The limits of guanxi from the perspective of the Israeli diamond industry

Abstract

PurposeRecognizing the significant impact of guanxi (the Chinese network of reciprocal business relations) and its influence on everyday dealings in China is important for Western firms. Researchers argue that social capital has limits and is not a commodity that has a place in China aspiring to be a global business hub. Accordingly, the purpose of this paper is to deal with the question of whether guanxi still matters in the Chinese business arena, and if so, to what extent.Design/methodology/approachTo illustrate the evolutional direction of the Chinese institutional system, the authors compare it to a similar system that went through the evolutionary cycle from a social to a rational institutional base of exchange and discuss what one can learn from the institutional evolution process of the global diamond industry and its implications for the current evolution of Chinese institutions. The authors compare two similar cultures/religions, Judaism and Confucianism.FindingsThis study found parallels between the evolution of the Israeli diamond industry, dominated by Orthodox Jews, from a social exchange mechanism to a transactional mechanism and the present ongoing rationalization of the Chinese economy, dominated by the Confucianism culture from a social to a transactional business mechanism.Originality/valueDespite the vast efforts of researchers in the area of guanxi, there is very little published knowledge about its limitations and its usefulness in today's changing business environment. This paper contributes to the existing literature on the future aspects of guanxi from a unique perspective – the evolution of the Israeli diamond industry.

Can guanxi be created in Sino–Western relationships? An assessment of Western firms trading with China using the GRX scale

“…Today guanxi is a source of social capital which individuals and firms draw on when formal legal institutions are unavailable or unreliable (Gu et al, 2008). Guanxi in China has its similarities in other cultures, see for example "Blat" in Russia, "Quan he" in Vietnam, "Ubuntu" in South Africa, and "Jugaad" in India, as all are synonymous with business and social relationships, connections, interpersonal relationships and a unique combination of organic and mechanistic organizational structures (Berger & Herstein, 2012).…”

“…Meanwhile the third base is expensive and in most cases transaction specific. This is not particularly well regarded as a strong foundation for future exchange or guanxi building (Berger & Herstein, 2012). Thus the key question is whether businessto-business firms can build guanxi without any inherent base.…”

“…Techniques for building renqing include gift giving, providing mutual assistance in time of need and even wining and dining. It is an intricate art to master as abuse can be seen as bribery, whereas using it scantly may be seen as offensive and petty (Berger & Herstein, 2012;Gu et al, 2008).…”

“…Despite differences in their population and geography, the Chinese and Jewish people have many similarities and differences (Berger & Herstein, 2012). Both are from ancient cultures and each place high value on education, family traditions, diligence and hard work (PattShamir, 2006).…”

“…Individuals therefore draw on guanxi as a source of social capital, particularly when formal institutions and resources are weak or unavailable (Gu et al, 2008;Hong, 2001;. Guanxi is dynamic and demands constant cultivation, otherwise it will dissipate (Berger & Herstein, 2012). Its deep cultural roots mean that it will continue to play a key role in Chinese business relationships despite government reforms aimed at establishing an efficient business infrastructure Guthrie, 1998).…”