How do institutional forces affect firm agility through organisational justice? Differences between Chinese and foreign firms in China

Abstract

While institutional environment is increasingly affecting supply chains, the effects of institutional forces on firm agility remains largely unexplored. This paper integrates institutional theory with the organisational justice and agility literature to explore whether institutional forces (i.e. legal protection, the importance of guanxi, and government support) affect agility of local and foreign firms in China through organisational justice. Results from structural equation modelling of survey data from 241 manufacturers in China demonstrate that Chinese firms gained agility through procedural, distributive, and interactional justice created by the three institutional forces. Gaining less justice from all three institutional forces (especially guanxi), the agility of foreign firms relied on only distributive justice. Legal protection and guanxi worked for Chinese firms, whereas foreign firms are somewhat disadvantaged in this regard and relied mostly on government support to provide distributive justice for building agility.