This introductory chapter defines the term "corporate ecosystem," explaining why an ecosystem approach is the most suitable way to understand the behavior of Chinese corporations and their interactions with the broader political system in China. The chapter contrasts "corporate ecosystems" with "business ecosystems" and with the narrower, yet more common, corporate governance concerns of many previous accounts discussing Chinese business firms.

The last two decades of the twentieth century brought a remarkable consensus among the nations of the world in the way they conducted commerce. Erstwhile communist nations such as Russia and China as well as protectionist democracies such as India and Brazil, compelled by differing circumstances, have all embraced economic reforms and opened their borders for trade and foreign direct investment. The last word is not out on the overall effect of such liberalisation policies, with some countries like China dramatically benefitting from world trade and managing to lift millions of people out of poverty, while others (for example, in Latin America and Eastern Europe) severely affected with domestic players almost wiped out by foreign competition, and yet others like India positioned somewhere in between with some sectors benefitting from reforms and others losing out. But there was one critical factor that was common to all the firms located in these reforming nations—their business landscape has been dramatically transformed with the rules of the game in business radically redefined. How do firms from developing economies, saddled with resource deficiencies and underdeveloped institutions, cope with sweeping institutional changes triggered outside their country borders? This is the question that motivated the two of us to embark on a research programme for over fifteen years using the empirical context of Indian industries and firms with which we have been closely associated both as researchers and practitioners. This book is our best attempt to answer this question by taking a multi-level institutional perspective and drawing from the combined evidence of India's textile and pharmaceutical industries that have had varied results in successfully coping with global institutional changes initiated under the auspices of the World Trade Organization.

This book is dedicated to Dr Sougata Ray and Dr MB Sarkar, two phenomenal individuals who, during a chance meeting at one of the Academy of Management meetings around fifteen years ago, envisioned the necessity of collaborative research efforts between scholars located in India and abroad to study the growing participation of Indian organisations in global markets. Both of them pursued the realisation of this vision with tremendous energy, starting with a seminar at the Indian Institute of Management, Calcutta, during which we, the authors of this book, met for the first time.

First January 2005 is an important date in the history of the governance of international trade. It is on this day that two global institutional changes took effect that, taken together, altered the trajectory of trade flows in textiles and pharmaceuticals, two industries that play salient roles in different ways in the economies of a large number of developing and developed countries. Negotiated as a part of the General Agreement on Tariffs and Trade’s, or GATT’s, Uruguay Round of talks during the 1986–1994 period, member countries agreed to adopt the Textiles and Clothing (ATC) and Trade Related Intellectual Property Rights (TRIPS) agreements on 1 January 1995, which were to be phased in over the next ten years. The Agreement on Textiles and Clothing abolished the Multi- Fibre Agreement (MFA), which had governed global trade in textiles since 1974. The MFA endorsed bilaterally negotiated agreements on import quotas by developed countries on the exports of textile products from developing countries. Under the new arrangement after 2005, global trade in textiles and clothing would no longer be subject to protectionist quotas but would be governed by the general rules and disciplines embodied in the multilateral trading system.

This chapter traces the defects of the Chinese corporate-political ecosystem to a combination of lingering Maoist/Communist political practices and a short-term capitalist profit-maximizing mindset that was introduced during the Reform period. The chapter shows the devastating impact of this contradictory ideology on the environment, which has only worsened over the past three decades of reform due to self-interested alliances among local government officials, state-owned enterprises, and private corporations placing economic development and profit-making over the health of their surrounding citizens and natural environment. The result has been a massive ecological and public health crisis and increasing social tensions that threaten the Chinese Communist Party's hold on power.

This concluding chapter suggests a new approach to realigning the corporate-political ecosystem toward an ecologically friendly approach to development. Basing its proposals on a combination of traditional Chinese philosophical principles drawn from Daoism and Confucianism, especially channeling "vital energy" (qi), and contemporary ecological science and behavioral economics, the chapter suggests expanding intraparty democracy within the Chinese Communist Party, altering official incentive systems, and testing a more transparent approach to official entrepreneurialism. Combining these reforms will continue to allow the incredible energy of Chinese people and private firms (not to mention pragmatic and competent government officials) to improve their living standards and quality of life, while channeling that energy in less harmful directions with the aim of preventing ecological and climate change catastrophe.

This chapter moves beyond individual corporations and corporate types to examine the broader sociopolitical system in China. It focuses on the "fragmented authoritarianism" of the Chinese government and the Chinese Communist Party (CCP), outlining the main causes of fragmentation, including corruption, factionalism, autonomy of state-owned enterprises, local government self-interest, private firm co-optation of government actors, and internal contradictions within the CCP's own ideology. This fragmentation prevents the CCP from exercising consistent control over corporations and the broader society, leading to a much more complex and diverse corporate-political ecosystem than imagined by many Western commentators.

The previous chapter outlined the evolution of India's policy choices associated with economy-wide national and sector-specific global institutional changes. In particular, new global rules of the game regarding international trade and global competition in the textile and pharmaceutical industries in 1995 overlapped with domestic economic liberalisation underway during the previous years. The subtle but important implications of this interaction of national and global institutional changes are reflected in the epigraph passages from the preamble to India's five-year plans. While the development path put in place in the Eighth Five-Year Plan (1992–1997) to further economic liberalisation was through specialisation (that is, focusing on domestic production in employment-intensive industries while allowing free imports in industries that are not employment-intensive), the path in the Ninth Five-Year Plan (1997–2002) recognised the need for integration with global markets and sought to improve the competitiveness of Indian industry so that it can effectively compete in international markets. Both the textile and pharmaceutical industries belonged to the group of key sectors that would anchor India's development strategy, and, accordingly, industry-specific policies were put in place to help achieve the international competitiveness of the two industries.

The objective of this chapter is to evaluate the evolution of the Indian textile and pharmaceutical industries within the context of the multilevel institutional changes.

Institutions and institutional change have attracted considerable scholarly interest in numerous disciplines given their primacy as rules of the game in society that structure exchange between various societal actors (for example, Greif 2006; North 1990; Scott 2014). Research has scrutinised the process of institutional change, whether it is narrow or broad in scope, incremental or discontinuous, and exogenously or endogenously determined, among other characteristics (for example, Campbell 2004; Mahoney and Thelan 2010). There is a general agreement among scholars that irrespective of the process, institutional change encompasses shifting the rules of the game and imposes institutional complexity on the actors. Institutional changes emanating from evolving political and economic landscapes within individual countries and pressures from supranational bodies such as the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank have been instrumental in triggering economic reforms and liberalisation programmes of developing economies and their integration into the global economy (Gereffi 2010). Increasing integration into the global economy has transformed the competitive landscapes for developing country firms, thus necessitating organisational transformations to deal with new competitive dynamics.

In the context of a variety of local and global institutional reforms, understanding how indigenous firms in developing economies worldwide respond to challenges presented by a radically changed competitive environment has been the subject of vigorous research in the past two decades (for example, Aulakh and Kotabe 2018; Newman 2000; Malerba and Lee 2021; Peng 2003; Uhlenbruck, Meyer and Hitt 2003; Zahra et al. 2000). The objective of this chapter is to use this body of research and its underlying theoretical approaches to develop an analytical framework through which the global institutional changes of interest in this study and the multilevel national responses (at the level of the state, industries and organisations) in the Indian textile and pharmaceutical industries can be evaluated in subsequent chapters.

This chapter shows that state-owned enterprises (SOEs) still play a major role within the Chinese corporate ecosystem, but even after a long period of reforms, they are still plagued by skewed government incentives leading to irrational investment decisions, huge waste of resources, and widespread defiance of central government regulations. The chapter includes case studies of the coal and power sectors to demonstrate the unholy "tripartite" relationship among SOEs, local government officials, and corrupt central regulators, all engaging in rent-seeking activities in their own vested interests. Current reform programs fail to address these key defects.