This chapter demonstrates that personal relationship networks (guanxi) are still an important element of the Chinese corporate ecosystem, undermining central control through subversive, self-interested informal social structures. Though not as necessary in everyday commercial transactions any more due to the rise of e-commerce and standardized contracts, guanxi is still essential for private firms to gain access to limited natural resources and large-scale finance from state banks during their growth phase and to receive protection from predation by rapacious officials or powerful competitors. The chapter uses the case of Ye Jianming and the CEFC Group to illustrate both the importance of guanxi for private firm development and the risks of collapse when guanxi strays over the line into corruption. The chapter also shows how multinational financial and pharmaceutical firms have attempted to negotiate the narrow path between guanxi and corruption in China, with only limited success.

This chapter follows on from the previous one, evaluating the Chinese Communist Party's recent attempts to transition toward an ecocivilization and to address China's ecological and public health crisis through a new approach toward balanced economic growth. The chapter finds that while the intentions and accompanying legal reforms are admirable, implementation will likely fail due to continuing misalignment between official/corporate incentives (especially at the local level) and central policies, compounded by the fragmented political structure and subversive elements within the corporate-political system that we identified in Chapters 4–7. The chapter also critically analyzes the recent introduction of public interest environmental lawsuits brought by procurators, which, while filling a major gap in legal enforcement against polluters, too often appear to result in opaque settlements with local governments rather than strong penalties against offenders.

How did organisations in India's textile and pharmaceutical industries respond to institutional changes triggered at the global level? To what extent was their successful response co-determined by firm-level investments in developing new capabilities and the resources provided by the institutional system in which they operated? Continuing with our analysis of the three levels of the institutional system developed in Chapter 2, in this chapter we address these research questions by keeping the organisation as the central focus of attention. We develop a conceptual model that links organisational choices around resources and capabilities in response to global institutional changes with their success in global markets and test the model through analyses of fine-grained firm-level data from the Indian pharmaceutical and textile industries during the thirty-year period of 1990 to 2019. Some prior scholarly work has examined the transformation in the Indian pharmaceutical industry (for example, Pradhan 2003; Joseph 2016; Chittoor, Sarkar, Ray and Aulakh 2009; Chaudhuri 2012), and there is limited work in the context of the Indian textile industry (for example, Dhiman and Sharma 2017); however, to our knowledge, prior work has not compared and contrasted empirical evidence from two strategically important industries of India and developed a unifying theoretical framework as we do in this chapter.

As outlined in earlier chapters, until 2005, the Indian pharmaceutical industry was governed by the Patents Act of 1970, which allowed patenting based on manufacturing processes rather than end products. This regulation enabled Indian pharmaceutical firms to reverse engineer and produce drugs that were product patented in other countries at a fraction of the cost incurred by other multinational corporations. In 1995, soon after signing up with the World Trade Organization (WTO) as a member country, India consented to enforce product patents and to provide legal protection to Trade-Related Intellectual Property Rights (TRIPS) effective 1 January 2005. The implications of adopting the TRIPS framework were particularly severe for Indian pharmaceutical firms. They could no longer manufacture and sell knock-offs of patented drugs in India by exploiting the prevailing process patent regime once the new framework came into effect. In other words, these firms were deprived of not only a traditional core advantage that gave them a competitive edge but also alternate sources of competitive advantage to compete with global competition.

The global institutional changes implemented under the auspices of the World Trade Organization (WTO) in 2005 were expected to challenge the existing sources of competitive advantage in the Indian pharmaceutical and textile industries and thus India's trade position in international markets. These challenges acquired strategic significance at the national level given the historical importance of the two industries to India's attainment of various socio-economic objectives. The above-quoted extracts from the annual reports of the respective ministries of the Government of India fifteen years later suggest that each industry adequately adapted to the global institutional change and was able to maintain or increase its share in global trade, while fulfilling the social goals, that is, employment generation in the textile industry and supply of affordable drugs in the pharmaceutical industry. How were these two industries able to adapt to and cope with externally imposed changes that amounted to tectonic shifts in the rules of the game? Studying similarities and differences in the strategic trajectories of these two very different industries in response to global changes was the primary objective of the current book.

The main argument of this book is that coping with such momentous changes triggered at the global level required a multi-level strategic response. Global institutional change necessitated the search for new organisational capabilities by Indian firms to catch up with global competitors and successfully compete in international markets.

This chapter analyzes the major problem of corporate-political corruption in more detail, using case studies of Bo Xilai and the Shide Group ("white gloves"), Zhou Yongkang and CNPC ("protection umbrellas"), and Zhao Zhengyong in Shaanxi Province ("predatory corruption" and "symbiotic parasitism") to illustrate the key types of collusive corruption between officials and corporations and their harmful impacts on Chinese society and politics. At the same time, the chapter introduces the case of Shenzhen's gray property market to show that sometimes a degree of symbiotic corruption is necessary to overcome inflexible and outdated regulations in a rapidly developing economy.

This chapter shows how the Chinese commercial legal system has improved significantly over the past two decades, to the extent that in most cases it compares favorably in dispute resolutions outcomes with legal systems in most liberal democratic nations. However, it falls short of a "rule of law" system in certain types of cases due to three distortions interfering with decision-making by courts: political interference by local and sometimes central government officials; corruption; and guanxi (personal relationships) involving judges or senior court/government officials. The chapter uses the case of Judge Wang Linqing and the Shaanxi Billion Yuan Mining Rights dispute to demonstrate that these distorting elements have infected legal institutions right up to the Supreme People's Court and involve senior Chinese Communist Part leaders within China's anti-corruption agency and Politburo, making the problems very difficult to stamp out.

This chapter traces the incredibly rapid expansion of the platform e-commerce and financial conglomerates Alibaba and Ant Group. It shows how they took advantage of government fragmentation and dependence on the private economy to attract huge foreign investment, using the variable interest entity (VIE) legal loophole, and then to diversify into payment services (Alipay) and finance in conjunction with state financial institutions, attracting hundreds of millions of customers and tens of millions of SME merchants. The chapter analyzes the key struggles between this Alibaba/Ant "corporate ecosystem" and government regulators seeking to protect consumers, finding that reports of a reining in of Chinese private firms by the Chinese Communist Party are premature.

The global institutional changes initiated in 1995 and implemented in 2005 impacted India's pharmaceutical and textile industries, both of which were of immense strategic importance to the Indian economy. To sustain these industries and improve their competitiveness under new institutional regimes, successive Indian governments have initiated numerous policies that continue to evolve. The purpose of this chapter is to outline the industry-specific policy initiatives promulgated to cope with global institutional changes. However, to understand the underlying logics and the various components of the policy choices, one has to look at the national institutional context within which these industries historically evolved prior to 1995, as the respective trajectory of each industry in the previous periods impacted the policy constraints and opportunities in dealing with global institutional changes. Accordingly, before detailing the post-1995 policy initiatives, this chapter first discusses the historical context of these industries, especially in relation to policy regimes. Given their importance to the Indian economy, each of these industries has been extensively studied by numerous scholars, and these studies have critically evaluated numerous policy interventions over the years. The purpose of this chapter is to highlight the broad and evolving thrust of policy choices in a comparative framework rather than attempt to be comprehensive in detailing all policy interventions before or after global institutional changes impact each industry. The chapter divides the policy regimes into four periods: (a) import substitution industrialisation, 1947–1985; (b) economic liberalisation, 1985–1995; (c) preparing for global institutional change, 1995–2005; and (d) coping with global institutional change, 2005–2020. After discussing the evolving policy choices in each of these periods regarding their applicability to the two industries, these choices are placed within an appropriate industrial policy framework. This framework will then guide analyses in subsequent chapters in terms of the impact of policy interventions on the evolution of the two industries and the implications of firm strategic choices within each industry in response to the two global institutional changes.

Import Substitution Industrialisation and the Licence Raj (1947–1985)

Akin to much of the developing world, India followed an import-substitution industrialisation model for economic growth for almost forty years after its independence from the British in 1947 (Kohli 2004).

This chapter examines the international controversies surrounding Huawei Technologies, finding that most fears about this private firm are based on misunderstandings of its coevolution within the Chinese business and political environment, as well as unfounded suspicions about its employee ownership structure and alleged Chinese Communist Party control or military links. However, only further reform of the Chinese political ecosystem will help to reduce the international fear and sanctions on the firm.