The Effect of HRM Practices on Employees’ Guanxi Utilization: An Exploratory Study in the Banking Industry in China

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Master Degree Thesis

(2013-2014)

The Effect of HRM Practices on Employees’ Guanxi Utilization:

An Exploratory Study in the Banking Industry in China

Advanced International Business and Management (Dual Awards) Groningen University and Newcastle University

Lijuan Zhu

S2438321(RUG) B2004022(NUBS) Supervisors: Tracy Scurry & Rudi de Vries

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Acknowledgement

At the beginning of the present paper, I would like to express the deepest appreciation to two of my thesis supervisors, Dr. Tracy Scurry and Dr. Rudi de Vries. A million thanks to their professional comments and suggestions to my research, which significantly pushed my work moving forwards. I deeply admire their immense knowledge, meticulous scholarship and genial personality. Besides, their endless patience has always made me feel grateful. Without their guidance and persistent support, this thesis would not have been possible.

In addition, special gratitude should be given to all the informants, whose participation largely contributed to the final accomplishment of this research. Throughout the research process, the most difficult task was to find the ideal participants suitable for this research topic. Various methods have been deployed to reach as many participants as possible. All of them were very busy but still willing to take their time to help. They showed honesty and trustworthiness during the period of conducting interviews and questionnaire survey. It is a pity that I cannot name them respectively due to anonymity and confidentiality guaranteed prior to this research.

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Abstract

As an exploratory study, this research aims to explore the effect of human resources management (HRM) practices on guanxi utilization from the perspective of employees in the context of Chinese banking industry. Attempts were made to open up the ‘black box’ of HRM-guanxi relations and contribute to the extant literature by adding to the study on guanxi-related human resource management. Exploratory findings were drawn from a qualitative empirical study which took advantages of interviews and questionnaire survey. The main informants were employees coming from four different Chinese commercial banks, thereby facilitating comparisons between them. In general, results indicated that two important HRM practices, rewards and performance appraisal system, have a positive association with employees’ guanxi utilization, while the practices related to employee autonomy or empowerment show weak influence on it. It mainly argued that HRM system can play a positive role in encouraging employees to deploy their personal guanxi ties for organizational benefits. This research is of value for gaining new insights into HRM-guanxi relations and paving way for more quantitative study in this field.

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Chapter 1. Introduction

In the domain of international human resources management, research that re-emphasizes the need to focus on the context is distinctly gathering pace (Som, 2012; Brewster et al, 1996). There is a growing trend for researchers to be absorbed in the interesting contextual issues of human resource management (HRM) within emerging economies such as India, China and Russia (Bjǒrkman，Budhwar, Smale and Sumelius, 2008). These studies have thrown light on the mystery of conditions that must be taken into account by HRM systems in different developing countries with larruping national contexts and settings. Following this rising call for contextualized research in emerging markets, this exploratory study intends to cast more light on the emerging giant China and link the human resource management with one of its most important indigenous constructs, guanxi, which refers to as connections or networks that play an indispensable role in the Chinese business system. In recent years, guanxi-related topics have already drawn mounting attention from researchers. For example, Lee and Dawes (2005) suggested that guanxi is one of the most important issues relating to China today. Chen and Smith (2008) further highlighted guanxi as the organizational backbone of many sectors of the economy. In this case, efforts were made to meet this hotspot in theory research and simultaneously contribute to the guanxi-related HRM literature by exploring whether and how HRM practices have effect on employee guanxi utilization manifesting in the Chinese context.

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2000), achieve higher efficiency, facilitate rapid entry or expansion into Chinese markets, reach new customers and thus attain higher market performance (Gu et al, 2008; Tai, 1988). Furthermore, there is an increasing awareness that connection or social network can be pivotal to a firm’s success in gaining competitive advantage in the global arena (Tung and Worm, 2001). From the perspective of interorganizational relationships, appropriate guanxi ties flourish more open dialogues, build trust between partners, resolve channel conflicts, and eventually forms a long-term orientation relationship (Dunning and Kim, 2007). All of the above reaffirm the need and value of this research to further explore guanxi and business relationship. In addition, the existing literature about guanxi is mainly concentrated on the organizational or interorganizational level. Exploration on guanxi and HRM system at the individual level is far less than enough (Chen et al, 2013). Embracing this, current research made an attempt to add to the literature by groping for the guanxi-HRM relationship from the perspective of employees.

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practices. If no, what can be done; (3) What implications can be drawn from it.

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Chapter 2. Literature Review

Research on Chinese guanxi has long been recognized as one of the earliest and the most important contribution to the mainstream management literature (Jia, You, & Du, 2012), especially in the Asian business context. Firms operating in China are suggested to incorporate employee guanxi utilization into their human resource management agenda, for the reason that they could strive for higher individual outcomes as well as organizational performance. A comprehensive review on Chinese guanxi, that covers its historical root, conceptualization, classification, economical and business importance, is presented as followed. Then, elaboration on the relations between guanxi and the related HRM practices will come next.

2.1 Historical Root of Guanxi

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modern China. That is, ‘Who you know is more important than what you know.’ In accordance with Tung and Worm (2001), ‘who you know’ refers in particular to social connections with the appropriate authorities or individuals. These connections are commonly known in Chinese as ‘guanxi’ which is the main subject of this research, while Japanese refer to this web of connections as Kankei, Korean as Kwankye. ‘What you know’ means technological expertise, including price and quality of product or service. They become second in importance in these Asian countries, though serving as the paramount consideration when doing business in the West. Generally speaking, deploying guanxi was born as an ancient business practice but still dynamic and pivotal to business success in modern China and other Confucian societies as well.

2.2 Conceptualization of Guanxi

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in a series of exchanges, which ultimately lead to the formation of a guanxi-based relationship. From Tung and Worm’ (2001) point of view, guanxi itself can be viewed as an indispensable and ubiquitous social resource because it exists in a latent form not only within one’s own guanxi ties but also between a mass of guanxi networks wove by all members. In other words, guanxi is not merely embedded in dyadic relationships, but can be expanded to all members of the guanxi network. Example is given to elaborate: Person A wants to make a request of person C with whom A has no guanxi or contact, person A may seek out person B, a member of his or her guanxi network who has guanxi with person C. Given B provides A the introduction to C, a guanxi relationship may be established between A and C. Hence, person A may be willing to render favor to person C and vice versa (Tsang, 1998). Standifird and Marshall (2000) also noticed this phenomenon and phrased it as the transferability of guanxi. It is the transferable guanxi that leads to a huge complex business environment in China.

Despite of diverse differences in the descriptions of guanxi, one common ground can be easily found. Namely, guanxi is first and foremost about the cultivation of long-term personal relationships among people. The generalized reciprocity (Sahlins, 1972) is another acknowledged nature of guanxi. Chinese natives reciprocate favors or gifts, or a sort of enacting social exchanges in Blau’s (1964) words, without definite payback periods or returns of equal value ( Wu et al., 2006). In some cases, guanxi makers may even present more generous returns to express altruism and intrinsic interest in relationships, while creating indebtedness in recipients of such largess (Hom and Xiao, 2011). As Bian (1997) concluded, guanxi, in essence, represents a web of obligations that exchanging parties feel morally obliged to meet. Failure to do so will results in loss of face and network resources.

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Yang (1994) provides careful analysis, offering three distinctions between guanxi and bribery. First, the gain-and-loss calculation dominates the act of bribery, but plays a much weaker role in guanxi. Second, the guanxi obligation is long-term and diffuse, while bribery is for an immediate and specific purpose. Third, some level of emotional content or affect is a part of guanxi, but not of bribery. The central difference is that guanxi means relationship building while bribery is simply an illicit transaction, so is corruption. In societies where guanxi plays an important role, it is in danger of leading to the outbreak of corruption. While the line between guanxi and corruption may be blurred at times, in practice, they are two distinct concepts (Tung and Worm, 2001). Their differences reflect the moral and ethical divergence between the East and the West. The western legal system is a reflection of ethical perspectives. Classical western contract law is based on the discrete-transaction paradigm. Williamson (1979) identifies two ideal characteristics that are fundamental to this paradigm. First, the identities of the transacting parties are completely irrelevant. Second, the agreement is carefully delimited in as formal terms as possible, with remedies in the case of non-performance, or any other event that can possibly be anticipated described specifically. In contrast, at the center of the Chinese ethical perspective is renqing, which generally refers to ‘human feelings’, ‘human heartedness’ or respect and caring for important others and for the harmony of the group and sympathy for group members (Lovett et al., 1999). From this perspective, guanxi is not corruption, but an ethical system designed to deal with a different perspective on society. However, guanxi is still at risk of becoming bribery and corruption if not being deployed in the legal extent.

2.3 Classification of Guanxi

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voluntary associations such as colleagues, schoolmates, and friendships. Another variant is the family vs. familiar or blood vs. social distinction (Jacobs, 1982; Tsang, 1998) where familiar and social relations refer to those who are non-family but are well acquainted; (2) Affective vs. instrumental guanxi. In Blau’s theory of social exchange (1964), family and love oriented social interactions are motivated by the expression and maintenance of attraction and commitment to the intrinsic properties of the relationship per se whereas exchange relations are aroused by purpose of obtaining extrinsic benefits and rewards. Consistent with it, Hwang (1984) considered family relationships as social-affective and non-family relationships as partially or wholly instrumental; (3) Personal/ informal vs. impersonal/ contractual guanxi. Ho (1999) refers personal or informal guanxi to as interpersonal relations that carry characteristics of affect, obligation, and informality. On the contrary, impersonal or contractual guanxi refers to either interpersonal or inter-firm relations that are characterized by impersonality, legality, and formality (Blau & Duncan, 1967; Davies, Leung, Luk, & Wong, 1995; Lovett et al., 1999; Zhou, Li, Zhao, & Cai, 2003).

Many other researchers have put forward different guanxi types from different perspectives. Hwang (1987) classified relationships into: socio-affective, instrumental, and mixed, which maps onto Yang’s (1993) categories of jiaren (familial), shuren (acquaintance) and shengren (stranger) relationships that are also adopted by other researchers such as Tsui and Farh (1997). Zhang and Zhang (2006) differentiated guanxi into obligatory (family and kinship relations), reciprocal (friends and acquaintances), and utilitarian (seller-buyers or strangers) and Fan (2002) split guanxi ties into family ties, friendship ties (helpers), and business ties.

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family-like. In the workplace and in business relationships, however, Chinese guanxi tends to be a mixture of family and non-family, personal and impersonal, and expressive and instrumental characteristics.

2.4 Business Importance of Guanxi

The primary question ‘what contribute to the important role of guanxi in Chinese business context?’ was first systematically responded by Bjǒrkman and Kock (1995). They sorted out the following factors: (1) Lack of codified and diffused public information; (2) General distrust towards strangers; (3) Reciprocity within social relations as the norm; (4) The importance of trust development prior to business and information exchange, in particular in relations where illegal elements are part of the interaction. In reply to the same question, Chen, Chen and Huang (2013) believed that the prevalence of guanxi practices in the Chinese workplace is fundamentally seen as resulting from the lack, or imperfection, of legal and regulatory institutions, thereby guanxi permeates every level of the business ecosystem. All of the mentioned elements initially fertilize the pervasive influence of guanxi network and gradually generate a deep-rooted guanxi-based business system in China.

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are sufficient to warrant the integration of guanxi-based and market-based exchange mechanisms. Guanxi is also considered as the most effective bargaining counter in business negotiations in China (Tsang, 1998). Among numerous studies, the linkage between guanxi and firm performance attracts the most heated debate. Luo and Chen (1997) provided empirical evidences showing that guanxi-based business variables have a profound and positive impact on firm efficiency and growth. Guanxi constitutes a key strategic factor and significant business determinant affecting firm performance in the greater China area.

However, slightly different from Luo and Chen (1997), other scholars lend a bittersweet aspect to the utilization of guanxi in Chinese business. Nie et al. (2011) argued that guanxi is important, but performance will be hurt when guanxi reaches a certain threshold. As guanxi relationship between two parties becomes more solid, the negative effects of guanxi, such as sustaining cost, hold-up, and the over-embeddedness effect, will surpass the benefits brought by guanxi and thus damage performance. On the contrary to the conclusion of Zhou et al. (2007), it is reported that guanxi has no effect on promoting profit growth (Nie et al, 2011). Using guanxi to acquire complementary resources, obtain strategic knowledge, build competitive capability, or simply expand the market rapidly, may be realized at the expense of economical, operational and managerial efficiencies. The costs to build and sustain guanxi will increase, accumulate and ultimately offset its superiority. This is why Park and Luo (2001) concluded that guanxi was more important in establishing external relations and legitimacy, and in positioning the firm competitively in the market, than in improving internal operations. Still some scholars have maintained that, with the development of modernization in China, the significance of guanxi is declining (Fan, 2002; Guthrie, 1998).

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the intervening or mediating impact of guanxi. As Tsang (1998) asserted, guanxi is crucial to foreign business operating in China. With possession of strong guanxi networks, foreign individuals and firms would be equipped with an imperfectly imitable resource that provides a distinct competitive advantage over others. Drawing upon empirical findings from Tung and Worm (2001), most European companies believed that it is extremely important to have the right guanxi to gain market entry to China. ‘Guanxi with appropriate Chinese entities’ was rated third in importance out of eleven possible factors in response to the question ‘What do you think is the most critical factor to entering the China market’, while ‘The right entry strategy’ topped the list and ‘The right business location’ came second. Consistent with Fei (1947), Liang (1949), Yang (1994) and Yeung and Tung (1996), most European executives perceived guanxi as very important for both entry and attaining long-term success in China. The guanxi relationships with government officials appear to be the most unavoidable and irreplaceable. Foreign firms realized that they could not be complacent but had to continue to expand their guanxi network after entry. Lovett et al (1999) further indicated that nowadays most of the non-western world, not limited to China any longer, currently does business on the basis of guanxi-type systems. All of these highlight the fact that guanxi is an integral component of doing business and is required at all stages in the company’s operations in most Confucian society.

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integration’. In sum, all of above justify the importance of guanxi-related study and call for further research in guanxi utilization.

2.5 Guanxi and Human Resource Management

Within the scope of business management, particularly in the context of China, the relationship between HRM practices and guanxi has drawn increasing attention from researchers. For example, Guanxi is frequently associated with HRM, especially on the topic of the supervisor-subordinate relationship. Chen et al (2004) and Farth et al (1998) both agreed that supervisors who have close guanxi with a subordinate tend to give that individual a higher performance rating because of strong in-group favoritism in Chinese organizations. The former further argued that close and deep guanxi also influences managerial decisions. Consistent with it, Dunfee and Warren (2001) have brought out similar argument, when supervisors are making decisions about resources allocation or encountering conflicts of interests, they will use their power to favor subordinates with close guanxi ties to them. Guanxi is also a constant subject when studying interpersonal relationships within Chinese organizations. For instance, it is deemed as the prime influential mechanism that moderates the interpersonal trust, which indirectly impacts the firm performance (Chang and Chi, 2007).

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attracting highly competent employees. On the other hand, guanxi practices could not only help reach and attract potential talents but also prevent talents from leaving the organizations. Supported by Hom and Xiao’ (2011) findings, guanxi ties boost Chinese employees’ propensity to stay and reinforce their retention in firms, complementary to the high-commitment HRM practices. In fact, even if the original guanxi owners have left the firm, a firm’s internal guanxi networks as a whole could maintain some personal guanxi ties owing to the transferability of personal guanxi discussed in the previous section. The guanxi ties of remaining employees, though not formalized into the routines of business operation, are collective and unique in nature and hard to imitate, thus bringing sustainable competitive advantage for the firm (Chen and Huang, 2013).

The extensive literature on guanxi-HRM practices relationship reaffirms the necessity and value of study in this field and justifies the value of this research. Given that numerous researches provide evidences, it is of great strategic importance for domestic or foreign firms operating in China to integrate guanxi-based practices into the human resource management system. Measures should be taken to encourage employees to utilize their personal guanxi ties, thus enhancing individual performance and the ultimate organizational benefits.

2.6 Guanxi-HRM relations in Social Exchange Theory

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dependency theory (Pfeffer and Salancik, 1978), or transaction cost economics (Coase, 1937). However, the current research relies primarily on theories of social exchange (Blau, 1964; Homans, 1958), focusing on concepts of reciprocity and motivation, to unveil the HRM mechanism through which maximizes employees’ guanxi utilization.

According to Blau (1964), social exchange relationships develop between two parties through a series of mutual exchanges that yield a pattern of reciprocal obligation. Prior research has established that an employee is involved in at least two social exchange relationships at work: one with the immediate supervisor or line manager, and one with the organization. The former is about leader-member exchange (LMX), being defined as the quality of the relationship between a supervisor and an employee (Settoon et al, 1996). The latter is about perceived organizational support (POS) which reflects the quality of the employee-organization relationship by measuring the extent to which employees believe that their organizations value their contributions and care about their welfare. Employees are more likely to devote greater effort (e.g. use personal guanxi ties) toward helping the organization achieve its goals if they perceive the organization as treating them well and valuing their efforts (Settoon et al., 1996). They will reciprocate with positive attitudes and behaviors (Aryee, Budhwar, and Chen, 2002; Haas and Deseran, 1981). For the current research, the focal point is not LMX but POS, which highlights the role of HRM system. Within the context of exchange theory, it is proposed that HR practices would initiate positive exchange relationships as organizations stress the individual needs of the organizational members (Allen, Shore, and Griffeth, 2003; Eisenberger et al., 1986) through setting up effective human resource system. When organizations employ HR practices to deliver the message that organizations concern for employees’ well-being, the organizations can reach high performance (Huselid, 1995; Wayne, Shore and Liden, 1997).

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In this study, attempts are made to find out what can HRM do to increase the perceived organizational support (POS) by which result in greater employee devotion and commitment. More specifically, the research being conducted is to explore under what HR practices and in what circumstances employees are willing to utilize their personal guanxi ties. People’s behavior is mainly determined by their perceptions of and cognitive responses to their environment, not actual environment factors alone (Fiske and Taylor, 1984). Similarly, employee commitment to organizations and their willingness to use their own guanxi ties for organizational benefits are determined by employees’ perceptions of and responses to enterprise policies that affect them. Since guanxi is about relationship establishment which consumes time, needs efforts and even costs money, employees may be reluctant to use their guanxi ties for organizational purpose. What’s more, the reciprocity nature of guanxi, simply means benefit receivers need to pay back, would further hinder employees’ guanxi utilization. Consequently, to create a strong motivating policy environment are crucial for a Chinese firm to realize organizational benefits. Among a plenty of HR practices, this research proposes three major HR practices that are deemed as contributing factors to employees’ motivation and attitude towards personal guanxi utilization. They are employee autonomy/empowerment, effective performance appraisal and fair reward systems.

2.7.1 Employee Autonomy

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job satisfaction and employee well-being and are more likely to achieve sustainable high performance (Pink, 2009; Hamel, 2007; Baard et al., 2004). In Baard et al’ (2004) research which targeted at 320 small businesses, findings showed that companies that offered autonomy grew at four times the rate of control-orientated companies. Employee autonomy also represents work flexibility and higher employee innovation. It is difficult to motivate employees under rigid company rules. On the contrary, with expanded discretion, employees are more likely to establish personal guanxi network and maximize individual work performance.

2.7.2 Effective Performance Appraisal System

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guanxi utilization. To sum up, an ideal performance appraisal system indeed function equitably and effectively, thereby motivating employees to spare no effort to increase organizational profits by means of their own guanxi network.

2.7.3 Fair Reward and Incentive System

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Chapter 3. Research Methodologies

3.1 Research Strategy and Design

In order to relate the assumptions to the empirical reality and figure out what exactly are the guanxi-motivating HRM practices, methodological triangulation was deployed in this research. Database research (documents), interview and questionnaire were used at different data-collecting stages, followed by a systematic and integrated data analysis process. According to Hussein (2009), the use of more than two methods in studying the same phenomenon under investigation can indeed improve both internal consistency and generalizability of the findings and increase credibility of these scientific knowledge, conquering challenges in relation to single-method, single-observer and single-theory biasness (Denzin, 1978). Out of completeness purposes, this research tries to combine multiple methods to have a more comprehensive picture of the less explored guanxi-HRM relations and generate rich amount of data that offer new direction for future quantitative investigations. More details on research sampling, data collection and data analysis will be presented in this section.

3.2 Sampling

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China (Lengnick-hall, Andrade and Drake, 2009). Thus, the ownership structure of the investigated bank in this study should be either private-owned or collectively owned. State-owned banks have been excluded in this research. Thirdly, the selected participants are those who hold a post for more than one year in the current bank, which ensures that they acquire the necessary knowledge and experience of the human resource management practices or policies in their workplace. For the sake of gaining in-depth insights from the perspective of employees, the participant pool is comprised of employees working in different departments, for instance, marketing, sales and other departments whose success is in need of good guanxi ties with customers, etc.

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3.3 Data Collection

At the initial stage, aiming to gain a broader understanding of the relevant topics, concepts and the relationship between them, it is necessary to conduct an electronic databases search, such as EBSCOhost, Business Source Premier and JSTOR, which gives access to most of the business management and HRM journals. By using the key words: ‘human resources management’, ‘guanxi ties’, ‘human resource practices’, ‘employee autonomy’, ‘performance appraisal system’ and ‘reward system’, an abundance of related articles and research were sorted out. Further, it was also exceedingly useful to consult the reference sections of all the collected articles and citations of several prominent guanxi articles, such as those from Luo (1997a, 1997b, 2001). In brief, before proceeding to the next stage of the empirical study, a clear and comprehensive theoretical knowledge base should be established, which is critical to the design and conduct of the upcoming interviews and questionnaires as well as the sequential transcript coding and data analysis process.

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into the relationship between HRM and guanxi in the words of interviewees.

In advance of the interviews, the consent form and information sheet (Appendix1) were sent to and signed by the participants so as to ensure trustworthiness and honesty within the research process. The interviews were conducted over the telephone or online call with the aid of Internet chat software like Skype or QQ, whatever applicable to interviewees. In practice, with the exception of one interview using Wechat at interviewee’s request (a kind of instant communication software which is widely used in China), all the rest were conducted via long distant telephone call. Compared to the formal face-to-face interview, these two methods inevitably had some drawbacks. Using Wechat by means of leaving voice messages would lengthen the interview duration time and interviewee’s attention would be easily distracted. With adequate time to deliberate on the questions, interviewee may give out answers being decorated but not the very first thoughts in their mind. In this respect, telephone call interviews are of advantages. Being less formal and without face-to-face pressure, using telephone call can make interviewees more comfortable and relax as if talking to a friend, thus making them feel free to talk and provide more information. However, it is not without limitations. Conducting interviews via long distant telephone call would easily create technical problems, such as clarity and recording issues. Besides, it makes a high demand on researcher’s interview techniques to get the most out of the limited interview time.

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minutes, were type-recorded and fully transcribed in English. According to Jones (2004), there are obvious limitations to semi-structured interviews, notably that they can pre-structure the direction of enquiry within the frame of reference of the interviewer, rather than that of the interviewee. Similarly, Yin (2013) also reminds researchers of avoiding ‘reflexivity’—interviewee gives what interviewer wants to hear. Bearing this in mind, the interviewer was required to avoid intentional manipulation and to ask open and flexible questions.

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advantages of guanxi. Attempts were made to establish a relationship between HRM practices and guanxi. What need to be emphasized is that, this question guideline served only as a simple reminder of the interview schedule but not a set and solid question list. Questions gravitated to the research topic and changed in line with the specific response of the interviewees.

In order to minimize researcher bias due to poorly articulated questions (Yin, 1994), a pilot interview was performed, and following this the interview question wording and sequencing would be adjusted, modified and refined. By inviting eight interviewees coming from four different commercial banks with different HRM systems, researcher tried to uncover the HRM-guanxi relation from different points of view and made a comparison between them. Any emerged discrepancies or non-existent discrepancies would immensely contribute to the final results. How do employees react to guanxi-encouraging HRM practices? Do these stimuli provoke employee guanxi utilization as anticipated? Or they rarely function or just the reverse of what policy makers expected? Needless to say, only employees could answer to these questions.

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employees’ demographic information. For example, gender, age, educational background, marital status, length of work in incumbent company, etc. They constituted a basic background of the respondents which was exceedingly useful in the data analysis section. Then, several questions would focus on uncovering respondents’ perceptions and ratings of human resource management practices in their companies. Among them, the role of employee autonomy, rewards and performance appraisal practices would be again highlighted. Attentions were paid to evaluate the effectiveness of these practices in encouraging guanxi utilization, followed by ‘why’ and ‘how’ questions aiming at further digging up the underlying reasons and their potential linkages. In the last part of the questionnaire, respondents were required to give answers to queries about their personal usage of guanxi for organizational benefit. How they are motivated and whether they owe it to HRM practices were the key concerns in this survey.

As a matter of fact, there are some limitations of deploying questionnaire as one of the research methods. In this study, the problem of researcher imposition may show up, which means that when developing the questionnaire, researchers are making their own decisions and assumptions as to what is and is not important. Therefore, they may miss something that is crucial to the investigated topic. This is particularly worrisome in terms of forming multiple choice questions. Besides, respondents may have different understandings upon each question and answer the questions based on their own interpretations. To make things worse, they may go too far away from what the researcher really want to know. Both of these potential risks can in turn justify the previous use of interviews, which also have its own strengths and weaknesses but complementary to questionnaires. By combining both methods of interviews and questionnaires, the internal consistency of the data can be largely increased as discussed.

3.4 Data Analysis

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process, in which there were three main procedures to follow: statistic analysis of demographic information in the first place; transcribing and coding of the interviews and questionnaire came second; and finally coming up with research findings. The data were analyzed using qualitative techniques outlined by Miles and Huberman (1994) and carefully meeting the quality criteria: credibility, transferability and validity.

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and Strauss (1967), data analysis was performed through iterative process of description, ordering and identifying recurrent and repetitive aspects, thereby determining the major themes in a process of categorization and comparison across the interview transcriptions. Adhering to the above data analysis procedures, the researcher would come up with the final research findings.

Table 1. Respondents’ Demographic Information Participant

number

Gender Age Position/Job title Educational background Marital status Working location/city Seniority /years

1 female 42 Vice governor

of sub-branch

bachelor married Foshan 16

2 male 25 Sales manager bachelor single Guangzhou 2

3 male 28 Marketing

manager

bachelor single Dongguan 5

4 male 27 Sales manager bachelor single Foshan 3

5 male 25 Administration

staff

bachelor single Guangzhou 2

6 female 27 Senior

accountant

bachelor married Foshan 4

7 male 24 Sales manager bachelor single Foshan 2

8 female 30 Marketing

manager

bachelor married Shenzhen 6

3.5 Ethical Considerations

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Chapter 4. Research Findings and Discussion

By deploying thematic analysis method, data were categorized into different meaningful groups, after which major themes emerged, such as respondents’ perception on and attitude towards guanxi, classification of guanxi, importance of guanxi in banking industry of China, the effectiveness of using guanxi, reasons for employing guanxi, HRM in the banking industry of China, guanxi-encouraging HRM practices, pros and cons of guanxi-encouraging HRM practices in Chinese workplace, etc. All of them contribute to answer our main research questions: (1) How employees perceive guanxi utilization in their workplace; (2) Whether HRM practices put effect on encouraging employees to use their personal guanxi ties. If yes, how employee guanxi utilization is encouraged by these HRM practices. If no, what can be done; (3) What implications can be drawn from it. Embracing these themes and questions, discussion on the main research findings are as follows.

4.1 The Importance of Guanxi in Banking Industry of China

At the initial analysis of data, a chorus of approval on the importance of guanxi in Chinese business environment has emerged. Not even one informant has lost sight of the fact that guanxi is a pervasive feature of social life and business system that profoundly affects everyone in China. Nothing can be done in the absence of guanxi. The situation was portrayed by one respondent as below, which also represented the general tone:

‘Guanxi is everywhere, in daily life and in every sector. Just as the air, you cannot see it, but it is everywhere. Actually, in China, the use of guanxi is very common. For example, in our bank, what you can get depends on who you know and how many connections you had established. Otherwise, you cannot compete with others.’

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incorporation, deploying personal guanxi has always been taken as one of the core business practices. When employees in banks are given a task or are striving for meeting working quota, they will, at first thought, look closely to their personal guanxi ties and figure out who they can return to for help. Taking one of the core business tasks, expanding customer base, as an example, a vice governor of a bank sub-branch remarked conclusively:

‘As a rule, we have several methods to reach new customers. Firstly, guanxi marketing, that’s what we usually refer to as asking relatives and friends for help; the second method is outdoor advertising campaign, through which we can build up our presence in the area and attract new customers; thirdly, introduction by current customers; another way is to perform promotion activity in cooperation with different chamber of commerce, security company, intermediary company or within large wholesale markets, etc. So, we can acquire new customers through various channels. But the guanxi marketing comes at the first place, you know, banking is all about connections and resources.’

The most important requisites of guanxi, namely the usefulness and effectiveness, are identified by all the respondents in chorus. Compared with other methods, taking advantage of guanxi in doing business is suggested to have a higher success rate. This is why they prefer to use guanxi rather than other performance-improving measures. Another respondent gave us a concrete example:

‘Normally we have two ways to attain new customers. One is introduction from friends, the other is to search by our own, and that’s what we call ‘visit strangers’. For instance, you can log in the governmental website and sort out enterprises’ contact information, for example, in Foshan, the enterprises that earn annual return over ten million or five million. In most cases, the possibility of success by visiting strangers is certainly much lower than that by shuren (acquaintance)’s introduction.’

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network per se is a strong competitive advantage. It is a kind of social resources that cannot be duplicated and a key to override business rivalries. As a sales manager illustrated:

‘Assumed that I am from bank A and now competing with bank B for gaining the new customer company A. But I have a shuren (acquaintance) who are in good relationship with the principal in company A. By the introduction of my shuren, therefore, I have certainly established a kind of advantage over others. Even though bank B and I have provided the same offer to company A, because of my shuren, the principal will give ‘face’ to him and choose to start business with me, but not bank B.’

However, deploying guanxi does not necessarily guarantee business success. While nearly everyone signaled the usefulness and effectiveness of using guanxi, they also pointed out the fact that guanxi utilization sometimes failed to realize desirable outcomes. Informants rationally treated guanxi as an effective lubricant to make the business wheel turn more easily and smoothly, but not insure reaching the final destination. Relevant remarks were given by a respondent as followed:

‘Not really, it is not always the case. Because we have many rules and restriction on doing business. For instance, my friend introduces a potential customer to me, but this does not represent the start of cooperation. Before that, we will have a thorough evaluation, such as enterprise operation condition, sales volume, production condition, management condition, warehouse management, etc. Only pass the evaluation set by our system can a new customer establish business relation with us. So, guanxi does not always lead to expected results or even produce bad effects.’

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guanxi ties, such as classmates, colleagues or governmental ties, are instrumental that taking effect only under the circumstance that two parties of the guanxi have developed such a deep affection as those for friends and relatives, otherwise simply at the sake of reciprocal benefits. In fact, employees confronting with piles of work will scan through not only their own guanxi ties but also those of their parents and close friends, who they praised for being the most important and rewarding guanxi ties (7 out of 8).

‘Among different ties of guanxi, I think, relatives and friends are the most reliable. The government’s help may be also OK when we are in joint work. However, things will change after things are done. Only relatives and friends are always standing for you by all means…’

While the kinship and friendship ties have been rated as the top priority among various guanxi classification, the significance of customer ties are also signaled. Telling from the interviewees (8 out of 8), all of the banks acknowledged the important role played by the current customers. It is argued that one satisfied customer can bring about three or four new customers. As a result, these commercial banks invest a great deal of time and resources into customer relationship management. By maintaining good relations, employees are in pursuit of long term fellowship with their customers, thereby establishing a guanxi tie as close and trustworthy as those with relatives and friends. They can get benefits from a friend-like customer, especially customers with good networks or connections. One sales manager described it in the following way:

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Drawing a brief conclusion from the above, Guanxi utilization is exceedingly pivotal to business success in China. It is a widely accepted phenomenon in the banking industry. All the respondents are aware of the importance and necessity of using guanxi. Far from resenting or avoiding, they make effort to avail themselves of it.

4.2 The Reasons for Using Guanxi

Another question posed to respondents probed the reasons why they deploy guanxi in such an extensive and natural way. Not surprisingly, the influence of Chinese culture was mentioned from time to time. Guanxi is seemed as an invisible existence that blended into Chinese cultural blood, which sculpts the habits of people and the way they generally behave. Thus, people in this particular culture take guanxi for granted and then learn to take advantage of it, drawing from interviewees’ own words:

‘If I want to buy financial products or just make some deposits, I have to choose a bank. Since it is so, why don’t I choose a bank that I own shuren (acquaintances)? That’s the same case when I want to buy insurance for my car. I have to insure my car against accidents. If a bank offers this motor vehicle insurance business, I will definitely buy it from a shuren. That’s how Chinese people do, of course. We have an old saying that ‘It is better to do business with shuren rather than shengren (strangers)’...’

Apart from the impact of traditional culture, another reason at the national level could be found in several examples of the respondents drawing parallels between China and western countries, where formal legal frameworks have been fully established. Their remarks echoed Nolan (2011)’s study, which found that managers in banks viewed guanxi as ‘culturally’ Chinese, meanwhile, they did notice it as ‘institutionally’ Chinese to the extent that the rational-legal system has still not evolved sufficiently, in the financial sector at least. As explained by one sales manager:

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have (guanxi). There is no way of avoiding using guanxi, you know, we are quite different from the west. They (institutions) are very open and transparent, not us.’

Indeed, it is generally agreed that guanxi is extremely prominent and indispensable to business success in China since there is an urgent need for information in an environment that continued to lack transparency and legal protection. Standing on the other ground, the assumption that China’s accelerated economic system transformation and greater incorporation into the international economy will inevitably lead to a reduction in the influence of guanxi has yet to provide solid evidence. From this part, the widespread employment of guanxi can be seemed as irrevocable in the foreseeable future.

As a matter of fact, not all respondents owe it to the influential factors at the national level, such as culture and institution, to breed guanxi utilization in Chinese workplace. However, a great majority of respondents (8 in 8) blamed it on the excess of stress at work. In China, the press of modern life has cracked people up, especially the pressure exerted from work. Those who are working in the banking industry, a highly competitive field, suffer a lot from the emotional strain due to heavy workload or overambitious targets. As a result, employees are pushed to make every effort to enhance individual performance so as to survive and stand out against the fierce competition, wherein guanxi serves as one of the most effective shortcut to win. When being asked the main motive for using personal guanxi ties at work, one employee noted emotionally:

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As seen, the working pressure comes from not only the compulsory and tangible working targets, but also the intense and intangible industry competition. It is this pressure that compels or motivates employees’ devotion into work. The question that to what extent this kind of devotion will result in guanxi utilization was best answered by one interviewee:

‘…When will they use guanxi ties? Err, this depends on their position and the nature of their jobs. People who are in marketing or sales department are different from people who are sitting at the bank counters doing everything step by step according to the strict rules. For the former, they are responsible for sales and marketing the financial products. To do so, they have to own a certain network of resources. But how can they find out the resources? Then they have to rely on their relatives and friends…’

Obviously, not every employee is in need of deploying personal guanxi ties to improve individual performance, especially those in charge of internal management or cooperation issues. Put it in other words, guanxi utilization is pertinent to working position. Employees in market-oriented departments show a much higher tendency to take guanxi as a performance-improving tactic. They are more likely to increase the frequency of using guanxi under external pressures or guanxi-associated policies, which will be discussed later.

4.3 Employees’ Perception on HRM System and Guanxi Utilization

In reply to the question upon what role does human resource management system play in their banks, most of the interviewees sank in thoughts and felt difficult to describe by words at short notice. They uttered phrases such like personnel management, inner communications or internal issues, etc. Beyond words, many of them preferred using metaphors. The most typical one is shown as below:

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communicating with everyone. And it is also in charge of performance appraisal and employees’ salary. So, it is very important, I think.’

Though incapable of explaining clearly, all the respondents expressed agreement on the important presence of human resource management system within an organization. A contextualized and effective HRM system is the prime motive for employee initiative and creativity. On the contrary, ineffective HRM system and inappropriate HRM practices will gradually result in lower employee morale, and lower efficiency, ruining the organizational performance as a whole. Besides, it is also the main mechanism that orientates employee attitude and employee behavior towards organizational goals.

4.3.1 Guanxi-encouraging HRM Practices

In a way different from what was expected, though being a vital and pervasive business practice in China, employee guanxi utilization is excluded from HRM system in nearly all the investigated banks in the current research. Every respondent said no in response to the queries regarding guanxi-encouraging HRM practices:

‘No, I don’t think so.’

‘Guanxi-encouraging practices? I never heard that.’

‘Err, we don’t have policy specific for encouraging guanxi, no.’

There was one and only one exceptional case. Two respondents working in the same shareholding commercial bank have reported the sole HRM policy that inspires employees to use guanxi with further efforts.

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proportionate to the amount of load…we called it ‘cross department introduction fee’.’

Both of them spoke highly of this guanxi-encouraging HRM policy in motivating employees’ initiatives and bringing out considerable economic benefits.

‘…Yes, the effect is great. Since the policy was advocated, the sales of this one quarter is already one half of the annual sales of the previous year. Many new customer were introduced by our colleagues in different departments. So, I think this policy is taking good effect…’

Since all respondents acknowledged the crucial role of guanxi and praised for its usefulness and effectiveness, they were then questioned on the reasons for not taking guanxi into HRM system. Subsequently, two main points of view appeared. One third of respondents believed that it is employees’ obligation to finish job with quantity as well as quality. And guanxi serves as one of tools to help them achieve higher individual performance. In brief, it is part of employees’ responsibility to use personal guanxi ties at work. Thus, banks are not necessary to encourage guanxi utilization at the height of setting policies. Here is what they thought:

‘I think this is our duty, isn’t it? To find the customers and market our products. We have to use.’

‘Commercial bank needs business and profits. What they expect from us is to gain business with the least resources within the shortest time. Our bank does not care what methods or what channels you use to win, as long as it is legal. So, there is no special policy encouraging guanxi.’

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and foremost, guanxi utilization will handicap an organization in correctly evaluating or judging talents. As one respondent pointed out:

‘There are many circumstances that one employee satisfied the working index by means of using guanxi. This is because of his father or other relatives’ help. However, his ability or the capability may be of very low level. This is not good for a bank to know.’

Not only for the bank, guanxi utilization also poses threat to employees’ personal improvement in the long run:

‘The negative effect of guanxi is to prevent employees from learning through practical work. They will develop a kind of inertia. Then they will be eliminated. Let’s say in this way, one person can temporarily enhance personal performance by taking advantages of guanxi. But it does not last long. If your overall ability and skills are without improvement, you cannot make advancement in the long term.’

What should be emphasized here was that, respondents noticed the brevity nature of the effectiveness of guanxi. Guanxi utilization is deemed as a shortcut but not a long-term business strategy, thereby not being encouraged publicly in the bank. In addition, another negative image of guanxi comes as a synonym of ‘backdoor practices’ in regard to the internal management. Within an organization, ‘back door’ guanxi utilization usually involves two parties breaking the rules, such as money exchange, senior-subordinate bribery or regulation violations, etc. These negative usages of guanxi are mainly occurred in the HRM process of selection, rewards, performance appraisal and promotion. See what they complained about in this respect:

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because of guanxi…’

‘There are positions (high pay but small workload) in our bank that normal people like us cannot access. Only those who have guanxi with senior leaders or senior managerial staff, maybe their families can get that job. We are not very clear what is going on there, but it is an unchangeable fact. What we can do is to accept it. (Why?) It is not fresh news in China, I am sure you know it.’

4.3.2 Guanxi-discouraging HRM Practices

In resistance of the potential ‘dark sides’ of guanxi, there is no existence of guanxi-encouraging HRM practices. Beyond expectation, a few respondents reported the guanxi-discouraging HRM practices in their banks. These policies state clearly what kinds of guanxi utilization are forbidden. For the rest, it is employees’ own decisions on whether to use it or not, without policy impediment or encouragement. Two guanxi-discouraging practices were introduced as followed:

‘We have a relative evasion policy. That is, people with lineal kinship, or are collateral relatives, within three generations, are not allowed to work in the same department. Once have been found it, or reported to the heart quarter of bank, people will be moved to other departments or something like that. You know, banking industry is a very sensitive sector. Every step involves money transfer. They have to avoid the possibility and ban the evil thoughts at the very beginning.’

‘There is a censorship regulation in our bank. Employees periodically undergo examination about personal guanxi. They are required to update their relatives’ information regularly. This information will be reported to the heart quarter, but I don’t know how exactly they cope with it.’

However, respondents expressed doubts on these policies in prevention of bad guanxi utilization:

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much preference for nepotism...’

4.3.3 Rewards System

Since little guanxi-specific HRM practices were found, respondents’ attentions were then diverted to HRM practices that may encourage guanxi utilization indirectly. Data have shown that the rewards system was on the top of the list in stimulating employees to deploy their personal guanxi ties. All the informants emphasized the importance of rewards in motivating employees’ commitment, devotion and enthusiasm into work. As one employee remarked:

‘…I think that would be rewards, fair rewards system. Normally, people prefer what can be seen and what is real. Bonus and salary are what you can see. When you check the account, you can see the salary directly. Then employees are more likely to work harder, of course.’

A majority of respondents showed supports to the fact that rewards are the driving force for better performance in work. Once being motivated, they will take the initiatives in paving the way for individual improvement, needless of extra stimuli. In most cases, using guanxi is one of the avenues that they choose to realize the goals. However, the existing reward systems in the investigated banks failed to function as a motivating mechanism. Three quarters of respondents were not satisfied with the rewards system in their banks. What was most interesting, they offered the same reasons:

‘There are no strict rules for reward and punishment. I had work in other banks before, I think they did a better job in this aspect. It should be that the more you work, the more you get. The system is ought to distance the hard-working employees from the lazy employees. But the reward system here is not good enough in terms of distinguishing the better from the worse. This is not good for personnel management. ’

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effort did not receive reasonable rewards. They felt really sad and unsatisfied. Their energies and initiatives in work were disappearing. How can the people who are only sitting in the office and dealing with simple administration stuff and off duty at 5 pm get the same rewards as people who are busy visiting customers and working till midnight? The morale of these two colleagues was destroyed. They had no mood to go to work…’

As can be seen, the perceived fairness of employees reflects and determines the effectiveness of the rewards system to a large extent. From employees’ perspective, an ideal rewards system is expected to award good performers and urge on the rest. The bonus or incentives should be directly proportional to individual performance.

4.3.4 Performance Appraisal System

Performance appraisal system (PA) is the most frequently mentioned HRM system in all interviews. It is closely bound up with employees’ overall performance covering every aspect of their jobs. Their working ability and skills are mirrored in salary via a set of systematic investigating and evaluating procedures or rules. Every interviewee was invited to introduce the performance appraisal system in their bank. There was a general resemblance with only minor differences among these PA systems. First of all, the senior draws up a comprehensive scheme, then splits it up and distributes the working targets or working index for each employee, who will work day and night to meet these requirements and finally be evaluated in both quantitative and qualitative way. In general, respondents commented on the PA system in their banks as reasonable, exemplified by one employee:

‘As a whole, I think is it fair and reasonable. The appraisal standards or index are set based on different positions, it is quite acceptable. It is also of comprehensive consideration, not of singleness. It can represent your working outcomes.’

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‘The system is needed to be refined. The principle should be ‘to each according to work’. What you do deserve how much you get. This requires a clear calculation method. However, the salary or appraisal system is very complicated. We don’t know how to figure it out, even the staff who has been working here for one or two decades long… It confused us, and only a few people know.’

When a performance appraisal system adheres to the principle of pay-for-performance, it is generally perceived to be fair and treat everyone equally, which may give a primary impetus to employees to alter their attitudes and behaviors in a manner that is required for higher organizational performance. Based on the findings in this research, however, fairness alone is not adequate for a PA system with high efficiency. From the perspective of employees, an effective performance appraisal system is characterized by fairness as well as transparency. They were keen to know what they can get from their work and how their income was calculated. They showed strong desires to involve in the evaluation process. Furthermore, the evaluation results and the income constitution are expected to function as the guidance for employees’ personal improvement.

‘Some aspects of the PA system are not good enough. Things can be done more. You paid the employees monthly, but you did not tell them what they performed well, what they did wrongly, what should be keep on, what should be improved. With poor feedback effect, employees are easy to have doubts. And they don’t know how to improve.’

4.3.5 Employee Autonomy

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‘… (employee autonomy) More than enough, I would say, for the sales managers in our department. They definitely enjoy large space to work… But as to those working behind, for example bank counters or office ladies, they have to work under much more constraints. As for sales or marketing staff, yes, they own considerable autonomy.’

Also with common consent, the more autonomy one employee enjoys, the more initiatives he/she takes.

‘Of course, it means we have more time. Without strict restrictions and regulations, we are allowed to use the time in extending personal network, cooperating with more people and gain business opportunities.’

Nevertheless, about two third of the respondents reckoned that there was no direct linkage between employee autonomy and employee guanxi utilization. The former was deemed to free employee from restriction and motivate their creativity and innovation in problem solving process, but not necessarily result in deploying guanxi.

‘Not that relevant. Every business in bank has to be done step by step in procedures. But it would be a big difference in other industry, such as designing, advertising. They need thoughts. They can do what they want. But not in banks, we have to do within frameworks, even though we have enough freedom. What’s more, guanxi is kind of sensitive in this industry…So, larger freedom is not that matter in this term…’

4.4 Other Findings on Guanxi-related HRM Practices

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‘Fair rewards and open evaluation and… to create more opportunities to employees to show talents, and make them feel the sense of belongings. Every aspect of the enterprise management and enterprise culture is crucial. Of course, giving them considerable incomes is very important and making them feel proud of working here in front of other professions.’

‘…We had tried to report this situation and our suggestions to higher level, many times, but… I don’t know what the senior are considering. We kept on reporting, but nothing changes. There are no relevant reactions or measures. We don't know…’

‘Err, the most important and straightforward motivation is wages. This is really realistic. Another one is to give them fame, higher position. Relevant staff welfare is also encouraging practices, such like housing fund. Besides, they have to give support not only materially but also spiritually. Mental care, you know…’

When the respondents were asked to give an overall comment on the effectiveness of HRM system as a whole, all of them expressed the need of continuous advancement. From their points of view, future efforts have to be made mainly in two sections: salary improvement and performance appraisal system. Attentions were then drawn to explore the potential causes of these unsatisfying or even malfunctioning HRM systems. Two specific reasons at the organizational level were identified and worthy of further thoughts. The first one is about the ownership structure of the bank. Nearly one third of respondents had indicated directly or indirectly that banks with sharing-holding systems were normally equipped with better and more effective HRM system than those are state-owned or collective-owned.

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‘Though it is a share-holding bank, I think, the appraisal system here is not transparent and clear enough, more like a state-owned company. Because I had previously worked in banks with share-holding systems like Pingan and Everbright, I think, they are better.’

The second reason for banks carrying out underperformed HRM systems lies on the strategic change at the organizational level. They can be joint ventures, merger, takeover, enterprise restructure or transition, all of which may cause confusion of business management. A huge corporate transformation is bound to have profound influences on the internal management operation, just as HRM system. As two employees showed concern respectively:

‘Our bank just finished a merger project. Many management or system problems emerged. The calculation of rewards or the evaluation of employee performance may not be very clear. But it is possible to do better gradually. At this moment, things need to be adjusted and amended. But, so far so good, I think…’

‘Err, in general, it is not in an ideal condition. Perhaps, this is because… our bank used to call Rural Credit Association. It was transformed into a commercial bank on December, 2012. There were many systems that still very informal or lack of standardization. It will need two or three years to make it better. Therefore, it is kind of historical problem. It is not easy to refine within two or three years…’

Facing with the questions on whether to encourage the guanxi utilization by setting up specific HRM practices, most of the respondents gave ambiguous replies at first. It was obvious that they were trapped in the battle between the benefits of guanxi and the dark sides of guanxi. Eventually, nearly one third of them voted against the guanxi-encouraging HRM practices because of worries about the negative effect of guanxi utilization. One of the opponents said in this way:

The Effect of HRM Practices on Employees’ Guanxi Utilization: An Exploratory Study in the Banking Industry in China