Competitive Advantage in China

Journal of Business Research 63 (2010) 856–862

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Journal of Business Research

How foreign firms achieve competitive advantage in the Chinese emerging economy: Managerial ties and market orientation

Julie Juan Li a,⁎, Kevin Zheng Zhou b,1

a b

Department of Marketing, City University of Hong Kong, Kowloon Tong, Hong Kong School of Business, The University of Hong Kong, Pokfulam, Hong Kong

a r t i c l e

i n f o

a b s t r a c t

As China experience unprecedented changes in its social, legal, and economic institutions, on what should foreign firms focus more to overcome this challenge, managerial ties or market orientation? This study investigates how managerial ties and market orientation affect competitive advantage and, consequently, firm performance in China. On the basis of a survey 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. © 2009 Elsevier Inc. All rights reserved.

Article history: Received 14 September 2008 Accepted 18 June 2009 Keywords: Managerial ties Market orientation Competitive advantage Institutional advantage Emerging economy

1. Introduction In recent years, foreign investment has poured into China, in the form of either joint ventures or wholly-owned subsidiaries, with an attempt to grab the huge potential of the world's fastest-growing markets. China, for example, has been rated the most attractive FDI destination for seven consecutive years by the world's leading executives since 2002 (FDI Confidence Index Survey, 2008). However, despite...