In this SCCEI seminar, INSEAD Professor Rose Luo presents her research on "Conflicting Institutional Pressures and Corporate Digital Transformation in China."
Digital transformation has become a national policy in many countries. We examine in a centralized political system, how conflicting institutional pressures can affect corporate engagement in digital transformation of core manufacturing system. Given that a key benefit and consequence of digitalization is the replacement of low-skill labor, we propose that high pressure from unemployment can reduce the impact of proactive digital policies. Moreover, under high unemployment pressure, the government is likely to target firms that are less likely to lay off employees for digital transformation. As a result, ironically, firms that can potentially benefit more from digital transformation are less likely to digitalize. We test our argument with a sample of publicly listed manufacturing firms in China, and found strong support. Our study reveals decoupling in government action as well as in firm response, and contributes to a better understanding about the state influence on firms’ digital technologies in China.