Concentration Effect on Construction Firms: Tests of Resource Partitioning Theory in Jiangsu Province (China) from 1989 to 2007

Abstract

Along with the economic acceleration and the consequent flourishing of urban infrastructure and real estate, there has been a tremendous development within the Chinese construction industry. However, the industry continues to suffer from excessive competition and low profit margins. Based on the resource partitioning process of organizational ecology theory, which predicts how market concentration relates to the survival of specialist and generalist organizations, this study analyzes the structure and the structural effect of the Jiangsu construction industry. Using the event history analysis method and data of all companies known to have operated during the period 1989–2007, the survival of both large and small construction companies within this low but increasing concentration industry has been investigated. It is concluded that the increasing concentration of the Jiangsu construction industry has a negative effect on the survival of construction companies. Nevertheless, no resource partitioning process can have occurred because it is found that the effect of concentration on decline for smaller companies is greater than for larger ones, which violates the assumption of the resource partitioning theory. In addition, macroeconomic policies and factors at the firm level have proved significant in relation to the incidence of survival of Jiangsu construction companies. Although this research focused mainly on the major construction companies of one province in China, the result reflects the profile of the whole country to some extent, and the research method could be replicated in other parts of the world for international comparisons. This would assist in understanding the structures of the construction industries in different countries and the structural effect on the survival of different types of firms.