Private firms in China: Building legitimacy in an emerging economy David Ahlstrom a, *, Garry D. Bruton b,1 , Kuang S. Yeh c,2 a The Chinese University of Hong Kong, Faculty of Business Administration, Department of Management, Shatin, NT, Hong Kong, China b Texas Christian University, Neeley School of Business, TCU Box 298530, Fort Worth, TX 76129, USA c National Sun Yat-Sen University, Department of Business Management, Kaohsiung, Taiwan 1. Introduction Global firms today face a host of challenging environ- ments as they do business in the emerging economies of the world. One of the key issues that such firms face is how to establish their legitimacy, or right to exist, in a given market (Ahlstrom & Bruton, 2001; Stillman, 1974). The local firms based on these emerging economies regularly face such problems. These firms have developed a number of legitimacy-building strategies to help them cope with the challenging and sometimes chaotic environments in emerging economies. To better understand the many approaches used to build legitimacy in an emerging economy, we interviewed firm principals and founders from China’s growing private sector. In addition, senior mangers of global firms operating in China were inter- viewed to determine which strategies they were able to adopt from the local Chinese firms. To further substantiate these findings subsequent interviews in Taiwan were conducted. Although more developed and amenable to private property, Taiwan shares the same cultural tradi- tions as Mainland China. Firms in Taiwan reported they face a number of comparable legitimacy-building chal- lenges. Legitimacy represents a legal and societal judgment of the norms, appropriateness, image, and legal standing of an organization (Aldrich & Fiol, 1994; Suchman, 1995; Rindova & Fombrun, 1999). Legitimacy can help a firm survive and avoid significant interference from outside parties in its environment (Zimmerman & Zeitz, 2002), something that can be a particular problem in emerging economies (Ahlstrom & Bruton, 2001; Bai, Lu, & Tao, 2006). In addition, enterprises that have achieved a level of legitimacy can more easily obtain access to resources and markets needed to prosper (Dowling & Pfeffer, 1975). It is not always easy for firms to build legitimacy for themselves and the type of industry they are in as new firms, technologies, and organizational forms are not automatically accepted by markets and local constitu- encies (Stinchcombe, 1965). Lacking the support conferred Journal of World Business 43 (2008) 385–399 ARTICLE INFO Keywords: Legitimacy China Taiwan Emerging economies Institutional theory ABSTRACT Firms are legitimized by their environments if they survive and prosper. But firms can also proactively build legitimacy to enhance their long-term growth prospects. This is vital for private firms based on emerging economies given the weak protection for private property. This article examines ways in which private firms in China build legitimacy for themselves and their industries. Through field interviews with firm founders and top managers in China various legitimization strategies and the conditions under which they can be used are examined. The authors also conducted follow-up interviews in Taiwan to investigate legitimacy-building strategies there. Though more advanced, Taiwan’s economy shares many cultural traditions with Mainland China, and it presents firms with similar legitimacy-related challenges. Interviews with managers of multinationals operating in China were also conducted to determine what they are learning from the legitimization strategies of the indigenous Chinese firms. ß 2008 Elsevier Inc. All rights reserved. * Corresponding author. Tel.: +852 2609 7748; fax: +852 2609 7748. E-mail addresses: ahlstrom@baf.msmail.cuhk.edu.hk (D. Ahlstrom), G.Bruton@tcu.edu (G.D. Bruton), ksyeh@mail.nsysu.edu.tw (K.S. Yeh). 1 Tel.: +1 817 257 7421; fax: +1 817 257 7227. 2 Tel.: +886 7 5252000x4651; fax: +886 7 5254698. Contents lists available at ScienceDirect Journal of World Business journal homepage: www.elsevier.com/locate/jwb 1090-9516/$ – see front matter ß 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.jwb.2008.03.001