Environment-Strategy Relationship and Its Performance Implications: An Empirical Study of

the Chinese Electronics Industry

Author(s): J. Justin Tan and Robert J. Litschert
Source: Strategic Management Journal, Vol. 15, No. 1 (Jan., 1994), pp. 1-20
Published by: John Wiley & Sons
Stable URL: http://www.jstor.org/stable/2486836
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 Strategic Management Journal, Vol. 15, 1-20 (1994)

ENVIRONMENT-STRATEGY RELATIONSHIP
AND ITS
PERFORMANCE IMPLICATIONS:
AN EMPIRICAL
STUDY OF THE CHINESEELECTRONICS
INDUSTRY
J. JUSTIN TAN and ROBERTJ. LITSCHERT
The R.B. Pamplin College of Business, Virginia Polytechnic Institute and State
University, Blacksburg, Virginia,U.S.A.

This study examined the strategy-environment-performance paradigm in a centrally planned

economy (People's Republic of China) in transition to a more market-driven economy.
Based on a survey of top Chinese managers in the electronics industry, it was found that
during this course of transformation, firms exhibited distinctive strategies despite a long
tradition of central planning, and these strategies were significantly related to perceived
environmental uncertainty. Specifically, managers' perceptions of increased environmental
uncertainty were found to be negatively related to proactive strategies and positively related
to defensive strategies. Defensive strategies were also linked to higher performance.

INTRODUCTION environment-strategy coalignment among firms

A consistent characteristic of the strategy para-
digm, regardless of perspective (Astley and Van
de Ven, 1983), is the assumption of a link
between a firm's strategic profile and its external
context (Venkatraman and Prescott, 1990). The
strategic choice perspective asserts that this
linkage has significant implications for perform-
ance (Hofer, 1975; Miller and Friesen, 1983),
yet empirical evidence is inconsistent and limited
to results that reflect. market driven economies.
For instance, Miller and Friesen (1983) used
correlation analysis to identify links between
specific characteristics of the strategy-making
activity and dimensions of the environment
among successful firms in two distinct settings.
However, both are market driven. In a more
recent study, Venkatraman and Prescott (1990),
using PIMS data and the 'profile deviation'
approach to testing for coalignment, also found
a positive performance impact for
Key words: Perceived environment, strategy, per-
formance, transition economy
in a market economy.
Given the limitations on empirical support for
this descriptive theory paradigm, there has been
surprisingly little hesitation to make general
prescriptions not only in market economies, but
throughout the world. An important question at
this point, then, is how transportable is the
strategy paradigm to different forms of economies
around the world. One thesis associated with
the strategic choice perspective and rooted
in economic theory is that within perfectly
competitive environments only tactical decisions
are possible. A plausible extension of this line
of reasoning would seem to be that highly
regulated environments, which restrict manage-
ment's decision making prerogatives, would also
limit the importance of the role of strategy.
Strategies that do emerge would typically be
unfocused. However, this assumption has gener-
ated considerable controversy among researchers
examining strategic choice in regulated sectors
of market economies. While some researchers
argue that regulated environments determine
organizational outcomes, assigning a passive role
to managers (Mahon and Murray, 1981; Smith

0143-2095/94/O10001-20$10.OO Received 17 June 1992

? 1994 by John Wiley & Sons, Ltd. Final revision received 21 May 1993
2 J. J. Tan and R. J. Litschert
and Grimm, 1987), others suggest that managers
play a critical role even in such environments
(Hrebiniak and Joyce, 1985).
Despite the political and economic importance
of formerly centrally planned economies, such
as those of Eastern European countries and
China, Western strategic management theorists
have rarely considered relevant issues that have
emerged during economic transition. Instead, the
discussions have been left to political and
economic analysts and area specialists. One issue
of particular importance to strategy theorists is
that based on studies of deregulation of industries
in market economies (Smith and Grimm, 1987;
Snow and Hrebiniak, 1980), one might also
expect that centrally planned economies severely
limit strategic choice at the firm level. However,
shifts from central planning to more market
based economies around the world typically have
not been as abrupt as industry deregulation. They
are more likely to occur in stages. Current strategic
management theory does not clearly prescribe
strategic behavior during these transition stages.
In particular, the applicability of the strategic
paradigm is not clear in newly reformed centrally
planned economies where certain sectors are
undergoing transition and others are not. Since
most aspects of the strategic paradigm are based
on mid-range experiences, economies in transition
provide unique research opportunities to test not
only cross-cultural robustness but also the levels
of applicability of the paradigm.
The purpose of this study is to explore the
environment-strategy linkage and its performance
implications in a centrally planned economy in
transition. The study is conducted among firms
in the electronics industry in the People's
Republic of China. Because of the similarities in
the inherent characteristics of the kind of socialist
model that China and other socialist countries
of Eastern Europe borrowed from the former
Soviet Union for their industrial sector (Child,
1990a), such a study should improve our under-
standing of strategic management issues in other
former centrally planned economies.
SYNTHESIS AND HYPOTHESES
Environmentaldimensions
The strategic choice perspective proposes that
The literature on organizational environments strategy, structure and process must fit environ-
reflects two prominent perspectives. The first mental circumstances and that these conditions
perspective is that of information uncertainty,
which suggests that the environment is the source
of information (Duncan, 1972; Lawrence and
Lorsch, 1967; Tung, 1979). A key focus of
research based on this perspective is emphasis
on perceived uncertainty and the subjective rather
than objective data generated by participants in
organizations. Resource dependence, the second
perspective, posits that the environment is a
source of scarce resources which are sought after
by competing organizations (March and Simon,
1958; Pfeffer and Salancik, 1978). As the
environment becomes less munificent or more
hostile, firms are subjected to greater uncertainty.
Management's ability to cope with these con-
ditions by reducing the firm's dependence on or
increase its control over these resources will
affect organizational effectiveness (March and
Simon, 1958).
The environment may also be viewed as
a multidimensional construct (Duncan, 1972;
Lawrence and Lorsch, 1967). Conceptual and
empirical studies have identified several specific
environmental dimensions, which include dyna-
mism (Dess and Beard, 1984; Thompson, 1967),
complexity (Child, 1972; Dess and Beard, 1984;
Mintzberg, 1979; Thompson, 1967; Tung, 1979),
and hostility (Miller and Friesen, 1978; Mintz-
berg, 1979). Environmental complexity and dyna-
mism have been closely linked to the information
uncertainty perspective (Lawrence and Lorsch,
1967; Thompson, 1967), while hostility has been
tied to the resource dependence perspective
(Aldrich, 1979; Pfeffer and Salancik, 1978). The
perspectives offer a better understanding of the
impact of each environmental dimension on the
formulation of a firm's strategy. These dimensions
affect top management's perception of uncer-
tainty, which in turn influences such strategic
decision characteristics as propensity for risk-
taking, futurity, proactiveness and defensiveness
(Miles and Snow, 1978; Miller and Friesen,
1982). It is further posited that the fit between
environmental dimensions and strategic orien-
tation will lead to better organizational perform-
ance (Venkatraman and Prescott, 1990).
Strategy and the regulated environment

may change over time (Child, 1972; Lawrence
and Lorsch, 1967; Thompson, 1967). Manage-
ment must be able to scan and interpret the
environment and make decisions appropriate
for both internal arrangement and external
alignment. Consistent with this perspective,
Mintzberg (1973) defines strategy as a patterned
stream of decisions, which focus on a set of
resource allocations that are employed in an
attempt to reach a position consistent with a
firm's environment. In particular for firms that
operate in competitive environments, the strategy
literature indicates that there is a need for a
distinctive strategic orientation in order to exploit
critical environmental resources and achieve a
competitive advantage (Child, 1972; Miller and
Friesen, 1983; Pfeffer and Salancik, 1978). A
series of studies in the U.S. brewing industry
verify that when managerial discretion is relatively
unconstrained, strategy is an important determi-
nant of performance (e.g., Schendel and Patton,
1978).
On the other hand, firms operating in regulated
environments confront simultaneously two factors
that impact both the role and character of
strategy. The first involves the need to deal with
the operational or technical aspects of regulation.
The second involves managing the firm's interac-
tions including political relationships with external
entities, such as regulatory agencies (Post and
Mahon, 1980). Studies in highly regulated settings
in market economies indicate that when mana-
gerial discretion is constrained, environmental
conditions rather than variables subject to mana-
gerial control play a larger role in determining
organizational performance (Fruhan, 1972; Ver-
brugge and Goldstein, 1978; Verbrugge, Shick,
and Thygerson, 1975). Smith and Grimm (1987)
go so far as to suggest that regulated environments
are deterministic and that orientation towards a
more focused strategy will go unrewarded. For
instance, firms that might have pursued a
Cost Leadership strategy (Porter, 1980) or an
Innovation strategy (Miller and Friesen, 1983)
would not be rewarded because the price firms
are allowed to charge may be lowered correspond-
ingly, leaving profits unchanged. Nevertheless,
there is contention that even in regulated
conditions, negotiated strategies may exist
(Murray, 1978; Murray and Isenman, 1978).
Hrebiniak and Joyce (1985) suggest that in the
most debilitating case of determinism there are
Strategy in Transition Economy 3
alternative modes of competition. Arguing on
the basis of equifinality these authors observe
that while the number of alternatives may be
lower, various alternative strategies are possible
within the constraints imposed by a regulatory
body. Empirical studies show that in regulated
environments such as the airline industry (Cheng
and Kesner, 1988; Snow and Hrebiniak, 1980),
banking industry (Lenz, 1980), public utilities
industry (Yokell, 1990), electronic industry and
universities (Birnbaum, 1984, 1985), and health
care industry (Zajac and Shortell, 1989), alterna-
tive strategies do exist. Finally, regarding environ-
ments undergoing deregulation, strategic manage-
ment literature indicates that in the chaotic times
surrounding deregulation, firms must change
from an unfocused strategy to distinctive and
focused strategies to be successful (Mahon and
Murray, 1981; Smith and Grimm, 1987).
Hypotheses
These competing arguments have not been
resolved for deregulated environments and dictate
a need for further understanding of the
environment-strategy-performance paradigm.
This need is particularly acute for understanding
planned economies in transition. In view of the
above, the first hypothesis states:
HI: Among firms in a planned economy in
transition, distinctive strategic orientations exist
within a single industry setting.
Movement from a centrally planned to a market
driven economy is more than a transition. It also
changes fundamental managerial assumptions,
criteria, and decision making and represents a
genuine transformation of the business. It is a time
when an organization may need to significantly
change its competitive position in order to
survive. One of the requirements for survival
appears to be an ability to understand the
environment and react quickly enough to permit
organizational adjustments. Previous studies in
which distinctive strategic profiles were examined
in competitive and regulated industries undergo-
ing change in market economies have provided
contradictory results. For example, Miles and
Snow (1978) studied the competitive U.S. elec-
tronics industry and found that increased environ-
mental uncertainty prompted firms to adopt more
4 J. J. Tan and R. J. Litschert
innovative strategies. Miller and Friesen (1983)
also found in their studies of competitive indus-
tries in the U.S. and Canada that firms were
likely to engage in innovative activities as
environmental uncertainty and hostility increased.
Regarding regulated environments undergoing
deregulation, it was found that deregulation
was associated with increased complexity and
dynamism (Mahon and Murray, 1981) which
resulted in selection of shorter-term and less
risky strategies (Birnbaum, 1984; Mahon and
Murray, 1981). Previous studies of Chinese
managers have indicated that they share a
common concern for security and are likely to
avoid proactive and risk-taking decisions when
faced with uncertain environments (Adler,
Brahm, and Graham, 1992; Birnbaum and Wong,
1985; Chong, Cragin, and Scherling, 1983; Lai
and Lam, 1986). As discussed earlier, the
information uncertainty perspective posits that
environmental complexity and dynamism are key
dimensions affecting uncertainty (Lawrence and
Lorsch, 1967; Thompson, 1967). Noting these
considerations, the following hypotheses are
proposed.
H2a: Among firms in a planned economy in
transition, environmental complexity is posi-
tively related to defensive-oriented strategies,
and negatively related to proactive, future-
oriented and more risky strategies.1
H2b: Among firms in a planned economy in
transition, environmental dynamism is posi-
tively related to defensive-oriented strategies,
and negatively related to proactive, future-
oriented, and more risky strategies.
Deregulation also increases intensity of compe-
tition for limited resources. According to the
resource dependence perspective, when the
environment becomes more hostile, organizations
are forced to buffer uncertainty in order to
protect the technical core (Pfeffer and Salancik,
1978; Thompson, 1967). Buffering may be achi-
eved in part by placing more emphasis on short
term goals and less emphasis on expensive and
risky activities. Following this line of reasoning,
the following relationship is hypothesized:
I For a detailed discussion of these strategic orientations, see
Venkatraman (1989).
H2c: Among firms in a planned economy in
transition, environmental hostility is positively
related to defensive-oriented strategies, and
negatively related to proactive, future-oriented,
and more risky strategies.
The evidence supporting a relationship between
the environment-strategy coalignment and per-
formance is compelling, and empirical studies
demonstrate that the pattern of strategic change
following deregulation is associated with differ-
ences in performance (Smith and Grimm, 1987).
Miller and Friesen (1983) summarized their
findings by arguing that successful archetypes
adopted differing strategies to cope with differing
environments. In his field study of savings and
loan associations, Lenz (1980) found that the
combination of environment, strategy, and
organizational structure in high-performance
firms differed significantly from that of low-
performance firms. Similarly, Hambrick (1983)
found that alternative strategies did not lead to
equal success within an industry. Thus the current
literature suggests that different strategies may
have different performance implications. The
theoretical relationships hypothesized in H2a,
H2b and H2c state that defensive strategies are
preferred when coping with higher uncertainty
and hostility. Therefore the following relationship
is predicted:
H3: Among firms in a planned economy
in transition, defensive-oriented strategies are
related to higher overall performance.
Previous studies testing the relationship between
strategy and performance have concluded that
there are trade-offs between profitability and
market share measures of performance (Galbraith
and Schendel, 1983; Hambrick, 1983). Research
on firms using proactive or defensive strategies
indicates that the former is often characterized
by a willingness to sacrifice profitability in favor
of market share (Hambrick, 1983; Miles and
Snow, 1978), and that proactive strategies outper-
form defensive strategies in terms of market
share, while defensive strategies have proven
more effective in terms of profitability (Hambrick,
1983). Accordingly, the following hypothesis is
proposed:

H4: Among firms in a planned economy
in transition, defensive-oriented strategies are
related to higher profitability.
As market oriented practices and western man-
agement concepts are adopted by Chinese man-
agers, market share has become a legitimate
strategic goal. This transition to more market
driven behavior encourages the relationship
between strategy and performance measured in
terms of market share. However, currently
regulatory constraints in China still limit strategic
options available, thus it is speculated that at
present, a firm's market share is primarily a
function of its size. Because of a lack of
theoretical or empirical support, this relationship
is presented here as a research question:
Q.: Is market share predominantly a function
of firm size among firms in a planned economy
in transition?
RESEARCH DESIGN
Research setting
The data were collected from the People's
Republic of China (PRC) during a time of
dramatic change in the economy. As a result of
economic reform and the introduction of market
mechanisms, managers have acquired more
decision-making prerogatives, and new profit-
sharing incentives have encouraged the use of
added discretion. These changes have affected
the various economic sectors differently and to
varying degrees. In the past 10 years, firms in
certain industries have adopted modern pro-
duction technologies and developed a new gener-
ation of products. At the same time, modern
management theories and practices have also been
introduced to Chinese managers and incorporated
into their decision-making process (e.g., Burstein,
1983; Wang, 1986). Strategic management theory
and techniques have become standard materials
in executive training programs (Luo and Yu,
1991). These practices encourage managers to
become more sensitive to the dictates of the
external environment, and require managers to
scan environmental conditions, evaluate strengths
and weaknesses, and make informed strategic
decisions. Even though economic activities remain
subject to a substantial amount of state inter-
Strategy in Transition Economy 5
vention, these changes have moved some sectors
of the Chinese economy closer to a market
system, and made it possible to utilize modern
western management theories. Thus the PRC
offers a unique setting for studying organizational
dynamics in that the economy rather than a single
industry is undergoing stages of deregulation.
In this changing economy, the electronics
industry has been selected as the research setting.
In the past 10 years, the Chinese electronics
industry has faced greater environmental changes
in the form of increased international compe-
tition. This competition has centered on both
quality and comprehensiveness of product line.
In addition, the reform has made the industry
far more vulnerable to environmental change
than during the period of self-reliance. For
example, the Chinese electronics industry experi-
enced continuous growth through mid 1989, as
reflected in an increase in revenue of 9.3 percent
for the first 6 months in 1989. As a result of the
introduction of economic sanctions by Western
countries because of the 'June Fourth Incident,'
virtually all measures of economic performance
deteriorated, and annual revenues decreased by
17.09 percent during 1989. At the provincial and
city levels, some coastal provinces experienced
declines of up to 47.13 percent. In one of our
research sites, the City of Tianjin, export revenues
for the electronics industry in 1989 dropped 24.3
percent, despite the city's efforts to develop an
export-oriented industrial policy.2
The pretest and survey were administered in
three major industrial cities in North China
during 1990-91. (See Appendix for a copy of the
survey instrument used in this study.) The sample
represents state and collective enterprises. One
hundred and eighty firms were randomly selected,
ranging in size from approximately 100 to over
5,000 employees.
Measurement
Environment
Some researchers have treated the environment
as an objective fact independent of firms (Aldrich,
1979), while others have treated this construct
as perceptually determined and enacted (Weick,
2
Electronics Industry, June, 1990 (In Chinese).
6 J. J. Tan and R. J. Litschert
1969). This unresolved issue has been a source
of equivocal empirical results. Bourgeois (1980),
however, has concluded that the issue is not
whether measures should be objective or percep-
tual; rather, he has suggested that both objective
and perceived environments are real and relevant
from a strategic management standpoint. Objec-
tive environments are relevant to primary strategy
making (domain selection), while perceived
environments are a prime input to secondary
strategy making (domain navigation). It has also
been argued that perceptual measures make
sense since only factors that participants perceive
can enter into their strategy formulation behavior
(Duncan, 1972; Lawrence and Lorsch, 1967;
Pfeffer and Salancik, 1978). In this study, the
environment is viewed as a perceptual construct
since the research examines strategic decisions
that involve navigating a domain constrained by
both state regulation and a firm's founding
technology.
Fahey and Narayanan (1986) also point out
that analyzing the environment as a whole
is impossible, since it is too complex and
interconnected. Therefore, these authors argue
that the environment should be decomposed into
segments. Current literature suggests that there
are two conceptions of the organizational environ-
ment. The first is the task environment, which is
broadly defined as all aspects of the environment
'potentially relevant to goal setting and goal
attainment' (Dill, 1958: 410). While these aspects
have been considered as stocks of resources or
sources of information, they often narrowly refer
to sources of inputs, markets for outputs,
competitors, and regulators (Scott, 1987).
Another conception of the environment that
emphasizes the importance of large corporate
systems is the institutional environment, which
includes societal, demographic, economic, politi-
cal, and international elements (Scott, 1987).
Thus, eight environmental segments similar to
these elements and also identified by Khandwalla
(1977) and Jauch, Osborn, and Glueck (1980)
were examined, including competitors, cus-
tomers, suppliers, technological, regulatory,
economic, social-culture, and international.
Respondents were asked their perception of the
level of hostility, dynamism and complexity in
each of the eight environmental segments rather
than for the environment as a whole. Forty-eight
questions were devised using a 7-point scale to
measure environmental Hostility, Dynamism and
Complexity in each environmental segment.
The Hostility dimension was measured by the
importance and availability of resources con-
trolled by different environmental elements. The
Dynamism dimension was measured by variability
and predictability of these elements. Finally
the Complexity dimension was measured by
heterogeneity and diversity of these elements in
the environment.
Strategic orientation
A dimensionality approach to strategic orientation
was used in this study (Miller and Friesen,
1982; Venkatraman, 1989). Specifically, the five
dimensions used to operationalize strategic orien-
tation were conceptualized and their measures
validated by Venkatraman (1989). Fifteen ques-
tions approximated the five dimensions of stra-
tegic orientation, namely, Analysis, Defensive-
ness, Futurity, Riskiness, and Proactiveness. The
questions used a 7-point response format.
Performance
Five questions were devised to capture a firm's
relative performance (Khandwalla, 1976). These
questions asked managers to identify their per-
formance relative to close competitors based on
after-tax return on total assets, after-tax return on
total sales, total sales growth, overall performance
and success, and competitive positions. The
response format was a 5-point scale (bottom 20
percent to top 20 percent). This self-reporting
approach is appropriate not only because account-
ing data are not available, but also due to
information made available to firm managers.
While no financial and accounting data are made
available to the public, managers are able to
compare their relative performance with close
competitors. This is possible because the govern-
ment evaluates firm performance by appraising
key indicators on an annual basis, and these
appraisals and performance rankings are distrib-
uted to firm managers. As Tung (1982) observed,
in order to increase productivity, the Chinese
government encourages 'socialist style' compe-
tition, also described as socialist labor emulation
drives, which are intended to develop friendly
competition among firms. Outstanding perform-
ances of business enterprises are publicized
 Strategy in Transition Economy 7

nationally through the media so that other firms strategy-performance paradigm can be catego-
can emulate and learn from these high performing rized into either: (a) the 'reductionistic' perspec-
companies. Most firms have emulation commit- tive; or (b) the 'holistic' perspective. The former
tees that meet periodically to appraise and typically conceptualizes environment and/or strat-
compare their performance with competitors egy in terms of one or a few dimensions. It is
based on published government appraisals and based on the assumption that interaction between
evaluations. two constructs can be understood in terms
of pairwise correlation among the individual
dimensions that represent the constructs. The
Control variable
problem with this approach is that complex
For control purposes, respondents were also systems cannot be understood by analytically
asked to identify the size of their firms as decomposing the system into its individual parts
measured by the number of employees. in order to examine each part and in turn each
relationship.
In contrast to the first approach, the holistic
Validity tests
perspective retains the multidimensional nature
The instrument was pretested for face and of coalignment between the environment and
construct validity. Top managers were asked: strategy. For this reason the present study
employs the holistic perspective on the
1. to identify decisions they considered 'strategic,' environment-strategy-performance paradigm.
2. to identify the nature of plans and time Since our primary research question is to investi-
horizons, gate to what extent one set of two or more
3. their knowledge of major resources allocation, variables can be predicted or 'explained' by
4. their knowledge of the performance of their another set of two or more variables, canonical
'comparable firms,'3 correlation analysis was chosen as the statistical
5. their knowledge of the industry average of tool to analyze the multivariate relationships
those criteria, and between environment and strategy. Additionally,
6. knowledge of their ranking relative to their Pearson-Correlation was used to supplement
comparable firms based on those criteria. canonical correlation when testing the congruent
hypotheses (HI, H2a, H2b, H2c). In using
The results of pretesting indicate that Chinese canonical correlation analysis, it must be assumed
managers are capable of distinguishing strategic that the data are reliable since low reliability
decisions characterized by Pearce and Robinson tends to attenuate the entries in R (Thompson,
(1991: 3-4), and they have knowledge of compara- 1984). The results of reliability tests ruled out
ble firms' performance. The questionnaire was this source of error. Another practical issue
then reviewed and revised by experts in strategic that needs to be addressed is that correlation
management, and was subjected to back-trans- coefficients tend to be less reliable if they are
lation procedure to ensure validity in a cross- estimated from small samples. However, a sample
cultural setting. The validity of this procedure size of 50 combined with reliable correlation and
has been established by previous strategic man- a few, distinct factors is usually considered
agement studies using cross-national settings, adequate (Tabachnick and Fiedell, 1987). Sample
including Chinese data (e.g., Adler, et al., 1992; variation may be further reduced because of the
Baird, Lyles, and Wharton, 1990). single industry setting.
In analyzing multivariate relationships, canoni-
cal analysis is the most general approach that
Analytical methods
subsumes MANOVA or multiple regression.
As Venkatraman and Prescott (1990) point However, in order to predict performance impli-
out, previous research on the environment- cations of a specific strategic choice, it is necessary
to examine how strategy variables impact a single
I This is a Chinese term which may be translated as 'close
dependent variable. The multiple regression
competitors' in terms of geographical region, size of firms, technique may be considered as a special case
similarity of products, etc. according to the same criteria. of canonical correlation in which there is only
8 J. J. Tan and R. J. Litschert
one dependent variable. Thus, the contingency
hypotheses H3, H4, and the research question
were tested using multiple regression and analysis
of variance (ANOVA).
DATA ANALYSIS AND RESULTS
Reliability tests
Two hundred and forty questionnaires were
distributed to managers in the electronics industry
in the PRC. A sample of 97 cases was collected,
representing a response rate of 40.42 percent.
Interrater reliability was assured using Cronbach's
Coefficient ox. Generally, a value of around 0.7
is considered adequate to conclude internal
consistency (Nunnally, 1978: 245). This guideline
was met in this study.
Some researchers have questioned the ability
of any single respondent to comprehend and
articulate accurately overall organizational
phenomena (Phillips, 1981). Thus, in one of the
cities, two respondents were chosen from each
firm, one of whom was the president of the firm.
Normally, another very influential person is the
representative of the Communist Party in the
firm, namely the party secretary. However, since
the implementation of the 'Manager/Director
Responsibility System' (Hunt and Yang, 1990),
the influence of the party secretary has decreased,
even though this position remains essential to
the political power structure. In addition, the
party secretary is designated by the party, while
the president and directors in major functional
areas are usually promoted from within the firm.
Therefore, these individuals are normally much
more directly involved in both the daily operation
of the firm and its planning function. For these
reasons, the planning director, who reports
directly to the president, was selected as the
second respondent. Because some survey ques-
tions were potentially sensitive, strict confiden-
tiality was promised, and no identification infor-
mation was requested. Only identification codes
(odd vs. even) were used to distinguish the two
respondents from each firm for reliability checks.
In this study the split-half reliability measure,
extending from the interrater correlation, was
used to determine interrater stability. The split-
half model was based on twelve double returns.
All the Guttman Split-Half Reliability Indexes
were between 0.7 and 0.9. The results clearly
support the contention that the measures of
perceived environmental attributes, strategic
dimension variables, and performance evaluation
exhibit stability across key respondents from
the same firm. Furthermore, since the key
respondents in this analysis were grouped accord-
ing to their relative position in their firm (the
presidents were put into group one and directors
in charge of planning were put into group two),
the results also suggest that both key respondents
would provide equally reliable answers. Therefore
after checking reliability, subsequent question-
naires were sent to just the presidents in the
other two cities.
Variables
A correlation matrix was developed on the full
sample and is presented in Table 1. Among the
five strategy dimensions, futurity, proactiveness
and riskiness were highly correlated. In order to
generate variables to operationalize strategic
orientation, exploratory factor analysis using the
Promax Rotation method was performed on
fifteen measures of the five strategic dimensions
developed by Venkatraman (1989). As shown in
Table 2, three factors were retained for strategy
measures, and the patterns of factor loadings
clearly demonstrate that these measures load on
three distinct strategic orientations. This pattern is
consistent with the correlation structure presented
in Table 1. To confirm this relationship, confirma-
tory factor analysis was performed on all five
strategy dimensions using LISREL VII. The
Proactiveness, Futurity and Riskiness dimensions
had factor loadings of 0.93, 0.94, and 0.91
(Maximum-Likelihood Estimates, p = 0.004),
respectively, indicating that these three strategic
dimensions are highly convergent. The data analysis
indicates that three distinctive strategic orientations
emerged. Two are composed of a single dimension
each, namely, Analysis and Defensiveness. The
third strategic orientation is composed of three
closely related dimensions, namely Proactiveness,
Futurity and Riskiness. This close relationship
would seem intuitively reasonable since a proactive
stance would seem to require the assumption of
some risk and a future orientation. This orientation
is also very similar to Miles and Snow's (1978)
Prospector type and the other strategic orientations
bear resemblance to these authors' Analyzer and
Defender types. Thus, Proactiveness, Futurity and

Riskiness dimensions were combined, and three
strategic orientation variables, Proactiveness
(PROSPECT), Analysis (ANALYSIS), and
Defensiveness (DEFENSE), were generated for
data analysis.
The same factor analysis procedure was used
to measure environmental dimensions. Two
factors were retained for each of the three
environmental dimensions, as reported in Table
2. Under each environmental dimension, four
segments loaded on the first factor, while the
remaining four segments loaded on the other.
For example, for environmental hostility, which
was measured in terms of criticality and hostility
of different segments, supplier, competitor, tech-
nology and regulation loaded on the first factor,
while the remaining four segments loaded on the
second factor. The same pattern was observed
for the complexity and dynamism measures,
except that for these two measures, supplier
was replaced by the international segment.
Confirmatory factor analysis was performed and
the results were consistent with those in Table
2. Apparently the four segments that loaded on
the first factor are aspects of the task environment
whereas the remaining segments are more closely
related to the institutional environment (Scott,
1987). As discussed by previous researchers,
where perceived environmental characteristics
affect job requirements, they have an impact on
managerial decisions (Leblebici and Salancik,
1981), and these highly task-related environmen-
tal segments are therefore more likely to be
understood correctly by managers (Blau and
Meyer, 1987). Following this line of reasoning,
only the four segments that loaded on the first
factor for each of the three environmental
dimensions were used to measure these dimen-
sions and, therefore, for data aggregation. Based
on these results, we aggregated respondents'
assessment of environmental hostility in regu-
lation, competition, technology and supplier
segments to generate the variable HOSTILE.
Similarly, DYNAMIC and COMPLEX were
generated by combining managers' assessment
of environmental dynamism and complexity in
regulation, competition, international, and tech-
nology segments. Thus, three environmental
dimensions, HOSTILE, DYNAMIC, and COM-
PLEX, were generated from the data. A detailed
description of measurement and analytical pro-
cedures are available from the authors.
Strategy in Transition Economy 9
Results
The SAS statistical package was used to perform
canonical analysis. The program uses the F
approximation that provides better small sample
results than the usual x2 approximation. However,
since x2 is more often reported in the literature,
we also computed the x2 significance test using
Bartlett's (1938) approximation.
A set of three environmental dimensions,
COMPLEX, DYNAMIC, HOSTILE, and a
set of three strategy orientations, PROSPECT,
ANALYSIS, DEFENSE, were used as covariates
and dependent variables, respectively. Among
the three canonical correlation functions, only
the first function reached a significant level and
provided interpretable results. As a result, the
two remaining functions were dropped from
analysis. Raw canonical coefficients, standardized
canonical coefficients, and canonical loadings
for dependent and covariate variable sets are
presented in Table 3. The interpretation of a
reliable pair of canonical variables is based on
the canonical loading coefficients. However, since
unstable results make it more difficult to interpret
canonical loadings, split-sample comparisons were
used for validation (Dillon and Goldstein, 1984).
Our results exhibit stability.
As a rule of thumb when interpreting canonical
loadings, variables with loadings of 0.30 and
above are considered interpretable, while loadings
of 0.63 (40% of variance) provide a 'very good'
measure of the factor (Thompson, 1984). As
Table 3 shows, environmental hostility and
complexity have significant impact on strategic
orientation in the same direction. Dynamism also
shows considerable effect. The data indicate
that firms exhibit three distinctive strategic
orientations in response to the combined environ-
mental influences. These reflect both the 'pattern'
and 'magnitude' of impact expected and support
hypothesis HI. Proactive strategies exhibit
opposite signs in raw and standardized coefficients
as well as the canonical loading, revealing its
role as a suppressor variable (Hotelling, 1936).
It also enhances the multivariate correlation
between defensive strategy and environmental
uncertainty variables.
Hypotheses H2a, H2b, and H2c are also
supported by the results of the canonical analysis.
Proactive strategic orientation (-0.79) was nega-
tively related to environmental hostility, dyna-
10 J. J. Tan and R. J. Litschert

*p 8. 7. 6. 5. 4. 3. 2. 1.
No.
Table
Defen- 1.
0.05; siveness Futurity
Hostility Analysis
Riskiness
**p Dynamism
Complexity Variable
Proactiveness

0.01
5.84 5.18 4.98 4.77 4.51 3.95 3.963.86 Mean Descriptive

0.50 0.62 0.57 1.20 0.60 0.95 1.091.07 S.D.

statistics

and
-0.268 -0.407 -0.390 -0.698 0.022 0.810 0.8501.000 1
(0.8342)
(0.0079)**
(0.0001)** (0.0001)** (0.0001)**
(0.0001)** (0.0001)**
Pearson

-0.327 -0.341 -0.245 -0.655 0.114 0.837 1.000 2

(0.0156)* (0.2667)
(0.0006)**
(0.0011)** (0.0001)** (0.0001)**
correlation

-0.354 -0.354 -0.337 -0.680 -0.116 1.000 3

(0.2576)
(0.0004)**
(0.0004)**
(0.0007)**
(0.0001)**
coefficient
(N
0.147 0.309 0.198 -0.053 1.000 =
4
(0.1496) (0.6048)
(0.0523)
(0.0021)** 97)

0.289 0.266 0.443 1.000 5

(0.0084)**
(0.0041)** (0.0001)**

0.430 0.442 1.000 6

(0.0001)**
(0.0001)**

0.396 1.000 7
(0.0001)**

8
1.000
 Strategy in Transition Economy
Table 2. Factor analysis of strategy and environment measures (N = 97)

Strategic orientation measures

Factor 1 Factor 2 Factor 3

Futurity 1 0.614 -0.613 0.017

Futurity 2 0.883 -0.636 -0.068
Futurity 3 0.533 -0.497 0.119
Proactive 1 0.644 -0.558 0.138
Proactive 2 0.920 -0.672 -0.001
Proactive 3 0.707 -0.338 0.215
Analysis 1 -0.121 -0.013 0.804
Analysis 2 0.074 -0.014 0.716
Analysis 3 -0.033 -0.009 0.797
Defensive 1 -0.541 0.841 0.139
Defensive 2 -0.505 0.773 -0.007
Defensive 3 -0.596 0.873 -0.200
Riskiness 1 0.670 -0.596 -0.141
Riskiness 2 0.821 -0.505 -0.202
Riskiness 3 0.686 -0.606 0.012

Environment measures

Hostile Dynamic Complex

Factor 1 Factor 2 Factor 1 Factor 2 Factor 1 Factor 2

Regulation 0.951 0.137 0.519 0.257 0.828 0.230

Competitor 0.696 0.264 0.849 0.617 0.629 0.414
International 0.303 0.507 0.693 0.311 0.756 0.147
Technology 0.502 0.351 0.642 -0.006 0.775 0.235
Supplier 0.594 0.368 0.182 0.484 0.190 0.657
Customer 0.381 0.700 0.297 0.840 0.109 0.679
Economic 0.031 0.436 0.498 0.572 0.235 0.400
Socio-cultural 0.308 0.847 0.187 0.653 0.232 0.527

mism, and complexity. On the other hand,
defensive strategic orientation (0.75) was posi-
tively related to the three environmental uncer-
tainty variables. Similar to the strategic responses
of managers in regulated industries in market
economies (Smith and Grimm, 1987), managers
of electronics firms in the China sample are
likely to adopt defensive strategies and are
reluctant to engage in more expensive and risky
strategic moves, when facing increasingly hostile,
complex and dynamic environments. The analysis
strategic orientation, while not explicitly hypoth-
esized, deserves comment. This orientation (0.52)
was not considered a viable means of dealing
with uncertainty. This finding is consistent with
Snow and Hrebiniak's (1980) study, which found
that the strategic dimensions for the Analyzer
were not as distinctive as for the Defender
and Prospector strategies. Indeed for practical
purposes, the analysis strategic orientation
appears to be a 'hybrid' of proactive and defensive
strategies (Miles and Snow, 1978; Shortell and
Zajac, 1990). Among environmental dimensions,
complexity (0.84) had the greatest loading.
Dynamism had the highest mean value (Table
2) among the three environmental dimensions,
and had considerable impact on strategic orien-
tation (0.65). Yet it was not found to be the
most influential environmental dimension.
Three regression functions were used to test
the performance implications of strategic choice.
Firm size was included as a control variable.
This resulted in eight observations being deleted
due to missing data, which in turn reduced the
sample size to eighty-nine firms. The first
model showed (Table 4) that defensive strategic
12 J. J. Tan and R. J. Litschert
Table 3. Environment-strategy linkage: Canonical analysis
Variables Raw Coeff.
Criterion set
PROSPECT
ANALYSIS
DEFENSE
Predictor set
HOSTILE
COMPLEX
DYNAMIC
X2
p '
Canonical correlation
N 97
orientation (0.243) contributed to higher overall
performance, and supported Hypothesis H3. As
predicted by Hypothesis H4, the second equation
showed that defensive strategies (0.609) were
positively related to profitability. Proactive
(-0.039) and analysis strategic orientations
(-0.164) were negatively related to profitability,
however, the two variables were not statistically
significant.
The third multiple regression equation tested
the relationship between strategies and market
share, using market share (MKTSHARE) as the
dependent variable, which in turn was measured
by total sales growth and market share relative
to close competitors. The results revealed that
proactive strategies had the largest effect (0.195),
among the three strategy orientations, on market
share in the predicted direction, while defensive
strategies had a negative effect (-0.025).
Although these associations are consistent with
previous studies (e.g., Hambrick, 1983), they
failed to demonstrate statistical significance. As
speculated in the research question QJ, size
(0.425) for the most part accounted for all the
variation in the dependent variable. In the
previous two models, size also was a major
predictor of the dependent variables. Because of
the apparent importance of size, the sample was
stratified into large (n = 35) and small (n = 54)
firms and the same regression analysis was
Canonical correlation function 1
Stand. Coeff. Loading
-0.52 -0.51 -0.79
0.34 0.41 0.52
0.91 0.55 0.75
0.85 0.48 0.82
0.86 0.54 0.84
0.47 0.23 0.65
45.58
0.001
0.57
performed on each subgroup. The results were
consistent with those reported in Table 4.
DISCUSSION AND CONCLUSION
This study offers added insights into the character
of strategic decision making in Chinese
enterprises, a subject of much speculative and
anecdotal writing, but not, heretofore, subjected
to empirical analysis. As the results show, among
the three environmental dimensions, complexity
has the highest loading, which suggests that at
the current level of regulation, as a consequence
of economic reform and open-door policy, firms
in this industry perceived more complex environ-
ments than before. Dynamism has the highest
mean value among the three environmental
measures, but was not the most influential
environmental variable. It appears that perceived
environmental change, even when high in fre-
quency and magnitude, poses less threat when
managers have a good understanding of its impact.
However, the relationship between Chinese firms
and their various environmental segments is
highly complex and particularistic, particularly
when information is not codified and regulations
are not made explicit (Boisot and Child, 1988,
1990; Child and Lu, 1990). An environment
characterized by uncodified information can
 Strategy in Transition Economy 13
Table 4. Performance implications: Multiple regression (N = 89)

PERFORM PROFIT MKTSHARE

INTERCEPT 1.013 0.592 0.912

(1.197) (1.313) (1.512)
PROSPECT 0.067 -0.039 0.195
(0.1310) (0.1435) (0.1652)
ANALYSIS 0.009 -0.164 0.093
(0.1442) (0.1581) (0.1820)
DEFENSE 0.243 0.609 -0.025
(0.1151)* (0.1263)** (0.1453)
SIZE 0.321 0.228 0.425
(0.0636)** (0.0698)* * (0.0803)* *

R2 0.34 0.51 0.27

F 11.00 21.63 7.80
(0.0001)** (0.0001)** (0.0001)**

Numbers in parentheses are standard errors except for those under F

scores, which represent probability coefficients. * p c 0.05, ** p c 0.01.

promote noneconomic forms of opportunism and
prompt decision makers to be more cautious
when making resource commitments (Boisot and
Child, 1988). We observed that among eight
environmental segments surveyed, the regulatory
segment was reported by managers to be the
most influential, least predictable, and most
complex. After reviewing media reports on
business practices in the PRC, we found that
regulatory information was difficult to obtain, and
even when available, the information appeared to
be too general and vague to help managers plan
business activities. In many cases, collection and
interpretation of regulatory information became
a primary focus of top managers, and these
managers often found from subsequent inspection
or evaluation that their interpretations of regu-
lations and rules were incorrect. In general, the
environment was characterized as discouraging
future-oriented and risk-related decisions (Boisot
and Child, 1988). Priority was placed on only
survival rather than growth. It is also speculated
based on the strong covariation between environ-
mental complexity and managers' risk-aversion
that the relatively low educational level and lack
of managerial experience in dealing with increased
uncertainty may hinder a manager's ability to
handle complex multidimensional situations and
interorganizational relations.
With regard to strategic adaptation, the results
indicate that in an industry located in an economy
that is undergoing transition from a planned
to a controlled market economy, distinctive
strategies do exist and are significantly related
to environmental dimensions. Specifically, a
defensive strategic orientation was consistently
preferred, and this choice appeared to result in
higher overall performance and profitability. In
the PRC, firms are usually appraised and
evaluated by the government based on profitabil-
ity related performance criteria, thus profitability
is usually perceived by managers as a 'hard
standard' while other performance measures such
as market share may be viewed as a 'soft
standard.? Proactive strategic orientation, on
the other hand, was not preferred when the
environment was perceived as uncertain. This
strategic orientation included attributes such as
risk-taking and futurity.
McClelland (1961) demonstrated that people
with high need for achievement (nAch) are more
likely to engage in entrepreneurial and innovative
activities and are more willing to take risks. Also
in his 1963 follow-up study when he specifically
focused on the PRC, McClelland examined the
nAch of children between the ages of 8 and 10,
who would now be in their 40s. Based on his
and other studies of Chinese managers (e.g.,
14 J. J. Tan and R. J. Litschert
Tung, 1982), one would expect that managers
defined as high achievers should be willing
to engage in innovative activities. Moreover,
Hofstede (1991) compared the difference in
uncertainty avoidance between individuals from
Western countries and those of Chinese origin,
including Hong Kong, Taiwan, Singapore, Malay-
sia. He found those of Chinese origin exhibit
consistently lower Uncertainty Avoidance Index
(UAI), indicating that people from these coun-
tries or regions are less likely to avoid uncertainty.
One likely reason for the inconsistency between
existing management literature, as well as the
strong evidence of entrepreneurial values and
behavior of ethnic Chinese elsewhere, and the
results of our current study is that McClelland's
measures focused on economic achievement,
which is more closely associated with risk-taking
and entrepreneurial behavior. In the PRC,
innovation is encouraged but not properly
rewarded (Tung, 1982; Child, 1990b), particularly
regarding top managers whose careers may be
threatened by losses associated with proactive,
innovative and risk-taking activities. This may
also explain why managers often defend their
existing performance levels instead of seeking
new alternatives when faced with increased
environmental uncertainty and hostility. With
regard to the Hofstede study, our study leads
to speculation that differences in uncertainty
avoidance behavior also may be related to the
economic system, rather than cultural factors
alone. This speculation is consistent with a
recently published comparative study of Chinese
and American managers by Adler et al., in which
it was found that Chinese managers consistently
seek clarification of the situation and information,
and 'want to be exactly sure of everything and
avoid all possible mistakes' (1992: 462). This
persistent pursuit of clarity coupled with a lack
of accurate information, as discussed earlier, may
explain the environment-strategy relationship
found in this study. These results suggest that
the transition now occurring may not be entirely
free of contradictions and traditions that obscure
the overall picture seen by the outside observer.
Historically, China's centralized bureaucracy
was intent on controlling all activities, including
innovation (Tung, 1982). Thus new innovations
are often generated in special research and
development institutes and transmitted to
enterprises in the form of plans for technical
progress. This 'supply-push' strategy has also
characterized the Chinese electronics industry
(Pollack, 1985). Moreover, since the govern-
mental bureaucracy sets gross output performance
criteria as the primary criterion for managerial
success and is itself evaluated and rewarded or
punished primarily on the basis of short-term
output and other annual or shorter performance
indicators, execution of day-to-day tasks takes
top priority. On the other hand risk-taking and
innovation initiatives often require stopping the
production line for retooling, which in turn may
cause a loss of current output, and hence a loss
of bonuses and positive appraisal. This short-
term reward explanation is also supported by
McClelland's (1963) study of the Chinese sample,
which found that a high need for power (nPower)
was negatively related to entrepreneurial spirit
and economic growth. However, this relationship
was not emphasized in that study. Our findings
indicate that while a decade of economic reform
has revolutionalized the Chinese economy, the
electronics industry as represented by this sample
is still characterized by a lack of an entrepreneur-
ial orientation.
There are several policy implications that
can be drawn from this study. First, Chinese
enterprises as represented by our sample suffer
from the 'profitability-now syndrome' common
among mature U.S. organizations in which the
management is primarily concerned about current
or short-term profits rather than future, long-
term goals (Schollhammer, 1982). Among Chi-
nese state enterprises, the 'nonowner' feeling
discourages managers from taking proactive and
future-oriented initiative (Mun, 1990). Thus,
managers quite readily accept current profit
levels as the main determinant of their success.
As a consequence, corporate efforts that focus on
uncertain and long-term pay-offs are frequently
sacrificed in favor of safer, short-term programs.
Secondly, executive incentive programs utilized
by Chinese firms appear to be similar to those
traditionally used by mature U.S. firms. They
are often based on accounting concepts of
achievement (profit or cost target) and
accompanied by relatively brief executive tours
of service (Schollhammer, 1982). In this situation
executives are reluctant to jeopardize their career
potential by championing risky entrepreneurial
projects. One means of more effectively incubat-
ing creative and innovative entrepreneurial efforts

is to see to it that executives are provided with
some psychological security. The failure of
innovative corporate projects should be clearly
separated from personal failure and from losses
in advancement potential of executives. An
environment that instills in the managers a fear
of failure is not likely to stimulate a high degree
of entrepreneurial effort.
In light of results presented in this paper there
are some issues that need to be investigated in
future studies. First, different sources of perceived
environmental characteristics have varying
degrees of impact on a firm's strategic orientation.
This study demonstrates that as the environment
becomes more dynamic, complex, or hostile,
firms emerging from a centrally planned economy
are more likely to adopt defensive strategies and
avoid innovative and risk-taking strategies. Yet it
is not clear what roles the different environmental
segments play in causing this pattern of strategic
choice. Research has not empirically verified the
relative importance of the different segments.
This issue may become more critical when cross-
national comparisons are called for. For instance,
in a market economy, one may argue that
customer segments are an important influence
on a firm's strategic decisions. In a regulated
economy, however, the market is usually charac-
terized by shortage, and since consumers are
limited to goods and services available, their
decisions and behavior may not have as significant
an impact on business decisions (Pfeffer and
Salancik, 1978). Therefore, comparative studies
may enable closer examination of those segments
and improve our understanding of the environ-
ment and its impact on adaptive responses.
Secondly, it may also be important to examine
the decision process among top management in
regulated economies. In our study, the party
secretary as a political figure was excluded from
the study for the reasons discussed earlier. Such
exclusion, while justifiable for this study, may
have resulted in the loss of important information
about political activities inside the organization.
Even as the reforms continue to evolve, the
presence of parallel authority structures contrib-
ute to an unique 'Chinese' character to any state
enterprises. Although the reforms have sought
broader roles for factory directors and adminis-
trators, enterprise party secretaries remain for-
mally vested in the organization structure.
Through its presence in a parallel authority
Strategy in Transition Economy 15
structure, the party reserves a potentially active
and influential role in many enterprise decisions.
It is widely known that the party secretary and
chief executive often differ over organizational
goals, and the result is increased uncertainty
(Hunt and Yang, 1990). The power structure is
similar to that which existed between Steven
Jobs and John Scully of Apple Computer before
reorganization, in which each was the supervisor
while at the same time the subordinate of the
other. The typical pattern is one of pure political
bargaining in which one participant strategically
counteracts the other's maneuvers. Indeed the
existence of conflicting goals is the reason why
nothing comes out as expected.
ACKNOWLEDGEMENTS
We wish to thank those Chinese managers,
educators, and government officials for their
participation and collaboration in this study. We
would also like to thank James R. Lang, Mingfang
Li, and two anonymous SMJ reviewers for
suggestions.
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18 J. J. Tan and R. J. Litschert

APPENDIX: RESEARCH QUESTIONNAIRE

3. To what extent do you think these factors have be-
PART 1. Environment come more predictable?
One aspect of this study is the environment, which consists Very little About middle Very much
of all the outside factors considered in your firm's key de- I I I
cision making process. These factors can be grouped into
the following eight sectors: * Competitors ........ 1 2 3 4 5 6 7
* Customers .......... 1 2 3 4 5 6 7
Technological International Regulatory
New techniques, World economy, Regulations and * Suppliers .......... 1 2 3 4 5 6 7
innovations and imports and policies at all
research work foreign exchange level of gov't * Technological ...... 1 2 3 4 5 6 7
Suppliers Customers * Regulatory ..........1 2 3 4 5 6 7
Sources of FIRM Retailers, wholesalers
labor and materials and final consumers * Economic .......... 1 2 3 4 5 6 7
Social-Culture Competitors Economic * Social-Culture..... 1 2 3 4 5 6 7
Social values, All competitors, Factors such as
work ethiics, and and competitive market and * International ....... 1 2 3 4 5 6 7
demographics actions among firms economic growth
4. In each sector, how much change have you observed
Please circle the number best representing the following in last five years?
features of your firm's environment in the last five years.
Little About Dramatic
1. To what extent do you think these factors have impact change middle change
on your firm? I I I
Very little About middle Very much * Competitors ........ 1 2 3 4 5 6 7
I I I * Customers ...........1 2 3 4 5 6 7
* Competitors ........ 1 2 3 4 5 6 7
e Customers ......... 1 2 * Suppliers .......... 1 2 3 4 5 6 7
3 4 5 6 7
e Suppliers .......*.1 2 3 4 5 6 7 * Technological ...... 1 2 3 4 5 6 7
* Technological ...... 1 2 3 4 5 6 7 * Regulatory ..........1 2 3 4 5 6 7
* Regulatory .......... 1 2 3 4 5 6 7 * Economic .......... 1 2 3 4 5 6 7
* Economic .......... 1 2 3 4 5 6 7 * Social-Culture ..... 1 2 3 4 5 6 7
* Social-Culture ..... 1 2 3 4 5 6 7 * International ....... 1 2 3 4 5 6 7
* International ....... 1 2 3 4 5 6 7
5. In each sector, how many factors does your firm need
2. To what extent do you think these to deal with (for example, types of customer groups)?
factors have be-
come more favorable to your firm? Very few About middle Very many
Very little About middle Very much I 1 1
I I I * Competitors ........ 1 2 3 4 5 6 7
eCompetitors ........ 1 2 3 4 5 6 7
* Customers .......... 1 2 3 4 5 6 7
oCustomers .......... 1 2 3 4 5 6 7
* Suppliers .......... 1 2 3 4 5 6 7
*Suppliers .......... 1 2 3 4 5 6 7
* Technological ......1 2 3 4 5 6 7
* Technological ...... 1 2 3 4 5 6 7
* Regulatory .......... 1 2 3 4 5 6 7
o Regulatory .......... 1 2 3 4 5 6 7
* Economic .......... 1 2 3 4 5 6 7 * Economic .......... 1 2 3 4 5 6 7
* Social-Culture ..... 1 2 3 4 5 6 7 * Social-Culture ..... 1 2 3 4 5 6 7
o International ....... 1 2 3 4 5 6 7 * International ....... 1 2 3 4 5 6 7
 Strategy in Transition Economy 19

6. Following the previous question, are those factors dif- 5. Whenever there is ambiguity in government regu-
ferent from or similar to each other? lation, we will move proactively to try to take a lead.
Similar About middle Dilfferent strongly disagree strongly agree
[ 1 1 2 3 4 5 6 F 7 l
* Competitors ........1 2 3 4 5 6 7 6. In making strategic decisions, we respond to signals
* Customers ...........1 2 3 4 5 6 7 of opportunities quickly.
strongly disagree strongly agree
e Suppliers ...........1 2 3 4 5 6 7
t 1 1 2 1 3 4 5 6 7
e Technological ......1 2 3 4 5 6 7
e Regulatory ..........1 2 3 4 5 6 7 7. In making strategic decisions, we emphasize planning
techniques and information systems.
e Economic ...........1 2 3 4 5 6 7 strongly disagree strongly agree
e Social-Culture .....1 2 3 4 5 6 7 1 2 3 4 5 6 7
o International .......1 2 3 4 5 6 7 8. In analyzing situations, we evaluate possible conse-
quences thoroughly and obtain alternatives.
PART fl. Strategic Decision Process
strongly disagree strongly agree

Another aspect of this study is strategic decisions. Strategic [ 1 2 3 4 5 6 1 7

decisions, when together, position a firm in the environ- We seek opportunities

9. that have been shown to be
ment and guide internal operation. The following are ex-
promising.
amples of strategic decisions in your industry:
strongly disagree strongly agree
* Types of products and markets served 1 2 3 4 5 6 7
1 ]
* Top management personnel decisions
* Major resource allocation 10. We emphasize the use of cost control systems for
* Product development and innovation monitoring performance.
* Technological development and R & D
* Market share and profitability objectives strongly disagree strongly agree
* Joint venture with domestic and foreign companies I 1 2 3 4 5 6 1 7
Please use such decisions your firm has made in the last 11. We constantly modify manufacturing technology to
five years as the frame of reference when answering the achieve efficiency.
questions below. Please circle the number best describing
strongly disagree strongly agree
the strategic decision process in your firm.
I 1 2 3 4 5 6 1 7

1. In making strategic decisions, we look into the future 12. We put emphasis on following government regulations
to anticipate conditions. and make important changes that are specifically al-
lowed.
strongly disagree strongly agree
strongly disagree strongly agree
1 2_ 1 3 4 5 6 7 1 IZIZI2I 3 4 5 6 7

2. We are willing to sacrifice short-term profitability for 13, In making strategic decisions, we tend to focus on in-
long-term goals. vestments that have
strongly disagree strongly agree low risk and high risk and
moderate return high return
I 1 2 3 4 5 6 1 7
L| I LLI 3 4 | 5 | 6 | 7 l
3. We emphasize investments that will provide us with a
future competitive edge. 14. We search for big opportunities, and favor large, bold
decisions despite the uncertainty of their outcomes.
strongly disagree strongly agree
strongly disagree strongly agree
1 2 3 4 5 6 1 7
1 2 3 4 5 61 7
4. In making strategic decisions, we constantly seek to
15. We approve new projects on a 'stage-by-stage' basis
introduce new brands or new products in the market.
rather than with 'blanket' approval.
strongly disagree strongly agree strongly disagree strongly agree
rf 1 2 1 3 4 5 6 7 g 1 2 3 4 5 6 1 7
20 J. J. Tan and R. J. Litschert

PART Ill. Firm Performance 3. Firm total sales growth:

| 1 1 2 3
This part is concerned with the performance of your firm in
Lowest Lower Middle Next Top
the past five years. To the best of your know/edge, please:
20% 20% 20% 20% 20%
Circle the number best estimating how YOUR FIRM com-
pares to close competitors in your industry on each item.
4. Overall firm performance and success:

1 2 j 3 4 5
1. After-tax return on total assets:
Lowest Lower Middle Next Top
1F- 2 3 4 5 20% 20% 20%
20% 20%
Lowest Lower Middle Next Top
20% 20% 20% 20% 20%
5. Our competitive position:
2. After-tax return on total sales:
I 2 3 4 5
1 2 3 4 5
Lowest Lower Middle Next Top
Lowest Lower Middle Next Top
20% 20% 20% 20% 20% 20% 20% 20% 20% 20%