Leveraging Interfirm Relationships in China: Western Relational Governance or Guanxi? Domestic Versus Foreign Firms

Abstract

With the growing importance of strategic alliances and supply chains as competitive units, academics and practitioners are interested in understanding the techniques used by firms to leverage interfirm relationships to gain a competitive advantage. Studies conducted in the Western context underline the role of relational governance (i.e., the modern Western way), whereas works in the Chinese context highlight the importance of guanxi (i.e., the traditional Chinese way). Today’s Chinese economy operates as a hybrid of the Western modern business model and traditional Chinese patterns with the coexistence of Western relational governance and guanxi. Therefore, this study addresses two issues: (1) whether these two types of governance interact as substitutes or complements in leveraging interfirm relationships and (2) whether and how foreign firms differ from their Chinese domestic counterparts in the use of these two types of governance to improve performance. Drawing on data collected from 132 third-party logistics providers in China, this study shows that Western relational governance and guanxi function as substitutes in improving performance. Moreover, while guanxi contributes to performance in a similar manner in Chinese domestic firms and foreign firms, Western relational governance is more effective for foreign firms than for Chinese domestic firms. Furthermore, the joint role (i.e., interaction effect) of Western relational governance and guanxi in improving performance also differs: these two forms of governance function as substitutes in foreign firms, whereas they have no significant interaction in Chinese domestic firms.

The role of supply chain alignment in coping with resource dependency in blockchain adoption: empirical evidence from China

“…Inter-firm guanxi is found to negatively moderate the relationship between supply chain alignment and BT adoption, indicating that guanxi can be considered as an alternative to supply chain alignment in fostering BT acceptance. Previous study showed that guanxi functions as a substitute for Western relational governance in improving firm performance (Chu et al ., 2020a). Our results enrich previous findings, while further corroborating the view presented by Queiroz et al .…”

“…Although we use Chinese firms as the sample, this implication can easily be generalized to developed economies in which legal and formal mechanisms are important institutions of society. The role of supply chain alignment is especially insightful for Chinese firms that have sought informal mechanisms, such as social connections, to manage inter-organizational relationships in the past, due to the under-development of formal jurisdictions (Chu et al ., 2020a). Our results reveal that with the development and improvement of legal protection, formal channels are playing an increasingly important role in China.…”

Does asset specificity lead to value expropriation or value creation? An Institutional View

“…After excluding firms with missing values, we collected data from 428 matched buyer–supplier dyads, representing a 35.67% response rate. Considering that non-Chinese firms may not be constrained by Chinese guanxi culture and governmental intervention in the same way as the Chinese firms (Chu et al. , 2020; Shou et al.…”

“…After excluding firms with missing values, we collected data from 428 matched buyer-supplier dyads, representing a 35.67% response rate. Considering that non-Chinese firms may not be constrained by Chinese guanxi culture and governmental intervention in the same way as the Chinese firms (Chu et al, 2020;Shou et al, 2014), we screened the sample and focused on Chinese buyer-Chinese supplier relationships, and the final sample consisted of 217 matched buyer-supplier dyads.…”

What Drives Royalty Rates in International Franchising?

“…Our findings complement those of studies focusing on precontractual aspects, such as partner selection (e.g., Brookes and Altinay 2011), and postcontractual aspects, such as performance (e.g., Brouthers 2002). By focusing on royalty rates—as a specific formal contractual provision that serves as an incentivization mechanism—and its determinants, this study adds to extant research on governance mechanisms in international interfirm relationships (e.g., Chu, Lai, and Wang 2020; Griffith and Zhao 2015; Zheng et al 2020). It offers rare quantitative empirical evidence in support of the relevance of a host market's economic potential, level of legal rights protection, and cultural distance for international franchising phenomena (Rosado-Serrano, Paul, and Dikova 2018).…”