Growth or profit? Strategic orientations and long‐term performance in China

Abstract

Research summary: This study investigates the longterm performance of growth-oriented versus profitoriented strategies in emerging markets. Theoretical justifications exist for superior performance for both types of strategic orientations, but we argue each orientation will have different implications on firms' long-term survival in emerging markets. The growthoriented strategy faces a shortage of non-scale free resources that would limit the firm's long-term survival, while the profit-oriented strategy would improve the chance of long-term survival by developing and leveraging firm-specific advantages for sustained growth. The study also examines the moderating effects of both the level of non-scale free resources and the extent to which the economic context favors growth. The empirical testing utilizes a sample of Chinese firms during 2008-2017. Managerial summary: Emerging markets present many growth opportunities. Firms often fall into the trap of blindly pursuing these opportunities without considering internal managerial capability. This study presents the theory-based logic and empirical evidence supporting the view that the profit-oriented strategy is likely to outperform the growth-oriented strategy on a long-term basis. The growth orientation strains managerial attention that is in short supplies in emerging

Innovation capability and culture: How time-orientation shapes owner-managers’ perceptions

“…Laitinen and Suvas (2016) confirm that long term-oriented cultures appreciate learning, adaptation and perseverance in achieving results. Long-term orientation is typically attributed to Asian countries (e.g., Buck et al, 2010;Gilbert & Tsao, 2000;Zhou & Park, 2020), as it originates from and aligns with traditional Confucian values (Hofstede & Minkov, 2010). But some European nations, including German-speaking countries, show high long-term orientation.…”

Which Type of M&A Makes an Acquiring Restaurant Firm a Star? Profit-Driven Versus Growth-Driven M&A

“…In addition, the empirical evidence shows that high levels of growth are not always associated with high levels of profitability but instead could actually constrain a firm’s profitability (Aaker & Day, 1986; Delmar et al, 2013; Federico & Capelleras, 2015; Fuertes-Callen & Cuellar-Fernandez, 2019; Soininen et al, 2012; Zhou & Park, 2020). These findings clearly indicate that fast firm growth is not necessarily a predecessor of high levels of operating profit but instead can act as an interrupter.…”

“…S. Sharma & Ho, 2002). Even so, acquiring firms must prioritize either business growth or high levels of operational profitability because available resources are limited, and one may not spontaneously follow the other (e.g., Chakravarthy & Lorange, 2008; Delmar et al, 2013; Fuertes-Callen & Cuellar-Fernandez, 2019; Jang & Park, 2011; Lee, 2014; Zhou & Park, 2020). Accordingly, the different business practices and strategic focuses of growth-driven firms cause different post-M&A performances to those of profit-driven firms (Malmendier et al, 2018; Zhou & Park, 2020).…”

“…Even so, acquiring firms must prioritize either business growth or high levels of operational profitability because available resources are limited, and one may not spontaneously follow the other (e.g., Chakravarthy & Lorange, 2008; Delmar et al, 2013; Fuertes-Callen & Cuellar-Fernandez, 2019; Jang & Park, 2011; Lee, 2014; Zhou & Park, 2020). Accordingly, the different business practices and strategic focuses of growth-driven firms cause different post-M&A performances to those of profit-driven firms (Malmendier et al, 2018; Zhou & Park, 2020). For example, growth-focused firms are more likely to pursue faster growth and make risky investments with costly external financing than profit-focused firms planning to reduce redundant resources, which would influence their operating performance and financial position differently (Davidsson et al, 2009; Fuertes-Callen & Cuellar-Fernandez, 2019; Zhou & Park, 2020).…”

“…Accordingly, the different business practices and strategic focuses of growth-driven firms cause different post-M&A performances to those of profit-driven firms (Malmendier et al, 2018; Zhou & Park, 2020). For example, growth-focused firms are more likely to pursue faster growth and make risky investments with costly external financing than profit-focused firms planning to reduce redundant resources, which would influence their operating performance and financial position differently (Davidsson et al, 2009; Fuertes-Callen & Cuellar-Fernandez, 2019; Zhou & Park, 2020). The difference in business performance is more substantial under M&A circumstances because M&A procedures cause drastic changes in an acquiring firm’s operational (i.e., consolidating management structures) and financial conditions (i.e., issuing lump sum debts or stocks and acquiring assets) within relatively short periods of time.…”