Diversification as a Circumvention Strategy to Institutional Constraints in China: An Official-Entrepreneur Exchange Perspective

Peihong Xie, Xin Li, Sibin Wu

    Research output: Contribution to conferencePaperResearchpeer-review


    While unrelated diversification (i.e., conglomeration) is deemed value-destroying in the West, many Chinese private firms have been enthusiastically pursuing such a growth strategy. Conventional institutional view of diversification sees conglomerates as responses to market imperfections in emerging economies and believes conglomeration is value-creating because conglomerates can effectively fill the institutional voids in the emerging markets. Our literature review shows that the conventional institutional view on conglomeration mainly focuses on the value-creating aspects while neglects the socially counterproductive rent-seeking aspects of conglomeration strategy in institution-weak countries (Khanna & Palepu, 2000). In this paper, we fill the gap by examining some unconventional diversifications and point out their rent-seeking nature in China. We have proposed an official-entrepreneur exchange theoretical model to account for such unconventional diversifications. Therefore, we adopt a case study approach to theory-building (Eisenhardt, 1989). We have made two contributions to knowledge. One is that we contribute to the diversification literature by identifying the unconventional diversification phenomenon and proposing a theoretical framework to account for it. The other is that we contribute to the institution-based view of strategy.
    Original languageEnglish
    Publication date2014
    Publication statusPublished - 2014
    Event 2014 IACMR Conference: Exploring New Concepts and Theories from Chinese Management - The China National Convention Center, Beijing, China
    Duration: 18 Jun 201422 Jun 2014
    Conference number: 6


    Conference 2014 IACMR Conference: Exploring New Concepts and Theories from Chinese Management
    LocationThe China National Convention Center
    Internet address

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