Organizational processes to meet new performance criteria: Chinese pharmaceutical firms in transition

Abstract The current crisis in China's state-owned enterprises presents a paradox of performance. Since reforms began in the early 1980s, many state-owned enterprises are producing and selling more, some even reporting increasing profits. Recent discussions of the crisis facing these firms, however, reveal that most of the gains in these performance outcomes has been achieved without regard for efficiency; in many cases, simply by increasing inputs. Only now has the government explicitly recognized the need to shift emphasis from measures of performance based on scale—whether output, sales or profits—to those incorporating considerations of efficiency—return on output, sales and assets. We investigate the managerial and policy implications of such a shift in key performance criteria using longitudinal data on 66 Chinese pharmaceutical manufacturers. We find that both the level and growth in physical assets are the strongest correlates of scale-based performance measures. In contrast, activities which bring in engineering skills, lead to new product development, and increase the proportion of output that is actually sold are the strongest correlates of efficiency-based performance measures. For managers and policymakers, these results have important implications for the timing and level of investment in particular organizational activities and resources.

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