Dueling Institutional Logics And The Effect On Strategic Entrepreneurship In Chinese Business Groups

• Author: Yuan Lu,Robert E. Hoskisson,Garry D. Bruton,Daphne W. Yiu
• Date: 01 September 2014
• Published date: 01 September 2014
• DOI: http://doi.org/10.1002/sej.1177

DUELING INSTITUTIONAL LOGICS AND THE EFFECT

ON STRATEGIC ENTREPRENEURSHIP IN CHINESE

BUSINESS GROUPS

DAPHNE W. YIU1*, ROBERT E. HOSKISSON2, GARRY D. BRUTON3,4, and

YUAN LU5

1Department of Management, Faculty of Business Administration, Chinese

University of Hong Kong, Hong Kong, China

2Jones Graduate School of Business, Rice University, Houston, Texas, U.S.A.

3Neeley School of Business, TexasChristian University, Fort Worth, Texas, U.S.A.

4School of Management, Jilin University, Changchun, China

5Business School, Shantou University, Guangdong, China

Focusing on a period of institutional friction when institutions are in transition, this study

examines the dueling institutional logics that simultaneously operated as business groups were

implemented to foster strategic entrepreneurship activities in China. Our findings from 1,095

Chinese business group-affiliated firms show that the original institutional logic of state control

and ownership remains a potent factor, while the new institutional logic in support of strategic

entrepreneurship takes place through business groups’ informal and formal organization

controls. Further, the state logic causes rigidity and inflexibility for firms to react to the new

institutional demands, thus weakening the positive effects of business group formal and infor-

mal controls on strategic entrepreneurship.This study contributes to the institution-based view

by highlighting that dueling logics coexist in business groups and investigating how they can

be sources of variation in advancing strategic entrepreneurship during periods of institutional

friction. Copyright © 2014 Strategic Management Society.

INTRODUCTION

In economies transitioning from a planned toward a

market-based economic system, firms face a new

institutional logic to be globally competitive while

still dealing with a dominant state logic. The resulting

contradictory demands on the firm generate institu-

tional friction that impacts a firm’s strategic choices

(Kim, Kim, and Hoskisson, 2010). In this article, we

examine the question of how such institutional fric-

tion impacts firms’ strategic choices regarding corpo-

rate entrepreneurship and innovation.

One setting where these contradicting institutions

are likely to have an impact on corporate entrepre-

neurship and innovation is China. On the one hand,

traditional statist institutions in China are likely to

lead firms to avoid entrepreneurship and innovation.

On the other hand, the newly emerging market-

based institutions are urging firms to engage in more

entrepreneurial and innovative activities in order to

enhance market competitiveness. To deal with such

dueling institutional logics, business groups were

implemented in China to facilitate this transition and

overcome the lack of an emphasis on market com-

petitiveness. As a new organizational form, business

groups have been found to significantly aid emerging

economies to transition from an imitator to innovator

economy through their role of generating internal

market incentives (Amsden and Hikino, 1994;

Khanna and Palepu, 1997; Leff, 1978). However, it

Keywords: strategic entrepreneurship; institutional logic; busi-

ness groups; China

*Correspondence to: Daphne W.Yiu, Department of Manage-

ment, Faculty of Business Administration, Shatin, NT, Hong

Kong, China. E-mail: dyiu@cuhk.edu.hk

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 8: 195–213 (2014)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1177

Copyright © 2014 Strategic Management Society

is unclear how a business group facilitates corporate

entrepreneurship and innovation among its affiliate

firms (Chang, Chung, and Mahmood, 2006), espe-

cially in the midst of dueling institutional logics

associated with institutional transitions.

Therefore, this article examines the impact of

competing institutional logics on strategic choices

for corporate entrepreneurship and innovation in

business group affiliated firms in China. We examine

the competing institutional logics through a firm’s

founding leadership and ownership history and

through the impact of formal and informal controls

emphasized in business groups and how they influ-

ence firm actions focused on corporate entrepreneur-

ship and innovation. We examine these dueling

forces during a period of institutional friction as the

adoption of strategic entrepreneurial practices in

business group firms in China had begun but were

not complete. Our empirical context consists of

1,095 affiliates of the largest 250 business groups in

China during a period of heightened institutional

change.

By examining how conflicting institutions influ-

ence the level of corporate entrepreneurship and

innovation, this study makes a number of contribu-

tions to the literature. First, we theoretically expand

the understanding of the institution-based view of

the firm in strategy and entrepreneurship, which

highlights that strategic choice is an outcome of the

dynamic interactions between institutions and orga-

nizations (Peng, 2002; Peng et al., 2009; Peng,

Wang, and Jiang, 2008). Our study examines the

strategic choices made by firms in a conflicted

transitioning institutional environment. We demon-

strate the coexistence of multiple and incoherent

logics that are manifested in the legacy forces

embedded in state bureaucracy and the market-

oriented change forces enacted by business groups to

institute new organizational practices like strategic

entrepreneurship. This approach shows that hetero-

geneous strategic outcomes may result from firms’

strategic choices during periods of institutional

incongruence of dueling institutional logics, and it

allows us to address public policy issues as encour-

aged by Barney (2005) in the strategic entrepreneur-

ship literature. A second contribution is expanding

the understanding of conflicting logics that can exist

in organizations as they progress through their insti-

tutional evolution in transition economies. In par-

ticular, our study highlights how higher-order

changes can cause conflict among lower-order insti-

tutional implementation efforts. The emphasis on the

competition between higher-order and lower-order

logics sheds light on how historically and norma-

tively rooted logics generate resistances for new

strategy implementation (Fiss and Zajac, 2004;

Lounsbury, 2007; Marquis and Lounsbury, 2007).

Third, because the organizational form (business

groups) in which these conflicting logics take place

is relatively new in the literature on strategic entre-

preneurship, we enrich the understanding of the role

of formal and informal organizational controls in

institutionalizing strategic entrepreneurship in this

organization form. Finally, our findings will also

remind managers and policy makers in transition

economies that even while developing new organi-

zational forms such as business groups to foster

market-oriented practices, these organizations still

face resistance due to historically embedded con-

flicting institutional logics.

DUELING INSTITUTIONAL

LOGICS AND STRATEGIC

ENTREPRENEURSHIP

In emerging economies such as China, the institu-

tional transition toward a market-based economy

pressures firms to increase their emphasis on strate-

gic entrepreneurship to achieve improved long-term

competitiveness. Our conceptualization of strategic

entrepreneurship is consistent with that of Hitt et al.

(2011), who defined strategic entrepreneurship as

those actions where firms ‘simultaneously address

the dual challenges of exploiting current competitive

advantages (the purview of strategic management)

while exploring for opportunities (the purview of

entrepreneurship) for which future competitive

advantages can be developed and used as the path to

value and wealth creation’ (Hitt et al., 2011: 59).

Our theoretical premise lies in the institution-

based view of the firm and literature on competing

logics. The institution-based view draws from both

the sociological and economic branches of institu-

tional theory, highlighting institutional pressures as

both constraints and facilitators of firm strategy

(Ahuja and Yayavaram, 2011; Peng, 2002; Peng

et al., 2009). Instead of viewing institutions as forces

or pressures that drive firms to comply with norms,

theorists argue institutions can be viewed as oppor-

tunities for firms to formulate strategies to conduct

economic exchanges in a more efficient way. Treat-

ing institutions as explanatory variables rather than

as background, the institution-based view focuses on

196 D. W. Yiu et al.

Copyright © 2014 Strategic Management Society Strat. Entrepreneurship J.,8: 195–213 (2014)

DOI: 10.1002/sej