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The relationship among corporate political resources, political strategies, and political benefits of firms in China: based on resource dependency theory.

Abstract

This empirical paper studies corporate political activities in the Chinese environment. The results show that corporate political activities widely exist in China. Firms can employ four types of political resources, develop and implement eight types of political strategies and obtain three types of political benefits in China. The study affirms that significant positive relationship exists among political resources, political strategies and political benefits in China.

Key words: Corporate political resource; Political strategy; Political benefit; Chinese firms

Epstein (1969) argued that "political competition follows in the wake of economic competition", and that the government and government policies may be viewed as tools to create the environment most favourable to firm's competitive efforts. There is a substantial interdependence between firm competitive environment and government policy. The uncertainty of government policy results in the increase of transaction costs, but whether firms apply political power to receive private gain has a direct relation with their business and competitiveness. When they formulate competitive strategies to win the product market, firms will develop and execute political strategies, and will obtain various government resources by influencing the government decision process to obtain their political benefits, which has become a central task in the field of strategy management. For example, through political strategy, firms can potentially increase overall market size and gain an advantage related to industry competition, thereby reducing the threats of substitutes and entry, and increasing their bargaining power relative to that of their suppliers and customers.

According to the resource dependency theory, a firm's performance is affected by what it does (strategy) which is further affected by its possession of resources (John and Shawn, 2001; Oriel and Mark, 2001; Govindarajan and Fisher, 1990). A logical deduction here is that there exists a certain relationship among corporate political resource, political strategy, and political benefits. This relationship has received scant attention in past research.

Corporate political strategies are employed by firms to influence the formulation and implementation process of government policies and regulations in order to create a favourable external environment for their business activities (Mahon, 1993; Getz, 1993). Corporate political resource are the portfolios of various resource elements that can be used in political activities to influence the government decision-making, and thus to realise firms' special political objectives (Brenner, 1980; Zardkoohi, 1985; Douglas, 1995). Corporate political benefits are those received in the course of formulating and implementing political strategies to influence government decision-making (Hillman, Zardkoohi and Bierman, 1999; Douglas, 1995).

This paper focuses on the relationship among corporate political resource, political strategy, and political benefit of Chinese firms in the course of China's economic transition. In the following section, we first introduce the research methodology. Then we explore the relationship among them by means of multi-regression and hypotheses testing. The research results are then compared with findings in past studies. Finally, we summarise the study and present the implications of the research findings.

Methodology

Sample and Data

The pilot study spanned from April to June 2003, during which 20 EMBA students with the working experience exceeding eight years were interviewed. The study collated managers' description of political resource, political strategy, and political benefit, (1) Following this, a multi-dimensional questionnaire comprising 78 variables was drawn up: Likert scale was used to measure the responses and it ranged from 1 (very low) to 5 (very high). (2)

The questionnaire was then used in a survey from January to May 2004 and involved EMBA and MBA students of Huazhong University of Science and Technology. These students typically hold top managerial positions at subsidiary level or above from firms in Hubei, Henan, Guangdong, and Fujian provinces. A total of 350 questionnaires were distributed, and 233 were returned. Eliminating the invalid questionnaires, we obtained 201 valid questionnaires, giving us a response rate of 57.43 per cent.

Validity and Reliability

We analysed the reliability and validity of questionnaire following closely suggestions by Churchill (1979) that the corrected item total correlation (CITC) should not be smaller than 0.5 and Peterson (1994) that Cronbach's alpha should not be smaller than 0.7. Based on the suggested criteria, five variables were deleted.

Next the construct validity of questionnaire was tested by means of the principal components analysis. The results of factor analysis showed the validity met the requirement of having KMO (Kaiser-Meyer-Olkin) value greater than 0.5.

Initial Analysis

We firstly classified the variables which composed the political resource, political strategy, and political benefits by factor analysis, then analysed the extent of resource possession, strategy usage, and relevant benefits. Among them, four types of political resources were identified: tangible resources, intangible resources, organisational resources, and relational resources.

Corporate political strategies were classified into eight types, which were named government involvement, direct participation, government association, financial incentive, prolocutor, institution innovation, information consultation, and societal force mobilisation strategy. Corporate political benefits were grouped into three types, which included government-related resources, competitive capability and advantage, market and financial performance (see Figure 1).

[FIGURE 1 OMITTED]

Hypothesis

From the resource-based perspective, we postulate a positive relationship among political resources, political strategies, and political benefits in the Chinese environment. Figure 1 shows this relationship: CPR denotes corporate political resources; CPS denotes corporate political strategy; and CPB denotes corporate political benefits. This study examines two major hypotheses and 11 supplementary hypotheses on the relationships among CPR, CPS and CPB were:

Hypothesis H1

The usage of corporate political strategies by a firm is positively related to the possession of corporate political resources. The regression formula used to test H1 is CPS=[[beta].sub.0] + [beta] CPR+e.

Based on the above-identified types of corporate political resources and political strategies, H1 has the following supplementary hypothesis:

H11, government involvement; H12, direct participation; H13, government association; H14, financial incentive; H15, prolocutor; H16, of institution innovation; H17, information consultation; H18, social force mobilisation strategy, will be positively affected by the extent of a firm's possession of tangible resources, intangible resources, organisational resources and relational resources. The regression formula used to test H11 to H18 is:

[CPS.sub.i]=[[beta].sub.0i] + [[beta].sub.1i] + [[beta].sub.2i]CP[R.sub.2i] + [[beta].sub.3i][CPR.sub.3i] + [[beta].sub.4i][CPR.sub.4i] + [e.sub.i] (i=1, 2, 3, 4, 5, 6, 7, 8)

Hypothesis H2

Corporate political benefits obtained by a firm will be positively related to the usage of corporate political strategies. The regression formula used to test H2 is CPB=[[beta].sub.0]+ [beta] CPS+e.

Based on the above-mentioned types of corporate political strategies and political benefits, H2 has the following supplementary hypothesis:

H21, the government resources obtained; H22, the political competitive capability and advantage obtained; H23 the improvement of market and financial performance, will be positively affected by the eight types of political strategies, that is, government involvement, direct participation, government association, financial incentive, prolocutor, institution innovation, information consultation, and societal force mobilisation. The regression formula used to test H21 till H23 is

[CPB.sub.i]=[[beta].sub.0j] + [[beta].sub.1j][CPS.sub.2j] + [[beta].sub.3j][CPS.sub.3j] + [[beta].sub.4j][CPS.sub.4j] + [[beta].sub.5j][CPS.sub.5j] + [[beta].sub.6j][CPS.sub.6j] + [[beta].sub.7j][CPS.sub.7j] + [[beta].sub.8j][CPS.sub.8j] + [e.sub.j] (j = 1, 2, 3)

Research Results

This paper investigates whether different political resources have a significant and positive impact on different political strategies, and whether different political strategies have a significant and positive impact on different political benefits and total score of political resources, political strategies, and political benefits of every sample, we tested the relationship among resources, strategies, and benefits with the multi-regression equation. (3) In this part, we present the results of hypothesis testing.

Test of Hypothesis H1

Table 1 reports the results of regression analyses related to HI, from H11 to H18.

(1) As a whole, the usage of corporate political strategies were positively and significantly related to the possession of corporate political resources. H1 was supported ([beta]=0.403, p<0.001).

(2) The usage of government involvement strategy was positively and significantly related to a firm's possession of intangible and relational resources. Thus, it supported [H11.sub.2] and [H11.sub.4] ([[beta].sub.2] = 0.312, p<0.001; [[beta].sub.4] = 0.214, p<0.01).

(3) The usage of direct participation strategy was positively and significantly related to a firm's possession of organisational and relational resources. [H12.sub.2] and [H12.sub.2] were supported ([[beta].sub.3]=0.226, p<0.01; [[beta].sub.4]=0.181, p<0.05).

(4) The usage of government association strategy was positively and significantly related to a firm's possession of organisational and relational resources. Thus,0 [H13.sub.3] and [H13.sub.4] were supported ([[beta].sub.3]=0.180, p<0.05; [[beta].sub.4]=0.262, p<0.01).

(5) The usage of financial incentive strategy was positively and significantly related to a firm's possession of tangible and organisational resources. Thus, [H14.sub.1] and [H14.sub.3] were supported ([[beta].sub.1]=0.180, p<0.05; [[beta].sub.3]=0.218, p<0.01).

(6) The usage of prolocutor strategy was positively and significantly related to a firm's possession of tangible resources. Hence, [H15.sub.1] was supported ([[beta]sub.1]=0.271, p<0.01).

(7) The usage of institution innovation strategy was positively and significantly related to a firm's possession of intangible resources. Thus, [H16.sub.2] was supported ([[beta].sub.2]=0.192, p<0.05).

(8) The usage of information consultation strategy was positively and significantly related to a firm's possession of intangible and relational resources. [H17.sub.2] and [H17.sub.4] were supported ([[beta].sub.2]=0.472, p<0.001; [[beta].sub.4]=0.150, p<0.05).

(9) The usage of mobilising societal force strategy was positively and significantly related to a firm's possession of intangible resources. Hence, [H18.sub.2] was supported ([[beta].sub.2]=0.270, p<0.01).

Test of Hypothesis H2

Table 2 reports the results of regression analyses of H2. The results of the model are as follows:

(1) As a whole, corporate political benefits obtained were positively and significantly related to the usage of corporate political strategies, and H2 was supported ([beta]=0.113, p<0.05).

(2) Government resources obtained were positively and significantly related to the usage of political business, direct participation, government relation, and prolocutor strategy. Thus, [H21.sub.1] [H21.sub.2] [H21.sub.3] and [H21.sub.5] were supported ([[beta].sub.1]=0.222, p<0.01; [[beta].sub.2]=0.228, p<0.001; [[beta].sub.3]=0.325, p<0.001; [[beta].sub.5]=0.289, p<0.01).

(3) Political competitive capability and advantage gained were positively and significantly related to the usage of political business, government relation, institution innovation, information consultation, and mobilising social force strategy. Thus, [H22.sub.1], [H22.sub.3], [H22.sub.6], [H22.sub.7] and [H22.sub.8] were supported. ([[beta].sub.1]=0.525, p<0.001; [[beta].sub.3]=0.378, p<0.01; [[beta].sub.6] -0.270, p<0.01; [[beta].sub.7]=0.215, p<0.01; [[beta].sub.8]=0.286, p<0.001).

(4) Market performance and financial performance were positively and significantly related to the usage of political business, government relation, and financial incentive strategy. Hence, [H23.sub.1] , [H23.sub.3] and [H23.sub.4] were supported. ([[beta].sub.1]=0.302, p<0.01; [[beta].sub.3]=0.356, p<0.001; [[beta].sub.4]=0.251, p<0.01).

The Relationship between Corporate Political Resource and Political Strategy

A number of research pointed to the execution of corporate political strategy being determined by the allocation of firm resources (Mahon, 1993; Barney, 1991; Douglas, 1995). For example, Barney (1991) asserted that different enterprises had different resources, and they would choose proper political strategies, which were valuable and could not be imitated, thus obtaining a sustainable competitive advantage and economical benefit. Douglas (1995) explained the influence and difference of firms' resource on their political strategies. Our results indicate that corporate political resource has a significant positive effect on the usage of corporate political strategy, and is supportive of these past findings.

However, our research found that different political resources (tangible resources, intangible resources, organisational resources, and relational resources) have a different effect on the usage of different political strategies (political business, direct participation, government relation, financial incentive, prolocutor, institution innovation, information consultation, and mobilising societal force). Intangible resource has a significant positive effect on political business, institution innovation, information consultation, and mobilising societal force strategy, while tangible resource has a significant positive effect on financial incentive and prolocutor strategy. Our explanation is that, though the level of the budgets and personnel dealing government-related affairs may improve the level of political benefit by influencing the government decision-making process in a short time, there is also the question of social problems as ethic, morality, corruption, and legitimacy. Our result only shows financial incentive strategy, such as "enterprises influence the government policy through politics bribery", "the exchange of power-money enterprises used as the means to obtain political influence".

Another explanation is that, the execution of political strategy of Chinese enterprises is based on their good political image and reputation as competitive advantage, which are difficult to replicate, while tangible resources are easy to imitate and thus are less effective in obtaining competitive advantage. In fact, if they have a good reputation and image, Chinese enterprises may spend less on the personnel of political public relations to secure more political and economic benefits. Besides, relational resource and organisational resource have significant positive effects on political business, direct participation, and government relation strategy respectively.

Our results show that the key to corporate political activity is to have a creditable relationship with government departments or officials, which provides a source to gain a sustainable competitive advantage. Therefore, relational resource and organisational resource have a significant positive effect on corporate political strategy.

These results are consistent with predictions of the resource-based theory (Barney, 1991; Boddewyn and Brewer, 1994; Buchanan, Tollison, and Tullock, 1980). For example, tangible resources such as (expenses and personnel of government public relations) can be easily imitated, thus firms find it difficult to obtain sustainable competitive advantage. On the other hand, intangible resources such as (political image and reputation) or relational resources (relationship of enterprises with customer, government, and society) are difficult to be imitated. Thus firms that adopt political strategies to influence the government decision-making process and are able to obtain sustainable competitive advantage in a longer term.

The Relationship between Corporate Political Strategy and Political Benefit

The influence of political strategy on firm performance has been variously examined in past studies. For example, Salamon and Siegfried (1977) and Pittman (1976, 1977) studied the influence of corporate political activity on the whole industry performance; Hillman, Bierman and Zardkoohi (1994), Douglas (1995), Hillman, Zardkooki and Bierman (1999) studied the influence of corporate political activity on firm performance. However, we regard corporate political benefits as a proxy measure of firm performance, and then investigated the relationship between corporate political strategy and political benefit.

Our results indicate that corporate political strategy has a significant positive effect on corporate political benefit. They conclude that Chinese firms organise and optimise their political resource and capability, adopt proper political strategy to influence the government decision-making process. The resultant political and economic benefits, thus improve firm performance. These results are supportive of the viewpoints of some scholars, such as Hillman, Zardkooki and Bierman (1999) who found that firms influence the process of the formulation of public policy by adopting political strategy to build a good relationship with the government, thus reducing uncertain exchange cost and obtaining various political and economic benefits.

The results of this paper reveal that the execution of corporate political strategy is positively associated with political benefits obtained in China. Among the eight types of political strategies identified, government involvement strategy and government association strategy have significant positive effects on all the three political benefits, while all the other six political strategies have a significant positive relationship with only one of the three political benefits respectively. This indicates that government involvement and government association strategies play major and important roles in political strategies for firms in China. One explanation is that the usage of these two political strategies has become possible routine business activities. With the increase of political sensitivity and consciousness, more and more firms in China know the importance of government involvement and government association strategies

The other six political strategies are associated with only one political resource. First, direct participation and prolocutor strategies are related to the government resources (intangible, tangible, relational). The transitional Chinese economy has open up various available resources that are valuable to business firms. One way is to directly participate in the process of the formulation and execution of government policy and rules. The other approach is to influence government officers to consider firms' benefits when making and implementing the government policy. This approach is similar to the lobby actions of firms in the west.

Second, institutional innovation, information consultation, and social power mobilisation strategies have significant positive effects on the political competitive advantage and capability, such as the revision of government policy and industry standard, expansion of industry market capacity, changing of the price and quality standard, barriers to limit or decrease the rivals, and admission required to certain markets. Therefore, Chinese enterprises actively put forward industry research reports and viewpoints, or arouse the attention from the media, consumer groups, or stockholders, form certain orientation of public opinion, and thus try to influence government decision making indirectly.

Third, financial incentive strategy has a significant positive effect on market performance and financial performance, which indicates that Chinese enterprises can gain direct return on market performance and financial performance through charitable contribution and financial support for official government activities and government officials. This is related to business ethics in the Chinese business environment, which is not the main focus of this paper.

Limitations and Future Research Directions

Although every reasonable attempt was made to eliminate the conceptual and empirical problem, there were still three limitations in this paper. First, the participants in this study were EMBA and MBA students who were attending classes part-time while continuing to work full-time. As a result, they came from a variety of work backgrounds and provinces, which could lead to a biased sample and skewed results.

Second, the political strategies of Chinese firms are often held in great secrecy by some firms, partly because some of these activities may be deemed unethical, if not illegal, by outside observers. Therefore, this study retied on measures of political activity which might not depict the actual political strategies of organisations.

Third, a regression analysis methodology does not allow for a determination of causality. Thus, it is not possible to accurately state whether the usage of corporate political strategy leads to increase political benefits of firm or that if firms perform well they can afford to engage in corporate political activities. Alternative methodologies, such as structural equations modeling, might be able to address this concern in a better way.

Despite the limitations, this paper illustrates is the pressing need for more research in the field of corporate political activity as a competitive strategy. Its contributions provides understanding the restructuring of strategic management to include proactive efforts by individual firms that can have a significant effect on that firm's external environment and the need to formulate a corporate political strategy that explicitly assumes a strategic management perspective.

Finally, this study proposed a set of empirical analyses with unique measures of government relations operations which are fundamental to the conceptualisation of corporate political activity in the field of strategic management, and shed greater insight on the relationship between corporate political activity and firm's performance.

Conclusion

This paper studies the relationship among corporate political resources, political strategies, and political benefits in Chinese environment. The results indicate that Chinese firms possess a certain amount of valuable political resources, and develop and implement a series of political strategies and tactics to secure the various political benefits. The extent of possession of political resources influences the execution of corporate political strategy, which in turn reflects the level of corporate political benefits obtained by the firm.

The results of our research indicate that Chinese firms employ four types of political resources (tangible, intangible, organisational and relational), develop and implement eight types of political strategies (government involvement, direct participation, government association, financial incentive, prolocutor, institution innovation, information consultation and social power mobilisation) and obtain three types of political benefits (government-related resources, competitive advantage and capability, market and financial performance) in firm's political activities.

In addition, there is a significant positive relationship among corporate political resources, political strategies, and political benefits. The extent of possession of corporate political resource has significant positive effects on the usage of corporate political strategies, and the later also has a significant positive effect on corporate political benefits obtained. The results of this paper are consistent with and supportive of the findings of past research on corporate political action, and also expand our understanding on the nature of corporate political resources, political strategies and political benefits, and their relationship in a transitional business environment existing in China.

End Notes

(1) The results of the research have been issued in detail: Zhilong Tian, Yongqiang Gao, Wu Wei. "The Study of Corporate Political Action and Strategy in China" The Journal of Management World, 2002(12).

(2) In tangible resource, some variables such as the amount of money, the number of people, etc will also be measured in quasi-scale. For example, the sales ("1" denote [less than or equal to] 10 million yuan; "2" denote 10-30 million yuan; "3" denote 30-150 million yuan; "4" denote 150-300 million yuan; "5" denote [greater than or equal to] 300 million yuan), the number of employees ("1" denote [less than or equal to] 300; "2" denote 301-500; "3" denote 501-800; "4" denote 801-2000; "5" denote [less than or equal to] 2000), total assets ("1" denote [less than or equal to] 40 million yuan; "2" denote 40-400 million yuan; "3" denote [greater than or equal to] 400 million yuan), and so on.

(3) In the course of factor analysis, the formula of factor score [E.sub.i]=[a.sub.i1] [X.sub.1]+[a.sub.12][X.sub.2]+ ... +[a.sub.in] [X.sub.n] (i=1, ... ,M), [E.sub.i] denotes the value of the ith factor score, [a.sub.ij] denotes the score coefficient of the jjth variable of the ith factor, [X.sub.j] denotes the value of the jth variable, M denotes the number of samples; the formula of total score is Fi=[b.sub.1][E.sub.1]+[b.sub.2][E.sub.2] + ... + [b.sub.i][E.sub.i] (i=1, ..., M), [F.sub.i] denotes the value of total score of the ith sample, [b.sub.i] denotes per cent of variance of the ith principal component factor, [E.sub.i] denotes the value of the ith factor score, M denotes the number of samples.

References

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Wu Wei Zhongnan University of Economics and Law

This research is supported by the National Science Foundation of China
Table 1: Results of Regression Analyses:
Corporate Political Resource and Political Strategy

Dependent Model Model Model Model
variable CPS [CPS.sub.1] [CPS.sub.2] [CPS.sub.3]
(model) Test H1 Test H11 Test H12 Test H13

Independent 0.403 ***
variable (4.97)
(CPR)

[CPR.sub.1]

[CPR.sub.2] 0.312 ***
 (3.746)

[CPR.sub.3] 0.226 ** 0.180 *
 (2.723) (2.229)

[CPR.sub.4] 0.214 ** 0.181 * 0.262 **
 (2.716) (2.237) (3.149)

F value 4.521 6.153 3.825 4.325

Adjusted
[R.sup.2] 0.245 0.127 0.274 0.086

Dependent Model Model Model
variable [CPS.sub.4] [CPS.sub.5] [CPS.sub.6]
(model) Test H14 Test H15 Test H16

Independent
variable
(CPR)

[CPR.sub.1] 0.180 * 0.271 **
 (2.126) (3.319)

[CPR.sub.2] 0.192 *
 (2.177)

[CPR.sub.3] 0.218 **
 (2.610)

[CPR.sub.4]

F value 3.271 0.158 1.766

Adjusted
[R.sup.2] 0.260 0.124 0.021

Dependent Model Model
variable [CPS.sub.7] [CPS.sub.8]
(model) Test H17 Test H18

Independent
variable
(CPR)

[CPR.sub.1]

[CPR.sub.2] 0.472 *** 0.270 **
 (6.040) (3.233)

[CPR.sub.3]

[CPR.sub.4] 0.150 *
 (2.030)

F value 11.528 5.975

Adjusted
[R.sup.2] 0.229 0.123

Note: * p<0.05; ** p<0.01; *** p<0.001; The standard coefficient of
regression is b, while the coefficient in the bracket is t-value.

Table 2: Results of Regression Analyses:
Corporate Political Strategy and Political Benefit

Dependent Model Model
variable CPB [CPB.sub.1]
(model) Test H2 Test H21

Independent 0.113 * (2.142)
variable(CPR)
[CPS.sub.1] 0.222 ** (2.824)
[CPS.sub.2] 0.288 *** (3.860)
[CPS.sub.3] 0.325 *** (3.878)
[CPS.sub.4]
[CPS.sub.5] 0.289 ** (3.833)
[CPS.sub.6]
[CPS.sub.7]
[CPS.sub.8]
F value 5.345 6.192
Adjusted [R.sup.2] 0.213 0.226

Dependent Model Model
variable [CPB.sub.2] [CPM.sub.3]
(model) Test H22 Test H23

Independent
variable(CPR)
[CPS.sub.1] 0.525 *** (6.125) 0.302 ** (3.757)
[CPS.sub.2]
[CPS.sub.3] 0.378 ** (4.104) 0.356 *** (4.509)
[CPS.sub.4] 0.251 ** (3.211)
[CPS.sub.5]
[CPS.sub.6] 0.270 ** (3.356)
[CPS.sub.7] 0.215 ** (2.790)
[CPS.sub.8] 0.286 *** (3.640)
F value 5.170 5.525
Adjusted [R.sup.2] 0.190 0.203

Note: * p<0.05; ** p<0.01; *** p<0.001; The standard coefficient of
regression is [beta]. The coefficient in the bracket is t-value.
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Title Annotation:RESEARCH NOTE
Author:Wei, Wu
Publication:Singapore Management Review
Geographic Code:9CHIN
Date:Jul 1, 2006
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