Institutional effect on born global firms in China: the role of Sun Tzu’s The Art of War strategies
| Published date | 04 January 2016 |
| Pages | 1-19 |
| Date | 04 January 2016 |
| DOI | https://doi.org/10.1108/JABS-11-2014-0084 |
| Author | Man Zhang,Qian Gao,Jane V. Wheeler,Jungsook Kwon |
| Subject Matter | Strategy,International business |
Institutional effect on born global firms in
China: the role of Sun Tzu’s The Art of
War strategies
Man Zhang, Qian Gao, Jane V. Wheeler and Jungsook Kwon
Man Zhang is an
Associate Professor at
the Department of
Management, Bowling
Green State University,
Bowling Green, Ohio,
USA. Qian Gao is based
at the Department of
International Economy
and Trade, Anhui
University, Hefei, China.
Jane V. Wheeler is based
at the Department of
Management, Bowling
Green State University,
Bowling Green, Ohio,
USA. Jungsook Kwon is
based at University of
Ulsan, Ulsan, South
Korea.
Abstract
Purpose –This paper aims to investigate the role of Sun Tzu’s significant strategies on the relationship
between the institutional environment and international performance of Chinese born global firms, a
type of small- and medium-sized enterprise (SME) characterized by the company’s limited resources
and its early efforts to internationalize.
Design/methodology/approach –The methodology is based on a multi-case analysis of interviews
conducted with four chosen born global firms, coupled with public database and Web site searches.
Through the use of qualitative methods, propositions were developed.
Findings –This paper provides insights regarding how the institutional environment, both formal and
informal, has a strong positive relationship with born global firm’s international performance. Moreover,
Sun Tzu’s significant strategies play a critical role in the internationalization process of born global firms
in emerging markets.
Originality/value –Although existing studies discuss the application of Eastern philosophical
strategies adopted by firms in emerging markets, to the best of our knowledge, this is one of the earliest
studies which evaluates the moderation effect of Sun Tzu’s significant strategies on the relationship
between institutional environment and business performance. The paper contributes to scholarly
discourse on the influencing factors of born global firm’s internationalization process. It also has
practical relevance to international entrepreneurs and SMEs from emerging markets.
Keywords China, Guanxi, Institutional environment, Firm performance, Born global, Sun Tzu,
The Art of War strategies
Paper type Research paper
Introduction
China, a leading emerging market, possesses numerous advantages such as the presence
of low-cost labor; abundance of knowledge workers; positive government support;
availability of low-cost capital; and powerful, highly networked conglomerates (Zhang et al.,
2015). These all have helped make China a formidable challenger in the global
marketplace. Recently, China has produced many internationally active small- and
medium-sized enterprises (SMEs) such as born globals, which represent an important
trend, particularly because such firms are characterized by limited resources.
Unfortunately, these born global SMEs face several perceived constraints such as the lack
of economies of scale (Welch and Luostarinen, 1988), the lack of financial and knowledge
resources (Zhang and Tansuhaj, 2007) and the tendency to be risk averse (Dimitratos and
Plakoyiannaki, 2003). Moreover, the underdeveloped Chinese institutional environment
exacerbates these constraints because born global firms internationalize earlier and faster
than other exporting firms (Knight and Cavusgil, 2004). Such an impact of the institutional
environment on its firms cannot be over-emphasized (Li and Atuahene-Gima, 2001).
According to Tan (1996), the political and regulatory sectors are the most influential, most
complicated, and least predictable in China (Tan, 1996). The state and party officials
control most key resources such as government loans, land and buildings, as well as the
ability to convert foreign currency, engage in foreign trade and access information
Received 4 November 2014
Revised 18 March 2015
Accepted 3 June 2015
DOI 10.1108/JABS-11-2014-0084 VOL. 10 NO. 1 2016, pp. 1-19, © Emerald Group Publishing Limited, ISSN 1558-7894 JOURNAL OF ASIA BUSINESS STUDIES PAGE 1
technology (Cai et al., 2010). Markets do not regulate entry and exit in China. A firm’s
survival is constrained by limited access to capital and raw materials, which are controlled
by the government and redistributive sector (Luo, 2007;He and Cui, 2012).
Because of these limitations, SMEs have long been advised to adopt appropriate strategies
to help them obtain necessary resources (Ebben and Johnson, 2005). Facing these
institutional pressures, firms have been recommended to make strategic responses (Gao,
2008). Yet, most of the managers in SMEs in China are not aware of Western management
strategies (Gao, 2008). Instead, Chinese business strategies are based on traditional
Chinese philosophies (Chen, 2005), such as those of Sun Tzu and Confucius. Moreover,
China’s recent economic boom has excited Western business people. As a result, these
philosophies have attracted tremendous attention since the early 1980s. Research has
demonstrated that Eastern philosophies have had a strong influence on an organization’s
business performance (Pheng and Leong, 2001;Opdebeeck and Habisch, 2011). The
interest has been so intense that the West has even begun to study Asian management
philosophies hoping to gain a better understanding of the strategic Chinese mindset and
a competitive advantage in their markets (Opdebeeck and Habisch, 2011). As a result, Sun
Tzu’s The Art of War has been applied by a few business school disciplines, such as
marketing and supply chain management. Unfortunately, the international business field
has never adopted it.
This paper seeks to address this gap by assessing the role of Sun Tzu’s significant
strategies on the relationship between institutional environment and international
performance of Chinese born global firms. To better understand this business
phenomenon, we conducted in-depth interviews with four selected born global firms,
coupled with public database and Web site searches. Through the use of qualitative
methods, propositions were developed. The relationship among institutional environments,
Sun Tzu’s significant strategies and international performance is proposed in the context of
born global firms. We further provide recommendations for managers, theoretical
contributions, and suggestions for future research.
Background literature
Institutional theory
According to North (1990, p. 3), institutions are “the rules of the game in a society or, more
formally, are the humanly devised constraints that shape human interaction”. Businesses
respond to their environment by either developing and exploiting opportunities or reacting
to perceived threats (Andrews, 1987;Kolk and Fortanier, 2013). Institutional theory deals
with choices made in response to or in compliance with an organization’s institutional
environment (Bluedorn et al., 1994). It posits that firms are affected by the economic, social,
and political forces exerted by its relevant institutes according to Scott (2001). To unpack
the institutional influences of a particular phenomenon, researchers have called for an
examination and delineation of both formal and informal forces (Oliver, 1991;Scott, 2002).
According to Scott (2001), formal institutions refer to regulatory forces which include both
governmental laws and regulations. When formal institutions fail, informal governance
mechanisms, such as social ties, act as substitutes to facilitate economic activities (Peng,
2003).
Existing literature have identified some institutional forces. For example, Lane (1997)
identifies trade associations, legal regulations, and technical standards as major
institutional forces that result in greater inter-firm trust and collaboration in Germany
compared with that in Britain. Moreover, Oxley and Yeung (2001) found that rule of law and
the availability of credible payment channels are critical for the development of
e-commerce. Legal support, official intervention, arbitrariness of officials, and the
importance of guanxi are some key institutional forces that affect cross-border operating in
China according to Child et al. (2003).
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