Does guanxi in China always produce value? The contingency effects of contract enforcement and market turbulence

Abstract

Purpose The purpose of this study is to reconcile the positive, non-significant and even negative effects of guanxi on firm performance from two aspects. First, it explores the linear and curvilinear relationships between guanxi and distinct performance dimensions. Second, it examines the moderating effects of both exchange-related behavioral risk (reflected by contract enforcement in this study) and market-related environmental risk (reflected by market turbulence in this study) on the above relationship. Design/methodology/approach Based on data for 206 samples collected from distributors of house furnishings, computers and their components, a moderated regression is used to test the hypotheses. Findings The empirical test generally supports the conceptual model and demonstrates three findings. First, guanxi has a linear, positive effect on financial performance and an inverted U-shaped effect on strategic performance. Second, contract enforcement decreases the effect of guanxi on financial performance and enhances its effect on strategic performance. Third, market turbulence enhances the effect of guanxi on financial performance and weakens its effect on strategic performance. Research limitations/implications First, this study collects data only from China. Future studies should collect data from other emerging markets to allow for either model validation or cross-country comparisons. Second, the data come only from buyers, and suppliers’ viewpoints are not included. Third, in addition to contract enforcement and market turbulence, other important contingencies should be considered in the guanxi–performance link. Practical implications The results provide important implications for managers to manage guanxi in an emerging economy. Managers should be very clear about their primary goal (i.e. pursuing short-term financial revenue or long-term strategic targets); next, they should understand how to match guanxi with various levels of contract enforcement and market turbulence to achieve that goal. Originality/value First, prior research has documented guanxi’s role in channel relationships, but it has not achieved consistent conclusions. Second, although existing studies have analyzed the contingencies of guanxi at the firm level, market level and institutional level, another important contingency “the dyadic relationship condition” is rarely considered. Third, although the extant research has realized the value of guanxi contingent on various market conditions, conflicting views exist. This study contributes by addressing these issues.

Boundary spanners’ knowledge sharing for innovation success in turbulent times

“…Secondly, the identification of market turbulence as an influential environmental factor has culminated in an upsurge of studies examining its contingent role (Qian et al, 2016;Wang et al, 2015;Tsai and Yang, 2013;Hung and Chou, 2013;Santos-Vijande and Á lvarez-Gonzá lez, 2007). While market turbulence has received significant interest by management scholars, its contingent role has been described as equivocal, and market turbulence was only selectively confirmed as a moderator.…”

“…While there is a large body of research that scrutinises how market turbulence moderates the effects of market orientation (Hanvanich et al, 2006;Calantone et al, 2003;Qian et al, 2016;Slater and Narver, 1994;Jaworski and Kohli, 1993), there is a research gap in extant knowledge management research. As Figure 1 shows, none of the previous studies were looking at the moderating effect of market turbulence on the link between knowledge management and its impact on either innovation or performance outcomes.…”

Contract-Based Knowledge Protection and Cooperation Performance

“…Task environment is the external condition that affects the organization's internal behavior and functioning of firm (Dess & Beard, 1984;Srivastava & Frankwick, 2011). One major aspect of task environment is technological turbulence which defined as "the rate of technological change in the industry" (Kohli & Jaworski, 1990), and is believed to influence firm's governance decisions and determine the value of various governance structures (Dess & Beard, 1984;Claussen, Kretschmer, & Stieglitz, 2015;Qian, Yang, & Li, 2016), such as the formation of alliances (Hagedoorn, 1993), the effects of contract governance (Lee and Cavusgil, 2006) and "guanxi" (Gu, Hung, and Tse, 2008).…”

Mediating Role of Risk Perception of Trust and Contract Enforcement in the Construction Industry

“…Despite the determining effects of contract governance, contract enforcement has attracted limited academic attention. Through reviewing existing studies on contract enforcement, we find three current research directions: first, antecedents of contract enforcement, such as contractual components (Faems et al 2008;Mooi and Gilliland 2013), network factors (Antia and Frazier 2001), transactional attributes (Antia and Frazier 2001;Mooi and Gilliland 2013), and culture (Choi 1994); second, outcomes of 111 contract enforcement, such as satisfaction with problem resolution (Mooi and Gilliland 2013), relationship performance (Osmonbekov et al 2016), organizational performance (Qian et al 2016), and cooperation (Quanji et al 2016); and third, alternatives to contract enforcement, such as reputation (Iacobucci 2014) and social network (Chandrasekhar et al 2015). Previous studies on antecedents of contract enforcement, despite providing valuable insights, have revealed little about the relationship between trust and contract enforcement.…”