Institutional Logics

The concept of institutional logics first emerged in the 1990s. Sociologists Roger Friedland and Robert Alford were inspired by Max Weber's (Reference Weber1904–05 [1958]) writings on value systems, in which Weber contrasted four kinds of rationalities that could drive action: tradition or ingrained habit, emotions, values and ethical beliefs, and instrumentality and means-end relationships (Weber, Reference Weber1978: 24–26). Weber argued that the behavior of individuals, groups, and organizations depends on both rationalities and external factors such as state policy and technology. For their part, Friedland and Alford recognized that in most organizations, instrumental and value rationality coexist in the logics that guide organizational behavior: these rationalities set the rules of the game and determine what practices can (indeed must) be used and what structures and roles are acceptable (indeed essential). Friedland and Alford wanted to follow early sociologists like Weber and bring back larger social structures into the study of organizations – structures beyond immediate organizational environments such as industries or industrial sectors. To this end, they defined institutional logics as ‘sets of material practices and symbolic constructions [that] constitute [the] organizing principles’ of institutional orders (Friedland and Alford, Reference Friedland, Alford, Powell and DiMaggio1991: 248–249). In Weber's theory, five social orders prevail in modern Western societies: the capitalist market, the bureaucratic state, democratic politics, the nuclear family, and Christian religion. Each institutional order has a different logic, so we speak of the family logic, the bureaucratic logic, the capitalist market logic, etc. Thus, according to this definition, institutional logics are societal-level phenomena.

Institutional logics determine both what should be done in order to achieve desired outcomes and what is good to do. In other words, they encompass two of Weber's forms of rationality, instrumental (means-end) rationality and value rationality. Multiple societal-level logics exist, sometimes competing, other times coexisting more or less peacefully. This view privileges structure over agency: societies create constraints and opportunities for organizational action, while organizations create constraints and opportunities for individual and group action. This leaves little room for individuals, groups, or organizations to find ways to maneuver around or challenge and change institutional logics.

It is important to note that although institutional logics are cognitive-cultural elements used in sense-making, evaluation, and planning, we observe them through their material manifestations: organizational structures, practices, policies, and the roles played by organizational members. Thus, there is a duality of institutional logics and their material manifestations: they are co-constitutive (Haveman & Rao, Reference Haveman and Rao1997). This means that material phenomena like organizational practices are the consequences of actions guided by institutional logics. But those material phenomena also shape institutional logics: their very existence can support, transform, or challenge institutional logics.

Empirical Examples of Institutional Logics

To make this mostly abstract discussion concrete, we discuss several empirical studies of institutional logics. To begin, consider early American thrifts, financial institutions that brought people together to save money and build or buy houses. These organizations were guided by a series of institutional logics involving beliefs about how to organize saving and home ownership; different logics arose at different times, replacing earlier logics (Haveman & Rao, Reference Haveman and Rao1997). The first thrift logic, which appeared in the 1860s, valorized mutual cooperation and rigidly structured action. It was predicated on the idea of community as the source of interpersonal trust. Thrifts following this logic had members who perceived each other as belonging to the same community (they tended to know each other before joining) and who met at regular intervals to save money and then borrow from the growing communal fund to build or buy homes. They dissolved their associations when their joint task was completed. All thrift members played the same roles, as both savers and borrowers.

Sixty years later, the dominant thrift logic valorized bureaucracy (the division of labor by role and time) and voluntary, instrumentally rational action, predicated on the notion of bureaucracy as the source of interpersonal trust. Thrifts following this logic were permanent organizations run by professional managers. They distinguished between owners of installment shares (which could be withdrawn at any time, or augmented at any time in any amount) and guarantee shares (capital investment that was non-withdrawable and used to guarantee earnings on installment shares). They also distinguished between savers (owners of installment and guarantee shares) and borrowers: not all savers had to borrow to build or buy homes.

This narrative reveals that as thrifts’ institutional logics shifted, so did thrift members’ roles and thrifts’ goals, authority structures, financial-intermediation technologies, and services. Table 1 summarizes the foundational values and material features of the two thrift logics. As this example illustrates, institutional logics can vary over time and across space, depending on external events, the composition of actors (individual and organizational) in the fields organized by the logics under study, and actors’ preferences and knowledge about or skill with practices.

Table 1.

Comparing thrift logics

Changes in institutional logics have also been observed in the US book publishing industry, where the editorial logic, which viewed editors as professionals and emphasized their relationships with authors as the key to success, was replaced in the 1970s by the market logic, which viewed editors as corporate executives and emphasized competition between publishing firms as the main determinant of success (Thornton & Ocasio, Reference Thornton and Ocasio1999). This shift in institutional logics changed how publishing companies grew (originally by nurturing new authors, later by acquiring other firms to gain market power) and the forces that drove executive succession (originally organizational size and internal structure, later the market for corporate control). In a very different context, for over a century, fine French restaurants followed the classical cuisine logic, which valorized conservatism and connections to the past (e.g., dishes named after pre-Revolutionary nobility), conformity with eighteenth-century rules, and physical refinement of ingredients (e.g., sauces). The new logic that became dominant by the 1990s, the logic of nouvelle cuisine, was centered on the values of truth, light, simplicity, and imagination; it valorized creativity and novelty, transgression of classical prescriptions, and ‘exotic’ ingredients and techniques from foreign culinary traditions (Rao, Monin, & Durand, Reference Rao, Monin and Durand2003). On the ground, these two logics led to the creation of different organizational structures, practices, and power distributions: who held power (restaurant owners or chefs), menu length (long and dependent on stored ingredients or short and focused on fresh ingredients), and the roles of wait staff (preparing food table-side or merely delivering it).

Although the strength of institutional logics generally varies over time, with newer logics replacing older ones, they may not die out completely. For example, in American medical schools, the strength of two logics – care and science – fluctuated in response to contestation among physicians, competition with rival healthcare practitioners, funding changes (the rise of managed care), and the increasing representation of women (Dunn & Jones, Reference Dunn and Jones2010). In a more extreme case, the craft brewing logic almost disappeared from Holland, but it regained strength as craft brewing resurged in other countries such as Germany, Belgium, and the US (Kroezen & Heugens, Reference Kroezen and Heugens2019). Its re-emergence in the Netherlands was facilitated by the ‘institutional remnants’ of the craft logic: artifacts such as writings about beer and the craft of brewing, brewery names, and brewery buildings.

Institutional logics can persist even in the face of powerful forces propelling change. For example, in the American banking industry, the Bank of North Dakota (BND) has consistently embodied a hybrid of the community and state logics, and has long resisted adopting the market logic (Schneiberg, Reference Schneiberg2013). The community logic values local activities over nonlocal ones; for banking, this means originating loans from community members and holding them locally. The state logic valorizes public ownership of enterprises, such as municipally owned associations (e.g., municipal power or sewer companies), and investing in public works; for banks, this means cooperating with state agencies and state-owned organizations, and offering them preferential interest rates on loans. In contrast, the market logic values private ownership, pursuit of profits above all else, and transactions on a national (and transnational) level; for banking, this means originating loans from anywhere, charging the highest interest rates that borrowers would accept, bundling loans into securities, and selling those securities on the national market to free up capital for future lending. BND was able to resist adopting the market logic because its hybrid community-state logic is successful: it has been consistently profitable for a half-century. Notably, none of the local financial-service institutions that it supports failed during the 2008–2010 financial crisis. Part of the strength of BND's hybrid logic is its deep historical roots: it was forged during the Progressive era (the early twentieth century), when local farmers and government officials banded together to fight outside corporate interests over the financing and operation of the state's grain trade.

Institutional Logics in Chinese FirmsFootnote ²

China's idiosyncratic historical trajectory makes it a rich laboratory for studying institutional logics because large-scale changes in Chinese society and economy impelled dramatic changes in the logics guiding the organization and operation (indeed, the very existence) of business organizations. The end of the Qing Dynasty in 1912 ushered in an extended period of conflict between shifting political factions, most notably the Nationalists and the Communists, punctuated by war with Japan. Conflict ended in 1949 and the Communist Party came to power under the leadership of Mao Ze Dong. The communist regime sought to restore the economy after decades of raging battles: it repaired transportation and communication systems, unified the monetary system, and gradually took control of all productive enterprises. In political-economic terms, the result was ‘China Inc.’, where all extractive, manufacturing, and service enterprises were state-owned and state-controlled, and agriculture was collectivized under state supervision. Economic production was mandated by a series of five-year plans designed by central state authorities, with cascading effects from central state authorities down through the administrative ranks to provinces, prefectures, counties, and finally townships and villages. This system relied heavily on distribution and redistribution of inputs, outputs, and economic surpluses guided by the central state and flowing across administrative levels, productive enterprises, regions, and economic sectors.

This political-economic regime institutionalized state intervention in and direction of China's economy (as well as all other aspects of Chinese society, including language, family, and education). As a result, productive enterprises ranging from agricultural collectives to healthcare facilities to factories – you can think of them all as subsidiaries of ‘China, Inc.’ – uniformly embodied a state logic. This logic valorized equality and national collectivism. With regard to equality, productive enterprises, no matter how unprofitable or inefficient, could survive because the central state supported them financially with funds reallocated from profitable enterprises. With regard to national collectivism, central state officials (rather than enterprise managers) set goals and production targets, directed flows of raw materials and equipment, and established and enforced rules governing the workforce (i.e., hiring, promotion, and wage rates). The national collectivism pillar of the state logic emphasized the notion of national self-reliance and self-sufficiency; it valorized ‘manual labor [and] mass mobilization over technology, intellect and efficiency’ (Fan, Reference Fan2005).

Despite its concern for equality, the state logic also involved a concern for political stability that prioritized political goals and social and market stability over economic efficiency. As a result, political capital – i.e., ties to state officials – was an important determinant of the economic prospects of enterprises and individuals alike (Bian, Reference Bian1997; Chang, Reference Chang2011; Peng & Luo, Reference Peng and Luo2000). The importance of political ties reflected the fact that guanxi – social relations involving mutual obligation and indebtedness – has long been the bedrock of Chinese society, due to the influence of Confucianism (Fei, Reference Fei1948 [1992]; Lin, Reference Lin, So, Lin and Poston2001a). Confucianism valorizes morality, justice, and social correctness; it emphasizes that such values derive from relations with family, friends, and neighbors, which define who people are and what they can do.

The situation changed dramatically, albeit slowly, starting in the late 1970s. A series of laws were passed to legally define forms of business, safeguard property rights, and regulate competition (Guthrie, Reference Guthrie2009; Nee, Reference Nee1992; Oi & Walder, Reference Oi and Walder1999). State administrative reforms empowered enterprise managers to experiment, innovate, and undertake new or expanded activities; enterprises could retain whatever profits their enterprises earned above state quotas; in the economy, the central state gradually replaced state redistribution with market-mediated transactions (Keister & Zhang, Reference Keister and Zhang2009; Naughton, Reference Naughton1995, Reference Naughton2007, Reference Naughton2018). Under this system, state officials shucked off old roles as allocators and redistributors of resources, forged new roles as regulators and brokers of market transactions, and focused increasingly on promoting economic growth (Lin, Reference Lin2001b). State policies also shifted to a new development strategy that emphasized ‘efficiency over equity, individual creativity over collectivism, and regional comparative advantages over defense and ideological considerations’ (Lin, Reference Lin2001b).

Reforms were instituted in piecemeal fashion, at different times in different locations, starting with rural and township villages, then proceeding to Special Economic Zones in Shenzhen and Shanghai and along the east coast, before being rolled out across provinces and prefectures nationwide. New forms of economic actors like privately owned and foreign-owned businesses appeared, and SOEs closed or were transformed into firms with either private or hybrid state-private ownership (Nee, Reference Nee1992; Oi, Reference Oi1992, Reference Oi1999). As a result of these reforms, ownership of productive enterprises shifted away from the central state (‘China Inc.’) toward a combination of local state authorities (province, county, prefecture, township, and village) and private, non-state entities, both domestic and foreign.

As these reforms unfolded over the decades, a new market logic developed, valorizing efficiency, market competition, and property rights. With regard to efficiency, the goal is to maximize output (sales and especially profits) while minimizing inputs (raw materials, human labor, equipment, and especially funding). This logic tolerates economic development that is uneven across Chinese regions as long as it yields efficient outcomes for the nation as a whole. The principle of market competition allows any enterprise to buy any good or service from any other enterprise, and sell to any other enterprise or individual. The price and quality of the goods and services offered for sale jointly determine which market exchanges happen. These principles apply to both the private and public sectors: like private firms, SOEs, and local governments also compete over resources and development gains. With regard to property rights, ownership is established through payment or through the creation of goods and services. Owners have the exclusive right to use and benefit from their property, and can exchange their property voluntarily and without restriction.

To facilitate comparisons between the state and market logics, Table 2 details both. The state logic prevailed under the state socialist (state-redistributive) system; the market logic developed under the capitalist (market-exchange) system. The state logic depended on central-state planning and control over inputs, outputs, and earnings; the market logic depends, as its name suggests, on market-mediated exchanges between buyers and sellers. Under the state logic, the state controlled all labor relations, and all rewards were determined by political status and political capital; under the market logic, firm managers control labor, and rewards are determined by performance and human capital. Under the state logic, enterprises sought to meet output goals and stabilize their operations, and low-productivity firms could survive because the state reallocated resources from profitable firms to support them; under the market logic, firms seek to maximize sales and therefore profits and low-productivity firms fail. In sum, the state logic valorizes equality, national community, and political stability; the market logic seeks efficiency by encouraging competition and valuing property rights.

Table 2.

Dominant institutional logics in China: State and market

Note: The material in parentheses discusses how the market logic actually plays out on the ground in China, which is very different from how it plays out in many western capitalist countries.

Table 2 depicts the state and market logics as distinct – as ideal types in the Weberian sense. In practice, however, these two logics are related. The market logic, as it is realized in China, has ‘Chinese characteristics’, meaning that it is different in important ways from the market logic that prevails in advanced capitalist economies such as the US, Japan, Britain, and Germany. In the description of the market logic in Table 2, these ‘Chinese characteristics’ are noted in parentheses. Most important is that the Chinese version of the market logic continues to recognize the central role that the state and the Communist Party play in economic life (Nee Reference Nee1992). The persistence of state and party power over the economy is embedded in China's history, which has propelled the transition toward market-mediated transactions in a specific way. In short, economic reform was not accompanied by political reform, so China remains an authoritarian country (Economist Intelligence Unit, 2021). The Communist Party has retained control over politics, the state bureaucracy, and the legal system (Clarke et al., Reference Clarke, Murrell, Whiting, Rawski and Brandt2008; McGregor, Reference McGregor2012). State authorities retain the power to issue permits and licenses, and to levy fees, fines, and taxes (e.g., Lin, Reference Lin2001b; Yang, Reference Yang2005). They also control the remaining SOEs, as well as land and most sources of capital (e.g., Shih, Reference Shih2008).

As a result, in the early years of economic reform, many Chinese firms, especially the rural (township and village) enterprises that were some of the earliest organizations to venture into market exchanges, were guided by a distinct combination of the state and market logics (Nee, Reference Nee1992; Oi, Reference Oi1992, Reference Oi1999). In later years, when membership in the Communist Party was opened to business people, those who led privately owned firms found ways to reconcile their Communist Party membership and their other connections to the state with their activities as capitalists (Marquis & Qiao, Reference Marquis and Qiao2020). Today, the values and schemas of many who run Chinese privately owned firms continue to be shaped by Maoist ideology. Three Maoist principles – nationalism, frugality, and devotion to serving the masses – influence firms’ cost strategy, internationalization strategy, and social-responsibility practices (Marquis & Qiao, Reference Marquis and Qiao2022).

Clearly, in the Chinese version of the market logic, efficiency, competition, and property rights have always been tempered by a continued concern for political stability. A prominent example of this is then-President Hu Jintao's (Reference Hu2005) concern for a ‘harmonious society’ [hexie shehui]. The driving ideology behind China's development strategy was that economic growth must be balanced by the equitable distribution of prosperity through what Hu called the ‘scientific view on development’. This would attain social justice and ensure social stability. This development strategy was also depicted as intrinsic to ‘socialism with Chinese characteristics’. More recently, President Xi Jinping expressed concern for ‘common prosperity’ (Xi, Reference Xi2021), indicating a desire to stem rising economic inequality. Concerns about economic inequality and social instability shifted the state's focus from economic growth to a more balanced, Confucian-style value system, which involved maintaining economic growth while ameliorating rural poverty, income inequality, environmental degradation, and corruption. This twin concern also involved maintaining central state control of development, while allowing for some decentralized participation by local governments and entrepreneurs.

Recently, there has been a shift in China's approach toward business indicating a resurgence of Maoist values and increasing state control over private enterprise. Two key examples of this shift are the rise of Communist Party cells in privately owned firms and the tightening of control over firms’ initial public offerings (IPOs). First, the Chinese government has ramped up requirements that all privately owned firms with more than three Party members among their workers must have Party cells (Marquis & Qiao, Reference Marquis and Qiao2022). These cells are usually headed by people appointed by the central Party; they bring together workers who are Party members. Their main activities involve socializing new members, providing them benefits like housing and insurance, mapping out career paths for them, mentoring them, and helping them meet other members. Communist Party cells also help company leaders understand government policies. This requirement has been interpreted as a way to strengthen the Party's control over private firms, blurring the boundary between state and market.

Second, the Chinese government has taken measures to tighten control over IPOs. Several highly publicized IPOs of Chinese privately owned firms were suspended or canceled. Perhaps best-known is that Ant Group's highly anticipated IPO on the Shanghai and Hong Kong exchanges, which was set to be the world's largest IPO, was postponed in 2020 and not approved until 2 years later. State-directed cancelation and postponement of IPOs suggest a growing concern about the risks posed by unregulated, rapidly growing privately owned companies and a desire to exert more oversight over their activities.

Forms of Ownership and Institutional Logics

Which institutional logic guides a Chinese firm – state, market, or a mixture – depends in large part (but not entirely) on the firm's governance and ownership. Chinese firms can be most easily classified into four ownership forms: SOEs; COEs, which are known as TVEs when they are located in rural areas; privately owned enterprises (POEs); and foreign-owned enterprises (FOEs). Table 3 details the ideal-typical features of the four forms of ownership, as well as the institutional logics central to each. SOEs are owned by state agencies, either central or local, controlled by state authorities, and dominated by the state logic. COEs are owned by different local communities (either urban districts or rural townships and villages), controlled by state agencies at those levels, and balance both state and market logics. They pursue efficiency through competing in the market, but also emphasize the equitable distribution of profits. COEs’ success is partly due to local government-business partnerships: local state officials are directly involved in COE business activities through formal public policies and informal social ties with CEO managers (Li, Reference Li2005; Oi, Reference Oi1999). POEs are owned by individual investors, families, or investment groups like mutual funds. They follow the market logic because they have strong incentives to compete and perform well, as profits return to their owners. But, as explained above, many POEs are guided by Maoist values, so the market logic in POEs has distinct ‘Chinese characteristics’. Finally, FOEs can be wholly owned subsidiaries of foreign firms or joint ventures between foreign and domestic firms. They are dominated by the market logic.

Table 3.

Typology of Chinese ownership forms

Notes: In practice, these ownership forms are usually blended. For example, many SOEs have minority private and/or foreign owners. This is especially likely for firms that are listed on the domestic stock exchanges, where A shares are held by domestic investors while B and H shares are held by foreign investors.

Although Table 3 draws sharp lines between forms of ownership and the logics that guide them, reality on the ground is complicated by hybrid ownership forms. Shares in SOEs that have been listed on the stock markets have been allowed to be sold to private investors, creating a partial state, partial private ownership form. Such hybrid ownership necessarily blurs the boundaries between the state and market logics, since different ownership groups are likely to be guided by different institutional logics: state owners are guided by the state logic more than the market logic; private owners are guided by the market logic (with Chinese characteristics) more than the state logic.

The situation is further complicated by the fact that starting in 1984, COEs began to allow employees and managers to sell shares to private and foreign investors (Che & Qian, Reference Che and Qian1998). This shift in ownership pushed COE owners as a whole toward the market logic and away from the state logic. But that did not mean abandoning the state logic in toto. Taking a longer view of the evolution of the Chinese political economy, the COE form can be considered a transitional form incorporating both political goals and market-economic incentives (Nee, Reference Nee1992; Oi, Reference Oi1992, Reference Oi1999; Xu, Lu, & Gu, Reference Xu, Lu and Gu2014).

Empirical Studies of Institutional Logics in Chinese FirmsFootnote ³

The factory described in the introduction, which became a power-machine firm during the reform era, illustrated key features of the state logic and the Chinese market logic (Raynard, Lu, & Jing, Reference Raynard, Lu and Jing2020). Many others have investigated how these two logics are manifested in Chinese firms, and how these two logics influence the behavior of both firms and their workers. For example, productive organizations founded under the Maoist regime are still more likely than those founded under the Deng regime to emphasize corporate social responsibility (CSR); the different institutional landscapes in which these organizations were founded shaped their approaches both materially and symbolically (Raynard, Lounsbury, & Greenwood, Reference Raynard, Lounsbury, Greenwood, Lounsbury and Boxenbaum2013).

The state logic influences the strategies used by Chinese entrepreneurs as well as established firms and state officials. Entrepreneurs who were more exposed to communist ideology in their youth – notably the Party's anti-foreign and anti-capitalist biases – were less likely to adopt an internationalization strategy for their ventures. But that ideological imprint could be gradually eroded through interactions promoting the market logic (Marquis & Qiao, Reference Marquis and Qiao2020). In the same vein, mayors with longer exposure to communist ideology were more likely to offer positions on local councils to managers from SOEs, farmers, or workers (vs. entrepreneurs) than were mayors with shorter exposure to communist ideology (Wang, Du, & Marquis, Reference Wang, Du and Marquis2019).

A national survey of Chinese manufacturing firms shows that, compared to POEs founded in the reform era, both POEs founded in the state socialist era and SOEs are more likely to comply with social insurance requirements because both bear the imprint of the state socialist logic concerning labor relations (Han, Zeng, & Xu, Reference Han, Zheng and Xu2014). In the same vein, SOEs can more easily obtain resources such as funding from state-controlled banks to invest in R&D than POEs because of their ownership-based ties to state authorities (Jia, Huang, & Zhang, Reference Jia, Huang and Zhang2019; Zhou, Gao, & Zhao, Reference Zhou, Gao and Zhao2017). But SOEs are less capable than POEs of transforming these resources into innovations because they are less driven by competition, due to SOEs’ adherence to the state logic. And employees in joint ventures between Chinese and foreign firms exhibit less guanxi behavior toward their supervisors than do those in SOEs, indicating that supervisor–subordinate guanxi behavior is deeply related to collectivism and that the state logic continues to guide SOEs (Chen, Reference Chen2020).

Contradictions and tensions exist based on who deploys the state logic and for what ends. Non-state actors can participate in firms’ governance processes, threatening the government's stability and its centrality in the market. For example, when environmental activists create social movements that are visible to the public through coverage by local media outlets, the state imposes severe environmental penalties on firms that pollute heavily (Marquis & Bird, Reference Marquis and Bird2018). But when complaints move through regular bureaucratic channels, penalties are seldom imposed and if they are imposed, they are small. The ability of social movements and news media to challenge state policies – and thus the logics that support and are reinforced by those policies – has been characterized as ‘responsive authoritarianism’ (Heurlin, Reference Heurlin2016).

Institutional logics are manifested in different and sometimes contradictory ways at different levels of the Chinese government. For example, the market logic prompted local governments to commercialize Buddhist temples and raise entrance fees, but the central government resisted this commercialization in response to public grievances articulated in terms of social justice, which are congruent with the state logic (Yue, Wang, & Yang, Reference Yue, Wang and Yang2019). Similarly, firms with stronger institutional linkages to the central government, which are more influenced by the state logic, wrote higher-quality CSR reports than firms located in provinces more heavily focused on GDP growth, which are more likely to be influenced by the market logic (Luo, Wang, & Zhang, Reference Luo, Wang and Zhang2017). But it is important to realize the considerable variation in fragmentation among state agencies, and in levels of market competition. The combination of fragmented state authority and market competition among media outlets gave local media leeway to produce critical news reports (Lei, Reference Lei2016).

Tensions between state and market logics can be seen most clearly in SOEs when they are expected to compete through technological innovation. For example, consider the Chinese railroad industry's effort to develop high-speed rail networks starting in 1989. It is difficult for railroad SOEs to balance the market logic's valorization of competition, which is often manifested as the development of new products or new production or distribution processes, with the state logic's valorization of maintaining social stability, especially by devoting resources to employee housing as well as generous healthcare and retirement benefits (Genin, Tan, & Song, Reference Genin, Tan and Song2021). Railroad SOEs that were directly supervised by state owners with majority stakes were less likely to innovate than SOEs with hybrid ownership (that is, substantial fractions of private and foreign ownership stakes). The latter tended to be affiliated with, but not directly supervised by, state authorities. The result was more conflict between state and market logics in the former than in the latter organizations; in the latter, the market logic prevailed.

Tension between state and market logics also occurs when firms with hybrid ownership seek to undertake acquisitions. Proponents of the state logic (that is, state owners) prefer acquisitions to be planned and administered by state authorities in order to maintain employment levels and thus ensure social stability. Market-oriented acquisitions might reduce employment levels, as they so often do in Western liberal economies. Proponents of the market logic (private domestic owners and foreign owners), in contrast, favor acquisitions that are based on strategic planning (that is, assessment of risk and strategic fit) and that create market value (in terms of market control through achieving economies of scale and or scope, and thus increases in stock prices). The more ownership of Chinese firms shifted away from state authorities to private investors (especially investment groups, which have considerable resources to bargain with management), the more the balance of ideas guiding acquisition activity tipped from the state logic to the market logic (Greve & Zhang, Reference Greve and Zhang2017). This shift became more pronounced over time, as more and more market reforms were rolled out. A similar tension between market and state logics can be seen in Chinese business groups, collections of firms that are closely linked by cross-ownership ties (Keister, Reference Keister2000). Business groups seek to achieve market-oriented goals, but they long continued to operate under state ownership (Yiu, Hoskisson, Bruton, & Yu, Reference Yiu, Hoskisson, Bruton and Lu2014) so they have had to balance market and state logics.

Hybrid logics can create tensions within individual firms, but it can also smooth the transition between institutional logics at the national or provincial level. As explained above, COEs are hybrid forms that accommodate both state and market logics, which eased the economic transition (Xu, Lu, & Gu, Reference Xu, Lu and Gu2014). Firms can also leverage the ambiguity of institutional logics to navigate their contradictions. For instance, a high-technology research park embraced elements of socialism, capitalism, and meritocracy in order to encourage positive associations among those logics and avoid their liabilities (Hsu, Reference Hsu2006). This study suggests that institutional entrepreneurs, like the founders of this technology park, can craft new forms of organization by selecting organizational elements that are congruent with different institutional logics; doing so makes it possible to signal multiple meanings to multiple audiences – to become polysemic and thus more legitimate to all audiences.

Table 4 summarizes research on institutional logics in Chinese organizations. It lists the authors, publication dates, and publication outlet. It also notes the type of organization(s) studied, the dependent variable, and the main argument. Most importantly, it explains how the authors operationalized institutional logics: how they ‘saw’ institutional logics manifested in their data. Finally, it notes the time period studied, which is important if we are to make the study of institutional logics in China more historically sensitive, and the methodological approach.

Table 4.

Summary of empirical research on institutional logics in Chinese organizations

Directions for Future Research

We see three fruitful directions for the future study of institutional logics in Chinese firms. First, much of the existing research on institutional logics in China focuses on whether Chinese firms incorporate the state or market logic, or a combination of the two. This work is generally ahistorical, treating as it does Chinese political, legal, and economic institutions as background facts, and ignoring variation in these institutions over time and across regions, or holding these institutions constant by focusing on one set of organizations in one region at one point in time. (There are, of course, exceptions; e.g., Greve & Zhang, Reference Greve and Zhang2017). We could learn much more about the nuances of how institutional logics are manifested in Chinese firms the evolution of these logics if we took into consideration variation in these institutions over time and across regions, and if we investigated how temporal changes and regional differences in these institutions drove changes and cross-region differences in institutional logics.

Above, our necessarily brief description of China's historical trajectory glossed over many changes in these institutions (such as the passage of laws protecting property rights and contracts, the development of the financial-service sector to fund privately owned firms, and changes in the legal and accounting professions that support market-based exchange) that occurred during and after leadership transitions beginning with Deng Xiaoping and through Xi Jinping's rule (Naughton, Reference Naughton1995, Reference Naughton2007, Reference Naughton2018). Even before Deng Xiaoping became China's supreme leader in 1978 and economic reforms began in earnest, Premier Zhou Enlai's regime had experimented with reforms in the Sichuan Province; for example, by delegating authority for decision making to factory managers in 1975. Under Deng, these experiments were extended to other regions. In addition, the central state gradually delegated control over SOEs to local state authorities. SOEs began to retain a fraction of whatever they earned above the plan, and agricultural cooperatives began to be authorized to conduct administrative and financial experiments. In 1983, SOEs began to pay taxes instead of turning over profits to state authorities. In 1999, Jiang Zemin's administration continued reforms, including transforming SOEs into limited-liability companies and selling off small enterprises. The most notable recent change is that in 2012, Xi Jinping's regime mounted an anti-corruption campaign, which is still ongoing. Throughout the reform era, passage of legislation, notably the Accounting Law of 1985, the Enterprise Bankruptcy Law of 1986, the Enterprise Law of 1988, the Company Law of 1994, the Securities Law of 1999, and amendments to the Company and Securities Laws in 2005, gradually created a foundation for the rule of law. In addition, many changes in other economic institutions, most notably shifts in banks’ lending policies, were instituted to cope with different macroeconomic circumstances, such as the worldwide recession of 2008–2010. But there was great regional variation in the pace and nature of political-economic reforms. Such regional and temporal variation in political, legal, and social institutions requires nuanced treatment of which institutional logics guided business activities and how those logics evolved as societal institutions changed.

Second, future research should take into consideration the fact that the Chinese state is hierarchical, with multiple administrative levels that have different powers, with influence flowing both from the top to the bottom and from the bottom to the top. And, as outlined above, the extent of those powers has changed over time. The delegation of control over productive enterprises from the central state to local authorities in the 1990s and the transition from state redistribution over several decades transformed the logics associated with all state authorities, and thus their behavior, in four ways. First, the Chinese state became an embedded one (Evans, Reference Evans1995), as political and economic elites forged close social relations. For example, in 1989, entrepreneurs were allowed to join the Communist Party. As they did, entrepreneurs became more accepting of the Party's continued domination of political life (Dickson, Reference Dickson2003, Reference Dickson2008; Tsai, Reference Tsai2007). Other co-optive efforts have involved creating formal linkages between the Party and entrepreneurs in trade, professional, and industry associations (Kennedy, Reference Kennedy2005).

Second, the Chinese state became a developmental one (Evans, Reference Evans1995; Nee, Opper, & Wong, Reference Nee, Opper and Wong2007), as officials focused more and more on fostering economic development to achieve growth targets (Lin, Reference Lin2001b). The increasing importance of economic development was bolstered by changes in the reward system for bureaucrats: cadres’ career success became increasingly tied to economic growth (Naughton, Reference Naughton2007; Witt & Redding, Reference Witt and Redding2013). Then, starting in 1994, with the doctrine of ‘grasping the large and letting go of the small’ [zhuada fangxiao], the developmental state bifurcated, with central authorities promoting and tightly managing development in sectors deemed strategic, and local authorities (province-level and below) overseeing enterprises in other sectors.

Third, by launching and actively managing a wide array of state-owned business ventures, many local officials created an entrepreneurial state (Duckett, Reference Duckett1998; ten Brink, Reference ten Brink2011). The level of state entrepreneurship varied widely across locations and over time. Moreover, entrepreneurial officials in different locations focused on different economic sectors; for example, local officials in Yiwu supported a small-commodities market that became a behemoth, serving over 75,000 domestic firms exporting goods ranging from jewelry to luggage to holiday decorations to baby strollers to restaurant supplies, while those in Wuhan supported a robust manufacturing sector including automobiles, pharmaceuticals, and high-tech optical equipment. Fourth and finally, within the state bureaucracy, formal rules multiplied and personnel qualifications increased. To cope with new rules and meet new performance standards designed to increase effectiveness in policy implementation, officials cooperated with each other informally, but in highly institutionalized ways (Zhou, Reference Zhou2010).

All of these temporal shifts in the institutional logics guiding Chinese state agencies and officials, and the great regional differences (notably between coastal and inland provinces), merit consideration in studies of Chinese firms. For instance, entrepreneurial state officials might be expected to offer stronger support for technological innovation than traditional state officials. In contrast, state officials embedded in webs of social and economic relationships with business people might be more focused on private gain (that is, corruption). For their part, developmentally oriented state officials might be more likely to focus on profitability in general (rather than on innovation as the way to increase profits). The goals of and logics guiding the actions of these officials are likely to diverge in important ways, which may cause conflicts across levels of the state administrative hierarchy; for example, between entrepreneurial or embedded officials at the prefecture level and developmental officials at the provincial or central level. Such conflicts, which would have to be carefully managed by Chinese firms, merits investigation.

Finally, scholars could investigate other societal-level institutional logics that affect Chinese firms, beyond the state and market logics. The religious value sphere is perhaps the most interesting and potentially the most significant. China has always been shaped by religion (Goossaert & Palmer, Reference Goossaert and Palmer2011; Weber, Reference Weber1951), especially Confucianism, which centers on four key values: social harmony (respect for the social order and conflict-free social relations), the importance of the family, the importance of informal social relations [guanxi], and respect for hierarchy (father–son, teacher–student, ruler–ruled, friend–friend). A few studies have already shed light on the influence of Confucianism on organizations in China (e.g., Du, Reference Du2016; Ralston, Pounder, Lo, Wong, Egri, & Stauffer, Reference Ralston, Pounder, Lo, Wong, Egri and Stauffer2006), but more could be done. For example, the Confucian values of interpersonal trust and obligation [guanxi] are critical for doing business in China, which requires dynamic reciprocity and involvement in people's personal and social lives (Chen, Chen, & Huang, Reference Chen, Chen and Huang2013). Further evidence of religion's influence comes from the case of classical Chinese medicine, where entrepreneurial practitioners, keenly aware of the market allure of ‘tradition’ and ‘spirituality’ from Daoism, have crafted a niche amidst competition from bio-pharmaceutical companies run on Western medical principles (Zhan, Reference Zhan, Otsuki, Satsuka, Omura and Morita2018).

Another value sphere that is worth investigating is the family. The family logic is closely associated with Confucianism, which views the family as the basic organizing unit in society. This logic is hierarchical, with children expected to be subordinate to fathers. Trust among family members is deep and strong. The family trust circle begins with an inner circle consisting of extended family members. A second, slightly weaker, circle consists of proto-family, such as long-standing friends, key employees and business partners, and former schoolmates. A third, outermost and weakest, circle consists of people with whom family members have relationships of reciprocity, their guanxi connections. The family logic became increasingly important as economic reforms progressed: the number of family-owned Chinese firms rose dramatically, and family-owned and family-run firms came to account for a large fraction of economic output. Indeed, over 90% of privately owned small- and medium-sized enterprises in China are owned and controlled by families (Chen, Reference Chen2001; Redding & Witt, Reference Redding and Witt2007).

A small stream of work has already appeared on the family logic in Chinese firms. For example, small- or medium-sized Chinese firms controlled by a single family are more effective at translating R&D investments into innovations than are firms where multiple families vie for control (Deng, Hofman, & Newman, Reference Deng, Hofman and Newman2013). The reason is that in firms controlled by a single family, the interests of owners and senior managers (both members of the same family circle) are closely aligned. In sharp contrast, in firms controlled by two or more families, owners’ interests may conflict, reducing the flow of information among owners, which in turn may make it difficult for owners to monitor senior managers. Another paper described a family-focused ‘community’ logic in five firms operating in different industries and different locations (Han & Yao, Reference Han and Yao2022). This study revealed that historical imprinting (all firms studied were founded early in the Maoist period) and founders’ motives (to serve society, including workers, not just to earn profits) guided the development of subunits that focused on social services, such as recreation centers and schools for workers’ children.

Scholars could also take into consideration industry- and occupation-specific institutional logics, which reflect the histories of those industries and occupations. At the occupational level, Chinese lawyers (and the law firms for which they work) are subject to a changing institutional environment. Before reforms began, lawyers were state officials with clear allegiance to the government. ‘Unhooking and privatizing’ law firms and the legal profession began in 1988, and reforms throughout the 1990s formally severed ties between the profession and the state. In most parts of the world, lawyers are disinterested or non-partisan, focused on upholding ‘the rule of law’. But in China, despite ostensible privatization, lawyers are still deeply intertwined with the state, with the career success of individual lawyers and the performance of law firms both generally dependent, in part, on being embedded in webs of relationships with state officials (Michelson, Reference Michelson2007). These political ties safeguard lawyers and law firms against state obstructionism, harassment, and threats. Thus, lawyers working in the Chinese business sector actually operate in-between the market and state logics.