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The plurality of institutional embeddedness as a source of organizational attention differences
Journal of Business Research 58 (2005) 1543 – 1551
The plurality of institutional embeddedness as a source of organizational attention differences Shih-Chang Hung* Institute of Technology Management, National Tsing Hua University, Hsin Chu, 30043, Taiwan Received 1 August 2001; received in revised form 1 October 2003; accepted 1 September 2004
Abstract This paper examines the plurality of institutional embeddedness as a source of organizational attention differences. Using data collected from seven Taiwanese personal computer firms, we argue that firms differ in the strength and intensity of their social relations. Different degrees of relationship define the extent to which firms are embedded in their institutional environments. The higher the degree of institutional embeddedness, the more the organization will attend to, and be shaped by, the prevailing institutional environment. Because firms differ in their senior management structures and organizational routines, the degree to which different firms are embedded in the institutional environment is an important source of firm attention variant. Furthermore, we argue that the diversity of organizational attention is built into the plurality of institutions. The wider the scope of institutional variation, the more the firm is freed from any singular institutionalization. To further demonstrate the validity of our comparative case studies, we analyze the order of entry timing of three leading case firms into China. We show that they made different decisions on the timing of entry into China according to their divergent attention structures. D 2004 Elsevier Inc. All rights reserved. Keywords: Institutional embeddedness; Social networks; Organizational heterogeneity; Organizational attention
1. Introduction Institutional theory has explained the nature of the firm in terms of a socioinstitutional framework of rules, routines, conventions, and normative pressures (Deephouse, 1996; Scott, 1987; Oliver, 1996). Within the framework, organizations conform to gain legitimacy and resources, which are important to firm survival and success. Organizational conformity leads to homogeneity among firms in their structures and activities. The basic argument of the institutional view, then, is that firms are homogeneous in their society. However, the proposition that firms differ is important because firm differences condition the source of firms’ resource bases that are central to organization and strategy (Conner, 1991; Eisenhardt and Martin, 2000; * Tel.: +886 3 5742 448; fax: +886 3 57 45 310. E-mail address: [email protected]. 0148-2963/$ - see front matter D 2004 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2004.09.001
Gulati, 1999). Furthermore, firm differences account for the differentiated ability of firms to recognize and exploit entrepreneurial opportunities in changing environments (Shane and Venkataraman, 2000). While management research has accepted the importance of institutions in firm behavior, the role of institutions in explaining firm difference is becoming more important (Kondra and Hinings, 1998; McEvily and Zaheer, 1999). As Oliver (1997: 711) argues: (T)heory and research on external sources of competitive advantage should look beyond the resource and market characteristics of firm to government, society and interfirm relations as important influences on firm variation. . .. Since firms differ in their propensities to conform to regulatory and public interest group pressures. . ., the degree to which different firms choose to comply with public opinion, regulatory pressures and social expectations may be an important source of firm variation.
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This paper extends the institutional analysis of business organizations from the confines of isomorphism to organizational variant in its socioeconomic context. To this end, we make four general theoretical claims. First, we emphasize institutional influences through embeddedness of firms in their institutional context (Granovetter, 1985). Institutional embeddedness is defined here as bthe nesting of firm and market behavior in a social and normative contextQ (Oliver, 1996: 167). Institutional embeddedness is thus a firm-level construct that defines the pattern of institutional influence on organizational characteristics. Second, we address multilevels of institutional embeddedness. We claim that firms differ from one another in terms of their relationship to the institution. Different degrees of relationship define the extent to which firms are embedded in, and attend to, their institutional environments (Oliver, 1996). We follow Ocasio (1997: 188–9) in defining organizational attention as the socially structured pattern of attention that encompasses the noticing, encoding, interpreting, and focusing of time and effort by organizational decisionmakers on both issues and answers. Our third claim is that, because firms are likely to demonstrate different degrees of institutional embeddedness, their attention structures are not oversocialized under the single logic of institutionalization nor are their attention structures detached from each other. Attention structures refer to bthe social, economic, and cultural structures that govern the allocation of time, effort, and attentional focus of organizational decision-makers in their decision-making activitiesQ (Ocasio, 1997: 195). Fourth, using binstitutionQ as a plural concept (Ruef and Scott, 1998), we claim that both policy system (Hillman et al., 1999; Hung, 1999) and business system (Orru` et al., 1991; Whitley, 1992) are important in structuring organizational attention in its socioeconomic context. Both systems are defined in an institutional world. In the policy system, the state becomes a source of normative pressures, and the business system consists of distinct forms of markethierarchy relations. According to the above four arguments, we examine the role of institutions in explaining firm difference. Our independent variable is institutional embeddedness, and our dependent variable is organizational attention. By proposing an externally embedded perspective on firm differences, we demonstrate how firms differ in the extent to which they are embedded in, and thus attend to, the policy and business systems. To illustrate our analysis, we study seven personal computer (PC) firms in Taiwan (Acer, Mitac, FIC, ASI, Clevo, Twinhead, and Compal), all established before 1984. We demonstrate that each of the seven companies has, by the early 1990s, developed different degrees of institutional embeddedness, according to which they structure their attention structures. In particular, we investigate the order of entry timing of three
case firms—Acer, Mitac, and FIC—into China. We will show that the three Taiwanese leading PC firms made different decisions on the entry timing into China according to their distinctive networks of relations within the policy and business systems.
2. An institutional embeddedness perspective From an institutional perspective, firms are engaged in purposive activity defined by the institutional framework. Institutions are generally defined as social rules and norms (Oliver, 1996). The constraints imposed by the rules define socially accepted practices and therefore the kind of organizations that will evolve. Institutions as normative pressures specify an isomorphic process that operates within the social context to regulate human (inter)action. Conformity to social rules and norms is essential to organizational survival. This emphasis on conformity has, in general, led institutionalists to insist on the homogeneous nature of organizations (Deephouse, 1996; Orru` et al., 1991). Here, we advocate institutional effects, but aim for a socially structured model of firm variant. Although many firm attributes could be and have been the subject of research on heterogeneity, the paper focuses on organizational attention that guides decision-makers’ interpretations and actions. Ocasio (1997) develops an attention-based view of the firm, which explains how firms behave by highlighting the limited attentional capabilities of decision-makers. With respect to the attention of decisionmakers, structural networks of relationships interact with institutional influences to underlie the processing of scenarios (issues) and alternatives for action (answers) in the making of organizational moves. Because firms’ structural networks of relationships have varying degrees of strengths (e.g., strong ties versus weak ties) and various compositions (e.g., state–business networks, supplier–buyer relations, and technology partners) in society, they provide an intriguing opportunity to explore the effect of institutional influences on organizational attention differences. According to Granovetter (1985), firms are embedded in ongoing networks of social relationships that may involve the state, families, professions, religion, and ethnicity. A number of researchers have explicitly incorporated embeddedness into our understanding of firm behavior and outcomes (e.g., Rao et al., 2000; Uzzi, 1996; Uzzi and Gillespie, 2002). Embeddedness is characterised by the strength of an organization’s social ties with its immediate social context. This social context includes a whole array of elements that can be classified as institutional, cognitive, cultural, and structural (Zukin and DiMaggio, 1990). While each of these facets can be significant, our focus in this paper is on the institutional context which highlights the role of networks of beliefs, values, and norms in causing
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embedded firms to incorporate environmentally preferred recipes and to play by the rules of the game (Baum and Oliver, 1996; Oliver, 1996). Institutional embeddedness thus explains organizational attention differences by virtues of a firm’s network of relationship developed across its social and institutional context. These networks of relationships are idiosyncratic and created through a path of dependent process. Partly through their senior executives’ private and professional life trajectories, and partly through their expanding market exchange relationships and organizational routines, firms differ in the nature and strength of their social ties and connections with other actors in an institutional context (Clark and Soulsby, 1998). As these connections become denser, more information and values will be conveyed through them (Uzzi, 1996). Addressing this social identification process, we argue that the firm’s pattern of attention (a set of decision premises and motivation for action) results from its network relationships with the prevailing institution. Different degrees of relationship define the extent to which firms are related to, and embedded in, institutional environments (see Fig. 1). The higher the degree of institutional embeddedness, the more the organization will attend to the prevailing institutional environment. Maximally, organizational attention results in organizational conformity, meaning that the firm is institutionalized and fully congruous with the prevailing institutional patterns. Related to this emphasis on conformity, the lower the degree of institutional embeddedness, the more the firm is immune to institutional processes that regulate thoughts and actions. Minimally, in extremely weak network relationships, we can expect that there is a bstructural holeQ (Burt, 1992), and that firms stand aloof from the central tendencies of the institution. In most instances, however, there is room for a firm to establish different institutional relationships (McEvily and Zaheer, 1999). In so far as firms vary in the
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strength and intensity of their relationships with the institutional environment, they are likely to demonstrate different degrees of institutional embeddedness, resulting in distinct patterns of attention structures. Accordingly, different institutional (network) relationships that firms acquire and develop generate heterogeneity in the attention structures governing the functions, orientations, and actions of their decision-makers.
3. A plurality of institutional structures and networks Much research has considered binstitutionQ as an unidimensional concept (e.g., Orru` et al., 1991; Whitley, 1992). However, under conditions of equifinality, a multidimensional model of institution is likely (Hoffman, 1999; Paniccia, 1998; Ruef and Scott, 1998). The discussion of plurality of institutional environments is critical in explaining firm heterogeneity in attention structures for two reasons. First, it allows for more dimensions on which a firm could differentiate its attention from others. Second, diversity generates social change that, in turn, drives increases in environmental munificence. With access to institutional variations, organizations would not be frozen in time and could depend on more than one institutional sphere to gain access to a repertoire of schemas for managerial judgement with uncertainty (Seo and Greed, 2002). In this paper, focusing on Taiwanese PC firms, we argue the importance of two institutions in accounting for attention differences. The institutions include policy and business systems, both developed from an institutional perspective with considerable theoretical support. 3.1. Policy system Following Carroll (1993: 241, 244–5), appreciation of the state is important in explaining heterogeneity in
Fig. 1. From institutional analysis of organizational conformity and homogeneity (a) to institutional embeddedness analysis of organizational attention heterogeneity (b).
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organizational attention. Several studies have recognized that governments intervene in the economy, and that firms routinely pursue political strategies and develop ties with state agencies for achieving competitive advantage (Shaffer, 1995). In an institutional world, the development of state leadership in economic activity over time tends to develop into a bpolicy systemQ that institutionalizes around fairly stable rules of the political game or standard operating procedures (Hung, 1999). Policy system is thus defined here as an institutionalized system in which the state becomes a source of normative pressures specifying an isomorphic process that operates within a polity to regulate state–business relations. The institutionalization of the policy system through rules and operating procedures embodies a set of political resources (e.g., access to information, legitimacy, increased government contracts, prestige, status, reputation, etc.), which are important to organizational success and survival (Hillman et al., 1999). Because firms differ in their relations with the state, the degree to which different firms attend to industrial policy, regulatory pressures, and governmental expectations may differ (Hillman and Hitt, 1999: 828–30). In general, the greater the development of policy networks of relations, and thus the higher the degree of embeddedness in political activities (e.g., lobbying and hiring retired political officials), the greater the attention to the institution of policy system. 3.2. Business system In addition to the policy system, the business system also plays an important role in explaining the institutional embeddedness of business organizations (Whitley, 1992). We follow Whitley (1992) in defining the business system as a distinctive configuration of market–hierarchy relations that become established and institutionalized in its specific social context. The system is generally culturally and regionally peculiar. For example, business systems in East Asia and Europe seem to differ significantly. Once established, business systems define industrial recipes and rules to evaluate firms’ behavior and through which business organizations achieve their meaning. As with policy networks, bbusiness networksQ (Orru` et al., 1991) are an important arena within which firms can access a range of cultural options for the management of diversification, strategic alliances, and strategic choice (Whitley, 1992; Park and Luo, 2001). Because firms diverge in their business networks of social relations, which are embedded in territorial complexes, the degree to which different firms attend to business recipes, social expectations, and cultural values may differ. In general, the more strongly that firms extend their business networks of relations into the society and locality and so demonstrate a higher degree of cultural embeddedness, the greater the influence of the business system on the organization of their attention structures will be.
4. Research methods We study the Taiwanese PC industry prior to the mid1990s to illustrate how institutional embeddedness can explain organizational attention differences. We chose the industry for three reasons, in addition to the practical consideration. First, the industry was chosen because its immediate national context—Taiwan—had changed from a unified collectivity into an institutionally pluralistic society (Hung, 1999). Second, the industry was fragmented to the extent that we were able to use comparative approach to provide as rigorous a test of organizational attention difference as possible. Third, we chose the industry because it allows the research into the analysis of organizational attention to business and policy systems. The PC industry grew out of Taiwan’s electronic industry, and its attention to the institution of business system was thus historically established and continued. In 1981, the industry was listed as one of the eight strategic industries, and partly as a result, economic actors were in almost constant communication with state officials. This in turn raised the increasing possibility of organizational attention to the state and industrial policy. Once the target industry was decided, we chose to focus on the comparative studies of seven firms: Acer, Mitac, FIC, ASI, Clevo, Twinhead, and Compal. Regarding the reasonable number of cases, Eisenhardt (1989) suggests four to ten—seven is thus acceptable. We chose to study Taiwan’s then publicly traded companies (Acer, Mitac, and FIC) because they are legally obliged to release news to the public because they are internationally well-known and because they are often ready for academic visits, thus allowing access to empirical data. We chose to study the other four firms because their owner–mangers officially granted us a bgo-aheadQ on the field sites. Field observation was thus possible, and data collection was able to continue. Accordingly, the choice of the cases involves issues from academic relevance, data availability, and practical experience. This study used two very different classes of data. The first was a broad database of archival materials including industrial journals, periodicals, magazines, newspapers, and company annual reports since the industry’s inception. The second type of information source came from over 50 personal, unstructured interviews, 38 out of which were internal to the firm (Acer has six, Mitac five, FIC seven, ASI three, Clevo four, Twinhead eleven, and Compal two). The interviews began with the general secretary for the Taipei Computer Association, followed by company spokesmen and two professional journalists specializing in the information technology industry. Snowball sampling followed, and we also conducted numerous casual conversations with company founders, senior managers, industry experts, and state officials to supplement the more formal interviews. Data analysis using this broad database is a mixture of a grounded approach (Strauss, 1987) and a sense-making
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process (Langley 1999). We start with empirical details and attempt to build an overall comparative analysis of institutional embeddedness that is faithful to our bimaginationQ (Langley, 1999: 694). This tentative comparison, as expressed in the degree from extremely high to low, was cross-referenced with the strategic moves that took place during the course of the study and was continually crosschecked with our interviewees. While constantly comparing organizational attention differences, we classified the cases into various categories and deliberately selected some core ones that are centrally related to many other subcategories and recur often in the data. These core categories (discussed below) underlie the sources of institutional embeddedness and account for most of the variation in the level of embeddedness of a firm.
5. The sources of institutional embeddedness 5.1. Organizational networks of relations within the policy system To understand the extent to which firms develop their networks of social relations into the policy system, the key is to examine the extent to which they match the collective political characteristics of the KMT party–state. First, firms’ connection to the KMT chairman associates them with the state in the strongest sense. Regularly acting as a highly centralized party executive in the Central Standing Committee, the KMT chairman retains a senior position from which he can influence the government. Second, the educational background of owner–managers is critical to connecting firms to the organization of state agencies, which employ well-educated senior staff. In the bureaucracy of the KMT party–state, holding a bachelor’s degree is common, and most bureaucrats hold masters or
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even doctorates from leading US universities. Thus, owner– managers with US higher education qualifications are more able to mix with, understand, and exploit the dominant political elite. Third, firms’ connection to the KMT business group will allow them access to the government policy of Taiwan. This connection is mainly through cross-equity holdings and long-term exchange relationships in the economy. Additionally, public listed companies (PLCs) provide a positive connection to the policy system, which provides them with cheap capital resources but also constrains them to show high attention to state policy. In considering firms’ connection to the policy system, ethnicity provides a more complicated source of difference. Mainlander ethnicity is still positively related to firms’ attention to the state. However, the rise of Taiwanization in the KMT party–state has somewhat diminished the political status of the Mainlanders. Taiwanese ethnicity now confers increased political legitimacy and is complemented, and centrally related to, many other categories that contribute to connecting a firm to the policy system. 5.2. Organizational networks of relations within the business system Four categories are critical to identifying firms’ networks of relations with the business system. The first is the extent to which firms are owned and controlled by families. The Taiwanese business system is dominated by entrepreneurial familism, as indeed are most Chinese businesses throughout Southeast Asia. While by no means all successful firms develop into highly family-managed firms, those that emphasize professional managerialism tend to emphasize technical efficiency and bbest practicesQ and thus show a relative detachment from the business system insistent on the protection of family interests and the specialization of authority hierarchies.
Table 1 Sources and points of institutional embeddedness Policy system Connection to the KMT chairman Education of owner–managers Connection to the KMT business group Stock-exchange listing Ethnicity Business system Purely familial management Business-groups firms Executives’ personal relations Contracting or investment linkages
Acer (1976–)
Mitac (1974–)
FIC (1980–)
ASI (1983–)
Clevo (1983–)
Twinhead (1984–)
Compal (1984)
High
–
–
–
–
–
–
Medium (Master) Low
Medium (Master in the USA) Medium
High (PhD in the USA) Low
Low (Bachelor in Language) Low
Low–medium (Polytechnic) Low
Medium (Bachelor) High
Medium (Bachelor) Low
Yes (1988–) Taiwanese
Yes (1990–) Mainlander
Yes (1991–) Taiwanese
No Taiwanese
No Taiwanese
No Taiwanese
Yes (1992–) Taiwanese
Low
Low–medium
Low
Low
Low
Low
No Medium
Yes (high) High
High (highly centralized) Yes (highest) High
No Low
No Medium
No Medium
Yes (medium) Medium–high
Medium
Medium–high
High
Low
Medium
Medium
Medium–high
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Second, business-group firms reflect a relatively higher connection to the business system than single-unit family firms. In comparison with the single form of family business, subsidiaries of business groups show a relatively high level of business relations within their society. Moreover, the high-level exchange relations between businessgroup firms have more strongly connected these firms to the attendant business system. In general, the longer the groups operate in the society and the bigger their assets and size, the greater is their attention to the business system. Third, the significance of personal relations through senior management to market organization has a positive effect on connecting firms to the business system. The relations are mutually reinforcing between firms and influence them to consider the business system as a means of providing possible methods for decision-making. Finally, partly through business contracts, partly through outward investment, some firms may have developed longterm relationships with their business partners. On the one hand, the relationships provide embedded firms with access to technological specialties and market opportunities. On the other hand, connected to the relationships is a source of conformity to the rules and recipes defined by the business system. The discussion above has introduced the categories that allow for building in significant variation to the analysis of the level of embeddedness of a firm in its immediate policy and business systems. The analysis is summarized in Table 1. While the differences in the attention structures of our case study firms are too complex to explain in simple or general terms, each attention structure as a phenomenon of interest to social scientific research deserves more systematic evaluation and comparison. This is the focus of the next section.
Taiwanization of the KMT party–state. Owned by a set of diversified shareholders, including venture capitalists, large banks, and a KMT-owned firm, Twinhead was, like Acer, a native business star, which paid greater attention to the policy system than the other five firms. The other four firms (FIC, ASI, Clevo, and Compal) remained aloof from the policy system. Comparatively, FIC and Compal’s attention to the policy system was considered to be at a low to medium level because of their positions as PLCs. ASI and Clevo both showed a relatively low attention to the policy system. 6.2. Organizational attention to the business system Among the seven firms, Mitac, FIC, and Compal are all related to business groups, although they differ in the strength and intensity of their institutional relations. Highest was FIC, which was formed as a subsidiary of Formosa, Taiwan’s largest manufacturer. While FIC possessed the highest attention to the business system, another two subsidiaries of business groups, Mitac and Compal, also demonstrated a high attention to the system. Mitac is a subsidiary of bSun-tung gangQ group, a successful Mainlander conglomerate in Taiwan. Compal is a subsidiary of Cal-Comp, one of the oldest national manufacturers. Both firms’ strengths were partly derived from their parent companies’ long-standing business traditions. Another three entrepreneurial firms, Acer, Clevo, and Twinhead, showed a moderate attention to business system with their owner–managers considerably depending on national business networks to guide their actions. While its owner’s cosmopolitanism mattered a great deal to its operation and strategy, ASI was more like an outsider, showing a relative detachment from the Taiwanese business system.
6. Results and discussion 6.3. Institutional embeddedness and organizational attention 6.1. Organizational attention to the policy system Among the seven case studies, Acer, Mitac, FIC, and Compal are PLCs. The stock market favors business-group firms and national companies, working against most small and medium enterprises. Among the four PLCs, Mitac, FIC, and Compal are all related to business conglomerates, while Acer has secured political support. Indeed, Acer’s attention to the policy system was extremely high. In addition to its strong links to President Lee Teng-hui and the stock market, Acer benefited from a national innovation system that favored native business elites and industrial leaders. As a PLC, Mitac’s high attention to the policy system was additionally built on its social role as the oldest player and on its exclusive Mainlander’s ethnicity, which still, to some extent, was supportive of political advantages. Yet this ethnicity generally limited Mitac’s ability to gain a higher degree of political embeddedness than Acer and Twinhead, whose connection to the state was supported by the rise of
Fig. 2 depicts our discussion above on organizational attention differences as a consequence of various types and degrees of institutional embeddedness. The institutionally embedded nature of heterogeneity has important implications for the analysis of firm behavior. In this sense, Acer tends to define itself as a national champion, as its attention is deeply influenced by the policy system. Over the years, Stan Shih, the owner–manager of Acer, has been bobsessed with his bDragon dreamQ—the dream of building his tiny Taiwan-based computer firm into a global giantQ (Mathews, 2002: 3). Unlike its domestic rivals which have focused on OEM contracts, Acer has pursued more the own-brand route and stressed the managerial philosophy that bMe-too is not my styleQ (Shih, 1996). With values, interests, and resources drawn greatly from the policy system, Acer differentiated its attention from other case firms in the response to external changing environments. Although not a state champion, Twinhead
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Fig. 2. Organizational attention differences.
with its attention directed substantially towards the state was very much like a small Acer, which highlighted an equal product-mix of OEM and own-brand. In turn, while related to various business groups, FIC, Mitac, and Compal’s attention structures were considerably structured by the business system which, as an institution, defined rules of volume expansion surrounding the family business. Because of their relatively high attention to the system, they have put emphasis on OEM production, and their dominant objective is by all means profit-maximization. Concern to protect family interests also led these firms to maintain tight control over their financial management. With its attention more structured by the business system and less by the policy system, Clevo tended to define itself as an OEM-based notebook supplier and was very conservative, avoiding technology ventures while solidly defending their traditional keyboard and power supply businesses. Without either a conspicuous engineering background or conglomerate financial support, ASI stood aloof from the central tendencies of the policy system and business system. This detachment encouraged institutional nonconformity which, in turn, distracted the firm’s attention towards the pursuit of continued growth through broadening, deepening, and upgrading product range. Probably as a result, ASI exited in the late 1990s from the Taiwanese PC business.
7. Illustrative issue study: the timing of entry into China To further illustrate our analysis of organizational attention heterogeneity, we next examine the entry timing of three case firms—Acer, Mitac, and FIC—into China. The firms were chosen because of their distinct forms of attention structures; as Fig. 2 shows, they are rightly situated in the frontier of the institutional environments. We chose to study the timing of entry into China because, during the early to
mid-1990s, when to invest in China seems to be the most critical decision for Taiwan’s PC firms. As this section will show, the different entry timing of Acer (in 1996), Mitac (in 1993), and FIC (in 1992) into China can be explained in terms of their different attention structures. 7.1. Timing of entry into China Operating in a national innovation system insistent on advanced process and assembly technologies, Taiwanese PC firms have tended to compete on the basis of cost and price advantage. However, since the early 1990s, such advantage has been shattered because of the large-scale currency appreciation and rising wages. In response to the changing environment, many Taiwanese firms sought to move manufacturing operations offshore to neighboring Pacific Rim countries. For the firms searching for answers in the making of internationalization, the Mainland China, with its common language and certain other cultural traits as well as its investment incentives, should be the best choice. However, investment in China was not approved by the state until 1993. Thus, the relative distance from the policy system and the strong attention to the business system explain FIC’s early entry into China (in 1992) regardless of government regulation. In particular, while heavily business-system-driven, FIC was likely to be an early entrant in China where its parent company—Formosa—was planning the world’s largest petrol-chemical plant in Fu-jian, China during the early 1990s. Comparatively, both Acer and Mitac were late entrants, whose attentions to the policy system were greater than that of FIC. But Mitac did go to China in 1993 as soon as the state had just lifted its ban on investment in China. The extremely great attention to the policy system certainly put a constraint on Acer’s tendency towards investment in China. In turn, the relatively high attention to the business system, together with the firm’s identity as a Mainlander business,
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drove Mitac to enter the China market quickly. By doing so, Mitac had emphasized institutional balance. On the one hand, the company played by the rules of the policy game; on the other hand, its search for the Chinese market was governed by its high attention towards the business system. Accordingly, Acer, Mitac, and FIC did not blindly conform to institutional forces—a passive statement centered on isomorphism; instead, they attended differently to their institutional and social environments.
8. Conclusion Using data collected from seven Taiwanese PC firms, we have examined the plurality of institutional embeddedness as a source of organizational attention differences. This examination should be read in the light of a highly institutional setting, an industry-specific design of comparative case studies and the partly subjective nature of the embeddedness measure. Nevertheless, our study does make important contributions to the institutional theory literature within current organization and strategy studies. Using institution as a multilevel (socially embedded), plural concept, this paper extends the institutional analysis of business organizations from the often confines of isomorphism to organizational variant in its socioeconomic context. Organizational attention difference is possible because an institutional embeddedness perspective frees firms from any unique institutionalization. Organizational attention difference is sustainable, as a plural account of institutions widens the focus beyond institutionalists’ concern for the singular logic of conformity. In this way, our research is consistent with Oliver’s (1996, 1997) call for an institutionally based theory of firm variant and with McEvily and Zaheer’s (1999) call for an embeddedness approach to firm heterogeneity. It also contributes to the resource- or capability-based views (Conner, 1991; Eisenhardt and Martin, 2000) by proposing an externally embedded perspective on firm and resource differences. In explaining differences in organizational attention, our study also extends previous research on the entry timing decisions of organizations. Previous studies (e.g., Fuentelsaz et al., 2002; Gaba et al., 2002) have focused largely on the impact of such economic efficiency reasoning as competitive advantage, industry structure, and market characteristic on the timing of a firm’s entry into a foreign market. Our study offers a complementarily institutional embeddedness perspective. We demonstrate that the different entry timing of Acer, Mitac, and FIC into China can be explained in terms of their different attention structures. While our finding is subject to the critique of a unique national circumstance caused by the political tension between Taiwan straits, our emphasis on institutional hurdles to efficient economic activity is generally applicable to explanations of firm heterogeneity and variation in firm network and capability.
Acknowledgements The author thanks Jean B. McGuire and two anonymous reviewers for comments and suggestions. The generous support of the National Science Council of Taiwan is gratefully acknowledged.
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S.-C. Hung / Journal of Business Research 58 (2005) 1543–1551 in organizational analysis. Chicago7 The University of Chicago Press; 1991. Paniccia I. One, a hundred, thousands of industrial districts. Organizational variety in local networks of small- and medium-size enterprises. Organ Stud 1998;19(4):600 – 67. Park SH, Luo Y. Guanxi and organizational dynamics: organizational networking in Chinese firms. Strateg Manage J 2001;22(5):455 – 77. Rao H, Davis GF, Ward A. Embeddedness, social identity, and mobility: why firms leave the NASDAQ and join the New York Stock Exchange. Adm Sci Q 2000;45(2):268 – 92. Ruef M, Scott WR. A multidimensional model of organizational legitimacy: hospital survival in changing institutional environments. Adm Sci Q 1998;43:877 – 904. Scott WR. The adolescence of institutional theory. Adm Sci Q 1987;32: 493 – 511. Seo M-G, Greed EED. Institutional contradictions, praxis, and institutional change: a dialectical perspective. Acad Manage Rev 2002;27(2):222 – 47.
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Shaffer B. Firm-level responses to government regulation: theoretical and research approaches. J Manage 1995;21:495 – 514. Shane S, Venkataraman S. The promise of entrepreneurship as a field of research. Acad Manage Rev 2000;25(1):217 – 26. Shih S. Me-too is not my style: challenge difficulties, break through bottlenecks, create values. Taipei7 The Acer Foundation; 1996. Strauss AL. Qualitative analysis for social scientists. New York7 Cambridge University Press; 1987. Uzzi B. The sources and consequences of embeddedness for the economic performance of organizations: the network effect. Am Sociol Rev 1996;61:674 – 99. Uzzi B, Gillespie JJ. Knowledge spillover in corporate financial networks: embeddedness and the firm’s debt performance. Strateg Manage J 2002;23(7):595 – 618. Whitley RD. Business systems in East Asia. London7 Sage; 1992. Zukin S, DiMaggio P. Structures of capital: the social organization of the economy. Cambridge (MA)7 Cambridge University Press; 1990.
The plurality of institutional embeddedness as a source of organizational attention differences Shih-Chang Hung* Institute of Technology Management, National Tsing Hua University, Hsin Chu, 30043, Taiwan Received 1 August 2001; received in revised form 1 October 2003; accepted 1 September 2004
Abstract This paper examines the plurality of institutional embeddedness as a source of organizational attention differences. Using data collected from seven Taiwanese personal computer firms, we argue that firms differ in the strength and intensity of their social relations. Different degrees of relationship define the extent to which firms are embedded in their institutional environments. The higher the degree of institutional embeddedness, the more the organization will attend to, and be shaped by, the prevailing institutional environment. Because firms differ in their senior management structures and organizational routines, the degree to which different firms are embedded in the institutional environment is an important source of firm attention variant. Furthermore, we argue that the diversity of organizational attention is built into the plurality of institutions. The wider the scope of institutional variation, the more the firm is freed from any singular institutionalization. To further demonstrate the validity of our comparative case studies, we analyze the order of entry timing of three leading case firms into China. We show that they made different decisions on the timing of entry into China according to their divergent attention structures. D 2004 Elsevier Inc. All rights reserved. Keywords: Institutional embeddedness; Social networks; Organizational heterogeneity; Organizational attention
1. Introduction Institutional theory has explained the nature of the firm in terms of a socioinstitutional framework of rules, routines, conventions, and normative pressures (Deephouse, 1996; Scott, 1987; Oliver, 1996). Within the framework, organizations conform to gain legitimacy and resources, which are important to firm survival and success. Organizational conformity leads to homogeneity among firms in their structures and activities. The basic argument of the institutional view, then, is that firms are homogeneous in their society. However, the proposition that firms differ is important because firm differences condition the source of firms’ resource bases that are central to organization and strategy (Conner, 1991; Eisenhardt and Martin, 2000; * Tel.: +886 3 5742 448; fax: +886 3 57 45 310. E-mail address: [email protected]. 0148-2963/$ - see front matter D 2004 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2004.09.001
Gulati, 1999). Furthermore, firm differences account for the differentiated ability of firms to recognize and exploit entrepreneurial opportunities in changing environments (Shane and Venkataraman, 2000). While management research has accepted the importance of institutions in firm behavior, the role of institutions in explaining firm difference is becoming more important (Kondra and Hinings, 1998; McEvily and Zaheer, 1999). As Oliver (1997: 711) argues: (T)heory and research on external sources of competitive advantage should look beyond the resource and market characteristics of firm to government, society and interfirm relations as important influences on firm variation. . .. Since firms differ in their propensities to conform to regulatory and public interest group pressures. . ., the degree to which different firms choose to comply with public opinion, regulatory pressures and social expectations may be an important source of firm variation.
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This paper extends the institutional analysis of business organizations from the confines of isomorphism to organizational variant in its socioeconomic context. To this end, we make four general theoretical claims. First, we emphasize institutional influences through embeddedness of firms in their institutional context (Granovetter, 1985). Institutional embeddedness is defined here as bthe nesting of firm and market behavior in a social and normative contextQ (Oliver, 1996: 167). Institutional embeddedness is thus a firm-level construct that defines the pattern of institutional influence on organizational characteristics. Second, we address multilevels of institutional embeddedness. We claim that firms differ from one another in terms of their relationship to the institution. Different degrees of relationship define the extent to which firms are embedded in, and attend to, their institutional environments (Oliver, 1996). We follow Ocasio (1997: 188–9) in defining organizational attention as the socially structured pattern of attention that encompasses the noticing, encoding, interpreting, and focusing of time and effort by organizational decisionmakers on both issues and answers. Our third claim is that, because firms are likely to demonstrate different degrees of institutional embeddedness, their attention structures are not oversocialized under the single logic of institutionalization nor are their attention structures detached from each other. Attention structures refer to bthe social, economic, and cultural structures that govern the allocation of time, effort, and attentional focus of organizational decision-makers in their decision-making activitiesQ (Ocasio, 1997: 195). Fourth, using binstitutionQ as a plural concept (Ruef and Scott, 1998), we claim that both policy system (Hillman et al., 1999; Hung, 1999) and business system (Orru` et al., 1991; Whitley, 1992) are important in structuring organizational attention in its socioeconomic context. Both systems are defined in an institutional world. In the policy system, the state becomes a source of normative pressures, and the business system consists of distinct forms of markethierarchy relations. According to the above four arguments, we examine the role of institutions in explaining firm difference. Our independent variable is institutional embeddedness, and our dependent variable is organizational attention. By proposing an externally embedded perspective on firm differences, we demonstrate how firms differ in the extent to which they are embedded in, and thus attend to, the policy and business systems. To illustrate our analysis, we study seven personal computer (PC) firms in Taiwan (Acer, Mitac, FIC, ASI, Clevo, Twinhead, and Compal), all established before 1984. We demonstrate that each of the seven companies has, by the early 1990s, developed different degrees of institutional embeddedness, according to which they structure their attention structures. In particular, we investigate the order of entry timing of three
case firms—Acer, Mitac, and FIC—into China. We will show that the three Taiwanese leading PC firms made different decisions on the entry timing into China according to their distinctive networks of relations within the policy and business systems.
2. An institutional embeddedness perspective From an institutional perspective, firms are engaged in purposive activity defined by the institutional framework. Institutions are generally defined as social rules and norms (Oliver, 1996). The constraints imposed by the rules define socially accepted practices and therefore the kind of organizations that will evolve. Institutions as normative pressures specify an isomorphic process that operates within the social context to regulate human (inter)action. Conformity to social rules and norms is essential to organizational survival. This emphasis on conformity has, in general, led institutionalists to insist on the homogeneous nature of organizations (Deephouse, 1996; Orru` et al., 1991). Here, we advocate institutional effects, but aim for a socially structured model of firm variant. Although many firm attributes could be and have been the subject of research on heterogeneity, the paper focuses on organizational attention that guides decision-makers’ interpretations and actions. Ocasio (1997) develops an attention-based view of the firm, which explains how firms behave by highlighting the limited attentional capabilities of decision-makers. With respect to the attention of decisionmakers, structural networks of relationships interact with institutional influences to underlie the processing of scenarios (issues) and alternatives for action (answers) in the making of organizational moves. Because firms’ structural networks of relationships have varying degrees of strengths (e.g., strong ties versus weak ties) and various compositions (e.g., state–business networks, supplier–buyer relations, and technology partners) in society, they provide an intriguing opportunity to explore the effect of institutional influences on organizational attention differences. According to Granovetter (1985), firms are embedded in ongoing networks of social relationships that may involve the state, families, professions, religion, and ethnicity. A number of researchers have explicitly incorporated embeddedness into our understanding of firm behavior and outcomes (e.g., Rao et al., 2000; Uzzi, 1996; Uzzi and Gillespie, 2002). Embeddedness is characterised by the strength of an organization’s social ties with its immediate social context. This social context includes a whole array of elements that can be classified as institutional, cognitive, cultural, and structural (Zukin and DiMaggio, 1990). While each of these facets can be significant, our focus in this paper is on the institutional context which highlights the role of networks of beliefs, values, and norms in causing
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embedded firms to incorporate environmentally preferred recipes and to play by the rules of the game (Baum and Oliver, 1996; Oliver, 1996). Institutional embeddedness thus explains organizational attention differences by virtues of a firm’s network of relationship developed across its social and institutional context. These networks of relationships are idiosyncratic and created through a path of dependent process. Partly through their senior executives’ private and professional life trajectories, and partly through their expanding market exchange relationships and organizational routines, firms differ in the nature and strength of their social ties and connections with other actors in an institutional context (Clark and Soulsby, 1998). As these connections become denser, more information and values will be conveyed through them (Uzzi, 1996). Addressing this social identification process, we argue that the firm’s pattern of attention (a set of decision premises and motivation for action) results from its network relationships with the prevailing institution. Different degrees of relationship define the extent to which firms are related to, and embedded in, institutional environments (see Fig. 1). The higher the degree of institutional embeddedness, the more the organization will attend to the prevailing institutional environment. Maximally, organizational attention results in organizational conformity, meaning that the firm is institutionalized and fully congruous with the prevailing institutional patterns. Related to this emphasis on conformity, the lower the degree of institutional embeddedness, the more the firm is immune to institutional processes that regulate thoughts and actions. Minimally, in extremely weak network relationships, we can expect that there is a bstructural holeQ (Burt, 1992), and that firms stand aloof from the central tendencies of the institution. In most instances, however, there is room for a firm to establish different institutional relationships (McEvily and Zaheer, 1999). In so far as firms vary in the
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strength and intensity of their relationships with the institutional environment, they are likely to demonstrate different degrees of institutional embeddedness, resulting in distinct patterns of attention structures. Accordingly, different institutional (network) relationships that firms acquire and develop generate heterogeneity in the attention structures governing the functions, orientations, and actions of their decision-makers.
3. A plurality of institutional structures and networks Much research has considered binstitutionQ as an unidimensional concept (e.g., Orru` et al., 1991; Whitley, 1992). However, under conditions of equifinality, a multidimensional model of institution is likely (Hoffman, 1999; Paniccia, 1998; Ruef and Scott, 1998). The discussion of plurality of institutional environments is critical in explaining firm heterogeneity in attention structures for two reasons. First, it allows for more dimensions on which a firm could differentiate its attention from others. Second, diversity generates social change that, in turn, drives increases in environmental munificence. With access to institutional variations, organizations would not be frozen in time and could depend on more than one institutional sphere to gain access to a repertoire of schemas for managerial judgement with uncertainty (Seo and Greed, 2002). In this paper, focusing on Taiwanese PC firms, we argue the importance of two institutions in accounting for attention differences. The institutions include policy and business systems, both developed from an institutional perspective with considerable theoretical support. 3.1. Policy system Following Carroll (1993: 241, 244–5), appreciation of the state is important in explaining heterogeneity in
Fig. 1. From institutional analysis of organizational conformity and homogeneity (a) to institutional embeddedness analysis of organizational attention heterogeneity (b).
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organizational attention. Several studies have recognized that governments intervene in the economy, and that firms routinely pursue political strategies and develop ties with state agencies for achieving competitive advantage (Shaffer, 1995). In an institutional world, the development of state leadership in economic activity over time tends to develop into a bpolicy systemQ that institutionalizes around fairly stable rules of the political game or standard operating procedures (Hung, 1999). Policy system is thus defined here as an institutionalized system in which the state becomes a source of normative pressures specifying an isomorphic process that operates within a polity to regulate state–business relations. The institutionalization of the policy system through rules and operating procedures embodies a set of political resources (e.g., access to information, legitimacy, increased government contracts, prestige, status, reputation, etc.), which are important to organizational success and survival (Hillman et al., 1999). Because firms differ in their relations with the state, the degree to which different firms attend to industrial policy, regulatory pressures, and governmental expectations may differ (Hillman and Hitt, 1999: 828–30). In general, the greater the development of policy networks of relations, and thus the higher the degree of embeddedness in political activities (e.g., lobbying and hiring retired political officials), the greater the attention to the institution of policy system. 3.2. Business system In addition to the policy system, the business system also plays an important role in explaining the institutional embeddedness of business organizations (Whitley, 1992). We follow Whitley (1992) in defining the business system as a distinctive configuration of market–hierarchy relations that become established and institutionalized in its specific social context. The system is generally culturally and regionally peculiar. For example, business systems in East Asia and Europe seem to differ significantly. Once established, business systems define industrial recipes and rules to evaluate firms’ behavior and through which business organizations achieve their meaning. As with policy networks, bbusiness networksQ (Orru` et al., 1991) are an important arena within which firms can access a range of cultural options for the management of diversification, strategic alliances, and strategic choice (Whitley, 1992; Park and Luo, 2001). Because firms diverge in their business networks of social relations, which are embedded in territorial complexes, the degree to which different firms attend to business recipes, social expectations, and cultural values may differ. In general, the more strongly that firms extend their business networks of relations into the society and locality and so demonstrate a higher degree of cultural embeddedness, the greater the influence of the business system on the organization of their attention structures will be.
4. Research methods We study the Taiwanese PC industry prior to the mid1990s to illustrate how institutional embeddedness can explain organizational attention differences. We chose the industry for three reasons, in addition to the practical consideration. First, the industry was chosen because its immediate national context—Taiwan—had changed from a unified collectivity into an institutionally pluralistic society (Hung, 1999). Second, the industry was fragmented to the extent that we were able to use comparative approach to provide as rigorous a test of organizational attention difference as possible. Third, we chose the industry because it allows the research into the analysis of organizational attention to business and policy systems. The PC industry grew out of Taiwan’s electronic industry, and its attention to the institution of business system was thus historically established and continued. In 1981, the industry was listed as one of the eight strategic industries, and partly as a result, economic actors were in almost constant communication with state officials. This in turn raised the increasing possibility of organizational attention to the state and industrial policy. Once the target industry was decided, we chose to focus on the comparative studies of seven firms: Acer, Mitac, FIC, ASI, Clevo, Twinhead, and Compal. Regarding the reasonable number of cases, Eisenhardt (1989) suggests four to ten—seven is thus acceptable. We chose to study Taiwan’s then publicly traded companies (Acer, Mitac, and FIC) because they are legally obliged to release news to the public because they are internationally well-known and because they are often ready for academic visits, thus allowing access to empirical data. We chose to study the other four firms because their owner–mangers officially granted us a bgo-aheadQ on the field sites. Field observation was thus possible, and data collection was able to continue. Accordingly, the choice of the cases involves issues from academic relevance, data availability, and practical experience. This study used two very different classes of data. The first was a broad database of archival materials including industrial journals, periodicals, magazines, newspapers, and company annual reports since the industry’s inception. The second type of information source came from over 50 personal, unstructured interviews, 38 out of which were internal to the firm (Acer has six, Mitac five, FIC seven, ASI three, Clevo four, Twinhead eleven, and Compal two). The interviews began with the general secretary for the Taipei Computer Association, followed by company spokesmen and two professional journalists specializing in the information technology industry. Snowball sampling followed, and we also conducted numerous casual conversations with company founders, senior managers, industry experts, and state officials to supplement the more formal interviews. Data analysis using this broad database is a mixture of a grounded approach (Strauss, 1987) and a sense-making
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process (Langley 1999). We start with empirical details and attempt to build an overall comparative analysis of institutional embeddedness that is faithful to our bimaginationQ (Langley, 1999: 694). This tentative comparison, as expressed in the degree from extremely high to low, was cross-referenced with the strategic moves that took place during the course of the study and was continually crosschecked with our interviewees. While constantly comparing organizational attention differences, we classified the cases into various categories and deliberately selected some core ones that are centrally related to many other subcategories and recur often in the data. These core categories (discussed below) underlie the sources of institutional embeddedness and account for most of the variation in the level of embeddedness of a firm.
5. The sources of institutional embeddedness 5.1. Organizational networks of relations within the policy system To understand the extent to which firms develop their networks of social relations into the policy system, the key is to examine the extent to which they match the collective political characteristics of the KMT party–state. First, firms’ connection to the KMT chairman associates them with the state in the strongest sense. Regularly acting as a highly centralized party executive in the Central Standing Committee, the KMT chairman retains a senior position from which he can influence the government. Second, the educational background of owner–managers is critical to connecting firms to the organization of state agencies, which employ well-educated senior staff. In the bureaucracy of the KMT party–state, holding a bachelor’s degree is common, and most bureaucrats hold masters or
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even doctorates from leading US universities. Thus, owner– managers with US higher education qualifications are more able to mix with, understand, and exploit the dominant political elite. Third, firms’ connection to the KMT business group will allow them access to the government policy of Taiwan. This connection is mainly through cross-equity holdings and long-term exchange relationships in the economy. Additionally, public listed companies (PLCs) provide a positive connection to the policy system, which provides them with cheap capital resources but also constrains them to show high attention to state policy. In considering firms’ connection to the policy system, ethnicity provides a more complicated source of difference. Mainlander ethnicity is still positively related to firms’ attention to the state. However, the rise of Taiwanization in the KMT party–state has somewhat diminished the political status of the Mainlanders. Taiwanese ethnicity now confers increased political legitimacy and is complemented, and centrally related to, many other categories that contribute to connecting a firm to the policy system. 5.2. Organizational networks of relations within the business system Four categories are critical to identifying firms’ networks of relations with the business system. The first is the extent to which firms are owned and controlled by families. The Taiwanese business system is dominated by entrepreneurial familism, as indeed are most Chinese businesses throughout Southeast Asia. While by no means all successful firms develop into highly family-managed firms, those that emphasize professional managerialism tend to emphasize technical efficiency and bbest practicesQ and thus show a relative detachment from the business system insistent on the protection of family interests and the specialization of authority hierarchies.
Table 1 Sources and points of institutional embeddedness Policy system Connection to the KMT chairman Education of owner–managers Connection to the KMT business group Stock-exchange listing Ethnicity Business system Purely familial management Business-groups firms Executives’ personal relations Contracting or investment linkages
Acer (1976–)
Mitac (1974–)
FIC (1980–)
ASI (1983–)
Clevo (1983–)
Twinhead (1984–)
Compal (1984)
High
–
–
–
–
–
–
Medium (Master) Low
Medium (Master in the USA) Medium
High (PhD in the USA) Low
Low (Bachelor in Language) Low
Low–medium (Polytechnic) Low
Medium (Bachelor) High
Medium (Bachelor) Low
Yes (1988–) Taiwanese
Yes (1990–) Mainlander
Yes (1991–) Taiwanese
No Taiwanese
No Taiwanese
No Taiwanese
Yes (1992–) Taiwanese
Low
Low–medium
Low
Low
Low
Low
No Medium
Yes (high) High
High (highly centralized) Yes (highest) High
No Low
No Medium
No Medium
Yes (medium) Medium–high
Medium
Medium–high
High
Low
Medium
Medium
Medium–high
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Second, business-group firms reflect a relatively higher connection to the business system than single-unit family firms. In comparison with the single form of family business, subsidiaries of business groups show a relatively high level of business relations within their society. Moreover, the high-level exchange relations between businessgroup firms have more strongly connected these firms to the attendant business system. In general, the longer the groups operate in the society and the bigger their assets and size, the greater is their attention to the business system. Third, the significance of personal relations through senior management to market organization has a positive effect on connecting firms to the business system. The relations are mutually reinforcing between firms and influence them to consider the business system as a means of providing possible methods for decision-making. Finally, partly through business contracts, partly through outward investment, some firms may have developed longterm relationships with their business partners. On the one hand, the relationships provide embedded firms with access to technological specialties and market opportunities. On the other hand, connected to the relationships is a source of conformity to the rules and recipes defined by the business system. The discussion above has introduced the categories that allow for building in significant variation to the analysis of the level of embeddedness of a firm in its immediate policy and business systems. The analysis is summarized in Table 1. While the differences in the attention structures of our case study firms are too complex to explain in simple or general terms, each attention structure as a phenomenon of interest to social scientific research deserves more systematic evaluation and comparison. This is the focus of the next section.
Taiwanization of the KMT party–state. Owned by a set of diversified shareholders, including venture capitalists, large banks, and a KMT-owned firm, Twinhead was, like Acer, a native business star, which paid greater attention to the policy system than the other five firms. The other four firms (FIC, ASI, Clevo, and Compal) remained aloof from the policy system. Comparatively, FIC and Compal’s attention to the policy system was considered to be at a low to medium level because of their positions as PLCs. ASI and Clevo both showed a relatively low attention to the policy system. 6.2. Organizational attention to the business system Among the seven firms, Mitac, FIC, and Compal are all related to business groups, although they differ in the strength and intensity of their institutional relations. Highest was FIC, which was formed as a subsidiary of Formosa, Taiwan’s largest manufacturer. While FIC possessed the highest attention to the business system, another two subsidiaries of business groups, Mitac and Compal, also demonstrated a high attention to the system. Mitac is a subsidiary of bSun-tung gangQ group, a successful Mainlander conglomerate in Taiwan. Compal is a subsidiary of Cal-Comp, one of the oldest national manufacturers. Both firms’ strengths were partly derived from their parent companies’ long-standing business traditions. Another three entrepreneurial firms, Acer, Clevo, and Twinhead, showed a moderate attention to business system with their owner–managers considerably depending on national business networks to guide their actions. While its owner’s cosmopolitanism mattered a great deal to its operation and strategy, ASI was more like an outsider, showing a relative detachment from the Taiwanese business system.
6. Results and discussion 6.3. Institutional embeddedness and organizational attention 6.1. Organizational attention to the policy system Among the seven case studies, Acer, Mitac, FIC, and Compal are PLCs. The stock market favors business-group firms and national companies, working against most small and medium enterprises. Among the four PLCs, Mitac, FIC, and Compal are all related to business conglomerates, while Acer has secured political support. Indeed, Acer’s attention to the policy system was extremely high. In addition to its strong links to President Lee Teng-hui and the stock market, Acer benefited from a national innovation system that favored native business elites and industrial leaders. As a PLC, Mitac’s high attention to the policy system was additionally built on its social role as the oldest player and on its exclusive Mainlander’s ethnicity, which still, to some extent, was supportive of political advantages. Yet this ethnicity generally limited Mitac’s ability to gain a higher degree of political embeddedness than Acer and Twinhead, whose connection to the state was supported by the rise of
Fig. 2 depicts our discussion above on organizational attention differences as a consequence of various types and degrees of institutional embeddedness. The institutionally embedded nature of heterogeneity has important implications for the analysis of firm behavior. In this sense, Acer tends to define itself as a national champion, as its attention is deeply influenced by the policy system. Over the years, Stan Shih, the owner–manager of Acer, has been bobsessed with his bDragon dreamQ—the dream of building his tiny Taiwan-based computer firm into a global giantQ (Mathews, 2002: 3). Unlike its domestic rivals which have focused on OEM contracts, Acer has pursued more the own-brand route and stressed the managerial philosophy that bMe-too is not my styleQ (Shih, 1996). With values, interests, and resources drawn greatly from the policy system, Acer differentiated its attention from other case firms in the response to external changing environments. Although not a state champion, Twinhead
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Fig. 2. Organizational attention differences.
with its attention directed substantially towards the state was very much like a small Acer, which highlighted an equal product-mix of OEM and own-brand. In turn, while related to various business groups, FIC, Mitac, and Compal’s attention structures were considerably structured by the business system which, as an institution, defined rules of volume expansion surrounding the family business. Because of their relatively high attention to the system, they have put emphasis on OEM production, and their dominant objective is by all means profit-maximization. Concern to protect family interests also led these firms to maintain tight control over their financial management. With its attention more structured by the business system and less by the policy system, Clevo tended to define itself as an OEM-based notebook supplier and was very conservative, avoiding technology ventures while solidly defending their traditional keyboard and power supply businesses. Without either a conspicuous engineering background or conglomerate financial support, ASI stood aloof from the central tendencies of the policy system and business system. This detachment encouraged institutional nonconformity which, in turn, distracted the firm’s attention towards the pursuit of continued growth through broadening, deepening, and upgrading product range. Probably as a result, ASI exited in the late 1990s from the Taiwanese PC business.
7. Illustrative issue study: the timing of entry into China To further illustrate our analysis of organizational attention heterogeneity, we next examine the entry timing of three case firms—Acer, Mitac, and FIC—into China. The firms were chosen because of their distinct forms of attention structures; as Fig. 2 shows, they are rightly situated in the frontier of the institutional environments. We chose to study the timing of entry into China because, during the early to
mid-1990s, when to invest in China seems to be the most critical decision for Taiwan’s PC firms. As this section will show, the different entry timing of Acer (in 1996), Mitac (in 1993), and FIC (in 1992) into China can be explained in terms of their different attention structures. 7.1. Timing of entry into China Operating in a national innovation system insistent on advanced process and assembly technologies, Taiwanese PC firms have tended to compete on the basis of cost and price advantage. However, since the early 1990s, such advantage has been shattered because of the large-scale currency appreciation and rising wages. In response to the changing environment, many Taiwanese firms sought to move manufacturing operations offshore to neighboring Pacific Rim countries. For the firms searching for answers in the making of internationalization, the Mainland China, with its common language and certain other cultural traits as well as its investment incentives, should be the best choice. However, investment in China was not approved by the state until 1993. Thus, the relative distance from the policy system and the strong attention to the business system explain FIC’s early entry into China (in 1992) regardless of government regulation. In particular, while heavily business-system-driven, FIC was likely to be an early entrant in China where its parent company—Formosa—was planning the world’s largest petrol-chemical plant in Fu-jian, China during the early 1990s. Comparatively, both Acer and Mitac were late entrants, whose attentions to the policy system were greater than that of FIC. But Mitac did go to China in 1993 as soon as the state had just lifted its ban on investment in China. The extremely great attention to the policy system certainly put a constraint on Acer’s tendency towards investment in China. In turn, the relatively high attention to the business system, together with the firm’s identity as a Mainlander business,
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drove Mitac to enter the China market quickly. By doing so, Mitac had emphasized institutional balance. On the one hand, the company played by the rules of the policy game; on the other hand, its search for the Chinese market was governed by its high attention towards the business system. Accordingly, Acer, Mitac, and FIC did not blindly conform to institutional forces—a passive statement centered on isomorphism; instead, they attended differently to their institutional and social environments.
8. Conclusion Using data collected from seven Taiwanese PC firms, we have examined the plurality of institutional embeddedness as a source of organizational attention differences. This examination should be read in the light of a highly institutional setting, an industry-specific design of comparative case studies and the partly subjective nature of the embeddedness measure. Nevertheless, our study does make important contributions to the institutional theory literature within current organization and strategy studies. Using institution as a multilevel (socially embedded), plural concept, this paper extends the institutional analysis of business organizations from the often confines of isomorphism to organizational variant in its socioeconomic context. Organizational attention difference is possible because an institutional embeddedness perspective frees firms from any unique institutionalization. Organizational attention difference is sustainable, as a plural account of institutions widens the focus beyond institutionalists’ concern for the singular logic of conformity. In this way, our research is consistent with Oliver’s (1996, 1997) call for an institutionally based theory of firm variant and with McEvily and Zaheer’s (1999) call for an embeddedness approach to firm heterogeneity. It also contributes to the resource- or capability-based views (Conner, 1991; Eisenhardt and Martin, 2000) by proposing an externally embedded perspective on firm and resource differences. In explaining differences in organizational attention, our study also extends previous research on the entry timing decisions of organizations. Previous studies (e.g., Fuentelsaz et al., 2002; Gaba et al., 2002) have focused largely on the impact of such economic efficiency reasoning as competitive advantage, industry structure, and market characteristic on the timing of a firm’s entry into a foreign market. Our study offers a complementarily institutional embeddedness perspective. We demonstrate that the different entry timing of Acer, Mitac, and FIC into China can be explained in terms of their different attention structures. While our finding is subject to the critique of a unique national circumstance caused by the political tension between Taiwan straits, our emphasis on institutional hurdles to efficient economic activity is generally applicable to explanations of firm heterogeneity and variation in firm network and capability.
Acknowledgements The author thanks Jean B. McGuire and two anonymous reviewers for comments and suggestions. The generous support of the National Science Council of Taiwan is gratefully acknowledged.
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