How Institutional Change Reconfigures Successful Value Chains: The Case of Western Pharma Corporations in China

Abstract

Management researchers have traditionally emphasized two main factors in the defi nition of corporate strategies: internal capabilities and industry competition. However, in less stable, transition economies it is particularly the changing institutional environment that infl uences strategy defi nition and performance of multinational corporations (MNCs) as shown by numerous international business (IB) scholars. Yet, how institutions matter remains a largely unresolved question. This article examines how institutions have affected the value chain confi guration of Western pharmaceutical fi rms in China. Our research framework identifi es four major strategic shifts along the value chain of Western fi rms in the pharmaceutical industry: upgrading along the value chain, outsourcing to contract service providers,

Sourcing from China: A Literature Review of Motivations, Outcomes, Problems, and Solutions

“…Thus, the growing Chinese market is attractive to enter. In this context, expansion is mentioned as a motivation, which is mainly relevant for offshoring strategies (Jia et al, 2014;Dierks et al, 2013;Kang et al, 2012;Wang et al, 2011).…”

“…In particular, knowledge can be gathered in cooperation with the suppliers that enabled the company to focus on its core competencies (Zhang et al, 2013;Salmi, 2006;Bunyaratavej et al, 2008), and access to a new market could also be developed (Drayse, 2008;Dierks et al, 2013). Only a few authors state that profitability can be enhanced, even though it represents a major motivation when sourcing from China (Kang et al, 2012;Lin & Ma, 2012;Ni et al, 2009).…”

“…In addition, the end customer often identifies deficient quality, which leads to costly consequences requiring replacement, and compensation for damages (Sethi et al, 2011). Despite the fact that quality requirements are fixed and known by all parties involved, it is difficult to monitor quality regulations and to avoid safety risks (Dierks et al, 2013). Moreover, according to Fredriksson et al (2010, p. 324), "product quality is still lower in China and the long weather-exposed journey between China and Europe increases the risk of scrap".…”

“…An accompanying problem is the loss of intellectual property that is often connected with doing business in China (Olson & Wu, 2011;Wang et al, 2011). Thus, Dierks et al (2013) emphasize that a trade-off between low costs, product safety and intellectual property has to be made.…”

“…Further solutions that were mentioned once in the sample size include implementation of supplier certifications (Roth et al, 2008), the use of common technology in China and the home country (Merminod & Rowe, 2012), customized contract manufacturing (Tung & Wan, 2013), an in-house focus on core competencies (Kumar et al, 2010;Dierks et al, 2013), an increasing level of innovation in China (Li et al, 2008), and resolving corruption by implementing a common code of conduct .…”