Large firms and catch-up in a transitional economy: The case of Shougang Group in China

This study examines the possibility of catch-up of the Chinese steel indust ry, in particular the Shougang Group, with the leading global steel giants. Shougang is one of the four steel companies that have been selected by the Chinese government to constitute the core of the future Chinese steel indu stry. The contract system at Shougang, which operated from 1979 to 1995, un leashed an extraordinary entrepreneurial energy in the formerly traditional state-run steel plant. In the post-contract system, Shougang's range of de cision-making independence in respect to the purchase of inputs, its produc tion structure and product marketing has increased substantially compared t o the contract system, when the government still controlled many of the key decisions. As a result of institutional constraint, the low value-added st eel products dominate Shougang's portfolio. To challenge the established gi ants in the steel industry, Shougang has to divest the loss-making non-core businesses, slowly downsize employment in the core business, raise capital on the stock market and generates the resources for continued upgrading of its steel technology and diversifying its product portfolio.