Strategic response of government owned enterprises to deregulation and changes in public sector policy: a study in the context of Indian central public sector enterprises

Abstract

This dissertation is an attempt to document, analyze and explain the content and process of strategic response of Government-owned enterprises to deregulation and changes in Government’s public sector policy. The research questions are: 1. What are the strategic response of selected CPSEs to deregulation and changes in public sector policy? 2. Is there a difference in these strategic responses? 3. If so, how is this difference related to Government behavior, changes in regulation, the customer environment and the resource position of the CPSE?

Since these questions call for tracking environmental and organizational changes over a period of time, the longitudinal case study method has been chosen. Two pairs of CPSEs in the newsprint and electronics industry are the research sites, with the CPSEs in each pair showing a difference in their post-liberalization performance. The newsprint industry is typical of the capital intensive process industries in which many CPSEs operate, while the electronics industry is typical of knowledge and skill intensive, batch production industries. While the electronics industry has been subjected to deregulation in all but the strategic electronics sector, the newsprint industry was first partially deregulated in 1991 and later completely deregulated in the year 1995.

Potentially important constructs germane to the research study were identified from the literature on environment-organizational relationships. Pertinent data was collected from the literature on environment-organizational relationship. Pertinent data was collected from several published documents, CPSE house journals, company records, questionnaires and interviews with more than 35 industry informants. Data was qualitatively analyzed using explanation-building’ techniques (Yin, 1992) involving cross case analysis and several interactions between theory and data.

The findings are: 1. In the electronics industry, one of the CPSEs reduced of its product-markets and exhibited a high shift in its product mix towards protected segments and downstream products. The other expanded the product-market scope, exhibited a lesser shift towards protected segments, and continued upstream operations. 2. In the newsprint industry under partial deregulation, one of the CPSEs increased its market share in protected product markets. The other struggled to adapt and could remain in operation only by reducing prices below the cost of production. The latter made strong attempts to change Government behavior vis-à-vis regulation as well as fund support. Under complete deregulation, the CPE that was expanding its market share began losing market share, shelved its expansion plans and was forced to reduce its prices. 3. Except one CPSE in the electronics industry under the Defense Ministry, all the studied CPSEs, accorded priority to financial goals over boarder goal related to public purpose’. 4. The above differences in strategic response were found to be logically related to the slack financial resources, extent of misfit between the manufacturing resources of the CPSE and the changed customer demands, the flexibility of the manufacturing resources, and aspects of Government behavior. 5. On the basis of the above findings, a theoretical framework to explain product-market response to deregulation and curtailment of Government support is advanced. It is argued that when the deregulation is partial, strategic responses of CPSEs can be differentiated based upon the extent to which the CPSE seeks protection – either by shifting its product market mix in favour of protected segments or by undertaking actions aimed at reversing Government policy. It is further argued that the extent to which a CPSE exhibits such a protection-seeking behavior is contingent upon: 6. 1. The extent of misfit between the changed customer demands and the manufacturing resources of the CPSE. 2. The flexibility of the manufacturing resources of the extent to which the manufacturing resources of the CPSE are capable of being redeployed and 3. The slack financial resources of the CPSE, which are not committed to a necessary financial expenditure and can be deployed in a discretionary manner

Propositions linking the extent to which to which a CPSE is likely to exhibit a protection seeking response to extreme levels of slack, misfit, and flexibility are advanced.

Other propositions advanced are:

a) A CPSE is not likely to accord importance to non-commercial goals related to public purpose unless Government’s regulatory policy is supportive. b) In the case of CPSEs functioning in complex product-market environments, the response process is likely to be slower when well-developed systems for strategic planning are absent. c) In the case of CPSEs functioning in complex product-market environments the response process is likely to be faster when goals are stated clearly and courses of action are indicative rather than detailed. The study has the following major implications for managers of CPSEs and policy makers. a) By exploring the possible antecedents to misfit of manufacturing resources, it is possible to identify external environmental and internal-organizational factors that, when prevalent in a CPSE, are likely to result in a competition-avoiding strategic response, or even lack of response. b) Slack, misfit and flexibility can serve as parsimonious dimensions along which an audit of CPSEs can be carried out CPSEs classified. Policy imperatives and managerial tasks for reviewing the CPSEs and making them capable of facing competition can be outlined on the basis of this classification. c) The non-commercial goals that CPSEs are expected to serve under the new policy regime needs to be reviewed, reformulated, and articulated clearly. Regulation to enable CPSEs to serve these goals may be considered if necessary.

The major implications for researchers are: a) When State support is no longer available, strategic behavior of Government Owned Enterprises is likely to be dependent on the tangible and intangible resources that they have accumulated in an earlier era of protection and State support. Hence research into the resource mobilization and redeployment actions of these enterprises is called for. b) In researching organizational response to deregulation, exploring the combined influence of environmental factors and organizational resource position rather than any of them in isolation is likely to lead to deeper insight. c) The concept of fit, one way of operationalizing which has been demonstrated by the study, can be gainfully employed for deeper insight into strategic adaptation to environmental changes. d) The resource-based theory of the firm can be gainfully employed to explain strategic adaptation.