Zhu & Chung (2014). Portfolios of Political Ties and Business Group Strategy in Emerging Economies: Evidence from Taiwan

Hongjin Zhu – DeGroote School of Business, McMaster University
Chi-Nien Chung – National University of Singapore Business School

Chang Lu – University of Alberta
M. Paola Ometto – University of Alberta

Article link: http://asq.sagepub.com/content/59/4/109

Question 1. How did you come across this research idea? Why Taiwan?

Professor Zhu – We were initially driven by our interests in political ties. Also, because political ties matters to emerging economies, we focus on Taiwan, a country we have been studying for some time. Then, the research idea came from our readings about Taiwan’s politics. When we collected data on the political ties in Taiwan, we did a lot of readings, including newspapers, journals, magazines and so on. We found that the political regime change in Taiwan in 2000 made the political environment highly turbulent. As a result, it is critical for businessmen to consider how they should deal with the different political parties. Overall, we did a lot of research on our context and came up with the research question. Combined with the readings, we found that the portfolio of political ties could be a useful perspective to address this issue.

Question 2. How did you decide to frame the contribution as it is? Did you consider framing the contribution to network theory or social embeddedness? Why did you choose unrelated market entry as the dependent variable, rather than other firm strategies, for example internationalization, joint venture etc., given that the contribution of this paper is about how political ties influence strategy formation?

Professor Zhu – We thought about social embeddedness, but we thought we needed to create a theory that was more specific about political ties in emerging markets. So, in this way it would sharpen our contribution and change the direction of research on political ties a little bit. We put more emphasis on political ties literature and try to advance this stream of research by using our special context. In our paper, you can read that no prior research discusses how to choose political partners in a turbulent political environment. So I think this is the novelty of our research. In summary, we built on previous research on network theory and social embeddedness, but we want to make contributions specific about political ties.

[About the choice of market entry]

Professor Zhu – It is a good question. We think that political ties matter for many strategies but, maybe, it is the most important type of ties for unrelated diversification in Taiwan, because political ties play a very important role in this strategy in terms of acquiring resources, providing information and legitimacy. Also, in terms of the empirical context, we saw that Taiwanese business groups do a lot of unrelated diversification. It is a very important strategy for their growth and development.

Besides, we read a lot of articles with mixed findings about the effects of political ties on firm performance, some with positive and others with negative effects. I think it was like a black box about political ties. It was not clear what they do for firms and how they affect firm performance through specific strategies. So we looked at how political ties affect firms’ actions and strategies, rather than directly looking at their performance implications. We regarded firm strategies as intermediary processes between political ties and firm performance.

Professor Chung – The question of choosing unrelated diversification is most related with the context of business groups in emerging economies. In emerging economies, you find something very interesting that is not so popular in the United States; they [business groups] move to new industries and move out from an industry very quickly, and to/out of something very unrelated. For example, a group can make food, bicycle and electronics’ products, and they really grow. It is very interesting and you don’t see that pattern in the United States. In USA, we often talk about diversification discount. But in emerging economies, it is a strategy to growth. When we chose this independent variable it was somehow motivated by this context.

Question 3. The data is amazing. How long did it take you to collect all the data? What was the biggest challenge in the data collection process? Also, in what situation did you decide to address the endogeneity issue?

Professor Chung – It took 18 years to collect the data. In my dissertation, I collected data for 3 individual years. My dataset included 100 business groups, their member firms, and the firms’ individual shareholders. The dataset was huge and it took me a few years to construct. Before 2000, there were no digital data available. So, I scanned page by page of the directory. The directory is 7 to 8 hundreds pages each year. It took me a couple of months to simply scan the documents. So I only analyzed 3 years of data for my dissertation. My first paper only came out after one year. After I had a job and research assistants, I asked them to help to add 13 years of data. Later, I was very lucky to have an intelligent student—Hongjin that helped to build the data on the relationship between business groups and the government, which became the data of her dissertation. You see how the dataset evolved and got bigger and bigger.

So, I would like to add, that I think it is very important for students to decide which type of research direction they want to follow. There are two approaches to choose your research stream: theoretical or context. In the first way, you stick with your theoretical construct, for example, Organization ecology. Ecologists test similar theoretical constructs in different contexts. The second approach is my approach, which is to theorize interesting issues about your empirical context. However, you might take a long time to collect data and keep building upon it.

Professor Zhu – I think Professor Chung’s initial efforts created a solid foundation to the development of this study. He basically coded all the details of these business groups, which allowed us to keep adding new things.

Professor Chung – Nonetheless, it is very important to know that nowadays we see more and more journals that are very strict in the review process, so before you submit a paper you need to declare if the dataset was used in another article. If you use the same dataset, even if the question is different, the theory is different; they want you to declare how much you used [of the dataset] in other papers. So, this is something you need to think about and be careful when you submit a paper by using the same dataset. Make sure you have additional new data.

[Regarding endogeneity issue]

Professor Chung – We used the very traditional instrumental approach. You need to choose a good instrumental variable, and luckily for Taiwan’s context we have very good instruments that are related to political ties but not related with business strategy. Again, we take advantage of the context to come up with very good instrumental variables. In Taiwan, there are different ethnic groups that identify with different political parties, so we used business group leaders’ ethnic origin as an instrumental variable. We used other endogeneity techniques, but in the review process, the editor said we could use some instrumental variables, and then we came up with interesting instruments from the context.

Question 4. In our experience, we find it’s challenging for students from outside of North America to study Canadian or U.S. context because we do not have prerequisite knowledge of the context. When non-American and non-Canadian students choose their empirical context for their research, do you have any suggestions?

Professor Chung – I see a great potential for students who are interested in Organization Theory to do their research outside of North America, especially in emerging economies, because many questions can be better answered. Actually, scholars have emphasized the important of theorizing from context, for example, Davis and Marquis (2005). Thus, non-American or Canadian students could take advantage of their knowledge of their home country. I’m originally from Taiwan. My dissertation on Taiwanese business groups started in 1996. I have been working in this area for 18 years and published quite a few papers about business groups in Taiwan.

However, if you only talk about things in a specific empirical context, for example China, without referring to any theory, it will not be very appealing. You need to be able to theorize from your empirical context. If you say something from a new context that helps you build a better theory, then people will be very interested. Besides, you also need to have a comprehensive dataset and solid data analysis.

Professor Zhu – Emerging markets are very interesting empirical contexts. People are very interested in emerging economies, and more articles on emerging markets are published on top journals. Students from emerging markets should take advantage of their cultural background. If you can use your own knowledge and experience in your home country, and link it with theory, it will be helpful for your career development.

Question 5. In our experience, we find it’s challenging for students from outside of North America to study Canadian or U.S. context because we do not have prerequisite knowledge of the context. When non-American and non-Canadian students choose their empirical context for their research, do you have any suggestions?

Professor Chung – I would like to thank those people that accepted our interview invitations. They were very helpful and we got a lot of insights from the interviewees. We really appreciate that.

Professor Zhu – If you want to theorize about your context, you need to have a good understanding it. I’m from Mainland China, so I was not very familiar with Taiwan. The interviews really helped me better understand our empirical context. So if you want to take advantage of the context, you need to spend some time in the field.

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