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

Nan Zhou and Seung Ho Park

Strategic Management Journal, 2020, vol. 41, issue 11, 2050-2071

Abstract: Research summary This study investigates the long‐term performance of growth‐oriented versus profit‐oriented 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 growth‐oriented 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 markets and leads to inefficiencies that cause a decline in firm performance. These results are more apparent when firms lack managerial capability and in the context of growth‐inducing economic policy during an economic downturn.

Date: 2020
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