Realism is deemed to be a middle ground that provides “an element of unification by offering a philosophical ‘bridge’ between the positivist and the phenomenologist view” (Stiles, 2003, p. 265), or between ideas and reality (Synmon, 1994). Realism takes two major forms: empirical realism and critical realism (Bryman and Bell, 2007). Easton (2010, p. 118) suggests that “critical realism however provides not only a basis for justification but also guidelines as to how case research might be done and how theory can be fashioned.” Critical realism is rooted in a positivist philosophical stance and aims to see reality and explain experiences, events and mechanisms (Collier, 1994, p. 42-45, cited in Fisher et al., 2007). There is an interest in the underlying mechanisms but also deeper reality is in dynamic, complex and multi-disciplinary contexts. Importantly, the mechanisms cannot be directly observed and can only be logically inferred from real events (Fisher, et al., 2007, p. 285). Therefore, what people experience is taken from external and independent sensations. Knowledge of reality is generated from the interaction of structures, procedures and process. Critical realists are inclined to recognize multi-level case studies to interpret observable events.
Ontologically, critical realism has a stratified reality (see Figure 3.2). The three ontological assumptions can be seen as “three worlds” (McGee, 1985, p. 61). They are the empirical, the actual, and the real world. Understanding the world includes two steps that are “sensations and events we experience” and “reasoning backwards” (Saunders, Lewis and Thornhill, 2015, p. 139). Here, reasoning backwards is known as retroduction. Tsang (2014, p. 175) summarizes usefully that “retroduction [is] used to create theories regarding the structures and mechanisms that generate the observable events, emphasizing explanation over prediction”. For critical realists, the empirical events that people see are only part
of reality. The actual event that may not be observed is underlying the reality. Rather, “the deeper reality is the underlying dynamics or mechanisms that are driving changes in society in general and in organizations in particular” (Fisher et al., 2007, p. 285). Therefore, critical realists take “the form of in-depth historical analysis of social and organizational structures, and how they have changed over time” (Saunders, Lewis and Hornhill, 2015, p. 140).
Figure 3.2 Critical Realist Stratified Ontology
Source: Saunders, Lewis and Thornhill, 2015, p. 139; developed from Bhaskar, 1978
Epistemologically, those underlying causes and mechanisms can be explained, observed, and inferred from organizational daily events. The three elements of experiences, events and mechanisms provide clear guidance for the author using this philosophical approach. Hence, in this thesis, the “real” practitioners of two “real” case companies are deemed to be influenced by changing policies. In the actual world, guanxi is a competitive advantage that influences their daily activities in which they have participated. Events can be observed from the practitioners’ experiences or exposed by the public. In other words, the
researcher can observe these events but cannot observe the influence of guanxi. Given the events of Zhegn Xiaoyu, guanxi did influence policy making, but the researcher cannot observe how guanxi influenced policy making. The author’s task is to discover, recognize, depict and analyse the causal structures and mechanisms with presented evidence. This mechanism is inferred from the interview data and set against the existing literature with particular attention paid to outcomes.
From the critical realist perspective, one key causal mechanism is the unique phenomenon of guanxi arguably underlying the complexity of real society. “Causal social mechanisms, usually unseen, by virtue of which one event causes another” (Gross, 2009, p. 361) and offer “a bridge between the philosophical and the empirical” (Mason, Easton and Lenney, 2013, p. 354). Mechanisms can be any real entities, for example, human, non-human (e.g. guanxi), or an institution (e.g. government). Critical realists postulate their theoretical entities and then identify evidence for the “real” world. Danermark (2002, p. 5) argued that the real world which critical realists study is a “structured, differentiated, stratified and changing” world. Thus, “what is real is not exhausted by what is experienced or readily apprehensible” (Banta, 2012, p. 389). For example, guanxi implies an underlying complex phenomenon that influences policy making and implementation, which in turn impacts on strategy formulation and implementation. Ontologically, guanxi reflects a deeply structured social reality even though those experiences or events cannot be observed by social actors. Thus, the interaction between guanxi and policy making is the relationship of “ontologically objective and socially consequential existence” (Porpora, 1993, p. 222).
Critical realism, then, construes the world not only from accumulated empirical information but also aims to acknowledge the “unobserved entities, structures, and causal mechanisms which are existing and acting independently of
scientists’ knowledge of them”(Lewis, 1996, p. 487). In China’s pharmaceutical context, the process, applications and adjustments of SMPCs’ strategy formulation and implementation are the observable appearances of underlying causal mechanisms that guanxi embeds and in turn influences the crystallization of five forces. The semi-structured interview has been recognized by interviewees and discussed with regard to practical and real events and has generated empirical information about practitioners’ strategy management and their handling mechanism under the same political policies. Those actions “carry with the intentions of and the meaning of consequences” (Miles and Huberman, 1994, p. 10). In this light, critical realism is identified as a particular philosophical approach to explain practitioners’ empirical experience, where events may or may not be observed, and guanxi is conceptualised as an underlying causal mechanisms to influence policy formulation as well as the other Five Forces. Table 3.2 further presents a summary justification for choosing critical realism as a philosophical approach utilized in this thesis.
Table 3.2 Justification for Choosing Critical Realist Approach
Critical Realism Discipline Social science:
(1) Political issues: government policies. (2) Culture: guanxi.
(3) Business/management/marketing: organization strategy.
Ontology (1) Pre-existence of social structure: government political system.
(2) Stratified reality: real, actual and empirical domains of practitioners’ empirical and actual activities and experiences.
(3) Observable events.
(4) Social actors (practitioners) intentions: reasons as real causes.
(5) Consisting of structures, mechanisms and events: constant policies changing, loops of SMPCs strategy formulation, implementation and adjustments.
After outlining Table 3.3, critical realism is adopted as the exact methodological approach to be utilized in this thesis.
Epistemology (1) Knowledge: the beliefs of guanxi; the perspectives of policy; the formulation of strategy.
(2) Inference of building theories based on the causal mechanisms.
(3) Subject-matter: internal necessity (SMPCs’ strategy formulation, implementation); external relations: building good guanxi with government.
(4) Practice: guanxi provides competitive advantages to SMPCs’ strategy formulation and performance. Critiques of guanxi.
Methodology (1) Historical process analysis: evolution of China Medical Reform for 2009; evolution of two case
companies strategy; changing government main policies. (2) Underlying complexity: causal mechanism of
guanxi.
(3) Theoretical research: Porter’s strategy application in China.
(4) Empirical research: SMPCs’ strategy formulation and implementation.