We start our exploration of China’s institutional change by asking what the China experience can tell us about institutional economics and organization theory. We point to under-researched areas such as the formation of firms and the interplay between firms and local politics. Our findings support the dynamic capability approach which concentrates on activities rather than on pre-defined groups and models institution building as a co-operative game between the local business community and local government agencies. We find that the analysis of firms has to set in before they are formed by entrepreneurs and networks and we identify political management as a core competence of these two groups. While this contradicts the conventional view of clientelism or principle agent relations as institutional building blocks, we don’t propose competing models. Instead, we suggest focusing on a dynamic process in which the role of players can change. Faced with the spontaneous emergence of institutions, our concept of institutional architecture captures the fact that the two models can co-exist side by side and that, once the dichotomy between formal and informal institutions is given up, there can be a transition from local patron-client relations to local business-state coordination.

Additional Metadata
Keywords diversity and convergence of institutions, dynamic capabilities, entrepreneurship, institutional change, networks
JEL M, Business Administration and Business Economics; Marketing; Accounting (jel), M13, New Firms; Startups (jel), O32, Management of Technological Innovation and R&D (jel), P31, Socialist Enterprises and Their Transitions (jel)
Publisher Erasmus Research Institute of Management (ERIM)
Persistent URL hdl.handle.net/1765/12191
Krug, B, & Hendrischke, H. (2008). China’s Institutional Architecture: A New Institutional Economics and Organization Theory Perspective on the Links between Local Governance and Local Enterprises (No. ERS-2008-018-ORG). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management (ERIM). Retrieved from http://hdl.handle.net/1765/12191