Porter's strategy and the influence of guanxi and government policies in small and medium-sized pharmaceutical companies in China
This thesis is set against the context of China's economic transition period and in particular the policy environment of national Medical Reform for 2009. The national policy acknowledged the growing aging population that has boosted market demand and growth. Indeed, from 2009 to 2014, a series of policies were promulgated by both central and provincial governments. Here, these are shown to influence strategy formulation and implementation within small and medium-sized pharmaceutical companies (SMPCs). Given this business environment, the research reported here finds that the "pure form" of Porter's strategy theories do not work completely for China's pharmaceutical industry. In particular, two non-market factors of government policies and guanxi are deemed critical and yet absent within one of his models. Here, Porter’s Five Forces model is extended to include the two forces of guanxi and government policies. The subsequent "seven forces" model arises from examining SMPCs' strategy application in two comparative case studies, and in light of changing government policies. The two case studies were identified as being typical and representative of the industry. One is a chemical medicine producer and the other is a Traditional Chinese Medicine producer. The two case studies share the characteristics of being private medium-sized companies and having prescription drug manufacturing capability. A critical realist approach was adopted with a semi-structured interview technique to collect primary data from nine interviewees, four of whom provided a second follow up interview to explore guanxi giving a total of 13 interviews. The two main conclusions drawn from the analysis of the rich interview accounts are: guanxi is a force in terms of Porter's theoretical scheme. It offers competitive advantage to facilitate achieving organizational strategy goals and is embedded in the business practices of SMPCs and seemingly runs through the whole process of their strategy formulation and implementation. The second conclusion is that national and provincial government policy influences market entry, market coverage rates, product pricing, costs and profitability. Notably, guanxi was conceptualised as one underlying causal mechanism influencing government policy formulation at provincial level. The contribution of this thesis is to show that guanxi and government policy do interact in complex ways to influence SMPCs’ strategy; these forces also connect and influence the other Porter's Five Forces. The theoretical implications are that the "pure form" of Porter's strategy theories do not work completely in this context but do help as a "scheme" for practitioners in the industry. Given the Chinese context, guanxi and government policy interact and have an influence on Porter's Five Forces model, hence, they add two key forces to Porter's theoretical model. Turning to the practical implications, the thesis' findings will/can assist strategy makers' understanding of the interaction of guanxi and government policy associated with the process of strategy formulation and implementation and thus may facilitate the achievement of strategy goals.
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