Strategic response of Indian state owned enterprises to environmental shifts

Abstract

Researches on strategic response of firms to environmental shifts have been conducted, mostly with respect to the private corporations and, predominantly in the North American and European Context. This apparent inclination of researchers for the private organizations is possibly to control for the overarching influence of the government-a sentiment nurtured by many researchers in strategic management and industrial organization economics. A few studies, especially in the United Kingdom, that did involve state owned enterprises found results that were not clear and concise. Researchers who endeavored those studies reported that the lack of clarity, in the results, was due to ownership pattern and national contexts that influenced the strategic choices and which in turn influenced the responses of firms facing environmental shifts. Therefore firm’s strategic response, when influenced by ownership pattern and national context, is likely to yield results that would be different from those reported in the literature. This is research gap and hence an opportunity that’s worth exploring. The present research fits into this gap and focuses on the strategic response of Indian (national context) state owned enterprises (ownership pattern) to environmental shifts. The present study is a firm level analysis on the strategic response, of a selected set of four state owned enterprises (SOEs), to environmental shifts post deregulation and economic liberalization of India in 1991. The samples are drawn from mutually exclusive industries and collectively they exhaust both the manufacturing and the services sectors. In this study, four categories of environmental shifts are considered namely: 1 Shifts in the regulatory environment 2 Shifts in the competitive environment 3 Shifts in the technological environment 4 Shifts in the firm’s internal environment The strategic response process is viewed using the three lenses of managerial decision making process, the creation and utilization of organizational slacks and the usage of the intellectual capital of the firm. The data are collected from both primary and secondary sources and spans the period from 1991 to October 2008. An exploratory and longitudinal case research method is adopted for the four selected SOEs. The contextual and process based nature of the study and the contemporaneous nature of the phenomenon influenced the choice of the case research method. Major data sources are in-depth interviews with senior executives, mainly from strategic planning or equivalent departments as well as various documents made available to the researcher by the firm executives. Primary data is complemented by secondary data sources from press and media and data bases like CMIE and Capitaline as well as analyst reports. A two level data analysis is done in the present study. In the first level, a within-case analysis is done using each firm on a standalone basis. The emergent constructs of environmental shifts and strategic response are identified on a case basis. Also the contents and processes of a strategic response for each firm are explicated. In the second level, a cross-case analysis is done, by analyzing the four cases simultaneously, to identify the common elements of environmental shift construct to the four categories of environmental shifts are interpreted and explained using inductive reasoning, propositions are forwarded and a framework of strategic response of SOEs to environmental shift is proposed. Some of the major outcomes or findings of the study are: 1. Shifts in the regulatory environment induced Indian State Enterprises (SOEs) to restructure their business portfolio resulting in the reconfiguration of their value chain that enabled them to undertake product market diversification. The product market diversification is effected through the creation of three types of values in the SOE deliverables namely, value enhancement, value extension and value substitution. A closer observation on the product market diversification yielded that it is also contingent upon the regulatory necessities to implement government policies. 2. Equity divestment and market discipline brought about by FII holdings in SOEs appear to enable the SOEs to obtain higher incentives and cooperation from the government in government induced/influenced diversification. Government cooperation can take the form of grating greater financial autonomy like having higher retained earnings than dividend payout. 3. Indian SOEs respond to shifts in competitive environment through creatively copying, customizing and scaling up the competing deliverables leading to the commoditization of the same. This type of strategic response reduces the rent seeking potential of the competitors and consequently reduces the intensity of competition. 4. Further, Indian SOEs also respond to shifts in competitive environment through protection of existing market by mutually cooperating and integrating with their value chain partners as well as diversifying to new markets/segments through the implicit cooperation of the government/regulators. 5. Workforce rationalization exercises within the Indian SOEs appear to augment trust and confidence within the remnant workforce which positively affect their skills and competencies.

Some implications of the study are examined for the three likely audiences – the academia, the practicing managers and the public policy makers in the emerging economies in general and India in particular. The study concluded with its future directions based on the outcomes.