Organizational and Industrial Response to Market Liberalization: The Interaction of Pace, Incentive and Capacity to Change

This paper draws on prior research on organizational change to link the pace of macroeconomic reforms in a transition economy to the ability of domestic firms and industries to face new foreign competition. We argue that if the pace of economic reforms exceeds the pace at which organizations can adopt appropriate strategies, those organizations will not be able to survive, even if they have the potential to do so otherwise. A comparison of the Polish and Chinese television manufacturing industries grounds our model that relates the pace of adaptation to environmental change, managerial incentives and organizational capacity to the likelihood that incumbent firms will be able to survive in newly liberalized markets. In Poland, domestic television producers were decimated by foreign entrants after the government implemented `big-bang' reform measures. China's `go-slow' approach to reform, in contrast, allowed managers in some but not all state-owned enterprises to make and implement strategic changes that enabled them to compete successfully with foreign firms. This interaction between the speed of environmental shifts and the internal pace of organizational change suggests important implications for research and policy making in transition economies and other contexts in which industries are being opened to new competitive pressures.