**4.2 The power of typology-driven theorising**

Business strategy at the level of the firm has been the classical criterion for researchers in the field of strategic management. Choosing the firm as a unit of analysis, typology-driven theorising, in particular the Miles and Snow [73] typology, can be used to conceptualise the strategic orientation of MNCs in China. The major idea behind the concept of typologies is a grouping of features into generic clusters based on their level of similarity. These frameworks help to identify frequently observed characteristics of firms in order to generate overarching types which represent the different co-alignments of these organisational aspects [74]. Strategic typologies have been described as 'a form of social scientific shorthand' ([75], p. 149) and instruments to effectively explore complexity [76], both conceptually and methodologically [77]. Typologies enable scholars and practitioners to structure the organisation management in a full and integrated manner [78]. They are frequently called fields [79], modes [80], archetypes [81], generic strategies [82], gestalts [83, 84], typologies [85] or taxonomies [86] Irrespective of the terminology used, all incarnations require their members to have configurational similarity and internal consistency [82, 87]. If packaged in the form of typologies, the theory is especially practical as it can capture multiple linkages simultaneously. As such, typologies allow for a more systematic investigation of MNC strategy in emerging markets as they capture reciprocity and bidirectional cause-and-effect relationships [88].

### **4.3 The strategic types**

The field of generic strategic typologies boasts several well-known models. Porter [82], Abell [89] and Miles and Snow [73] belong to the most prominent ones. A major difference lies in their theoretical underpinnings. Whereas the Miles and Snow [73] model entails a causal model (adaptive cycle), the designs of Porter [82] and Abell [89] lack a theory-driven approach since these typologies are axiomatic-led based on fundamental economic principles. By comparison, the Miles and Snow [73] typology appears to be better suited to examine the firm surroundings than Porter's [82] archetypes which intentionally circumvent any contextual properties [90]. The model conceptualised by Raymond E. Miles in collaboration with Charles C. Snow

(1978) encapsulates the ways that different modes of adaptive firm conduct results in distinctive organisational configurations, so-called strategic types, which can be used by an organisation to align with its context. Firms permanently face a trifecta of mission-critical obstacles which they have to deal with in an agile manner in order to reconcile both their internal capabilities as well as their external surroundings. These obstacles relate to the entrepreneurial challenge (e.g. referring to the choice of product-market domain), the engineering challenge (e.g. concerning the choice of technology) and the administrative challenge (e.g. concerning the choice of organisation and processes that translate into innovation). The framework by Miles and Snow [73] entails a quadruplet of types proposing that generic strategy commonly manifests itself in one of these forms, namely Prospector, Defender, Analyser and Reactor (P-D-A-R). The model suggests that each type seeks specific solutions to the three obstacle clusters that form the adaptive cycle. These groupings feature heterogeneity in their functional specialisation, strategic prioritisation, resources endownments, experience and economic outcomes. The **Prospector** type views the environment as unsettled, ensures manoeuvrability and draws on innovation to respond to change, frequently emerging as the trend-setter of the sector [91]. Prospector-type organisations are led by upper echelons that focus on know-how in marketing as well as innovation and constantly monitor external change in order to experiment and respond with creative solutions to novel environmental developments. The **Defender** type seeks to occupy a secure foothold in a product-market domain that is comparatively insulated from change and priorities engineering, continuous improvement in productivity and cost optimisation. At the helm of Defender-type organisations is typically a coalition of finance and production executives who often do not sense external change and who have little appetite to go out of their ways apart from conducting minor adjustments in the configuration of the organisation and process landscape. The **Analyser** type simultaneously embraces continuity and agility seeking to utilise the merits of both the Prospector and Defender modes. These organisations practice ambidexterity in a way that they dually pursue Defender strategies in certain business segments and Prospector-type strategies in different ones [73]. As such, they thrive on a 'second-butbetter' positioning. Due to their dual orientation and hybrid configuration, these firms face more internal sophistication and a delicate balance between functional areas. In business area that are characterised by relative continuity, they focus on operational excellence and efficiency, in other more dynamic domains, they attentively observe the competitive landscape and engages solely in projects that offer clear potential for competitive differentiation and scalability. The **Reactor** type misses a stringent strategy and is highly susceptible to external contingencies. Firms belonging to this strategic type find it hard to cultivate a solution to the challenges of adaptation and hence are 'ill-conceived strategies' [90]. When Miles and Snow [73] and Porter [82] are compared, there is an apparent similarity between the Reactor type and Porter's [82] 'stuck-in-the-middle' classification [90]. The literature on typology-driven theorising in the strategic management and marketing field [86, 92] offers an abundance of studies on the Miles and Snow [73] framework. The conceptual and empirical soundness of this typology has been established for numerous sectors, including public services [93] as well as in emerging economies [58, 94–96].

### **4.4 The strategy-performance link**

Firm performance, or economic validity, is the consequent of any business domain, including strategy. Broadly speaking, academic scholarship in the strategy

### *MNC Strategy in Contested Environments: Stay Put or Stay Foot? DOI: http://dx.doi.org/10.5772/intechopen.112687*

domain seeks to explain the determinants of organisational outcomes [97]. Various research studies have examined the linkages between strategic type membership, distinctive competencies [98] and organisational performance [99]. So is there one best performing type? No, there is not. The typology developed by Miles and Snow [73] embraces the notion of equifinality [100] stating that all viable strategy types harbour the potential to yield optimum firm performance. While not directly stated in the 1978 (Miles & Snow) framework, equifinality is implicitly described [101]. None of the types, apart from the Reactor type, is associated with any performance limitations. The exception of the Reactor is based on the fact that this type has been viewed as being ill-equipped of managing the various boundaries described in the adaptive cycle [73]. When discussing research findings for MNCs' strategic type membership in China, research data surveyed in the first quarter of 2016 can be utilised. The data was collected during a time when China experienced the country's slowest economic performance since the global financial crisis 2008–2009. The empirical research was based on a questionnaire of 62 items and generated 212 responses. The data have been solidified by means of triangulated data capturing [102] including external.

third-party insights. Based on Snow and Hrebiniak's [99] framework, participating MNCs considered themselves to be Prospectors (33%), Defenders (26%), Analysers (28%) and Reactors (13%). The descriptive results were more levelled than in comparable research. For example, a study by Boyd and Reuning-Elliott [103] generated nearly two thirds Analysers (62%), close to one third Prospectors (31%), a small proportion of Defenders (7%) and no Reactors. Rugman and Verbeke [104] stated that the percentage of Reactors types is elevated in studies focussing on smallsized enterprises. Out of the study sample, 40% of firms stated that their business objectives correspond with institutional requirements, 49% view institutions to be erratic and 44% inadequately developed. Considering organisational outcomes, a substantial number of companies indicated flat or dwindling sales (39%), profits (55%) as well as market shares (57%). One statistically significant predictor of strategic type membership is volatility (p = .028). The level of perceived volatility corresponds (inversely) with the Miles and Snow [73] P-D-A-R continuum. Generally speaking, the more volatile the environment is perceived, the more likely the respondent shows a Reactor mode. Although the absolute figures do not immediately show: 81% of Reactors consider the environment to be volatile vs. 65% of Prospectors. Thus, the Reactor type is more likely in volatile environments. This corresponds with Tan and Litschert's [105] research in China. External volatility showed an inverse linkage with proactivity (i.e. prospective orientation) and a positive relationship with a rather passive stance (i.e. defensive orientation). With respect to the affiliation to generic strategy types, Prospectors have a positive linkage with revenue from sales (0.2998\*) as well as a negative linkage with share of market (−0.4914\*). On the contrary, the strategic mode of Analyser shows a positive link with share of market (0.2989) despite the fact that there is no sidak-adjusted coefficient of statistical significance. All remaining types have no sufficiently strong linkages. The Prospector and Analyser take the lead in terms of most deliberate strategic types in the Miles and Snow [73] strategy spectrum. While often described as the most aggressive [106] and boldest [107] in terms of risk-taking, the Prospector has typically been described as highachiever. Yet, in terms of overall success, Miles and Snow [73] acknowledge that the 'Prospector seldom attains the efficiency necessary to reap maximum economic benefits from any of its chosen markets'. The time horizon of this type of generic strategy is near-term (1983). The Prospector type also appears to have a limited 'shelf-life'. This is owed to the fact that along with their successs, Prospectors seek to

leverage their newly attained competitive edge to pivot into Analyser or Defender types. Moreover, some scholars found that Prospectors under-perform in emerging economies because of their limited ability to cope with ambiguity [108]. In contrast, the Analyser type has been associated with a 'second-but-better' approach championing a higher level of market-orientation as well as a stronger interaction with fellow economic actors to better understand underlying requirements [109]. In line with the analytical orientation implied in its designation, the Analysers invest more time into screening the market contenders and generate a levelled suite of both established and progressive offerings [110]. On the continuum of strategic orientations, the Analyser type is positioned in-between the Defender and Prospector type (1993). This type has proven to be effective both in constant and changing economic environments by pursuing risk-mitigated productivity [58]. They bring together a focus on cost containment and opportunistic bets, a combination that corresponds with the dynamic conditions of the Chinese market and institutional landscape. The Analyser within the Miles and Snow [73] typology is considered a highly active configuration [106] as well as a 'shaker and mover' that is surpassed only by the Prospector type [107]. Nevertheless, this type has also been perceived as a champion of incrementalism [58], a feature that can help MNCs to alleviate their 'liabilities of foreignness' [111, 112] in an economy that can be identified with dynamic conditions [113], complex entanglements [114] as well as hostile opposition [81]. In the same vein, the Defender type is often seen as a strategic type that performs underwhelmingly. This stems from the preference of this type to seal off a niche in order to compete on costs and superior engineering capabilities [109]. The Defender seeks to safeguard a relatively tight product-market segment [115]. In order to stonewall against external threats, this type tries to perfect technical details and groups around a leadership team of specialists in financial and operational management [110]. Displaying a pronounced risk-aversion [109] and muted activity level [106], this type can still yield above-average performance (profitability) in various settings and frequently overtakes Prospector entities with respect to ROI and cash flow [86]. Naturally, Defenders are more likely to do well in unfluctuating and constricted business segments than in high-powered and unpredictable contexts. Moreover, in view of MNCs motives relating to the cultivation of the Chinese market, the Defender proposition has been criticised for leaning towards being technocratic, narrowly minded, non-agile and risk-avoiding as well as too traditionalist to command a competitive edge in China [58]. Hence, Defender may not be the most fitting type for dynamic contexts as they lack experience in crafting suitable strategies and tactics [107]. As business success in China depends on the ability to handle a dynamic and contested environment while capitalising on emerging opportunities, the Defender type does not appear to be well-equipped to thrive in this context. Correspondingly, the Reactor type can be classified as a configuration that yields subpar performance since reactor firms generate outcomes below the mean. These conclusions regarding the economic validity of Reactors are largely in line with the general portrait of this strategy type. Probably for this reason, various research projects on the Miles and Snow [73] typology have deliberately excluded the Reactor proposition. This is debatable though, as using an incomplete model compromises the integrity of the overall construct. Given the premise that the key objective of foreign-invested enterprises in the Chinese market is to atain market power by tapping into the emerging business opportunities, the chance that MNCs identify as Reactors seams to be diminished [58]. Hence, it is reasonable to expect a comparatively tiny representation of Reactors in any study on this typology in emerging markets. Furthermore, this type is

### *MNC Strategy in Contested Environments: Stay Put or Stay Foot? DOI: http://dx.doi.org/10.5772/intechopen.112687*

associated with instability, improvisation, 'fire-fighting' and short-termism. Reactors dedicate more attention to absorbing outside stress that emerges in an erratic and fleeting ways [110]. They lack both, a coherent plan on how to prevail in competitive encounters [116] and the capability to adapt to the context [106]. Hence, Reactors succumb to their environment [73]. Conant et al. [110] drew the conclusion that Reactors are eclipsed by all the other three types. Notwithstanding, different scholars concluded that this type could surpass outperform the three stable strategic types [99]. These insights have motivated scholars to propose that Reactors could position themselves in a way that allows them to exploit the absence of strategic congruity by converting it into an ability of agility and adaptability [92, 117] that is supposed to yields positive performance outcomes in ever-changing contexts. In summary, the exploration of typology-driven theorising and the review of strategic type membership of MNCs in China supports the notion that there are distinctive paths to high and low performance. The best-performing types in dynamic emerging market contexts are Prospectors and Analysers (i.e. above-the-mean). Defenders are only partially successful while Reactors performed underwhelmingly (i.e below-the-mean). Active agency strategies lean towards competing, conforming, collaborating and co-creating with institution's authority. In contrast, studies show that adopting the strategic orientation of a Defender or Reactor may not lead to the envisioned success. These strategic orientations tend to either confront, contest, circumventing or concede to institution's authority. Belligerent approaches are hardly feasible as host country institutions on a local or central level have principal impact on MNCs' business activities. Nevertheless, considering the increasingly antagonistic situation, Prospector-type MNCs may well wish to dim down their public profile, as there are multiple examples when MNCs have been scapegoated for political reasons. As the Analyser type is the most agile type, it is the one that is assumed to yield the best outcomes in the context presented.
