Performance Strategies for the Globalizing Chinese Business Enterprise:

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• Performance Strategies for the Globalizing
  Chinese Business Enterprise
• Resource and Capabilities-Based Insights from a
  Three-level Strategic Fit Model
• Ilan Alon, Rollins College
• Theodore T. Herbert, Rollins College
• J. Mark Muñoz, Millikin University

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Outline

• Introduction
• The challenge to the Chinese firm Becoming
  globally competitive
• Strategic fit and the alignment of
  organizational strategic initiatives
• The Resource-Based View of the globalizing firm
• Levels of strategic response and their
  interactions
• Discussion and conclusions

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Introduction

• Globalization has spurred business interactions
  among countries and the world
• China has increased its globalization after it
  joined WTO, which has led to its expansion of
  investment and boosting economic growth
• Chinas economy is during a prolonged state of
  transformation period
• The importance of the transition to a free-market
  economy is seen in its being the subject of a
  government policy document
• The dramatic economic and business
  transformations will affect both individuals and
  organizations
• A more considered and a more strategic approach
  to globalizing the Chinese enterprise is called
  for

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The Chinese Firms Challenge Becoming Globally
Competitive

• Our observations are derived from extensive
  reviews of the business and academic literatures,
  distilled, and integrated for this paper
• The business environment in China is changing as
  a result of market changes and government intent
• Chinese firms face challenges in RD, marketing
  capabilities, brand development and continuing
  government constraints
• In order to become successful players, Chinese
  firms need to pay attention to all aspects of the
  firms operations

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Strategic Response Levels

• Individual Level
• Enhancing individual skills, abilities and
  practices
• Intra-Organizational Level
• Capabilities and resources, structural
  adjustments, technological innovations and
  enhancements internal to the organization
• Inter-Organizational Level (Local and Global)
• Companies readjust and fine-tune business
  strategies in response to trade integration,
  technological exposure and international
  competition

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Strategic Fit and Alignment of Organizational
Initiatives

• Focusing on a specific operational practice may
  lead to dysfunction or suboptimal performance
• Need to develop strategies that are high-impact
  and do not conflict with each other
• Objective Strategic fit. Attained when internal
  operational processes or functions are
• Consistent with each other (mutually reinforcing)
• Consistent with the demands of the organizations
  environment(s)

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Mutual Fit for Three Levels of Organizational

• Responses to Globalization Issues

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The Resource-Based-View of the Firm A
Resource-and-Capability Perspective

• Resource-Based-View (RBV) emphasizes
  performance-relevant assets of the firm and their
  derived skills
• The firms resources include all assets,
  organizational processes, firm attributes,
  information, knowledge, etc., controlled by a
  firm that enable the firm to conceive of and
  implement strategies that improve its efficiency
  and effectiveness (Barney, 1991, 101)
• The firms assets (resources) are categorized
  into tangible and intangible resources
• Tangible resources include financial, physical,
  techno-logical, and organizational assets
• Intangible resources include human, innovation
  and creativity, and reputation assets
• Capabilities are the skills or competencies used
  by the firm to create and deliver its goods or
  services

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Assessing Resources and Capabilities Ability to
Confer Competitive Advantage

• Each is evaluated for its
• Value (contributes uniquely to a firms
  efficiency or effectiveness?),
• Rarity (easily available to others?),
• Ability to be imitated (unique?), and
• Substitutability (has equivalent but different
  alternatives?)
• If yes to all, that resource/capability is
  considered a source for competitive advantage.

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The Individual Level

• Influence of Confucianism over individuals and
  their beliefs and behaviors
• The role of personal relationship (Guanxi)
• The impact of political and economic systems on
  Chinese managers
• Influence of institutional factors on individuals

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The Individual Level

• In the transition from a centrally planned
  economy to a socialist market economy, employees
  face need of assessing and upgrading areas of
  knowledge of
• Home culture
• Target culture
• The theory, practice, and dynamics of human
  resource management
• The language of the target culture
• The relevant corporate cultures
• Global perspective
• Basic business functions

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The Individual Level The Firms Responses

• 1 A Identify the relevant skill-sets for
  members and executives for the business strategy,
  assess current skills, and remedy any
  deficiencies
• 1 B Ensure that members beliefs, work
  values, motivational levels, and personal goals
  are consistent with those of the organization
• 1 C Investigate culturally-derived processes
  such as guanxi for their possessors within the
  firm, as a firm asset available for exploitation

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The Individual Level Responses (cont.)

• 1 D Review work histories and work orientations
  of members to uncover and re-train inappropriate
  habits from former planned-economy organizations
• 1 E Review members language skills and
  foreign-culture knowledge set training goals for
  those who most need these skills

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RBV Assessment Individual-Level Responses

• Each is important (valuable)
• Having these elements in place does not in itself
  make it difficult for competitors to imitate or
  substitute them
• Attaining a match with internal individual
  resources and capabilities is not rare among
  global competitors
• At best, raising firm resources and capabilities
  to the level dictated by the firms aspirations
  and strategies can yield only competitive parity
• Necessary but not sufficient Sustainable
  competitive advantage must be sought elsewhere

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The Intra-Organizational Level

• In becoming more involved in economic
  globalization, the company undergoes strategic
  transition in mode and scale, operations
  management, marketing strategies, human
  resources, and ownership consideration
• Influence by economic development (special
  economic zones)
• Constraints of management practice
• Top-down decision making
• Vertical communication
• Focus on production
• Risk aversive
• Renzhi

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The Intra-Organizational Level

• The role of Guanxi in the Chinese organization
• Other important factors
• Labor costs
• FDI
• Firm size

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The Intra-Organizational Level Responses

• 2 A Review management practices for
  consistency with goals and resources undertake
  developmental activities if not
• 2 B Review the form of organization and
  ownership, ensure its appropriateness for the
  global context
• 2 C Assess and modify leadership roles and
  functions for consistency with the needs dictated
  by the firms globalization strategy

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The Intra-Organizational Level Responses (cont.)

• 2 D Review and modify the firms
  administra-tive practices for human resources
  refine their skills inventory for appropriate
  skill sets
• 2 E Internal audit of resources (technological,
  guanxi, physical, capital, competences) and
  capabilities
• 2 F Review and modify, if appropriate,
  governance and managerial processes, including
  decision-making practices

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RBV Assessment Intra-Organizational-Level
Responses

• Many are oriented to attaining consistency
  between internal resources and capabilities, and
  the resources and capabilities of more
  experienced global competitors
• These include assessment of current management
  practices (2A), form of organization and
  ownership (2B), human resources practices (2D),
  auditing resources (2E)
• None of these seems to offer advantage through
  being valuable, rare, inimitable, or
  non-substitutable.

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RBV Assessment Intra-Organizational-Level
Responses (2)

• Depending on circumstances (firm, its global
  industry, competitors), some others could be
  assessed as being valuable, rare, inimitable, and
  non-substitutable
• developing leadership (2C) and
• decision-making skills (2F)
• These would be investments in resources and
  capabilities that rise above gaining parity

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The Inter-Organizational Level

• The Local Environment and the Firm
• Changes in the institutional environment
• Social institutions
• Regional economy
• Inconsistency between regions (23 provinces and 5
  Autonomous Regions)

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The Inter-Organizational LevelResponses (Local
Implications)

• 3 A Consider how the expansion strategy is
  appropriate for the domestic market needs across
  Chinas regions
• 3 B Assess the impact of governmental
  relations processes at home, in other Chinese
  regions, and in foreign markets on operations
• 3C Investigate the effects of ambient cultural
  factors on alliance or joint venture partners
  negotiating or establishing working relationships

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The Inter-Organizational LevelResponses (Local
Implications) cont.

• 3 D Understand and optimize local market
  factors and dynamics for performance, especially
  for transferring skills to broader marketplaces
• 3 E Consciously audit ongoing organizational
  guanxi and maintain proper relationships with
  those involved
• 3 F Monitor the emerging nature of the local
  and global mass media and develop a strategy for
  them.

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RBV Assessment Inter-Organizational-Level (Local
Implications) Responses

• Those elements for mounting local resources and
  applying local competences seem to provide an
  opportunity for achieving competitive advantage
  in the short- to intermediate-term
• Competitors would have varying but minor
  capabilities in ambient cultural factors (3C),
  leveraging local-market-based skills (3D), and
  consciously managing guanxi (3E)
• These would seem to be, for now, relatively rare
  but valuable, inimitable, and non-substitutable
• But the others are commonly-valued actions,
  already widespread, and thus parity-oriented
  Evaluating the impact of the expansion/global
  strategy (3A), managing governmental relations
  (3B), and developing mass-media strategies (3F)

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The Global Environment and the Firm

• Link firm with the international environments
• Chinas outwards FDI
• 139 nation states and territories
• Oversees ventures typically with an average cap
  of US3 million, in services and processing
• Internationalization
• Most Chinese organizations are in the initial
  stage of internationalization new to global
  branding and marketing, global operations, global
  financing, etc.
• New organizational models emerging
• Partnership selection paramount
• Internet and e-commerce initiatives

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Global Environment and the Globalizing Firms
Responses

• 4 A Learn the issues important for global
  production and consumption dynamics and set
  training goals as appropriate
• 4 B Formulate a global vision and develop
  strategies for market expansion
• 4 C Analyze value chains for efficiencies and
  effectiveness

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Global Environment and the FirmResponses cont.

• 4 D Evaluate potential partners for strategic,
  organizational, and financial attributes, as well
  as for values and cultural consistency
• 4 E Evaluate e-commerce opportunities and the
  skills they require for strategic execution

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RBV Assessment Inter-Organizational-Level
(Global Implications) Responses

• The entry-level competences for global business
  include knowing what the issues are and becoming
  prepared to deal with them hence, this (4A)
  action is parity-oriented
• The other action elements provide a means for
  achieving competitive advantage through
  formulating a global vision and developing
  explicit strategies based on that vision (4B),
  performing thoughtful analyses of the firms
  value chains (4C), going beyond superficial
  reviews of potential partners (4C), and becoming
  versed in the emerging advantages provided
  through e-commerce (4E)
• Each of these latter action elements is more or
  less rare, certainly valuable, not able to be
  imitated, and cannot be substituted, hence these
  four action elements are considered as
  contributing directly to achieving resources and
  capabilities for sustainable competitive advantage

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Cross-Level Effects for System Consistency

• Response 5 A The globalizing Chinese firm must
  avoid the mistake of believing that a single
  strategic action has no implications for other
  Levels, and search for the linkages and impacts
  in order to optimize the effects and minimize the
  disruptions in total operations
• Response 5 B The globalizing Chinese firm must
  develop a strategic mindset among its members
  that will allow the entire firm to remain true to
  important cultural values, while improving its
  capabilities in other ways

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Cross-Level Alignment Considerations

• Optimally, the distinct levels should be
  compatible with each other, i.e., aligned
• Conflicts or gaps found from this analysis should
  be dealt with
• Fit among the separate elements can lead to
  synergy-driven high performance and competitive
  advantage

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Cross-Level Considerations and the Firms
Responses

• 5 A Create an optimal set of global capabilities
  that are mutually consistent across relevant
  Levels
• 5 B Develop a strategic/global mind-set among
  members to allow the firm to remain true to
  important cultural values, while improving other
  capabilities

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RBV Assessment Cross-Level Firm Responses

• These managerial actions are both directed to
  achieving sustainable competitive advantages for
  the globalizing Chinese firm
• They are certainly valuable, rare in that they
  are not commonly possessed by competitors,
  inimitable, and non-substitutable
• Thus, they are actions to develop competences and
  resources that yield sustainable competitive
  advantages

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Discussion and Conclusions

• Each of the three levels is interconnected with
  at least one of the other two
• The Chinese enterprise needs to assess the three
  levels separately and jointly, for an integrated
  plan
• Although we specifically focus on China, this
  approach may be used in other transitioning
  economies experiencing the rapid and broad
  impacts from the global environment