Pergamon

Journal of Management 27 (2001) 409 429

Strategic t in transitional economies: The case of Chinas electronics industry

Bryan A. Lukas,a, J. Justin Tan,b, G. Tomas M. Hult,c,*
Department of Management, University of Melbourne, Faculty of Economics and Commerce, Victoria 3010, Australia b Epply College of Business Administration, Creighton University Omaha, NE 68178 c Department of Marketing and Supply Chain Management, Eli Broad Graduate School of Management, Michigan State University, East Lansing, MI 48824-1122 USA Received 21 May 1999; received in revised form 3 May 2000; accepted 31 July 2000
a

Abstract The strategic t paradigm, originally derived from observations in market-based economies, asserts that an appropriate match between environment and strategy has signicant and positive implications for business performance. Based on a random sample of Chinese electronics rms, this study systematically examines the applicability of the strategic t paradigm in Chinas centrally planned economy in transition. Results indicate that while environment-strategy coalignment is evident, coalignment only improves performance under certain environmental conditions. 2001 Elsevier Science Inc. All rights reserved.

1. Introduction Strategic t is a revered theoretical paradigm in theories of organizational adaptation (Zajac, Kraatz & Bresser, 2000) and is omnipresent in strategic marketing (e.g., Gatignon & Xuereb, 1997; Hurley & Hult, 1998; Slater & Narver, 1994) and strategic management (e.g., Miller & Friesen, 1983; Venkatraman & Prescott, 1990). Essentially, the contention is that environment and strategy interact in a dynamic coalignment process (Miller, 1988) and the resulting t between strategy and its environmental context has positive implications for

* Corresponding author. Tel.: 1-517-353-4336; fax: E-mail address: hult@msu.edu (G.T. Hult).

1-517-432-1112.

0149-2063/01/$ see front matter 2001 Elsevier Science Inc. All rights reserved. PII: S 0 1 4 9 - 2 0 6 3 ( 0 1 ) 0 0 1 0 1 - 5

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performance (Venkatraman & Prescott, 1990). Although derived almost exclusively from observations in western economies, where the focal rm operates in a stable, market-based economy, the strategic t paradigm is promoted as a universal strategic framework. For the most part, emerging market economies, such as developing countries in Asia, Latin America, Africa, and the Middle East, as well as transitional economies in the former Soviet Union and China, have been excluded from strategic t research. This is partly because of their recent economic and political underperformance or isolation and partly because of strategy researchs distaste for replication. As a result, the strategy discipline cannot be sure of the paradigms universal applicability, which in turn limits theory building. We suggest that transitional economies are a particularly challenging testing ground for performance concepts centered on environment-strategy linkages. These economies, as the label transitional suggests, are in a prolonged state of transformation involving a shift from centrally planned economies to free-market economies. Typically, the process is characterized by a restructuring of administrative frameworks, redistribution of property rights, and shifting discretion over resources allocationsto highlight but a few of the involved changes. As economies in ux, transitional economies lend themselves especially well to exploring boundary conditions for strategic t one of the strategy disciplines most fundamental premises. The purpose of this study is to examine the western strategic t paradigm in the context of a transitional economy. The study was conducted in the Peoples Republic of China. We chose China because it is the worlds largest economy in transition and involved in far-reaching economic changes. The recent Fourth Plenum of the 15th Central Committee of the Communist Party has dened the major objectives and guidelines for Chinas transition until 2010, which shows the extent of transformation underway. In the document, Decision on Major Issues Concerning the Reform and Development of State-Owned Enterprises, the objectives are basically completing strategic readjustment and restructuring, creating a more rational layout and structure for the state-owned economy, establishing a modern corporate system, improving economic performance, [as well as] strengthening the capability of scientic and technological development, market competition, and risk-taking (Wang, 2000, p. 9).

2. Research framework According to Venkatraman and Prescott (1990, p. 1), the fundamental question strategic t research must answer, ultimately, is whether a rm that aligns its strategic resource deployment to the specic requirements of its environmental context (i.e., achieve an acceptable level of environment-strategy coalignment) perform[s] signicantly better than a business unit that does not achieve the requisite match. We address this question systematically in the context of a transitional economy by means of a two-step approach. After specifying the theoretical constructs, we establish rst that environment-strategy coalignment is likely to occur in transitional economies and specify the nature of the alignment in a sequence of hypotheses. Then, by drawing from the strategic t paradigm and its perfor-

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mance implications, we expand on these hypothesized alignments and move to specify their performance impact in a corresponding sequence of hypotheses. 2.1. Theoretical constructs The strategic t paradigm generally considers organizational environment as an exogenous construct over which rms have limited control. Consequently, organizational environment is thought to determine the context of strategy formulation. Two prominent environmental views prevail in the marketing and management disciplinesthe information processing view and the resource dependence view. Both views offer a unique perspective of the environment and can be considered complementary. The rstthe information processing view conceives the environment as a source of information (e.g., Duncan, 1972; Hult, 1998; Hult et al., 2000; Tung, 1979). The second view is that of resource dependence, which suggests that the environment is a repository of scarce resources sought after by competing rms (e.g., March & Simon, 1958; Ruekert, Walker & Roering, 1985). Since Burns and Stalker (1961), several environmental dimensions have been identied that coincide with the information processing and resource dependence views of the environment. Environmental complexity, which can be understood as the predictability of competitive environment, and environmental dynamism, which refers to the change in competitive environment, have been associated with the information uncertainty view (Lawrence & Lorsch, 1967; Thompson, 1967). Environmental hostility, which can be interpreted as the impact of competitive environment on the rm, has been linked to the resource dependence view (Aldrich, 1979; Pfeffer & Salancik, 1978). Variations of complexity, dynamism, and hostility continue to be fundamental environmental dimensions in the marketing literature (e.g., Gatignon & Xuereb, 1997; Jaworski & Kohli, 1993; Slater & Narver, 1994) and management literature (e.g., Dess & Beard, 1984; Miller & Friesen, 1978; Homburg, Krohmer & Workman, 1999). Both these views, when combined with the associated environmental dimensions, provide a framework for the environmental challenges inuencing strategic choice in transitional economies. The chief factor in the environment-strategy link over which management has direct control is strategy dened as a patterned stream of decisions which focus on resource allocations in an attempt to reach a market position consistent with a rms environment (cf. Mintzberg, 1973). There are three primary views of strategy alignment: the situation specic view, the universal view, and the contingency view (Hambrick & Lei, 1985). The situation specic view of strategic t is based on the perspective that two identical environmental settings never occur and, consequently, every strategy is unique. The universal view is based on the premise that universal business strategies exist and apply in all environmental settings. Finally, the contingency view suggests that certain environmental proles correspond with certain strategic proles. A number of scholars have made a convincing case suggesting that research concerned with the performance impacts of environment-strategy coalignment can make its greatest contribution by adopting the contingency view (e.g., Hambrick, 1983; Hambrick & Lei, 1985; Miller, 1987; Pinder & Moore, 1979; Mintzberg, 1979). Accordingly, we adopt the contingency view in this study. The comparative approach to strategy conceptualization is frequently used with the

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contingency view and is aimed at identifying the key dimensions of the strategy construct as they relate to the environment (cf. Miller & Friesen, 1984). The appeal of this approach is that it allows the researcher to view variations found across strategy descriptions in a ne-grained manner by observing differences along each underlying dimension, or subset of dimensions (cf. Venkatraman, 1989). Based on Venkatraman (1989) and consistent with the comparative approach to strategy conceptualization, we argue that strategy is best specied as a multifaceted construct consisting of different orientations. Two principal orientations stand out repeatedly in strategy conceptualizations and operationalizations thereof. The rst is best characterized as prospectivemanifested in terms of a rms emphasis on risk-taking as well as on searching for new products, new brands, and new market trends. The second is best characterized as protectivemanifested in terms of a rms emphasis on analytical problem solving as well as on preserving ownership of products, technologies, and markets (cf. Venkatraman, 1989). Among the more prominent management studies to accommodate these orientations is Dess and Davis (1984) work in which entrepreneurial and innovation behaviors are clearly differentiated from optimization and conservation behaviors in an attempt to operationalize Porters (1980) generic strategies. A similar differentiation is made by Conant, Mokwa, and Varadarajan (1990) and Lukas (1999) in their operationalization of Miles and Snows (1978) strategic archetypes. 2.2. Hypotheses 2.2.1. Environment-strategy coalignment The strategic t paradigm is built on the premise that for a certain set of environmental conditions, a preferred strategic response exists (cf. Harvey, 1982). We propose that this relationship is evident in formally planned economies in transition. Our reasoning is derived from a small but growing body of research in transitional economies. Studies of strategic choices made by Chinese managers suggest that they could favor more risky strategic decisions (i.e., adopt a prospective strategic orientation) over security-oriented strategic decisions if they perceive their environments as stable (Adler, Brahm & Graham, 1992; Chong, Cragin & Scherling, 1983; Lai & Lam, 1986). On the other hand, environmental uncertainty in transitional economies, followed by the lifting of state-instituted price controls, could cause rms to emphasize defensive and safeguarding strategic behaviors, such as collusive pricing behaviors (i.e., adopt a protective strategic orientation). Taken together, this preliminary research in transitional economies suggests that a decrease (or increase) in environmental uncertainty is likely to be met with protective-oriented strategic behavior (or prospective-oriented strategic behavior). On the basis that environmental uncertainty is best understood in terms of complexity, dynamism, and hostility (Dess & Beard, 1984; Mintzberg, 1979; Thompson, 1967; Tung, 1979), the following hypotheses are offered: H1a: The less complex the environment, the more prospective the strategic orientation. H1b: The more complex the environment, the more protective the strategic orientation. H2a: The less dynamic the environment, the more prospective the strategic orientation. H2b: The more dynamic the environment, the more protective the strategic orientation.

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H3a: The less hostile the environment, the more prospective the strategic orientation. H3b: The more hostile the environment, the more protective the strategic orientation. 2.2.2. Performance impact of environment-strategy coalignment The core proposition of the strategic t paradigm is that environment-strategy coalignment has positive implications for performance (Ginsberg & Venkatraman, 1985; Venkatraman & Prescott, 1990; Miles & Snow, 1994; Zajac et al., 2000). This proposition is rooted in the belief that performance suffers for rms whose strategic allocation of organizational resources is at odds (i.e., not in alignment) with the corresponding environmental context. This profound and intuitively appealing proposition has served as the theoretical and conceptual foundation for numerous studies concerned with performance implications of matching strategy with environment (Anderson & Zeithaml, 1984; Bourgeois, 1980; Hambrick, 1988; Hofer, 1975; Hitt, Ireland & Stadter, 1982; Jauch, Osborn & Glueck, 1980; Prescott, 1986). Empirical studies set in transitional economies clearly point to a pattern of environmentstrategy coalignment induced by market deregulationas specied in H1, H2, and H3. Consequently, it is both reasonable and appropriate, based on the strategic t paradigm, to argue that the environment-strategy coalignment pattern specied in these hypotheses will have positive implications for rm performance in transitional economies. Accordingly, we systematically extend our rst three hypotheses to specify the following performance outcomes: H4a: The less complex the environment, the more performance-effective the prospective-oriented strategy. H4b: The more complex the environment, the more performance-effective the protective-oriented strategy. H5a: The less dynamic the environment, the more performance-effective the prospective-oriented strategy. H5b: The more dynamic the environment, the more performance-effective the protective-oriented strategy. H6a: The less hostile the environment, the more performance-effective the prospectiveoriented strategy. H6b: The more hostile the environment, the more performance-effective the protectiveoriented strategy.

3. Research methodology 3.1. Data collection Because large-sample, rm-level data are difcult to collect in China, early investigations have relied on case studies (e.g., Boisot & Child, 1988, 1990; Child & Lu, 1990; Nee, 1992). Although highly insightful for theory development, case studies are less useful when the objective of the research is theory testing. In this study, we rely on quantitative analysis of data from a relatively large sample of Chinese electronics rms. We selected the electronics

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industry because it is one of the strategic pillar industries identied by the Chinese government to improve performance and it faces substantial environmental turbulence from both deregulation and increased international competition. Tariff and nontariff protections from the government have been largely removed since early stages of economic reform. A large number of multinational corporations have invested in China and provided much needed capital and technology. As a result, this industry has become competitive and a major exporter of low to medium priced electronic products. Because publicly available information at the rm level is not available, we utilized a mail survey to undertake the study. The questionnaire was rst reviewed and revised by expert colleagues, and then subjected to back-translation to ensure validity in a cross-cultural setting (cf. Adler et al., 1992). Three hundred and sixty Chinese electronics rms were randomly selected. Our research contact in China drew the sample from the Chinese governments registry of electronics rms using computer generated random numbers. The selected rms were engaged in the manufacturing, assembly, and service of electronics products. Unfortunately, information concerning the type of technology used was not obtained. Nonetheless, because most Chinese electronics rms rely on standardized global production technology, we do not expect any China-specic technology differences among the rms to affect the responses. The sample included joint ventures between local rms and foreign investors, as well as enterprises controlled by state or township governments and private entrepreneurs. These sample characteristics reect adequately the current structure of the Chinese electronics industry, thus, ensuring that the sample provides the structural variations necessary to account for the different environmental characteristics faced by Chinese rms. First, 30 rms were randomly selected from our sample. Questionnaires were then sent to each rms president and the director in charge of business planning to determine the extent to which we could rely on subjective, single-source rm data from China. Among those questionnaires returned, we received 12 pairs of responses and checked inter-rater consistency. The correlation between the two respondents from each rm was very high, indicating that each individual was able to provide an accurate assessment of the rm. We also asked the respondents to report decisions they considered strategic. Results displayed good correspondence (correlations range from 0.88 to 0.91) between the respondents perception of what strategic decisions are and the strategy measures in the questionnaire. After this initial test, the questionnaire was sent to the presidents of the remaining 330 rms in the sample. We chose the president because we learned through numerous personal interviews during the conceptualization of this study that the President Responsibility System, implemented since the economic reform, has given them even those in stateowned and collective-owned enterprises unprecedented decision-making prerogatives and, consequently, always involves them in major strategic decisions. This decision authority, which would more likely reside with the entire top management team in western rms, is further enhanced by the fact that most Chinese management structures have remained highly centralized around the presidents ofce, limiting the control function of director boards and other organizational control structures that may be in place. These circumstances make presidents of Chinese rms highly competent key respondents. In the questionnaire, the presidents were guaranteed absolute anonymity. Adler, Campbell, and Laurent (1989) report

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that under the condition of anonymity, Chinese managers are more willing and more likely to provide accurate information. Two hundred and one returned questionnaires were used in the present study. To assess nonresponse bias, we divided the questionnaires into four subgroups of equal size and compared the rst and last groups on the means of the study variables (Armstrong & Overton, 1977). We found no signicant differences between early and late respondents for any of the variables. Accordingly, we rule out the possibility of systematic nonresponse bias. 3.2. Measures Environmental uncertainty, strategic orientation, and rm performance are concepts originally developed for capitalist and western economies. A number of studies show that these concepts also apply to, and can be interpreted by respondents in, formally planned economies in transition (e.g., Adler et al., 1992; Luo, 1999). Nonetheless, to ensure that all Chinese respondents understood the issues involved, the study constructs were dened at the beginning of each measurement section (see Appendix) and the corresponding scale items were worded in simple terms. Further, to reduce the possibility of common method and source variance, which could result in spurious results distorting the signicance of the ndings, different response formats for each measurement construct were used. Environmental uncertainty was measured along three dimensions complexity, dynamism, and hostility. The complexity scale assessed the predictability of competition, technology, regulation, and international developments. The dynamism scale measured the change observed in customers, technology, regulation, and suppliers. Finally, the hostility scale assessed the impact of customers, economy, socio-cultural requirements, and international developments on the respondents rms (cf. Jauch et al., 1980; Khandwalla, 1977). Each scale consisted of four items and used a seven-point response format (see Appendix). Strategic Orientation was measured along four dimensionsrisk, proactiveness, analysis, and defensiveness. Although more dimensions of strategic orientation exist in the literature (e.g., Venkatraman, 1989), the four dimensions selected covered a broad range of strategy aspects applicable to the Chinese environment. The risk scale measured a rms propensity to make high-risk investments, make bold decisions despite the uncertainty of their outcomes, and approve new projects with blanket approval rather than on a stage-by-stage basis. The proactiveness scale measured a rms desire to constantly introduce new brands and products, move proactively to try to capitalize on ambiguity in government regulation, and respond to product-market opportunities quickly. The analysis scale measured a rms willingness to emphasize planning techniques and information systems, evaluate decision consequences thoroughly and obtain alternatives, and seek demonstrably promising opportunities. The defensiveness scale measured a rms desire to use cost control systems for monitoring performance, constantly modify manufacturing technology to achieve efciency, and follow government regulations. Each scale consisted of three measurement items and used a seven-point response format (see Appendix). Because risk and proactiveness represent complementary aspects of a prospective orientation (cf. Venkatraman, 1989), they were combined to form a single measure of prospective orientation. Because analysis and defen-

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siveness represent complementary aspects of a protective orientation (cf. Venkatraman, 1989), they were combined to form a single measure of protective orientation. Performance was assessed with ve questions devised to determine a rms performance relative to close competitors. Pretesting indicated that close competitors were typically understood by Chinese managers to be those who focused on the same markets with similar products. Managers were asked to identify their rms relative performance based on after-tax return on total assets, after-tax return on total sales, total sales growth, overall rm performance and success, and competitive position. Because the Chinese government uses these performance indicators to evaluate rm performance in all industries on an annual basis, Chinese managers are familiar with them. A ve-point response format was used (see Appendix). 3.3. Psychometric properties of measures After collecting the data, the measures were subjected to a purication process involving a series of reliability and validity assessments. The psychometric properties of the eight constructs were evaluated by employing the method of conrmatory factor analysis (CFA) via the use of LISREL (Joreskog & Sorbom, 1996; Joreskog, Sorbom, Du Toit & Du Toit, 1999). The model ts were evaluated using the DELTA2 index, the relative noncentrality index (RNI), the comparative t index (CFI), the TuckerLewis index (TLI), and the root mean square error or approximation index (RMSEA). These t indices have been shown as the most stable in conrmatory factor analysis and structural equation modeling (Gerbing & Anderson, 1992; Hu & Bentler, 1999). The specic items were evaluated based on the items error variance, modication index ( 3.84), and residual covariation ( 2.58 ) (Anderson & Gerbing, 1988; Joreskog & Sorbom, 1996; Joreskog et al., 1999). Utilizing these criteria, the conrmatory factor model resulted in a moderate but acceptable t to the data (DELTA2 0.80, RNI 0.80, CFI 0.80, TLI 0.80, RMSEA 0.10, 2 1061.15, df. 349) (Hair, Anderson, Tatham, and Black, 1998). The parameter estimates (factor loadings) were all signicant (t-values ranged from 8.09 to 16.72, p .01) and ranged from 0.70 to 0.88 for risk, 0.76 to 0.92 for proactiveness, 0.79 to 0.89 for analysis, 0.83 to 0.90 for defensiveness, 0.71 to 0.89 for complexity, 0.63 to 0.85 for dynamism, 0.61 to 0.77 for hostility, and 0.57 to 0.97 for performance. Next, we assessed the reliability of the measures. Within the CFA setting, composite reliability is calculated using the procedures outlined by Fornell and Larcker (1981), based on the work by Werts, Linn, and Joreskog (1974). The formula species that: CR ( )2/[( )2 ( i)], where CR composite reliability for scale , yi standardized i i loading for scale item i, and i measurement error for scale item i. We also examined the parameter estimates and their associated t-values, and assessed the average variance extracted for each construct (e.g., Anderson & Gerbing 1988). The reliabilities for risk (composite reliability 0.80), proactiveness (0.83), analysis (0.83), defensiveness (0.86), complexity (0.85), dynamism (0.79), hostility (0.75), and performance (0.84) exceed the commonly accepted reliability cutoff of 0.70, indicating excellent levels of composite reliability for the eight constructs in the sample (Joreskog & Sorbom, 1996; Joreskog et al., 1999). Similarly, the average variances extracted (explained variances) of the eight con-

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structs were good, with risk (average variance extracted of 57.33%), proactiveness (61.33%), analysis (62.67%), defensiveness (67.00%), complexity (57.25%), dynamism (48.75%), hostility (43.25%), and performance (53.40%) all having average variances extracted above 40%. Discriminant validity was assessed using the procedure recommended by Anderson (1987) and Bagozzi and Phillips (1982). This entails analyzing all possible pairs of constructs in a series of two-factor CFA models using LISREL. Each model was run twice once constraining the phi coefcient ( ) to unity and once freeing this parameter. A 2 ( 2) difference test was then performed on the nested models to assess if the 2 values were signicantly lower for the unconstrained models (Anderson and Gerbing, 1988). The critical value ( 2(1) 3.84) was exceeded in all 28 pairwise cases (in total 56 CFAs were analyzed). 2 The lowest were found between the risk and defensiveness scales. Analyzing these two scales simultaneously, the unconstrained model (U) resulted in a 2 35.53, df. 8, while the constrained model (C) resulted in a 2 82.12, df. 9. As such, 2(1) 46.59, when comparing the U and C models. This is signicantly above the critical value of 2(1) 3.84. 2 All other combinations resulted in higher (1) than between the risk and defensiveness scales. Thus, overall, the eight measurement scales can be considered reliable, valid, and stable in the context of this study. 3.4. Hypotheses analysis Multiple regression analysis and hierarchical regression analysis with interactions were used to test the hypothesesan analysis approach that is widely used in coalignment research (Venkatraman & Prescott, 1990). First, multiple regression analysis was used to examine how environmental uncertainty and strategic orientation alignsas specied in H1, H2, and H3. Then, hierarchical regression analysis with interactions was used to examine how alignment between environmental uncertainty and strategic orientation improves rm performanceas specied in H4, H5, and H6. The independent variables were entered into the hierarchical regression model in the rst step and the interaction terms were entered in a second step. The independent variables were mean-centered to reduce the potential effects of collinearity associated with interactive regression modeling. Next, slope analyses were conducted to improve understanding of the signicant interaction effects. These procedures allow for analysis of signicant interactions at different levels of the continuous moderator variables without creating categorical versions. They have been adopted by studies with a contingency focus in both the management literature (e.g., Simerly & Li, 2000) and marketing literature (e.g., Baker & Sinkula, 1999). Following recommendations by Aiken and West (1991), a series of simple slopes were derived by entering different values for the signicant moderating variables into the interactive regression model. Usually, one standard deviation above and below the mean value are entered as the high and low values (e.g., Baker & Sinkula, 1999), but two or more standard deviations above and below the mean value can be entered for a richer analysis of the signicant interactions (cf. Simerly & Li, 2000). Given the strong contingency focus of the present study, regressions were conducted at very high (two standard deviations above), high (one

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Table 1 Descriptive statistics and correlations 3 4 5 6 7 8 9 10 11 12

Variables

Mean s.d.

3.103 .992 1.000 4.189 .761 .146*

1.000

B.A. Lukas et al. / Journal of Management 27 (2001) 409 429

1. Performance 2. Prospective Orientation (a) 3. Protective Orientation (b) 4. Complexity (c) 5. Dynamism (d) 6. Hostility (e) 7. a c 8. a d 9. a e 10. b c 11. b d 12. b e .253*** 1.000 .279*** .471*** .261*** .363*** .455*** .543*** .412*** .189** .379*** .093 .839*** .734*** .825*** .434*** .799*** .382***

4.337 .773 .316*** .715*** 1.000

5.455 5.138 4.142 22.758 21.333 17.170 23.931 22.506 18.141

.835 .784 .733 4.915 4.410 4.034 6.198 5.929 4.993

.315*** .439*** .387*** .089 .196** .155* .388*** .468*** .441***

.210** .264*** .197** .698*** .667*** .645*** .630*** .618*** .591***

1.000 .126 1.000 .121 .076 1.000 .530*** .075 .718*** 1.000 .106 .611*** .613*** .485*** 1.000 .459*** .382*** .022 .198** .223** 1.000 .768*** .242*** .235*** .035 .311*** .824*** 1.000 .240*** .782*** .257*** .332*** .121 .759*** .662*** 1.000

*p .05 (two-tailed). ** p .01 (two-tailed). *** p .001 (two-tailed).

B.A. Lukas et al. / Journal of Management 27 (2001) 409 429 Table 2 Results of multiple regression analysis Independent Variables Constant Complexity Dynamism Hostility R2 Adjusted R 2 F Prospective Orientation b 4.175 .051 .218 .166 .107 .092 7.328*** S.E. .054 .078 .076 .078 .055 .226 .159 t 77.681*** .659 2.850** 2.127* Protective Orientation b 4.370 .075 .185 .220 .130 .116 9.167*** S.E. .052 .076 .074 .076 .083 .195 .215 t

419

83.801*** .999 2.491** 2.914**

* p .05 (one-tailed). ** p .01 (one-tailed). *** p .001 (one-tailed).

standard deviation above), low (one standard deviation below) and very low (two standard deviations below) levels of environmental uncertainty.

4. Research results Table 1 shows the means, standard deviations, and correlation matrix for the variables of the study. The correlation values for the independent variables remain below the critical level of 0.90 specied by Hair et al. (1998) as a rst indication of problematic collinearity. Table 2 shows the multiple regression results for H1, H2, and H3. Because the hypotheses are directional, one-tailed tests of signicance are reported. H1a predicts that the less complex the environment, the more prospective the strategic orientation. Results indicate a nonsignicant relationship between complexity and prospective orientation. Thus, H1a is not supported. H1b predicts that the more complex the environment, the more protective the strategic orientation. Results indicate a nonsignicant relationship between complexity and protective orientation. Therefore, H1b is not supported. H2a predicts that the less dynamic the environment, the more prospective the strategic orientation. Results indicate a signicant negative relationship between dynamism and prospective orientation (b 0.218, t 2.850, p .01), which supports H2a. H2b predicts that the more dynamic the environment, the more protective the strategic orientation. Results indicate a signicant positive relationship between dynamism and protective orientation (b 0.185, t 2.491, p .01), which supports H2b. H3a predicts that the less hostile the environment, the more prospective the strategic orientation. Results indicate a signicant negative relationship between hostility and prospective orientation (b 0.166, t 2.127, p .05), thus supporting H3a. H3b predicts that the more hostile the environment, the more protective the strategic orientation. Results indicate a signicant positive relationship between hostility and protective orientation (b 0.220, t 2.914, p .01), thus supporting H3b. Table 3 shows the hierarchical regression results with interactions for H4, H5, and H6. As a set, the interaction terms explain a signicant portion of the variance in rm performance

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Table 3 Results of multiple regression analysis with interactions: performance of strategic orientation Independent Variables Performance Step 1 b Constant Prospective Orientation (a) Protective Orientation (b) Complexity (c) Dynamism (d) Hostility (e) a c a d a e b c b d b e R2 Adjusted R 2 F Change in R 2 Change in F * p .05 (two-tailed). *p .05 (one-tailed). ** p .01 (one-tailed). *** p .001 (one-tailed). 3.103 .225 .323 .012 .483 .417 S.E. .061 .119 .123 .088 .088 .090 .175 .246 .011 .388 .310 t 51.284*** 1.896* 2.638*** .144 5.496*** 4.652*** Step 2 b 3.083 .292 .375 .018 .548 .427 .406 .659 .338 .285 .631 .132 .378 .339 9.735*** .049 2.280* S.E. .066 .124 .124 .095 .091 .092 .208 .221 .202 .242 .249 .234 .226 .286 .016 .440 .318 .246 .401 .187 .140 .313 .064 t 46.745*** 2.349** 3.030** .198 5.994*** 4.657*** 1.948* 2.978** 1.673* 1.176 2.533** .564

.329 .311 17.884***

(change in R2 0.049, p .05). In the following, one-tailed tests of signicance are reported, because the hypotheses are directional. H4a predicts that the less complex the environment, the more performance-effective the prospective strategic orientation. Results indicate that complexity has a signicant positive interaction with prospective orientation on rm performance (b 0.406, t 1.948, p .05), which is the opposite direction to that hypothesized. Thus, H4a is not supported. The follow-up slope analysis (slope analyses are not reported in table format because of space constraints) indicates that the relationship between prospective orientation and rm performance is not signicant when complexity remains below the mean value at low and very low levels. However, it is signicant and positive at high levels of complexity (b 0.631, t 2.616, p .01), and is signicant, positive, and stronger at very high levels of complexity (b 0.970, t 2.414, p .01). H4b predicts that the more complex the environment, the more performance-effective the protective strategic orientation. Results indicate no signicant interaction between protective orientation and complexity on rm performance. Therefore, H4b is not supported. Because the main effect of protective orientation on rm performance is signicant and positive (b 0.375, t 3.030, p .01), the nonsignicant interaction suggests that protective-oriented strategies positively inuence rm performance regardless of environmental complexity. H5a predicts that the less dynamic the environment, the more performance-effective the prospective strategic orientation. Results indicate that dynamism has a signicant negative interaction with prospective orientation on rm performance (b 0.659, t 2.978, p

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.01), which supports H5a. The follow-up slope analysis shows that the relationship between prospective orientation and rm performance is signicant and positive when dynamism is very low (b 1.325, t 3.473, p .001), is signicant and positive, but weaker, when dynamism reaches a moderately low level (b 0.808, t 3.601, p .001), and is not signicant when dynamism exceeds mean value to reach high and very high levels. H5b predicts that the more dynamic the environment, the more performance-effective the protective strategic orientation. Results indicate that complexity has a signicant negative interaction with protective orientation on rm performance (b 0.631, t 2.533, p .01), which is the opposite direction to that hypothesized. Therefore, H5b is not supported. The follow-up slope analysis shows that the relationship between protective orientation and rm performance is signicant and positive when dynamism is very low (b 1.364, t 3.253, p .001), is signicant and positive, but weaker, when dynamism reaches a moderately low level (b 0.870, t 3.628, p .001), and is not signicant when dynamism exceeds mean value to reach high and very high levels. H6a predicts that the less hostile the environment, the more performance-effective the prospective strategic orientation. Results indicate that hostility has a signicant negative interaction with prospective orientation on rm performance (b 0.338, t 1.673, p .05), which supports H6a. The follow-up slope analysis shows that the relationship between prospective orientation and rm performance is signicant and positive when hostility is very low (b 0.788, t 2.281, p .05), is signicant and positive, but weaker, when hostility reaches a moderately low level (b 0.540, t 2.534, p .01), and is not signicant when hostility exceeds mean value to reach high and very high levels. Finally, H6b predicts that the more hostile the environment, the more performanceeffective the protective strategic orientation. Results indicate no signicant interaction between protective orientation and hostility on rm performance. Hence, H6b is not supported. Given the signicant positive main effect of protective orientation on rm performance (b 0.375, t 3.030, p .01), the nonsignicant interaction indicates that protective-oriented strategies positively inuence rm performance regardless of environmental hostility.

5. Discussion This study examined environment-strategy coalignment and the performance implications in an industry-specic context of Chinas transitional economy. Adopting a reductionistic perspective of coalignment, six hypotheses were developed. Three were based on the assumption that environment-strategy coalignment can be understood in terms of pair-wise coalignment among the individual dimensions, or dimension sets, that represent the two constructs. The other three were based on the assumption that performance implications of environment-strategy coalignment can be understood in terms of performance impact of the before mentioned pair-wise coalignment. The discussion of the analysis is organized around the study ndings and the study limitations.

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5.1. Study ndings Two major ndings emerged from our study in the Chinese electronics industry. The rst nding is that environment-strategy coalignment is evident in Chinas transitional economy. As expected, a strategic orientation is more prospective when a rm experiences low levels of environmental dynamism and hostility conditions that characterize predictable (i.e., less uncertain) markets. Moreover, as predicted, a strategic orientation is more protective when a rm is confronted with high levels of environmental dynamism and hostility conditions that characterize uncertain markets. The second nding is that environment-strategy coalignment has mixed performance implications in Chinas transitional economy. As predicted, a prospective strategic orientation is more performance-effective at lower levels of environmental dynamism and hostility. However, contrary to predictions, a prospective strategic orientation has no impact on rm performance at lower levels of environmental complexity. Also contrary to predictions, the impact of a protective strategic orientation on rm performance is not contingent on the level of environmental complexity and hostility, and has no impact on rm performance at higher levels of environmental dynamism. Taken together, these ndings show that prospective and protective stances are viable strategic orientations in Chinas transitional economy and are inuenced by environmental uncertainty. The ndings also show that the importance of environment-strategy coalignment for rm performance is contingent on the level of environmental uncertainty encountered. Overall, our ndings conrm the expected direction of a rms strategic orientation in response to environmental uncertainty. However, a rms performance does not necessarily improve when its strategic orientation matches the level of environmental uncertainty encountered. This is not consistent with the strategic t paradigm, which asserts that an appropriate match between environment and strategy has signicant and positive implications for performance (e.g., Ginsberg & Venkatraman, 1985; Venkatraman & Prescott, 1990; Miles & Snow, 1994; Zajac et al., 2000). This suggests that the strategic t paradigm, as it is currently conceptualized in the strategy literature, is overly general and, therefore, could incur overly optimistic performance predictions when applied to a centrally planned economy in transition. 5.2. Study limitations Our results must be qualied in at least two ways. One limitation is that perceptual measures of strategic t were used instead of objective measures, which could bias the ndings. However, perceptual measures of strategic t have some tradition in strategy research. Lawrence and Lorsch (1967) and Pfeffer and Salancik (1978) do not favor objective measures, such as archival measures established by third parties, because strategy making is a function of perceived environmentand only factors that rms perceive can be considered in the strategy formulation process. Perceptual measures of rm performance were also used. In this case, we had no choice because nancial and accounting data are not made available to the Chinese public. Fortunately, rms are able to compare their relative performance with close competitors using key indicators supplied by the Chinese govern-

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ment. This way, the Chinese government encourages socialist style competition, which is intended to develop friendly competition among rms. Nonetheless, while theoretical considerations justify the use of perceptual measures of strategic tand the practical difculties of collecting data in China determine our performance assessment approach objective data could provide an interesting alternative data platform for analysis. Another limitation is that strategic t was operationalized in terms of bivariate alignments of environmental and strategic dimensions which could result in logical typing error meaningless relationships between individual interaction components and a criterion variable when the sum of individual components does not represent the whole (Bateson, 1979; Venkatraman & Prescott, 1990). However, alternative operationalizations of coalignment as holistic manifestations are not without substantial pitfalls. Holistic approaches to coalignment research, delineated in detail by Venkatraman and Prescott (1990), specify strategic t as prole deviation, which states that strategic t is the degree to which strategic orientation adheres to an ideal prole for a given environment. Unfortunately, these schemes are fundamentally dependent on the development of an ideal prole, a process that represents a serious theoretical and empirical challenge to researchers. Nonetheless, a holistic approach reduces the possibility of logical typing error and could provide a more systemic view of strategic t in China than our more traditional, disaggregated approach.

6. Conclusion Based on research in free-market economies, strategic t is a generally accepted paradigm in the strategy literature, but few studies have veried this proposition in other types of economies such as centrally planned economies in transition. While strategic t research should continue in established market economies, understanding the performance impact of environment-strategy coalignment in different environmental circumstances, especially transitional contexts, is most important to exploring boundary conditions of the theoretical paradigm. Our ndings show that the premise of environment-strategy coalignment applies to Chinas transition economy. However, the performance effects appear to be more dynamic than existing discussions of strategic t would warrant. This suggests that the strategic t paradigm should be rened before it is relied on in transitional economies. Two issues stand out that require investigation in future studies before more specic recommendations can be made. The rst issue relates to how the theoretical proposition of strategic t applies across different centrally planned economies in transition. China, as well as other transitional economies in Eastern Europe and former Soviet republics, inherited the same centralized planning system from the former Soviet Union. Many of the idiosyncrasies that emerged directly from this socialist tradition are quite enduring. However, even though the government remains an inuential player, economic reform in the last two decades has resulted in a multitude of structures in which different organizational types coexist and compete. These transitional economies present a wide array of opportunities and challenges that matter to organizational researchers as well as practitioners. Replication and extension

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of our study in other formally planned economies will help verify the need to rene our understanding of strategic t in transitional economies. The second issue relates to how additional variables not considered in the present study, such as organizational ownership and size, affect the concept of strategic t in transitional economies. Traditionally, coalignment studies have opted to focus exclusively on the t issue without incorporating ownership or size in their models (e.g., Venkatraman & Prescott, 1990; Jauch et al., 1980; Prescott, 1986). As these variables change, however, so does the number of decision-makers and stakeholders, thus potentially affecting direction and magnitude of strategic orientation. Apart from including ownership and size as control variables in the environment-strategy relationship, a deeper understanding of their moderating effects may become critical when recalibrating the link between performance and environment-strategy coalignment for application in transitional economies. Regarding ownership, for example, it could be that privately owned Chinese enterprises are more likely to adopt a prospective orientation than state-owned Chinese enterprises to achieve superior performance. This is because entrepreneurial incentives might be stronger for this ownership type than for state-owned enterprises, which still must meet government-specied production targets with selected factor resources. In conclusion, we hope that our study will serve to span the boundary between where the strategy discipline has been and where it needs to go to further develop strategic t theory.

Acknowledgments This research was supported by a fellowship from the Chiang Ching-kuo Foundation for International Scholarly Exchange and grants from both the Chinese University of Hong Kong and University of Melbourne. The authors thank the Editor K. Michele Kacmar, Gregory J. Whitwell, and three anonymous reviewers for their helpful suggestions on drafts of this article. Bryan A. Lukas is Director of the Masters of Applied Commerce Program and Associate Professor of Marketing in the Department of Management at the University of Melbourne, Australia. His research interests are product development, marketing strategy, and market orientation. He has published in Journal of the Academy of Marketing Science, Journal of Business Research, Industrial Marketing Management, and Journal of Market-Focused Management, among others.

Justin Tan is a Professor of Entrepreneurship at Creighton University and a Senior Research Fellow with the Ivey Business School at the University of Western Ontario. His research areas include organizational environment and strategy in transitional economies, joint venture management, cross-cultural management, and entrepreneurship.

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G. Tomas M. Hult is Director, International Business Center and Associate Professor of Marketing and Supply Chain Management in the Eli Broad Graduate School of Management at Michigan State University, and a Research Associate of the FedEx Center for Cycle Time Research. His research interests are international business, marketing strategy, and supply chain management. He has published in Journal of Marketing, Decision Sciences, Strategic Management Journal, Journal of the Academy of Marketing Science, Journal of Retailing, and Industrial Marketing Management, among other.

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