China companies aiming to do business in foreign markets face two main challenges: evaluating institutional environments, and building trust in partnerships. The managerial dilemma is how to gain social acceptance, or legitimacy, and promote efficiency.
Based on a sample of Chinese manufacturers who export products through foreign distributors, findings published in the May 2012 issue of the Journal of Marketing, suggest that companies can use two governance strategies, contract customization and relational governance, to build local acceptance and enhance performance.
"International channel managers should maintain an integrated management of legitimacy and efficiency in foreign marketing channels," say study authors Zhilin Yang and Chenting Su both at the City University of Hong Kong, and Kim-Shyan Fam at the Victoria University of Wellington.
"Companies will benefit if they choose to build legal and relational bonds with their host partners."
China managers should pay close attention to the two governance strategies, particularly their legitimacy-building function. If managers proactively solicit a customized contract with the host partner, they will often gain social acceptance in the process. The contracting process builds understanding, learning, and helps make sense of the institutional environment. On the other hand, relational governance helps firms build legitimacy with local partners through information sharing, working with flexibility, and joint problem-solving. This helps China companies become insiders thereby gaining both legitimacy and accurate market information, and often leading to enhanced company performance.
Read more: http://journals.ama.org/doi/abs/10.1509/jm.10.0033
Yang, Zhilin, Chenting Su, and Kim-Shyan Fam. "Dealing with Institutional Distances in International
Marketing Channels: Governance Strategies That Engender Legitimacy and Efficiency." Journal of Marketing 76.3 (2012): 41-55. Print.
