From Emerging to Developed Markets: How Entrepreneurs Can Pick the Right Strategy

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Andrew Grove, the CEO who built Intel into the world’s largest semi-conductor chip manufacturer by revenue, summed up his strategy for success succinctly, “There are two options: adapt or die.” A more nuanced version of such traditional business wisdom is provided by a study of the relationship between entrepreneurial strategy and institutional change in China that identifies appropriate strategies for success at different stages of a country’s transition from a planned economy to a market one.

From Emerging to Developed Markets: How Entrepreneurs Can Pick the Right Strategy

From Emerging to Developed Markets: How Entrepreneurs Can Pick the Right Strategy

The ground-breaking study examines the interactions between entrepreneurial strategy and institutional change in China over the decade from 1997 to 2007, and finds that relationship-based strategies – focused on building links with government – promote company growth in the early stage, while innovation-based approaches are more successful in the late stage. It also sheds new light on the neglected intermediate stage of the economic transition, which is characterised by turbulence and uncertainty, and finds that university research and science parks can play a critical role in “cocooning” fledgling companies during this phase.

“We propose that entrepreneurs may temporarily leverage ‘cocoon institutions’ to buffer uncertainty in the broader institutional environment during this transitional stage,” says Willow Wu, Assistant Professor in the Department of Management at The Chinese University of Hong Kong (CUHK) Business School, and one of the authors of a new paper titled Entrepreneurial Strategies During Institutional Changes: Evidence from China’s Economic Transition.

Hallmarks of Marketisation

To test their theories, the research team, which also included Prof. Charles Eesley from Stanford University and Prof. Delin Yang from Tsinghua University, conducted a survey of thousands of alumni from Tsinghua University who graduated between 1947 and 2007. The alumni were asked if they had taken part in founding a new company or privatising a state-owned enterprise. A total of 254 qualifying companies were identified through the survey, which had an 11 percent response rate, with 2,966 replies. Survey information on the size of the companies was combined with data from China’s National Economic Research Institute (NERI) marketisation index to conduct a statistical analysis of the interaction between three entrepreneurial strategies and three institutional settings.