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Enhancing Corporate Entrepreneurship in Transition Economies

Corporate entrepreneurship often emerges on a CEO's priority list as he continually examines the best way to manage and run a business to its peak performance.  Defined as a combination of a firm's innovation, venturing (expansion into new markets), and strategic renewal activities (activities used to revitalize a company's operations), corporate entrepreneurship plays a vital role in organizational success.

But how does corporate entrepreneurship evolve within a company? The answer may lie in the qualities of the person at the helm of the company: the CEO.

Yan  LingAssociate professor of management at George Mason University School of Business, Yan Ling, and Liqun Wei of Hong Kong Baptist University recently examined three prominent CEO characteristics—how the CEO was appointed,  previous work experience, and network ties—and the impact they have on a firm's corporate entrepreneurship in a transition economy.

A transition economy, such as China, is an economy that is changing from central planning to a free market. For many years, the Chinese government has been intimately involved in the business operations of both state-owned and privately owned firms. Chinese firms have had increasing control over executive recruitment in recent years, but the government continues to control top level staffing.

"Despite the fast growth in studies about transition economies, few studies have examined the influence of CEOs in transition economies, in particular with respect to corporate entrepreneurship, which serves as the engine of firm and national economic growth," says Ling.

Ling surveyed the CEOs of 198 Chinese firms gathering data on how the CEO was appointed, their previous work experience, and their network ties. The results showed that certain aspects of these characteristics had an impact on the corporate entrepreneurship of their firms.

"The results show that CEOs who have been publicly recruited (rather than being appointed through the government) and CEOs who have previously worked in foreign firms, manage their firms with higher levels of corporate entrepreneurship," says Ling. "It is found that in China, a CEO's relational capital, particularly the focus of his or her ties, influences corporate entrepreneurship when the CEO has a lot of managerial discretion."

Moreover, the effects of CEO characteristics on corporate entrepreneurship were shown to be stronger when the firm-level and environmental conditions allowed the CEO greater managerial discretion.

Ling says, "CEOs of transition economy firms are more likely to have 'absolute power,' and exert far more influence than other executives on their firms' strategic decision-making."

In addition, the results also show that CEOs' foreign experience and experience in firms from mature markets, matters to corporate entrepreneurship. Chinese CEOs who have worked in foreign firms had more exposure to modern, competition-based, strategic decision making. This experience is likely to provide them with knowledge related to innovation management and familiarity with the managerial approaches that foster entrepreneurial pursuits in a firm.

In other words, CEOs can lead a firm to be more entrepreneurial by learning from their experience in foreign companies. By using their experience in a foreign firm as a benchmark, CEOs are more likely to see the need for change and to be more comfortable spending money on entrepreneurial projects or innovative activities.

So what does this mean for businesses in a transitional economy?

"In practical terms, this study should help governments and business managers in transition economies better understand how to promote a firm's entrepreneurship," says Ling. "The findings show that public recruitment based on competence is critical. This indicates the importance of reducing the government's control of executive appointments and the necessity of careful evaluation in the selection of CEOs."

Yan Ling is an associate professor of management at George Mason University School of Business. Ling joined Mason in 2004 after obtaining her PhD in business administration from the University of Connecticut. She received her undergraduate degree from Central University of Finance & Economics in China. Ling teaches courses in strategic management and entrepreneurship. Her primary research focuses on top management issues as they pertain to small, privately-held firms including family businesses and new ventures. For more information on Professor Ling, click here.

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