Impact of Digital Transformation
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Impact of Digital Transformation on a Company's Performance: Evidence from Listed Chinese Manufacturing Companies - A Literature Review
Introduction
The digital revolution has fundamentally reshaped the global business landscape. Characterized by the rapid adoption of information and communication technologies (ICTs), digital transformation compels companies to integrate these technologies across all functional areas to create new value propositions, optimize operations, and enhance competitiveness (Yoo et al., 2012). This transformation is particularly crucial for manufacturing firms in China, a nation experiencing rapid economic growth and intense global competition.
This literature review examines the impact of digital transformation on the performance of listed Chinese manufacturing companies. It explores key existing theories, their application in the Chinese context, the latest developments in the field, and critiques of past research. By synthesizing these elements, the review aims to identify knowledge gaps and propose avenues for future research.
Key Existing Theories
Several theoretical frameworks have been used to understand the relationship between digital transformation and firm performance. Here, we discuss three prominent theories:
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Resource-Based View (RBV): This theory posits that firms achieve a competitive advantage by leveraging valuable, rare, inimitable, and non-substitutable (VRIN) resources (Barney, 1991). Digital technologies can be considered VRIN resources if they enable firms to develop unique capabilities, improve operational efficiency, or create innovative products and services (Kaur et al., 2018).
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Transaction Cost Economics (TCE): TCE emphasizes the importance of minimizing transaction costs associated with coordination and exchange within a firm (Williamson, 1985). Digital technologies can reduce these costs by facilitating information sharing, streamlining communication, and automating processes (Akter et al., 2011). This, in turn, can lead to improved efficiency, reduced errors, and faster decision-making.
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Dynamic Capabilities View (DCV): This theory argues that a firm's ability to sense and seize opportunities and reconfigure its resources to adapt to changing environments is crucial for sustained competitive advantage (Teece et al., 1997). Digital transformation empowers firms to develop dynamic capabilities by fostering data-driven decision making, enabling agile processes, and facilitating collaboration across the organization (Chen et al., 2012).
Application to Chinese Manufacturing
The Chinese manufacturing sector presents a unique context for studying the impact of digital transformation. Several factors amplify the importance of digital adoption for Chinese firms:
- Labor Cost Increases: Rising labor costs in China incentivize manufacturers to invest in automation and digital solutions to improve productivity and reduce reliance on manual labor (Qi et al., 2017).
- Government Initiatives: The Chinese government actively promotes "Industry 4.0" and "Made in China 2025" initiatives, encouraging manufacturers to embrace digital technologies and smart manufacturing practices (Li et al., 2020).
- E-commerce Growth: The booming e-commerce market in China necessitates agile production processes, data-driven inventory management, and efficient fulfillment systems, all of which are facilitated by digital transformation (Luo et al., 2019).
Latest Developments in the Field
Recent research points to the multifaceted impact of digital transformation on Chinese manufacturing companies. Here are some key trends:
- Focus on Specific Technologies: Studies are increasingly examining the impact of specific digital technologies like Big Data, Artificial Intelligence (AI), and the Internet of Things (IoT) on various aspects of manufacturing performance (Wu et al., 2023). This allows for a more nuanced understanding of how different technologies contribute to performance improvement.
- Integration with Existing Systems: Research emphasizes the importance of integrating digital technologies with existing enterprise resource planning (ERP) systems and operational processes to achieve optimal benefits (Wang et al., 2022).
- Digital Maturity and Performance: Studies investigate the relationship between a company's digital maturity level and its performance outcomes. Firms with more advanced digital capabilities tend to experience greater benefits from digital transformation (Wan et al., 2021).
- Heterogeneity in Impact: Recent research acknowledges the heterogeneous impact of digital transformation across different sub-sectors within Chinese manufacturing (Zhu et al., 2022). The specific benefits may vary depending on the industry's technology intensiveness and product complexity.
Main Criticisms of Previous Research
Despite the growing body of research, some criticisms have been levelled at previous studies on digital transformation and firm performance:
- Limited Scope: Many studies rely on self-reported measures of digital transformation, which can be subjective and prone to bias.
- Focus on Short-Term Effects: The long-term impact of digital transformation on performance may be understudied, requiring longitudinal research designs.
- Neglect of Organizational Factors: Some studies focus solely on the technological aspects of digital transformation, neglecting