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8/15/2005 12:02:00 AM

When faced with competition, Chinese firms choose marketing over Marxism

The strategies, successes and failures behind China's new high tech ventures have more to do with market conditions and the organizations' marketing expertise than with their country's culture or economic history. Contrary to earlier assumptions, a new Rice study finds that China's young technology firms may not always be proactive in a growing market, but they're willing to take risks and be innovative when the market is highly competitive and they have the marketing skills to do so.

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China's new technology ventures are among the most impressive success stories in the world of high tech, but little is known about the strategies behind their fast-paced development. A new Rice study shows that it's the market and a firm's marketing know-how that determine whether or not these Chinese firms will be successful entrepreneurs.

"This contradicts earlier predictions that China's firms would be less proactive and innovative in light of the country's economic history, which discouraged risk-related decisions," says Haiyang Li, an assistant professor of strategic management and innovation at Rice's Jesse H. Jones Graduate School of Management.

"Even though government institutions still play an important role in China's economy, it's clear that firms are well aware they need to be aggressive and innovative to survive in a competitive market, and that their success depends on their marketing know-how."

On the other hand, when Chinese firms are operating in a fast-growing market such as the high tech industry, they don't feel the need to be innovative or aggressive. As Li found, they simply take advantage of the market's existing opportunities.

In a forthcoming article in the Journal of High Technology Management Research, Li, Jones School colleague Yan Zhang, and Tsang-Sing Chan from Lingnan University in Hong Kong examine if and when China's new technology firms benefit from entrepreneurial strategy making. They chose to analyze firms and market conditions in China because of the tremendous growth in new technology ventures there in the past 15 years.

"Several studies have focused on U.S. and large state-owned firms in China," Li says, "but we don't know much about China's newer small companies, and how they've been able to become multinational firms in such a short period of time."

Li points to Lenovo's acquisition of IBM's personal computer division for $1.25 billion as an example of the significant impact these firms are having not only in China, but in the global market as well. Founded in 1984 with only eleven employees and $25,000 in seed money from the Chinese Academy of Science, Lenovo is now the world's third largest supplier of PCs.

According to Li, China's small new technology ventures tend to be vulnerable to highly competitive, rapidly changing market conditions such as severe price competition, frequent and rapid marketing practices, and the rates at which products or services become obsolete. Prior studies also find that these firms usually have relatively limited marketing experience and little incentive to understand and satisfy customer needs because of the country's legacy of Marxist ideology.

"Therefore, those firms which have developed these competencies are more likely to build up a competitive advantage," Li says.

With so many U.S. firms entering the Chinese market either through outsourcing or direct investments, Li believes his findings will help those companies better understand how their Chinese partners and local Chinese firms are developing their strategies.

Data for the study was gathered through on-site structured interviews with the general managers of 184 new technology ventures in the Beijing High Technology Experimental Zone in China. One of the most developed high technology industry zones in the country, it contains 68 universities and 213 research institutes, and in 2000, boasted revenues of $18 billion. The average age of the new ventures was 4.8 years.

Li and his colleagues used multiple measures to assess new venture performance, the extent to which firms conducted entrepreneurial strategy making, the level of uncertainty in the market, industry growth and their technological and marketing competence. They controlled for several factors including venture size, age, ownership and industry type.

An expert on product innovation and business strategies in China's transition economy, Li is continuing to collect data on all of the technology firms within the Beijing research park to identify what affects their survival and failure. He also is in the process of editing a book on the growth of China's new technology ventures.

His research on this emerging market appears in a number of scholarly publications, including the Academy of Management Journal, Strategic Management Journal, the Journal of Marketing, Management and Organization Review, the Journal of International Marketing and the International Business Review.

Li earned his bachelor and master's degrees in economics from Renmin (People's) University of China and his Ph.D. degree from City University of Hong Kong.

For more information on this research, please contact Li at haiyang@rice.edu or Debra Thomas in the Jones School at dthomas@rice.edu .