Business Strategy Under Institutional Constraints: Evidence From China's Energy Efficiency Regulations

• A case study framework is applied to explaining energy efficiency in Chinese firms.
• Institutional constraints lead to two business strategies for energy efficiency.
• Firms adopt energy-saving technologies to improve competitiveness incrementally.
• Firms use more efficient plant and equipment substantially to expand or avert risk.
• The cases reveal an adapted positioning strategy and additional policy implications.

This paper links theoretical perspectives from energy efficiency economics with those observed from corporate environmental strategy to develop a framework for explaining energy efficiency strategies by firms in response to national policies and local regulations in China. The framework is refined through analytic generalization of 20 cases from four industries and four cities in Jiangsu Province, and reveals two strategies: 1) firms with moderate institutional pressure seek incremental competitiveness by adopting energy-saving technologies, which is reinforced by their informational, organizational, and financing capabilities, and facilitated by voluntary policies and industrial competition; 2) firms with survival risk or development constraints under regulation seek a position favored by local governments by replacing old plant and equipment with larger, more efficient ones and contributing to the local community. The Chinese case studies reveal a strong institutional impact on firms' choice of business strategies and particularly the positioning strategy. The identified business strategies shed additional light on the effectiveness and implications of different policy instruments for energy efficiency.