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

Article Type: Abstracts From: Strategic Direction, Volume 25, Issue 8

Li J.J., Zhou K.Z., Shao A.T. Journal of International Business Studies (Canada), February/March 2009, Vol. 40 No. 2, Start page: 339, No. of pages: 14

Purpose – To examine the moderating effects of managerial ties on competitive position-performance relationship in China. Design/methodology/approach – Reviews the limited research on the competitive strategy perspective in emerging economies. Constructs a conceptual model of the relationships between competitive positions, managerial ties and firm performance, and develops associated hypotheses. Tests the hypotheses on a sample of foreign-invested enterprises in manufacturing sectors located in three major areas of China. Measures competitive strategy in terms of differentiation position and low-cost position, managerial ties across the dimensions of political and business ties, and firm performance in terms of returns on assets. Findings – Demonstrates that: both a differentiation position and a low cost position have a positive effect on the profitability of foreign firms in China; the utilization of political ties has a negative effect on the profitability of foreign firms; the utilization of business ties has a positive effect on the profitability of foreign firms; the utilization of political ties negatively moderates the effects of differentiation on the profitability of foreign firms; and the utilization of business ties positively moderates the effects of differentiation on the profitability of foreign firms. Research limitations/implications – Suggests that further research could identify institutional characteristics associated with the effectiveness for competitive positions and managerial ties in emerging economies; could examine the dynamics or co-evolution of market and network based strategies; and could examine whether the findings hold in other countries. Practical implications –Emphasizes that the benefits of differentiation position for foreign firms are conditional on the use of managerial ties, and that political ties should be developed with great care. Originality/value – Represents an initial effort to examine how competitive position and managerial ties interact to affect performance in an emerging economy, filling a gap in the literature, and enriches social network theory by showing the potential downside of ties in emerging economies.Article type: Research paper ISSN: 0047-2506 Reference:38AF760

Keywords: China, Competitive strategy, International investments, International trade, Social networks