB, 2003; Dougherty, Herd & He, 2007), and the significant power of government policies on the development of private ventures in China, knowledge about political strategies of Chinese private ventures becomes imperative.

This paper aims to enrich the research of corporate political strategy by building a descriptive theory for understanding Chinese private ventures' political strategies. Adopting an organizational life cycle approach, and drawing upon insights of multiple theories such as the resource-dependence theory (Pfeffer & Salancik, 1978), institutional theory (Dimaggio & Powell, 1983; Powell & DiMaggio, 1991), strategic choice theory (Child, 1972), exchange theory (Cook, 1977) and the resource-based view (Barney, 1991; Wernerfelt, 1984), the paper builds a framework to explain how the environmental and organizational factors influence political strategies of Chinese private ventures at different life-cycle stages. Since China differs sharply from Western countries in political, societal and cultural environment, I hope this study offer an opportunity to refine and test existing theories, and to further our understanding of corporate political strategy by focusing on emerging economies. The premise of the life cycle framework is that at different developmental stages, Chinese private ventures exhibit different motivations, objectives, and often take different approaches for their political strategies, due to different external and internal environments. Prior research has suggested that a firm's political strategy changes over time as it faces different sets of opportunities and threats from the environment, however less research has been done on the change of a firm's political strategy (Getz, 1997). This study therefore answers this research call as well.

THEORIES ON CORPORATE POLITICAL STRATEGY

Government business policies affect firms' competitive advantages significantly (Keim & Baysinger, 1988). Government has the ability to do so because it can influence the opportunity sets faced by the firms and affect their competitive environment through regulations and government policies (Hillman & Hitt, 1999; Hillman et al., 1999). Acts of government create individual winners and losers in the marketplace (Leone, 1986). Because of the significance of government intervention, firms compete in their market environment and in their non-market environment (Baron, 1999). By developing political strategies, firms create favorable environment for their market competition, therefore gaining economic rents or sustain their competitive advantages which they cannot achieve elsewhere (Gale & Buchholz, 1987). In a restatement of a definition put forth by Keim and Baysinger(1988), Schuler (1996: 721) defined corporate political strategy is "a pattern in a stream of managerial decisions that represent an integrated set of activities within a firm intended to produce public policy outcomes favorable to the firm's economic survival and continued success". Typical political strategies include lobbying, campaign contribution, coalition building, and information provision, etc. (Baron, 1999). The definition of political strategy in this paper, however, is narrower than Schuler's definition. The discussion of political strategy here focuses only on firm's actions or endeavors undertaken in the government arena, therefore does not include public affairs functions. For this research, firm political strategy is defined as any deliberate actions or strategies a firm takes to influence government policy or process.

Scholars have employed different theories to explain the basic questions of firm political strategy, i.e., why and how a firm engages in political strategies, and what types of political strategies a firm takes (Getz, 1997). These theories include resource dependence theory (Pfeffer & Salancik, 1978), institutions theory (Dimaggio & Powell, 1983), strategic choice theory (Child, 1972; Cyert & March, 1963), exchange theory (Cook, 1977) (see Getz, 1997 for a detailed review), and more recently, the resource-based view of the firm (Barney, 1991). Although I am not going to repeat a full-length literature review here, a brief overview of these theories is necessary. Especially, I am interested in the theories which are especially relevant to the context of Chinese transitional economy. These include the resource dependence theory, institutional theory, strategic choice theory, exchange theory, and the resource-based view.

Resource Dependence Theory

According to the resource-dependence theory (Pfeffer & Salancik, 1978), a firm needs to respond to environmental pressures by obtaining and allocating necessary resources. The assumptions of this theory include (1) organizations are assumed to be comprised of internal and external coalitions which emerge from social exchanges that are formed to influence and control behavior; (2) the environment is assumed to contain scarce and valued resources essential to organizational survival and there is always uncertainty for the firm to acquire these resources; (3) organizations must work to reduce their dependence on other actors and/or to increase their dependence on themselves by acquiring relevant resources. The implication of these assumptions is that firms can build competitive advantages by enhancing their power on external actors through resource acquisition and allocation. One of the most important external forces is government policy. The resource dependence theory has been widely employed in the literature of corporation political strategy as a major theoretical basis (e.g., Baysinger, 1984; Hillman & Keim, 1995; Meznar & Nigh, 1995; Yoffie, 1987). The underlying rationale is that firms use political strategies to lower their …

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Publication information: Article title: Political Strategy of Chinese Private Ventures: An Organizational Life Cycle Framework. Contributors: Li, Jun - Author. Journal title: International Journal of Entrepreneurship. Volume: 12. Publication date: Annual 2008. Page number: 107+. © 2008 The DreamCatchers Group, LLC. COPYRIGHT 2008 Gale Group.

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