Market Orientation or Managerial Ties? How Foreign Firms Achieve Competitive Advantage in Emerging Economies

On what should foreign firms focus more, market orientation or managerial ties? This study investigates how managerial ties and market orientation affect positional advantages and, consequently, firm performance in an emerging economy, China. On the basis of a study of 179 foreign firms in China, we find that both managerial ties and market orientation can lead to firm success--but in different ways. Market orientation enhances firm performance by providing differentiation and cost advantages, whereas managerial ties improve performance through an institutional advantage (i.e., superiority in securing scarce resources and institutional support). Institutional advantage, in turn, leads to differentiation and cost advantages and consequently superior performance. (For more information, please contact: Kevin Zheng Zhou, University of Hong Kong, Hong Kong: [email protected]

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

Despite the prominence of the competitive strategy perspective, it remains unclear whether foreign firms entering China can still adopt a differentiation or low-cost position to achieve superior performance, given the unique market and institutional environments in China. Alternatively, should foreign firms follow conventional wisdom and actively build managerial ties with government officials and business community to enhance their performance? This study develops and tests an interactive perspective that highlights the moderating effects of managerial ties on competitive position–performance relationships. The results indicate that though both differentiation and low-cost positions foster foreign firm profitability, the benefit of a differentiation position is conditional on political and business ties in different directions: political ties impede and business ties strengthen the positive effect of a differentiation position on foreign firms' profitability. Moreover, foreign firms benefit from their use of business ties, but their profitability suffers when they rely increasingly on the heavy use of political ties. Journal of International Business Studies (2009) 40, 339–352; doi:10.1057/jibs.2008.76