Information processing fit in the context of emerging markets: An analysis of foreign SBUs in China

Abstract

The institutional uncertainty of many emerging markets challenges the decision making processes of foreign managers and require advanced information gathering and processing activities. Organizational Information Processing Theory (OIPT) asserts that an adequate information level determines decision effectiveness and thereby firm performance. Although studies integrated OIPT's contingent perspective, the actual identification of the adequate information processing per se received little attention. In this paper, we examine the optimal fit between the uncertainty levels of foreign firms in China and their information processing activities. We draw on data from 128 foreign firms' strategic business units (SBUs) in China and unveil that the examined SBUs face substantially different business environments with respect to dynamics and associated information processing requirements. We develop distinct ideal profiles for information processing capacities and assess whether an alignment with the ideal profile results in improved performance. Our study results show that the degree of alignment (i.e. fit) between an SBU's business environment and its ideal information processing profile is positively associated with strategic quality and company performance, empirically confirming OIPT's central tenet of ‘fitting’ organizational information processing capacities with requirements. We stipulate managers to emphasize the ideal information processing profile according to the level of information processing requirement they face.