543 / 2024-04-25 19:33:51

Do Firms Mimic Industry Leaders’ Digital Transformation Strategies? Evidence from China

Digital Transformation,Industry Leaders,Mimicry

Given the important role of digital transformation, a better understanding of the determinants of digital transformation is relevant for both practitioners and policy-makers. Most prior literature on drivers for digital transformation focuses on firms’ internal characteristics. However, firms do not operate in isolation and are likely to be stimulated to implement a strategy via external pressures, such as peer firms, customers, or the government. Little is known about the external motive determinants of digital transformation. In this paper, we examine whether the digital transformation strategies of industry leaders influence the digital transformation strategies of peer firms to fill this gap.

We take China as the research context. The digital economy is undergoing rapid development in China. It is of great theoretical and practical significance to explore the drivers for digital transformation in the context of China. Our measure of digital transformation adoption is based on a textual analysis of annual reports of Chinese Shanghai and Shenzhen A-share listed firms, which has been widely used in the digital transformation literature.

We find that mimicking leading firms can play a role in influencing firms to adopt digital transformation. By contrast, firms are not influenced by the digital transformation strategies of their less successful peers. Our results are consistent after robustness tests. We identify the potential channel via which firms mimic the digital transformation activities of industry leaders: the information channel and the competitive channel. We also show that mimicking behavior is stronger for tech firms and firms with R&D background executives.

Overall, this study has several contributions to advance theory and practice. First, we study the external determinants of digital transformation, which is largely unexplored. We find that mimicking leading firms can play a role in influencing firms to adopt digital transformation. These results suggest that studies modeling digital transformation behaviors should also consider a firm’s industry leader as an additional determinant. Our results also suggest that if the government encourages recognized industry leaders to carry out digital transformation, firms that follow industry leaders’ digital transformation behavior can be prompted to adopt digital transformation. Thus, the government can derive additional policy benefits. Additionally, this study adds to the literature on how industrial organization contexts influence firm-level behavior.

We hope that this study can inspire future work to better understand the strong interdependencies among digital transformation strategies of different firms. Furthermore, an open empirical question is testing and observing how firms change their digital transformation in response to disclosed industry leaders’ digital transformation outcomes. For example, it seems reasonable to expect that the firm’s board would write contracts for the top management team that include incentives to adopt digital transformation to the industry leaders’ level. Alternatively, firms may attempt to mimic industry leaders by adjusting their textual narratives of digital transformation on their annual reports. We leave the particular mechanisms for further study.