Guanxi and organizational dynamics: organizational networking in Chinese firms

Abstract

This paper focuses on the utilization of guanxi, which is an important cultural and social element in China, and the impact of guanxi on firm performance. Although guanxi is embedded in every aspect of Chinese social life, companies demonstrate different needs and capacity for guanxi cultivation. Chinese firms develop guanxi as a strategic mechanism to overcome competitive and resource disadvantages by cooperating and exchanging favors with competitive forces and government authorities. We develop an integrative framework theorizing guanxi utilization according to institutional, strategic, and organizational factors, and we explore the impact of guanxi on firm performance, primarily sales growth and net profit growth. Our findings, based on a survey of 128 firms in central China, provide strong support that institutional, strategic, and organizational factors are critical determinants of guanxi with competitive forces. However, only institutional and strategic factors are significant for guanxi utilization with government authorities. In general, guanxi leads to higher firm performance, but is limited to increased sales growth, and has little impact on profit growth. Guanxi benefits market expansion and competitive positioning of firms, but does not enhance internal operations.Guanxi is a cultural characteristic that has strong implications for interpersonal and interorganizational dynamics in Chinese society. It refers to the concept of drawing on a web of connections to secure favors in personal and organizational relations. Chinese people and organizations cultivate guanxi energetically, subtly, and imaginatively, which governs their attitudes toward longterm social and personal relationships. Guanxi is an intricate and pervasive relational network that contains implicit mutual obligations, assurances, and understanding. It has been pervasive for centuries in every aspect of Chinese social and organizational activities. Modern Chinese society still operates within the realm of these countless social and business guanxi networks. It is thus critical for businesses in China, whether foreign or local, to understand and properly utilize guanxi in order to gain an edge over competitors.The practice of guanxi stems from Confucianism, which fostered the broad cultural aspects of collectivism manifested in the importance of networks of interpersonal relations. Guanxi has been the lifeblood of personal relationships and business conduct in Chinese society (Xin and Pearce, 1996). In the present-day fast-changing Chinese environments, guanxi has become even more entrenched with strong and direct implications for social attitudes and business practices. Guanxi is a critical factor in firm performance in China, affecting the flow of resources and a firm's interaction with the task environment. As China continues its economic reform and property rights remain ambiguous, guanxi has become more n = 128

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“…The practice of Guanxi, defined as the presence of direct, particularistic ties between individuals or organisations 10 (Tsui and Farh, 1997), has a profound influence on firms operating in China (Jiang et al 2013, Park andLuo, 2001;Tsui and Farh, 1997;Xin and Pearce, 1996).…”

“…Guanxi network plays an effectively role in establishing strong relationships with suppliers, customers and other stakeholders based on trust and mutual benefits, continuously exchanging knowledge, information, technology and other forms of favours, and enabling technical learning and building innovative capabilities of cooperative organisations in the network (Chen, Lin and Chang, 2009;Park and Luo, 2001). …”

“…For many larger organisations, bureaucratic rigidities reduce cooperation with others (Park and Luo, 2001;Xin and Pearce, 1996). Many large Chinese firms are descendants, in some form, of current and former state-governed enterprises and agencies in the old centrally planned economy.…”

“…It has been reported that small privately-owned enterprises, as a major driver of China's private sector (Hu, Jefferson and Qian, 2005), are becoming relatively more active in cooperation and regional innovation initiatives than their larger counterparts (Fu and Xiong, 2011;Park and Luo, 2001). This is especially true for those firms that are clustered in technologically advanced regions such as in eastern and southern China (Chang and Shih, 2004;Lai, Chiu and Leu, 2005;Tan, 2001).…”

Africa Business Research as a Laboratory for Theory-Building: Extreme Conditions, New Phenomena, and Alternative Paradigms of Social Relationships

“…More recent research in China has produced a promising stream of research focusing on mechanisms of guanxi (Luo, Huang, and Wang, 2012), yin/yang (Fang, 2012) and the teachings of Confucius (Shapiro and Li, 2016), which have aimed to challenge established theories of networks, trust-building and change (Chen, Chen and Huang, 2013;Park and Luo, 2001;Xin and Pearce, 1996). Such paradigms may help counter-act the often criticized imperialist tendencies of Anglo-Saxon management research and education (Amdam, 1996).…”