Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-21T23:51:32.621Z Has data issue: false hasContentIssue false
  • English
  • Français

Does the Colour of the Cat Matter? The Red Hat Strategy in China's Private Enterprises

Published online by Cambridge University Press:  02 February 2015

Wenhong Chen
Wenhong Chen*
Affiliation:
University of Toronto, Canada
Get access Rights & Permissions [Opens in a new window]

Abstract

The proliferation of new property rights regimes in transitional economies provided an opportunity to examine the interaction between institutions and organizations. Some private enterprises in China developed the Red Hat strategy whereby they disguised their private ownership by registering as a public-owned organization. Drawing on a national survey, this study investigated how institutional variations, transaction costs and social embeddedness affected the firms’ Red Hat strategy. The findings suggest that private firms preferred a fuzzy property rights arrangement in the early years of market transition. The temporal and regional variation of the institutional environment contributed to the adoption of the Red Hat strategy. High transaction costs — networking cost and resource constraints — were positively related to the adoption of the Red Hat strategy. Social embeddedness also played an important role. The reliance on transaction partners in the public sector increased the pressure to adopt the Red Hat, while connections with high-ranking cadres facilitated the process. However, private firms opted for clearly delineated property rights as the institutional environment improved. In turn, the decisions of individual firms affected the institutional environment at the aggregate level. The Red Hat strategy exemplifies the co-evolution of institutional change and organizational dynamics.

Keywords

institutional changeprivate-owned enterprisesproperty rights regimesocial networkstransitional economy制度变迁产权制度私营企业过渡经济社会网络
Type
Articles
Information
Management and Organization Review , Volume 3 , Issue 1 , March 2007 , pp. 55 - 80
Copyright
Copyright © International Association for Chinese Management Research 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alchian, A., & Demsetz, H. 1973. Property rights paradigm. Journal of Economic History, 33: 16–27.CrossRefGoogle Scholar
Bian, Y., & Logan, J. R. 1996. Market transition and the persistence of power: the changing stratification system in urban China. American Sociological Review, 61: 739–756.CrossRefGoogle Scholar
Buckley, C. 2004. China approves amendments to constitution on human rights. New York Times. New York City, March 15.Google Scholar
Cao, Y., Qian, Y., & Weingast, B. R. 1999. From federalism, Chinese style to privatization, Chinese style. Economics of Transition, 7: 103–131.CrossRefGoogle Scholar
Carlisle, E., & Flynn, D. 2005. Small business survival in China: guanxi, legitimacy, and social capital. Journal of Developmental Entrepreneurship, 10(1): 79–96.CrossRefGoogle Scholar
Carruthers, B. G., & Ariovich, L. 2004. The sociology of property rights. Annual Review of Sociology, 30: 22–46.CrossRefGoogle Scholar
China Economic Weekly. 2004. Where is the Way out for Red Hat Enterprises? [Cited 10 October 2006.] Available from URL: http://www.people.com.cn/GB/paperl631/11571/1043210.html.Google Scholar
Dai, Y. 2005. The twists and turns of the development of the private economy: red hat enterprises. South China Economy 7. [Cited 10 October 2006.] Available from URL: http://www.usc.cuhk.edu.hk/wk_wzdetails.asp?id=5147Google Scholar
Davis, G. F., & Greve, H. R. 1997. Corporate elite networks and governance changes in the 1980s. American Journal of Sociology, 103: 1–37.CrossRefGoogle Scholar
DiMaggio, P., & Powell, W. 1983. The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48: 147–160.CrossRefGoogle Scholar
Dobbin, F., & Baum, J. 2000. Introduction: economics meets sociology in strategic management. In Baum, J. & Dobbin, F. (Eds.), Economics Meets Sociology in Strategic Management: 1–26. JAI Press INC, Stamford, Conn.Google Scholar
Geletkanycz, M. A., & Hambrick, D. C. 1997. The external ties of top executives: implications for strategic choice and performance. Administrative Science Quarterly, 42, 654–681.CrossRefGoogle Scholar
Gore, L. L. P. 1998. Market Communism: the Institutional Foundation of China's Post-Mao Hyper Growth. Oxford University Press, Hong Kong.Google Scholar
Grabher, G., & Stark, D. (Eds.). 1997. Restructuring Networks in Post-Socialism: Legacies, Linkages, and Localities. Oxford University Press, Oxford.Google Scholar
Granovetter, M., 1985. Economic action and social structure: the problem of embeddedness. American Journal of Sociology, 91: 481–510.CrossRefGoogle Scholar
Gregory, N., Tenev, S., & Wagle, D. 2000. China's Emerging Private Enterprises, Prospects for the New Century. International Finance Corporation, Washington, D.C.Google Scholar
Greve, H. 1995. Jumping ship: the diffusion of strategy abandonment. Administrative Science Quarterly, 40: 444–473.CrossRefGoogle Scholar
Gulati, R., & Gargiulo, M. 1999. Where do interorganizational networks come from? American Journal of Sociology, 104: 1439–1493.CrossRefGoogle Scholar
Guo, K., & Yao, Y. 2005. Causes of privatization in China: testing several hypotheses. Economics of Transition, 13: 211–238.CrossRefGoogle Scholar
He, Q. 2000. Symbiosis of mandarins and businessmen: the Chinese foreordination? Viewpoint 3.Google Scholar
Ingram, P., & Clay, K. 2000. The choice-within-constraints new institutionalism and implications for sociology. Annual Review of Sociology, 26: 525–546.CrossRefGoogle Scholar
Joskow, P. 1987. Contract duration and relationship-specific investments. American Economic Review, 77: 168–185.Google Scholar
Lau, C.-M., Ngo, H.-Y., & Chow, C. K.-W. 1998. Private businesses in China: emerging environment and managerial behavior. In Kelley, L. & Luo, Y. (Eds.), China 2000: Emerging Business Issues: 25–47. SAGA Publication, Inc, Thousand Oaks, Calif.Google Scholar
Li, H., Meng, L., Wang, Q., & Zhou, L.-A. 2005. Political connections and firm performance: evidence from Chinese private firms. Serial No. 2005-E-l 1-CIG. Center for Institutions and Governance, The Chinese University of Hong Kong.Google Scholar
Li, P. 2005. The puzzle of China's Township-Village Enterprises: the paradox of local corporatism in a dual-track economic transition. Management and Organization Review, 1: 197–224.CrossRefGoogle Scholar
Liao, Z. 2005. The Red Hat project. China Credit 1. [Cited 10 October 2006.] Available from URL: http://news.xinhuanet.com/newmedia/2005-11/30/content_3855389_2.htmGoogle Scholar
Lin, J., Cai, F., & Zhou, L. 1998. Competition, policy burdens, and state-owned enterprise reform. American Economic Review, 88: 422–427.Google Scholar
Liu, W. 2004. Doors open wider for private sector. China Daily. Beijing. March 8.Google Scholar
Lu, J. 2002. Three private economy role models. China International Business, 175: 18.Google Scholar
Luo, Y. 1999. Environment-strategy-performance relations in small businesses in China: a case of township and village enterprises in Southern China. Journal of Small Business Management, 37: 37–51.Google Scholar
Luo, Y. 2003. Industrial dynamics and managerial networking in an emerging market: the case of China. Strategic Management Journal, 24: 1315–1327.CrossRefGoogle Scholar
Luo, Y., Tan, J., & Shenkar, O. 1998. Strategic responses to competitive pressure: the case of township and village enterprises in China. Asia Pacific Journal of Management, 15: 33–50.CrossRefGoogle Scholar
Meyer, J. W., & Rowan, B. 1977. Institutionalized organizations: formal structure as myth and ceremony. American Journal of Sociology, 83: 340–363.CrossRefGoogle Scholar
Naughton, B. 1995. Growing Out of the Plan. Cambridge University Press, Cambridge.CrossRefGoogle Scholar
Nee, V. 1992. Organizational dynamics of market transition: hybrid forms, property rights, and mixed economy in China. Administrative Science Quarterly, 37: 1–27.CrossRefGoogle Scholar
Nee, V., & Cao, Y. 2005. Market transition and the firm: industrial change and income inequality in urban China. Management and Organization Review, 1: 23–56.CrossRefGoogle Scholar
North, D. C. 1990. Institutions, Institutional Change, and Economic Performance. Cambridge University Press, Cambridge.CrossRefGoogle Scholar
Oi, J. C. 1995. The role of the local state in China's transitional economy. China Quarterly, 144: 1132–1149.CrossRefGoogle Scholar
Oi, J. C., & Walder, A. G. (Eds.). 1999. Property Rights and Economic Reform in China. Stanford University Press, Stanford, Calif.CrossRefGoogle Scholar
Peng, M., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: the nature of a micro-macro link. Academy of Management Journal, 43: 486–501.CrossRefGoogle Scholar
Peng, M. W., Tan, J., & Wong, T. W. 2004. Ownership types and strategic groups in an emerging economy. Journal of Management Studies, 41: 1106–1129.CrossRefGoogle Scholar
Peng, Y. 2001. Chinese villages and townships as industrial corporations: ownership, governance, and market discipline. American Journal of Sociology, 106: 1338–1370.CrossRefGoogle Scholar
Peng, Y. 2004. Kinship networks and entrepreneurs in China's transitional economy. American Journal of Sociology, 109: 1045–1074.CrossRefGoogle Scholar
Putterman, L. 1995. The role of ownership and property rights in China's economic transition. China Quarterly, 144: 1047–1064.CrossRefGoogle Scholar
Qian, Y. 2001. Revisit the issue of clarifying property rights and guiding private enterprises put off the Red Hat. Beijing: Selected Motions and Proposals of the 4th Session of the 9th National People's Congress and the Chinese People's Political Consultative Conference.Google Scholar
Ralston, D. A., Terpstra-Tong, J., Terpstra, R. H., Wang, X., & Egri, C. 2006. Today's state-owned enterprises of China: are they dying dinosaurs or dynamic dynamos? Strategic Management Journal, 27: 825–843.CrossRefGoogle Scholar
Rao, H., Monin, P., & Durand, R. 2003. Institutional change in Toque Ville: nouvelle cuisine as an identity movement in French gastronomy. American Journal of Sociology, 108: 795–843.CrossRefGoogle Scholar
Rona-Tas, A. 1994. The first shall be last? Entrepreneurship and communist cadres in the transition from socialism. American Journal of Sociology, 100: 40–69.CrossRefGoogle Scholar
Schönleber, H. 2000. Development of China's Private Economy (Die Entwicklung der chinesischen Privatwirtschaft). DIHK-ACFIC Partnership Project, Beijing.Google Scholar
Scott, R. W. 2001. Institutions and Organizations, 2nd edn. Sage Publications, Thousand Oaks, Calif.Google Scholar
Stark, D. 1996. Recombinant property in East European capitalism. American Journal of Sociology, 101: 993–1027.CrossRefGoogle Scholar
Stinchcombe, A. L. 1965. Social structure and organizations. In March, J. G. (Ed.), Handbook of Organizations: 142–193. Rand McNally & Company, Chicago, Ill.Google Scholar
Tan, J. 1996. Regulatory environment and strategic orientations in a transitional economy: a study of Chinese private enterprise. Entrepreneurship Theory and Practice, 21: 31–46.CrossRefGoogle Scholar
Tan, J., & Tan, D., 2005, Environment-strategy co-evolution and co-alignment: a staged model of Chinese SOEs under transition. Strategic Management Journal, 26: 141–157.CrossRefGoogle Scholar
Tian, G. Q. 2000. Property rights and the nature of Chinese collective enterprises. Journal of Comparative Economics, 28: 247–268.CrossRefGoogle Scholar
Tsang, E. 1994. Threats and opportunities faced by private business in China. Journal of Business Venturing, 9: 451–468.CrossRefGoogle Scholar
Tsang, E. 1996. In search of legitimacy: the private entrepreneur in China. Entrepreneurship Theory and Practice, 21: 21–30.CrossRefGoogle Scholar
Tsang, E. 1998. Can guanxi be a source of sustained competitive advantage for doing business in China? Academy of Management Executive, 12: 64–73.Google Scholar
Tsui, A., Bian, Y., & Cheng, L. (Eds.). 2006. The Management and Performance of China's Domestic Private Firms: Multi-disciplinary Perspectives. M.E. Sharpe, New York.Google Scholar
Tsui, A. S., Schoonhoven, C. B., Meyer, M. W., Lau, C.-M., & Milkovich, G. T. 2004. Organization and management in the midst of societal transformation: the People's Republic of China. Organization Science, 15(2): 133–144.CrossRefGoogle Scholar
Walder, A. G., 1996. Local governments as industrial firms: an organizational analysis of China's transitional economy. American Journal of Sociology, 101: 263–301.CrossRefGoogle Scholar
Wank, D. 1999. Commodifying Communism: Business, Trust, and Politics in a Chinese City. Cambridge University Press, Cambridge.Google Scholar
Williamson, O. E. 1994. Transaction cost economics and organization theory. In Smelser, N. & Swedberg, R. (Eds.), The Handbook of Economic Sociology: 108–136. Princeton University Press, Princeton, N.J.Google Scholar
Wright, M., Filatotchev, L., Hoskisson, R. E., & Peng, M. W. 2005. Strategy research in emerging economics: challenging the conventional wisdoms. Journal of Management Studies, 42: 1–33.CrossRefGoogle Scholar
Xin, K. R., & Pearce, J. L. 1996. Guanxi: connections as substitutes for formal institutional support. Academy of Management Journal, 39: 1641–1658.CrossRefGoogle Scholar
Zhang, H., & Ming, L. 2000. Chinese Private Enterprises Development Report (1999). Social Science Archive Press, Beijing.Google Scholar
Zhang, J. 2004a. Financial help vital for private businesses. China Daily. Beijing. March 15.Google Scholar
Zhang, S. 2004b. Red hat firms and property rights issues. Speech at the 55th Seminar on Chinese Economic Policy, Chinese Economists 50 Forum Beijing. [Cited 10 October 2006.] Available from URL: http://www.50forum.org.cn/ReadArticle.asp?MeetId=85&act=aGoogle Scholar
Zhang, Q., & Hu, H. 2000. Why do private enterprises put on the Red Hat again? China Industry and Business Times (Zhong Guo Gong Shang Shi Bao). Beijing. December 1.Google Scholar
Zhao, H. 2006. Private firms powering China economy. China Daily. Beijing. September 22.Google Scholar
Zhou, X. 2000. Economic transformation and income inequality in urban China: evidence from panel data. American Journal of Sociology, 105: 1135–1174.CrossRefGoogle Scholar
Zhou, X., Zhao, W., Li, Q., & Cai, H. 2003. Embeddedness and contractual relationships in China's transitional economy. American Sociological Review, 68: 75–102.CrossRefGoogle Scholar