Does the Colour of the Cat Matter? The Red Hat Strategy in China's Private Enterprises
- 1 March 2007
- journal article
- Published by Cambridge University Press (CUP) in Management and Organization Review
- Vol. 3 (1), 55-80
- https://doi.org/10.1111/j.1740-8784.2007.00059.x
Abstract
The proliferation of new property rights regimes in transitional economies provided an opportunity to examine the interaction between institutions and organizations. Some private enterprises in China developed the Red Hat strategy whereby they disguised their private ownership by registering as a public-owned organization. Drawing on a national survey, this study investigated how institutional variations, transaction costs and social embeddedness affected the firms’ Red Hat strategy. The findings suggest that private firms preferred a fuzzy property rights arrangement in the early years of market transition. The temporal and regional variation of the institutional environment contributed to the adoption of the Red Hat strategy. High transaction costs — networking cost and resource constraints — were positively related to the adoption of the Red Hat strategy. Social embeddedness also played an important role. The reliance on transaction partners in the public sector increased the pressure to adopt the Red Hat, while connections with high-ranking cadres facilitated the process. However, private firms opted for clearly delineated property rights as the institutional environment improved. In turn, the decisions of individual firms affected the institutional environment at the aggregate level. The Red Hat strategy exemplifies the co-evolution of institutional change and organizational dynamics.Keywords
This publication has 47 references indexed in Scilit:
- Causes of privatization in ChinaEconomics of Transition, 2005
- Environment-strategy co-evolution and co-alignment: a staged model of Chinese SOEs under transitionStrategic Management Journal, 2004
- Kinship Networks and Entrepreneurs in China’s Transitional EconomyAmerican Journal of Sociology, 2004
- Embeddedness and Contractual Relationships in China's Transitional EconomyAmerican Sociological Review, 2003
- The Choice-Within-Constraints New Institutionalism and Implications for SociologyAnnual Review of Sociology, 2000
- Property Rights and the Nature of Chinese Collective EnterprisesJournal of Comparative Economics, 2000
- Economic Transformation and Income Inequality in Urban China: Evidence from Panel DataAmerican Journal of Sociology, 2000
- From federalism, Chinese style to privatization, Chinese styleEconomics of Transition, 1999
- The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational FieldsAmerican Sociological Review, 1983
- Institutionalized Organizations: Formal Structure as Myth and CeremonyAmerican Journal of Sociology, 1977