Guanxi and International Buisiness Management

(1)

Wang Dong 1810049

Master Thesis International Business & Management

Guanxi and International Buisiness

Management

Superviser: Mr. Dirk-Jan F. Kamann Co-assessor: Mr. Ad. Visscher

(2)

I. Introduction and Backdrop

A firm’s internationalization is customarily described as a process of sequential stages of beyond-boundary expansion by the firm (Cavusgil, 1980; Johanson& Vahlne, 1977; Turnbull, 1981; Wind, Douglas,& Perlmutter, 1973). This process realizes in a gradual and successive manner, and it incorporates learning from domestic market growth, which, in return, provides useful experience in future for export activities (Cavusgil, 1982). Nearly all categories of firms share the desire of expanding their markets into the other countries or at least another country. Scale of economies, oversea opportunities of business, and competitive advantage of home country etc. factors are the major motivators that are accelerating this expansion.

In light of the remarkable economic booming that has taken place in East and Southeast Asia in the past several decades, there appears a consensus among governments and business giants that plentiful business opportunities will be poured in this region(Yeung and Tung, 1996). Economists predict that China will become one of the four worlds largest economies by the year 2010. If China’s economy were able to be combined with that of Hong Kong and Taiwan, say a greater China in a nutshell, the economic

achievement would be even more stunning.

Ever since the senior managers of many North American, European, and Asian

(4)

presenting there for the long haul. Some of the firms have somewhat figured out how to make profits and retain them over time, and are even beginning to lock out slower-responding competitors. In particular, they are knowledgeable of the best way to manage local partners, to maintain their business structures as simple as possible, and to construct the organizational pillars especially for a China-wide salience.

On the other hand, Chinese privately owned, small and medium-sized enterprises (SMEs) are increasingly internationalizing as well(Yu and Amine, 2009). The emphasis is placed on SMEs because it is such a surprising truth that when one sights the significant

contributions made by SMEs to national economic growth in China in recent years. For example, 2.2 million totally private enterprises were calculated in China in 2002, taking up US $200 billion in investment and employing 29.3 million people (People’s Daily, 2002). By 2004, the nonpublic sector contributed to 53 percent of total employment, which is up from only 17 percent in 1995 (Demurger, Fournier, Shi, &Zhong, 2007). In 2005, approximately 50 percent of China’s GDP was from the commitment in the private sector (National Bureau of Statistics of China, 2006), and this has been forecasted by the Chinese Academy of Social Sciences to accrue to more than 75 percent in the next five years (People’s Daily, 2006). Similarly, RTT news (2006)has predicted that 70 percent of all the Chinese enterprises will ultimately converge to the nonpublic sector, contributing 80 percent new non-agricultural jobs. By 2007, registered asset in the Chinese private sector was worth of 10.1 trillion yuan (around U.S. $1.42 trillion), boosting at an average annual rate of 22.7 percent (Xinhua News Agency, 2008). Statistics such as above listed demonstrate that Chinese SMEs are playing a critical role in the national economy, and a large number of them aim to become a powerful force in the global marketplace through internationalization(I. H. Chow, 2000; Humphreys, 2007).

(5)

economic growth. As one popular saying in these societies puts, “Who you know is more important than what you know.” “Who you known” refers to personal connections with the appropriate authorities or individuals. These connections are translated into Chinese as guanxi. “What you know” points at technological know-how, including the price and quality system of a specific product or service. Guanxi literally means "relationship" or "network." It implies that without guanxi, a foreign firm will be left in a dim future in China and many guidebooks to China business too mention this (Tsang, 1998). Another saying said that "the Chinese manager must steer through a sea of guanxi." In addition, guanxi is portrayed by some management consultants as "the informal connections so essential to gaining approval for or access to just about everything in China."

To provide a brief idea of how this paper is organized, the researching blueprint is as follows. The thesis body consists of two parts, the first part focuses on “Guanxi basics” which sheds significant light on a comparison of Chinese and Western perspectives of guanxi; the second part puts guanxi into a certain context that is small and medium-sized enterprises from both China and Western world and looks into what a crucial role guanxi plays in their achieving business success. Following the main body of the thesis is a concluding remark with a table comparing different interpretations of guanxi from Chinese and western viewpoint and an addition to the table, a comparison of guanxi’s influences on SME business practice will be exhibited as well. And next to conclusion section, in the suggestion session, a number of constructive suggestions on SME business conducting considering the effect of guanxi will be given mainly based on the findings of conclusion section.

II. Research question construction and Methodology

2.1 Research Question

(6)

applicable for Japanese, Koreans and South-Eastern Asians as long as Confucianism exerts influence on their culture and society. And this region, namely East and South-East Asia, are deemed as one of the most booming economies all over the world. Western SMEs will definitely treat this area as key markets when they are making strategic business decisions.

Despite widespread belief among Asians and non-Asians alike that guanxi is important to economic achievement, its relationship with business performance has not been analyzed adequately. In general speaking, there is a dearth of research on the subject. This is attributed to two primary reasons: One is because westerners often regard Chinese guanxi as a sordid form of favoritism and nepotism; it might be viewed as an inferior social phenomena which is not worthy of investigation. Another one is due to Chinese consider guanxi as a private personal wealth, they are not usually supposed to talk in public about their small world (Yeung and Tung, 1996).

Further more, observed by Yeung and Tung(1996), Small- and medium-sized firms tend to place greater emphasis on guanxi than large firms. This is because large firms are able to contribute substantially to the local economy, the Chinese authorities always crave for attracting their investments in the first place. For instance, one company invested more than $50 million in two communities in Guandong province and was thus paid tribute to as a “savior” by the local government. A similar case, that, the local government highly praised the investment from another company, which employed 7,000 local people in their manufacturing plants and constructed railways and bridges to ameliorate the local infrastructure.

Whereas in contrast, SMEs are usually lack of this indigenous attraction to local economies, as a result, they have to resort heavily to their colleagues, friends, and business contacts for advice about how to deal with the risk of internationalization, how to access to necessary information, and how to plan effectively for expansion in the future (Xie; Amine, 2009) rather than favored by authorities.

As previously analyzed, the Chinese SMEs are playing an increasingly important role in enhancing the whole country’s economical development. However, few scholarly researches have been conducted on how Chinese SMEs undertake their

(7)

socio-cultural and business environment will directly affect the behavior, performance, and even success of local entrepreneurs (Kim, Hurh, & Fernandez, 1989). This is particularly evidenced in China, where social networking building through guanxi has been realized as determinant of accomplishment not only in business transactions, but also in

industrialization and modernization practices (Hutchings & Weir, 2006).

Combining these two shortage of researching on guanxi’s impact on their business swelling for both Western small-medium sized MNCs(SMMNC) who are to initiate business in China (or Confucianism scattered marketplaces) and Chinese SMEs who are eager to rush out of their home country, this study aims to compare the similarities and discrepancies of guanxi’s influence on western SMMNCs and Chinese SMEs in their process of internationalization.

So, the research question is,

To what extent does guanxi affect western SMMNCs and Chinese SMEs in the similar or distinct ways when they are separately in & out China to seek business opportunities? This expatiatory research question will be decomposed by two hypotheses for the purpose of easing the research and applying an explicit structure.

Although many of the Western literatures critisize guanxi greater for its favoritism and nepotism than appreciate it for its significant influence on business success, recent researchers are inclined to consider guanxi as a similarity to Western networks. So, Hypothesis 1: Chinese guanxi is expected to be an equivalent of network or relationship marketing in the West.

After analying and comparing Chinese and Western guanxi, an application section will be followed. And the section focuses on how Chinese and US. SMEs make use of guanxi to manage their business in each other’s markets because these two economies are supposed to be parallels in terms of economic volume. In this section, export volume, as an

important index of internationlization, will be applied to compare between Chinese and US. SMMNCs. As an initiator of guanxi, Chinese firms would more like to employ guanxi and be more sophisticated in using guanxi to achieve their business success than their Western oppoent. Here thus, comes the second hypothesis.

(8)

2.2 Research Methodology

The primary method of data collecting is by intense literature reviewing. This is because numerical type data is expected to be difficult to reach considering the tacit trait of guanxi activity. And there is supposed to be no quantitative data used to record and measure how guanxi is processed in business transactions.

The literatures are generally from two sources. One is previous researches focusing on the relationship of Chinese guanxi and Chinese entrepreneurs whey they are

internationalizing. The other source is from earlier researching works which analyze how the Western entrepreneurs integrate guanxi into their management strategies in doing business in China.

III. Literature Review

The principal purpose of this study is to analyze how guanxi wields its influence on business success from the perspective of both oriental and western SMMNCs. Thus, it is certainly the first move to collect adequate knowledge about what guanxi is. Due to its oriental traits, as well considering the audiences are partly from Western countries, the fundamental information of guanxi is supposed to be provided in a substantial fasion. In the second part of the review, a particular emphasis is placed on both Chinese and US. SMMNCs when they have exports to each other as marketplace and how will they utilize guanxi as an instrument to achieve the business success.

3.1 Guanxi Basics

3.1.1 Guanxi’s conceptions

(9)

into networks(xi). According to this explanation , guanxi generally talks about social connections or relationships derived from benefits of mutual interests(Yang, 1994). And it is a unique type of relation that bonds the exchange parties through reciprocal

commitments to get access to scarce resources by a bunch of continual exchange of favors and cooperation (Chen, 1995; Davies, 1995). According to the Modern Chinese Dictionary (1977), guanxi is defined as: (1) connections of certain instincts between people and people or between organizations and people; (2) a state of mutual functions and mutual influences among things; and (3) links or involvement. Therefore, generally translated, guanxi refers to personal and interpersonal relationships or connections among people and allocates high values on network, commitment, reciprocity, favor, trust and long-term benefits (Luo, 1997; Shi, 1997; Yeung & Tung, 1996; Hwang, 1987). In Chinese, guanxi is a general term for social network and is frequently translated as “relationship” or “connection”( Yeung and Tung, 1996). In another words, guanxi works for the establishment of a linkage between two independent parties to trigger a bilateral flow of personal or social resources. However, both parties must generate benefits from the transaction to make sure the persistence of such a network. It has been dubbed by Louis Kraar the “ Chinese art of reciprocal back-scratching”. Likewise, suggested by Shaw and Meier (1994) guanxi is described by some management consultants as "the informal connections to gaining approval for or access to just about everything in China." Lucian Pye (1992) defines guanxi as "friendship with implications of continued exchange of favors." So, guanxi is something more than a pure interpersonal relationship; it is a reciprocal obligation to respond to requests for paying-back. Tsang (1998) indicates that although Guanxi is usually considered at the individual level, it also functions at the organizational level. Guanxi is not a unique feature of Chinese society; it exists to some extent in every human society. What is special about Chinese society is the fact that guanxi is ubiquitous and plays an essentiall role in daily life. This phenomenon is even figuratively described by Fox Butterfield (1982) in his book, “Guanxi provides the

(10)

turned the art of personal relations into a carefully calculated science. There are even people who live entirely on their guanxi.”

Further more, to understand guanxi from an underlying perspective, it is of prerequisite importance to understand the distinctive meaning of renqing∗ that is solely existed in Chinese culture. The term renqing refers to the volume of favors to be exchanged in accordance with certain behavioral rules and social norms. Renqing represents bargaining chips in exchanges of favors and is way more sophisticated and way more firmly

wrapped up with intentions of reciprocity than that is in most of other cultures (Hwang, 1987; Yang, 1994). It can be appropriately interpreted in terms of two underlying mechanisms that are reciprocity and empathy, depending on the player’s role as a receiver or a sender in the guanxi context.

The mechanism of “reciprocity” revolves around a recipient’s behavior restricted by social norm as “if you receive a drop of beneficence from other people, you should return to them a fountain of beneficence” (Hwang, 1987). People who are involved in a

common guanxi in business are related to each other through the social engagement of reciprocity, in which, once an exchanging participant receives a favor, she or he promptly owes renqing to the sender and must be ready to pay back as long as circumstances permit (Hwang, 1987). Chinese people usually place a noticeably high emphasis on the mechanism of reciprocation to manage a healthy relationship. However, there is a distinction between Western and Chinese perceptions as to both reciprocity and timing about when a renqing needs to be repaid. Western cultures emphasize short-term, symmetrical payback in a evenly exchanged relationship, whereas Chinese culture advocates that renqing should be collected back in the long run so that the relationship will last until the contingent future (Yum, 1988). Chinese believe that renqing need not to be returned at once, because it can be retained and repaid at the proper time when the other party claims it. As a matter of fact, renqing can never be objectively calculated (Hwang, 1987). Although a cash debt can be easily repaid, it is virtually impossible to reimburse the debts of renqing. Thus a long-term guanxi is expected to exist forever

∗

(11)

based on such a process, if only the involved parties act in congruence with the reciprocal mechanism. The guanxi relationship on the other hand, would be in danger if this law is violated.

Another mechanism of “empathy” consentrates on the benefactor’s behavior which is directed by Confucianism principle of charity, expressed by “do not do unto others that which you would not wish done unto you” and by its opposite “do unto others as you wish done unto yourself”(Hwang, 1987). Empathy is the competence to observe a situation from other persons’ perspectives. The greater ability of empathy leads to the fewer barriers to the completion of guanxi relationship (Conway & Swift, 2000). As Hwang (1987) posited, a person who is more versed in renqing is better equipped with empathy. In particular, if a person has positive empathy towards others’ feelings and emotions and is prepared to support others who are in need, this person is regarded as possessing renqing. In a high-context culture such as China, what is not orally said is normally more significant than what is said. Chinese people are not likely to deliver their opinions and preferences openly, so as to avert offending or afraid of being denied by others. Therefore, it is critical for a business person to know the exchanging party’s feelings and to foresee their needs without being told or asked (Yau et al., 2000). This is viewed as an “anticipatory communication” in the “receiver-centered” culture,

contrasting to the “sender-centered” communication style in Western culture (Yum, 1988). In a common guanxi relationship, when a business partner unfortunately runs into troubles, another party is supposed to show sympathy and offer help. Afterwards, the benefactor would expect a payback of renqing from the above recipient once he or she needs help.

3.1.2 Confucian guanxi in comparison with Western social norms

(12)

motives for involving in social relations, essence of power, pattern of differentiation, time span and sanction practice.

Reciprocation: Self-Loss vs. Self-Gain

Confucianism educates each individual to be a ren-yi (righteous person). In order to become a ren-yi, an individual must repay favors and add up to the value of the favor received. This is the theoretical root of reciprocation feature of guanxi. A famous Chinese saying demonstrates, “If someone pays you an honor of a linear foot, you should reciprocate by honoring the giver with ten linear foot,” manifests the essence of this principle. According to Peter M. Blau’s social exchange theory, there is also reciprocity in Western social transactions, but the volume of value is unequal and the incline of disadvantage is leading to the other party, not the self.

Motives: Role obligations vs. Self-interest

One of the underlying tenets in Confucianism emphasizes an individual’s position in the hierarchical social networks: individuals are components of a system of interdependent relationships, not isolated parties. The system is constituted by five types of relationships: ruler and subject, father and son, husband and wife, brother and brother, and friend and friend. An individual’s fulfillment of the commitment of a given role contributes to the effective functioning of society. As a result, a person cannot live a valuable life in Confucian societies untill he functions well as a component of a certain type of relationships(guanxi). In the western world, however, the primary motivator of human behavior is self-interest. This discrepancy across the two cultures has led to the development of very different attitudes towards reciprocation.

Essence of Power: Personal Power vs. Institutional Power

(13)

Chinese use guanxi to make up for the lack of the rule of law and transparency in rules and regulations.” For instance, the Chinese authorities ever compelled McDonald to relocate in the city of Beijing so as to ease the real estate expansion capitalized by Hong Kong billionaire Li Ka Shing. He is said to be firmly connected to high-level officials in China. On the contrary, Western societies count primarily on institutional laws to guarantee smooth and orderly principles.

Power Differentiation: Xia Yi vs. Power

Another fundamental tenet of Confucianism is termed as xia-yi, a term that conveys the same connotations of “knight” in the Western society. In the process of becoming a “righteous individual,” each person must behave like a knight, and seek to correct the mistakes of the world. As a consequence, those occupying in positions of power and authority must take good care of the disadvantaged. In return, they obtain face and a good reputation which may afterwards become the rent-seeking instruments to ask for more power or guanxi. This viewpoint on the suitable relationship between strong and weak illustrates in a certain way that why the Chinese feel that investors from developed countries are responsible for assisting under-developed nations. Although social conscience might be prevailing in the West, the powerful countries are not obliged to support those who are temporarily disadvantaged.

Time span: Long-Term vs. Short-Term Perspective

(14)

interaction.

Sanction Practice: Shame vs. Guilt

In Confucian societies, shame is supposed to be the original impedient against immoral or illegal behaviors. Two factors have made their contributions to this: (1) the shortage of endemic religions such as Hebraism and Christianity, and (2) the insistence on “face” and “face-saving”. Though the second principle is important in all societies, both of them are indispensable in Confucian societies. Face connotes even more than reputation. This can be proved by a Chinese saying that “Face is like the bark of a tree; without its bark, the tree dies.” People who have failed to save their faces in Confucian countries are more severe than mere social outcasts, because a missing of face carries shame not only to himself, but also to the whole family. Owing to this shame, the family members are not able to function properly in society. Additionally, in Confucian worlds, face is attached to a certain context; it can only be given or taken away when the related entities are within the wider context of social exchanges. Consequently, to perserve guanxi, additional accent must be placed on the acquirement and maintenance of face, normally regarded as “face works.” However, in the west, under the impress of Judeo-Christianity, people act generally according to the basics of guilt. In line with an globalized conception of sin, once their behavior violated the ethical standards of morality, the individuals feel guilty of themselves.

3.1.3 Assessment of the differences

Although there are parallels between guanxi and relationship patterns in the East and West, there exist fundamental differences in the principles that guide on their

implementation. Guanxi is said to be a special type of relationship from a loosely

translated perspective, but relationship does not imply guanxi necessarily. In the western business field, guanxi is more often paralleled to relationship marketing (Wang, 2005). Relationship marketing concentrates more on founding, developing, maintaining and fertilizing valuable relational exchanges and customer relationship (Berry & Parasuraman, 1991). As for relational exchange, the behavior of choosing is restricted through

(15)

Although some relationship marketing tenets are regarded as key determinant for

conducting a successful business in China, the unique nature of Chinese culture makes it questionable by directly transfering Western relationship marketing spirits into China or some other Asian societies.

Guanxi and relationship marketing do share some general traits such as cooperative behavior, mutual understanding and long-term direction. However, they follow some quite different underlying mechanisms. For instance, guiding rules of a relational actions in most Western societies are restrained by legality and rules, while relational behaviors in guanxi are guided more by social norms and morality (Arias, 1998). Trust plays a key role in Western relationship marketing but does not mean the constructive equivalence as xinyong∗in Chinese culture and only exerts limited influence on the development of guanxi. Instead, reciprocal responsibility and mutual assurance are the elements guiding relational exchange transactions in guanxi, which are established on renqing, a unique type of emotion derived from traditional Chinese culture. Particularly, guanxi is

developped and preserved through the continuous exchange of renqing so as to obtain the mutual benefits. Relationship marketing is usually impersonal and largely at the

organization level (Morgan & Hunt, 1994). In Western societies, exchanging parties tend to involve in economic and impersonal attachment in networking, and the relational networking is primarily associated with commercial goals. Guanxi marketing, on the other hand, looks beyond the commercial meaning because guanxi network members exchange with each other both favor and ganqing∗ and, once in a while, its emotional value is way more significant than its economic value in social interactions. Guanxi lives at a personal level based on friendship while ganqing is an index of the level of affective commitment and the intimateness of the parties involved. It is common for a person to take with him/her his/her personal guanxi networks once quitting the organization. Seeing from the business opinions, people who are in possession of ganqing care about the other memebers and treat them more like friends than merely business partners. Ganqing,

∗

The meaning of Xinyong is close to the English word ‘‘trust.’’ In Chinese business criterions, trust, is more springed from one’s credibility of returning favors rather than depended on one’s competency and integrity which is rooted in the Western business relationship context.

∗

(16)

which plays a key role in preserving and enriching a guanxi relationship, makes the should-be impersonal business relationship personal. A business-to-business relationship which can not be promptly imitated by competitors normally integrates ganqing touzi (affect investment), such as sharing interior feelings or delivering personal concerns in the personal relationship. In order to to achieve this, exchanging parties need to know what pleads with their needs and to attain an in-depth understanding of their partners (Yau, Lee, Chow, Sin & Tse, 2000). Chinese people believe they should only rely on those whom they have ganqing with to protect in times of depressions and to help them obtain their goals in time of inspiration (Jacobs, 1982).

Moreover, relationship marketing employs a universalistic nature that the network is fairly open to any exchanging partners if only one plays according to the rule of game. This is rooted in that most Western societies are regarded as high-trust cultures under which people trust each other even if they do not have kinship relations (Fukuyama, 1995). As such, written contracts are used to restrict the exchanging partners to obey the rules, even amongst long-term relationship partners. Chinese society on the other hand, is a low-trust culture (Atuahene-Gima & Li, 2002; Fukuyama, 1995), in which only the immediate and the extended family members have each other’s trust, and outsiders of the family will suffer a lack of trust. Guanxi network, as a particularistic relationship, serves as an exclusive circle of members because it comprises some characteristics of expressive ties, which are on the basis of blood relations. Guanxi is highly network-specific and is not generalized to other social networks members. Many researchers have noted that in contrast to Westerners, Chinese have a stronger intendment to split people into different categories of levels and accordingly treat them based upon in-group/out-group boundary (Triandis, 1989). The process of developping guanxi is the process to form the

fundaments for gradually transiting an outsider to an insider, so that a close long-term relationship can be built. After entering such a network, trust building, competitive advantages and decision-making for network members will be realized (Haley, Tan, & Haley 1998).

(17)

Moreover, in the western worlds, gift-giving (especially the gifts of significant

economical value) may be interpreted as illegal but, in the Confusion world, gift giving has frequently been regarded as the main path for building guanxi. Besides, western societal values function more based on legality while Chinese societal values count more on morality (Wee, 1994). In a word, the management philosophy is a major difference after a range of contrasting: there is a preference towards ‘Mind’ management in the western societies, while in China the preference is towards the ‘Heart’ management. In practice, guanxi appears to resemble nepotism in the western vocabulary. Honestly, Guanxi and nepotism do share some characteristics: both involve in situations, such as, where someone possessing authority make decisions probably about recruitment or the rewarding of business transactions or contracts signing due to family ties instead of an objective assessment of real ability.

In the book "China: The next economic superpower" (Norton, 1993), a senior financial manager from Hong Kong, depicts this nepotism as a “particularly corrupt form of neo-feudalism.” The western press abound in stories about “princelings”, a particular term invented for picturing family ties of senior officials in China. The “princelings” have been exploiting guanxi to squeeze profits from varied transactions, on the lists there includes commanding army-run companies to export military armaments; acquiring the sparse resources at state-subsidized prices for selling in the open market; establish charitable foundations titled under an obscure portrayal between private and public to accumulate societal money by unfair means for their own purpose; and peculating the wealth of state-owned firms to acquire overseas companies.

3.1.4 Guanxi and business performance

(18)

(Khatri et al., 2006). Accordingly, in the west, guanxi is not always positively

contributing to business success and yet regarded as a degrading terminology in business transactions. But whether the implication of relationship in the West is such an apparent discrepancy from guanxi in Confucian world still remains pending.

There is a popular saying that "China is a land of guanx .Nothing can be done without guanxi."(Ibid, 1995). A survey of Hong Kong executives discloses that the “businessmen believed that once good guanxi had been established, a number of benefits would follow. These benefits included the smooth running of routine business operations, information about government policies, and receipt of administrative approvals."(Davies, et al, 1995). Another survey concludes that guanxi plays an important role to the success of business negotiations in China(Leung & Yeung, 1995). Similar findings were raised by the managers interviewed from the above survey, many of whom said that business relationships start from personal guanxi. This opinion is totally reversed in the West, where personal relationships may develop from business relationships. Claimed by Wong, Leung, Hung & Ngai( 2007), a well-constructed guanxi can provide ample benefits for managers. The collected flexibility and favors that managers acquire in business dealings can decrease transaction costs notably, such as, searching cost, contracting cost,

information cost and so on. It can be easily observed that most enterprises in China are spending dramatically on building guanxi with others. As a kind of investment in social capital, guanxi protects them from weak and dysfunctional legal system, which is

assumed to be harmful for personal capital. Efficient business operations can be achieved when people apply face as a critical factor in making business decisions in China.

Alhough the economical value of guanxi cannot be debated, not all of the people see the liabilities. Particularly, guanxi might be seen as a bi-entry system, a continuous trade of favors inbetween the two parties already associated(Chen, 1995).

3.1.5 Establishment of guanxi

(19)

(network), it generates distinctive approaches for establishing this crucial relationship in order to achieve potential economic benefit. In Wong, Leung, Humphry Hung & Ngai’s study (2007), it suggests that Chinese people from different interpersonal relationships utilize various ties to obtain favors. Interpersonal relationships can be categorized into three ties: expressive tie, instrumental tie and mixed tie. The expressive tie refers to, in general, a relatively eternal and stable societal relationship. This type of tie initiates normally among members of an elemental groups such as, family, intimate friends, and other congenial groups.

The instrumental tie stands for personal relationships inside or outside the family. These relationships function simply as the instruments to attain other goals, and are precarious and transient. The mixed tie depicts a combined relationship comprising both expressive and instrumental ties. Within this tie, an individual attempts to use ren-qing (favour) and face to impress the other ones. The mixed tie characterizes a particularistic and personal fragrance. Each individual who is in charge of allocating resource has to master the rule of ren-qing (favour) whenever he is assigned to allocate some resources in an

advantageous way towards any other individuals who share the same personal network. In brief, once favor is set-up between at least two entities, guanxi is followed (Hwang, 1987).

In Martin Perry’s book (1999), he posits that kinship relations are typically the most crucial, however, they still have a long way to go before becoming the exclusive terminus a quo for establishing guanxi. Indeed, kinship ties might be averted in some contexts in which there are concerns that business objectives might be confused with the influences of family related goals that they might be offered ‘special terms’. To generalize these diversified approaches for building guanxi, Menkhoff(1993) and Lever-Tracy(1996) suggest that guanxi can be established through a broad range of ties.

• Fictive kin ties convert the promotion of ‘business friends’ into extremely trusted individuals and often symbolised by applying family titles such as, ‘uncle’. • Locality ties root in a common place of original hometown. Typically the

(20)

closeness of dialect as a further adherence, strengthened by the function of dialect communities constructed in the places where migrants have resettled down . The linkages between dialect groups and business operations are highlighted by the dialect groups’ conceivable capability of being economically characterized, owing to the benefit of bundle recrutment on the basis of language spoken.

• Surname ties are one of the most consolidated basis for guanxi building. Early Chinese migrants usually through clan and surname associations to seek for and provide mutual support. The common surname is not limited to connote any kinship relationship, yet it provides ample background to unit persons seemingly like they are indeed the offspring of a shared ancestry.

• Workplace ties developed among a few colleagues can serve as the soil for a subsequential business partnership via which they can participate in

complemental business arenas of their own interest. The advantage of once being colleagues can be an motivator to form a cooperating partnership under their independent management.

• Classmate ties, which provides the basis for potential business opportunities, enjoy a long tradition in China and are derived somehow to the honor awarded to the achievement in education.

The plentiful source for building guanxi ties suggests that, although kinship relationships are made considerably use of, many other kinds of personal ties are utilized as well to acquire the feasibility of business.

However, when it comes to look at western ways of how to build guanxi tie, the diversity of methods are not as abundant as its eastern opponent. The term that people regularly mention is old boy network(Saloner, 1985; Simon and Warner, 1992; Taylor, 2000). It is portrayed as “an informal, exclusive system of mutual assistance and friendship through which men belonging to a particular group, such as the alumni of a school, exchange favors and connections, as in politics or business: Working-class kids . . . had no old-boy network to turn to in times of trouble" (Bill Barich, source: www.answers.com).

(21)

of it. In addition, old boy network is supposed to be the most relevant approach to build up some informal connections on purpose of obtaining political or business benefit in the west compared to eastern guanxi.

Substantially supported by the 1972 Survey (Natural and Social Scientists and Engineers), Simon and Warner (1992) indicate that employees employed from the old boy network often “(1) earn higher initial salaries, (2) experience lower subsequent wage growth on the job, and (3) stay on the job longer than otherwise comparable workers hired from outside the network”. Additionally, employers usually consider job applicant’s referrals through current employees for more informative than simply interviewing applicants or through official labor market agents such as placement enterprises. And they claim that old boy networks increase employers' certainty about candidates’ suitability for job requirement.

As a recently somewhat out-of-date term, “old boy network” as well as family ties however used to be quite normal in the 1970s and intensely presented in many European countries(Saloner, 1985; Simon and Warner, 1992). But in nowadays, it has been

considered negative based on its nepotistical feature. Instead, the most recently recommended and frequently used network is “linkedin”. In fact, from the result of a survey conducted by “jobvite” (software tools provider for recruitment), 80 percent of the sample firms report that they have used or planed to apply social networking facilities to look for and attract potential candidates. Among the firms that are using social

networking sites for employees hiring, 95 percent employed Linkedin, 59 percent applied Facebook. and 42 percent used Twitter to seek for candidates. Firms in addition

recognized that they are more likely to be satisfied with the characteristics of job candidates recommended by social networks and employee referrals than with those recommended by traditional job agents(Eccles, 2009). The survey showed that 66 percent of employers using social networks sites for recruiting had successfully employed a applicant who was put forward or recommended by an internet social network. To sketch what is Linkedin, Kelly(2010) demonstrates that it is functionally like

(22)

building professionally underlied networks through their connections. Once you connect yourself with individuals, you are basically linked into their networks as well, and are allowed to share a cascading professional cluster of connections. Linkedin can also be an online space where you post internet links, e.g. your community’s web site, or upload files, such as a curriculum vitae, to share with your network. Linkedin is more deemed as career and business oriented rather than societal oriented. Absolutely, the other

mentioned medias above can function toward such an target as well and they have been and will be continuously used by more and more individuals and corporations with great success. But Linkedln is still the best suitable online networks for business purposes. Further more, Taylor (2000) suggests that social networking also plays an influential part in the economic life. Members belonging to this network naturally intend to shield themselves from dealing with incompetent or opportunistic individuals by transacting only barely with unproved non-members. Those qualified but unproven agents are not able to survive in the network inquired by this. Further more, because integrating a new member brings a public avail for the other network members, nearly no recruiting is carried out in equilibrium.

Social networks are regarded as the primal institutional outcomes as well in contexts such as “labor market, business subcontracting, private school enrollment and club

membership, where the qualification and integrity of a candidate are difficult to assess a priori” (Montgomery, 1991; Greif, 1993). Although applicants can usually provide a bunch of sterling references for the asking, the credibility of the indorsements are notoriously difficult to ascertain unless the referees are proved to be above reproach. In this case, a linkedin or old boy network type of network consisted of competent

candidates can serve as an effective social instruments through informally guaranteeing the characters and aptitude of its members (Saloner, 1985).

(23)

associated with the guanxi building. Even incorporating the family ties that ever

populated in 1970’, the approaches employed by western world still somewhat lag behind and are lacking of diversities compared to the Chinese. Quite interestingly, this old boy network approach seems more likely to be comparable to the “classmate ties” which have a long history in China and can be traced partly to the esteem given to success in

education. And the western family ties could be loosely translated as surname ties which has been elucidated above.

So, these two aspects are the only overlaps that exist between oriental and western world in guanxi building. And as obviously as can be seen from the comparison, Chinese people have been spending incredibly more effort on setting up guanxi with others than

westerners. This results in an overwhelming number of approaches and ties bounding to informal relations among different individuals.

In addition, it is remarkably scarce from the previous literatures in the western world that fellow-townmen’s association could be an important tie to produce guanxi. Nevertheless, this kind of tie is widely employed by people from eastern world. As my self experience, in the city of Amoy, China, where I used to work, there are a bunch of presents of fellow-townmen’s associations(FTA) from each of the provinces of Mainland China. Some FTA are even available based on the city diversity. There are usually one or two leaders in charge of the associations, they are responsible for organizing activities and setting up the website of association, from where the townmen can share information and get acquainted with each other. Also, it surprisingly reveals that in most of the

associations business achievement is one of the most important purpose. This term FTA can be enlarged and induced to another similar term “native association” which should be more suitably explained as association formed by people from the same country of origin. Being a main original country of immigrants, Chinese native associations enjoy a

(24)

Indians the phenomenon of ethnic networking and mutual support among skilled immigrants in Silicon Valley now extends to the region’s Iranian, Korean, Japanese, Israeli, French, Filipino, and Singaporean immigrants engineers. It can not simply be explained by coincidence that in the loop mentioned above only French are non-Asians. It has disclosed to some extent that this “native associations” or networks are much more popular among Asians than Europeans.

So, coming to the business conducting respect concerning foreign and Chinese SMEs, if a firm is armed by some network like guanxi, it is expected to enter the Chinese market so that it is able to take much more advantage to accomplish success than to enter foreign markets. Adversely, if a firm is insufficiently involved in some guanxi, it is supposed to enter foreign markets to search for opportunities. The process of undertaking business is also the process of constructing guanxi in wherever marketplaces because this informal relationship effects both of the two different economies although the extent to which is different.

3.1.7 Effect of structural holes on guanxi outcomes in Chinese and Western

cultures

(25)

individuals who fill a structural hole are naturally armed with more non-redundant information and accordingly with more opportunities.

As a terminology relating to societal aspects, structural holes theory is notablely subject to variety of cultures. Culture performs not only at the national level but also at the organizational level (Schein, 1985; Martin, 1992; O’Reilly and Chatman, 1996). Various organizational cultures can influence whether “structural holers” benefit or not benefit from their possessed social capitals. In particular, the culturally high-commitment

organizations which favors cooperation over competition among employees, benefit to be likely fewer from structure holes than culturally low-commitment organizations,

according to Xiao and Tsui (2007). Moreover, research results from some other scholars, such as, Earley(1993); Chatman and Barsade(1995) and Chatman et al.(1998) also reflect and conclude on this problem in the earlier period that taking both national and

organizational culture into consideration, the advantages of being a “broker” are less likely acquired in national cultures with a collectivistic feature and as well in those organizations requiring a high level of commitment. This is the expression of

collectivistic trait on the organizational level. In a collectivistic culture, a practical career promotion strategy would better take into account culture’s significantly cooperative nature. This is especially the same case in a high-level commitment organizational

culture. The brokers might thrive in organizations with market-relative cultures, while the collectivistic context will honor those whose behaviors are complying with the society’s core values.

Triandis (1995) outlined the four conceptive attributes of individual-collectivism: “(1) independent self vs. interdependent self, (2) individual goals or collective goals as

priority, (3) relative importance of social norms vs. individual values and interests, and (4) emphasis on relationships vs. task accomplishment.” The cultural contributions of

(26)

distributive negotiations (Liu, Friedman, and Chi, 2005), ascribing success to groups instead of individuals(Morris and Peng, 1994; Choi, Nisbett, and Norenzayan, 1999), and influencing the dynamics of decision making (Weber and Hsee, 2000; Weber, Ames, and Blais, 2005).

On the other hand, remarkably adversely, Burt, Hogarth, and Michaud (2000) contend with reference to the definition of individualism-collectivism, that, an individualistic field is not only tolerant of this sort of brokering behavior, but also yet encourages people to behave in this fashion. This is because brokering actions are in line with the liberal-individualistic spirit of self-reliance and independence. From the viewpoint of Walder (1986) on Chinese culture, the most proximate content to social capital is guanxi, which points to the importance of trusting, obligations, and reciprocity involved in Chinese people’s social interactions: “Guanxi refers to instrumental-personal ties that range from strong personal loyalty to ceremonial bribery.” Besides guanxi, another interrelated definition that sheds light on the essence of social exchanges in Chinese culture is that of in-group (Leung and Bond, 1984; Redding and Wong, 1986). In-groups are typically the permanent groups. They are the basic social cells of collectivistic societies, which is in contrast to the temporary and dynamic groups built from the common faith or integrated interests of individualistic cultures (Triandis, 1995). A great deal of resources transacts through these interrelated networks in the form of offering favors and returning of favors (Walder, 1986; Yang, 1994). People who are on the edges of or are totally excluded from these networks of in-group mates are seriously disadvantaged. Therefore, in Chinese culture, establishing the appropriate guanxi and being embraced in the in-group

(27)

a collectivistic dominated culture such as Chinese culture, it is certainly the network closure (Coleman, 1988, 1990), instead of structural holes, that produces social capital. As a wrap-up of above argument, the commonality between the national level and organizational level of this context falls into the term “collectivistic” which describes a domain predominated by a robust and cohesive culture. However, organizations surviving on economic swaps with least social obligations are characterized to be more

individualistic and accordingly, high-commitment organizations are said to be more collectivistic. This is the social logic, according to which, collectivism and

high-commitment converge in the same direction. And they will further both work to diminish the affects of structural holes and at the same time, to strengthen the advantage of

network closure. Structural holes can provide information and control benefits for persons who are on a brokering position in an individualistic dominated culture. While the collectivistic cultural property of China prefers network closure which can offer the individuals with the trust and reciprocity shared among in-groups; the individualistic dominated culture in west society normally does not have the same requirement for network to be perfectly bridged but instead more concentrates on the individual accomplishment by allowing structural holes function in a way in the network.

Therefore, as a concluding remark of this section, the first Hypothesis can be rejected due to a range of fundamental differences lying deeply underneath Chinese guanxi and

Western network or relationship marketing. And the longevity of guanxi from ancient time until now has proved that guanxi is both a social and cultural phenomemon and difficult to be imitated by other cultures.

3.2 Small and medium-sized Multinational firms

(28)

reasons that have been made out in the beginning of the paper. Wank (1996) raised similar arguments because he realized that Chinese entrepreneurs usually rely on their guanxi to get in touch with their “sponsor” serving in the government to collect market information, scarce resources, and protection etc. when needed. Shortly after Wank, Guthrie (1998) put forward that, after the launching of a “rational-legal” system employed to supervise and regulate business transactions, guanxi applications are

supposed to should have weakened, but the truth is the significance of guanxi practice has remained with reference to the result of his survey for this study conducted among

SMMNCs’ managers. In fact, although a lot of the efforts have been made from time to time to establish its legal system, China will still be and long be such a society in which all kinds of social behaviors depend highly on the unofficial relationships embedded in guanxi. Managers or any people in China, therefore, consider guanxi in essence as an remarkable part of the Chinese logic of society and sophisticated managers can not afford the bill of overlooking it (Tsui, 1997; Y. Luo, 2000; J.-D. Luo, 2005).

3.2.1. What is SMMNC like?

Literally, SMMNC is abbreviation of small and medium-sized multinational corporation, which is a combined form for SME(small and medium-sized enterprise) and

(29)

which an SME is defined as “a firm employing less than 100 people in general, a medium-sized firm employing between 20 and 99 people, a small sized firm having between 5 and 19 employers, and a micro firm employing less than 5 and also including self-employed managers”(Hall, 2003).

3.2.2. SMMNCs in China

WTO statistics demonstrate that China had already replaced the U.S. by 2006 as the second ranked exporter in the world in terms of exporting volume, and will ascend to overwhelm Germany or so in the next year to put its feet on the first position of export countries in the world (WTO 2007). China has achieved promineng growth of

international trade as well as its GDP number ever since 1980s. The conspicuous progress of Chinese economy plays an obviously critical role in the stability and development of the Asian-Pacific territory and the whole world as well. Nevertheless, what has even more strikingly staggered the world is that, most of these numbers come from SMEs depending upon SMEs’ 68 percent supporting to China’s exports. This shows a

noticeably higher contribution to economy than that in other countries no matter seeing from the APEC or OECD group. The number of China’s exporting increase is almost double its GDP increase. Undoubtedly, the Chinese SMMNC exporters are a major drive to this economic swelling.

Most of these SMMNCs were simply “born” ten years ago. In China, a larger number of SMMNCs in the last twenty years, compared with the overall number of SMEs in Europe and United States, have appeared before footlights. They were not finally legalized until the private sector economy’s opening-up reforms in 1980s designed by Deng Xianping in China. Ten years later, there were just about one million authorized private sector SMEs by the 1990s, but the number at the moment proliferated to around 40 million.

Nevertheless, Hall (2007) argues that the number still comes short assuming that it has a reqular density of entrepreneurs, as such, it should be roughly 60 million.

(30)

self-employed people), this result shows that the combined amount of SMEs in US and

Europe that is nearly 35 million, still, cannot compete to 40 million SMEs in China. What is more, virtually all of the Chinese SMEs were not even there until the last twenty years. You can imagine this outburst of Chinese entrepreneurial sector is unprecedented in the history of the world’s economy.

3.2.3. Contributions to Chinese economy made by SMEs

The official Chinese statistics of the amount of SMEs to exports is set out in Table 1. It shows that starting from 2002, the first year in this table, that SMEs exports were individually identified, SMEs are reasons of 62 percent of exports. Subsequently, this number grows to 68 percent in 2004. To put these plain numbers in a vivid context, Chinese SME exports is equal to USD 518 billion in 2005, or an equivalent to around two times the total GDP of Greece, and nearly amounting to one quarter of GDP of France. Table 1

Chinese exports and SME exports in billions USD

Total exports SME exports SME exports as % of total

2002 438.23 272.48 62.3

2003 593.32 390.44 65.8

2004 761.99 518.16 68.0

Sources: Data in SME exports and ratio of SME exports to total exports in 2003, 2004, 2005 are adapted from Ministry of Commerce, cited in SME Briefing, Vol 91, published by SME Division of National Development and Reform Commission on 28/10/2006.

(31)

3.2.4. SMEs from Western countries

It has been exhibited quite clearly in previous paragraphs that Chinese SMMNCs are over-performing their foreign opponents in terms of export volume recently. Nevertheless, if a comparison has to be made between Chinese SMMNCs and SMMNCs from a

Western country, the US is supposed to be a comparable option. This is because no matter seeing from the economy scale and definition standard on SME (China and US have the similar definition on SME, according to Hall, 2003), these two can be

counterparts of each other.

(32)

China in 2008, although the trade transactions between the two giant countries have suffered a descent in 2009 as a result of the worldwide economic slowdown. With reference to the latest statistic data compiled by researcher Morrison (2009), firms originated from the States have invested about USD46 billion in China throughout 2008. Some of the investment goes to the construction of exporting-drived manufacturing factories, while the other investment is allocated to the Chinese domestic market. An aggregated number of 28,608 U.S. companies are recorded to have had their merchandise exported to China in 2007. This documented exporting firms’ amount in 2007 is nearly seven times the amount of exporting firms in 1992, when there were merely 4,092 firms exporting to China. Back to the figures of SMMNCs, the number of recorder SMMNCs that exported to China in 2007 ascended to 25,949 up from only 3,143 in 1992. So, it is arithmetically evident that in 2007, 91 percent of the U.S. exporters shipping to China are SMMNCs (see Figure 2). There is an apparent rising-up from 1992, when SMMNCs exporters shipping to the China only took up 77 percent of total exporters. In addition, the amount boosting of SMMNCs shipping to China is much more significant than the

amount boosting of large firms. This number of SMMNCs trading with China soared by 726 percent from 1992 to 2007, contrasting to only 180 percent for large MNC exporters. Therefore, SMMNCs are source of a sizeable part of U.S. exports to China. Figure 3 demonstrates that, in 2007, SMMNCs contributes 34.3 percent to all identified U.S. merchandise exports to China in terms of value. This is a little higher than the SME share of overall U.S. merchandise exports of 30.2 percent (Source: U.S. Census Bureau News 2009).

(33)

Source: U.S. Census Bureau News 2009

Figure 3

Source: U.S. Census Bureau News 2009

3.2.5. SMEs and guanxi

As previously reviewed, the internationalization theories state that internationalization of the firm is customarily regarded as a process of successive stages of outward expansion by the firm (see Cavusgil, 1980; Johanson & Vahlne, 1977; Turnbull, 1981; Wind, Douglas, & Perlmutter, 1973). It is also a continuous procedure of strategic decision making (Melin, 1992), with stress on international market selection and choice of mode of entry (Bradley, 1995). In this sophisticated process of decision making, managers typically need large amounts of information, both to fill the gaps of lacking of prior knowledge or experience and to routinely dwindle the high levels of uncertainty.

Chinese SME

(34)

Trompenaars (1993) observed that Chinese culture concentrates more on relationships rather than on rules. Local cultural values are inclined to create a firm national

entrepreneurial spirit and a intense will to succeed (Shenkar & Ronen, 1987). Thus, it is evident that Chinese entrepreneurs will be more likely to depend on their social contacts for advice rather than to call on “government export advisory services” (a practice more typical of exporters in North American and West European markets). A further feature of Chinese culture is “uncertainty avoidance” (Hofstede, 2001). This characteristic normally leads us to expect, in a general level, that Chinese entrepreneurs who plan to go

internationalization will try to consult reliable personal sources and knowledgeable business contacts for information and advice to manage their uncertainty.

(35)

with reference to Yeung and Olds’s work (2000), these cultural characteristics of Chinese society stretch well beyond the substantial domestic market. Hamilton (1996), Yeung (1997, 1999), and Luo (2000) observed that interpersonal relationships initiate a precious step-stone for the globalization of Chinese firms. Also based on those above literatures, a number of preliminary theoretical findings have been put forward about how Chinese entrepreneurs realize internationalization and the value of guanxi to them. These findings are summarized as follows:

• Chinese entrepreneurs confronting uncertainty about the “unknow world” will mainly draw on their guanxi for information and advice with respect to how to start doing business overseas and where to deal with this risky innovation. • Chinese entrepreneurs will largely try to avoid uncertainty in decision making

process by consulting experienced business contacts through guanxi.

• Chinese entrepreneurs will acquire needed expertise of targeting foreign market through their own personal social networks.

More experimentally, in order to investigate the role of guanxi in the internationalization of Chinese SMMNCs, Xie and Amine conducted face-to-face interviews among a large sum of SMMNCs in China in 2005. The results show that sample members confessed to be extremly conscious of their recognized an intangible asset. They exploit their guanxi to initiate business and to achieve competitive advantage. One entrepreneur stated,

(36)

authorized him with the access to specific market information concerning South Africa and way more effective, a partnership also licensed with this SOE for a cooperative launch of exporting to South Africa.

In a word, particularly in the case of SMMNCs, due to their instinctive lack of resources for their growth, they are more likely to draw on family, personal friends, customers and suppliers to obtain sources of information compared with SOE managers (Kaish & Gilad, 1991; Schafer, 1990; Yeoh, 2000). These findings from the literature prove especially to be true in the Chinese business world, in which guanxi smoothes out transactions and provide access to information in a particular environment dominated by bureaucratic hierarchies. Because in this environment, information about regulation of foreign trade and government policies is often unfamiliar, incomplete, inaccurate, inaccessible or unreliable (Buttery &Wang, 1996; Tan, 1996; Xin & Pearce, 1996). Consequently, Chinese entrepreneurial SMMNCs rely more on guanxi in the conduct of international business than non-entrepreneurial Chinese firms and non-Chinese SMMNCs. This conclusion parallels to the findings of Yeung and Tung (1996) as well.

Western SMMNCs

Since in 1980’ with the effective day of “Reform and Open Gate” policy in China, the booming economic growth jointly with the government’s eagerness to transform China to an efficient part of the world economy, has revealed that enormous business opportunities are present to western businesses especially with “foreign direct investment” (FDI) and import & export activities. The upsurging growth in investment and trade in China has implied intenser communications between Western business persons and their Chinese “colleagues” in this country which was not entirely open to foreigners until only three decades ago. Despite conspicuous growth and ample opportunities that the Chinese market supplies, evidence discloses that doing business in China is not as simple as what is anticipated by foreign business people (Davies et al., 1995). Foreign companies often have to experience anxiety and discouragement when conducting business with their Chinese partners (Lindsay & Dempsey, 1983). Although many obstructions encountered by overseas firms has been gradually removed by the Chinese government, many

(37)

western companies can not be fully responsive to the offered opportunities by Chinese government (Wood & Young, 1994).

guanxi is esteemed as one of the most important invisible barrier in conducting business in China. Although Western business men are basically aware of the significance of guanxi, many of them still do not adequately understand the implication of it and the sophisticated forms it can take.

In terms of business context, guanxi is such a great determinant that it has been described as a ‘‘second currency’’ which penetrates the economic sphere, and composes a key and ‘‘secret’’ to business success in China (Kao, 1993). Multinational investors can acquire an edge over their rivals in the Chinese market through developing and maintaining their private guanxi network just because guanxi proves an efficient and effective marketing instrumental. Guanxi-related variables, such as sales force, marketing and credit-granting have been found to be significantly and positively related to firm’s performance (Luo, 1997; Shi, 1997). Therefore, the population who understand the subtle implications of guanxi, such as business people from Taiwan, Hong Kong and Singapore, are usually more successful in China than Westerners (Lou, 1997).

(38)

All in all, referring from the figures and tables displayed in above paragraphes, Chinese SMMNCs obviously have an edge over Western SMMNCEs in terms of exporting performance. And this superior results are largely ascribed to the naturally using of guanxi as an effective factor to business success because SMMNCEs in particular survive on guanxi and Chinese firms are more sophisticated in that than its counterparts.

Therefore, the second Hypothesis holds true.

IV. Concluding Remarks

Thoughout this whole paper, a comparison of Chinese and Western perception on guanxi accounts for the major part of it. While in most of the comparision, it contains large amount of literatures concerning Chinese philosophy and sociology, which may have caused some unfamiliarity and even confusion. So, a decently constructed table of the comparison would be serving as a complete summary of the vague part.

As can be clearly seen from the table, it compares Chinese and Western type of guanxi from five logical respects, what, why, who, from where and how in terms of three categories, Chinese type of guanxi, Chinese guanxi from Western perspective and Western equivalent of guanxi. Most of the contents in the table have their parallels in previous contexts and from them an apparent distinction between the two different guanxi networks has been illustrated. Although these two types of network do share some

(39)

(40)

V. Managerial Implication

There is a famous saying from the ancient Chinese military book “the art of war” by Sun Zi states that “Know the enemy and know yourself, and you can fight a hundred battles with no danger of defeat”. More recently, another saying goes that “Military discipline is good for business”. These two sentences jointly illustrate that to achieve business success requires a substantial knowledge of yourself and especially your competitors. However, this case could not be holding true when the business transaction is conducted in an entirely different cultural region.

Many earlier literatures have pointed out that in the Western world relationship marketing (equivalent of guanxi) has received remarkable emphasis in recent years, however, a certain management practices might not be applied universally because culturally identified values will affect their managerial effectiveness in different cultural climates (Hofstede, 1992). Companies that follow home country practices in line with Western theories without adaptations may suffer a range of setbacks in China. On the other hand, Western firms may be more likely to succeed by seeking long-term cooperation through the gradual construction of guanxi networks than by relying merely on the contract-based agreements (Standifird & Marshall, 2000). Thus, it is essential for the foreign business practitioner to learn how to communicate properly with the their Chinese partner.

Based on the concluding remarks after comparing Western and Chinese attitudes towards guanxi, with a specific purpose for assisting Western SMEs who are willing to do

business in China, several managerial implications are extracted.

Under a low-trust context, Chinese prefer to do business with people who are ‘‘in’’ the shared networks rather than those who is new-comer or an outsider. Such a particularistic tenet of guanxi establishes obstructions especially for Western SMEs initially entering Chinese markets because these SMEs are less likely paid attention to by Chinese

(41)

business orientation suggest that ingredients of both transaction and relationship

marketing coincide in many firms (Styles & Ambler, 2003). In fact, whether a relational orientation or transaction orientation is applied in a Chinese firm’s practice is more of a matter of ‘‘membership’’ in guanxi networks than a matter of firm’s general business orientation. In other words, in a low-trust society like China, the relationship orientation is only beneficial for insiders of guanxi network not for outsiders of the networks such as a just-arrived foreign firm.

In addition, as for Chinese, business is not solely a business, it is as well a social

interaction, in which favor or renqing is exchanged.International marketers can augment perceived resemblance by strengthening mutual comprehension of each other’s business cultures and by developing intense and interpersonal relationships and find the

appropriate contact persons in potential partner firms to be.Although favor or gifts are often swapped, ganqing or emotional bond is far more important in the long haul. Gifts and, sometimes even, bribery may simply establish a short-term relationship which will be imitated easily by competitors. A long-term relation, however, established on ganqing commitment and interpersonal emotions within the guanxi network will enjoy a

continuable competitive advantage over outsider rivals.

Therefore, Western firms might have to look beyond just short-term earnings if they wish to succeed in the long-term in Chinese market. And the key decision-makers need to be inspired, they may expand beyond the dyadic partner to actors playing as ‘middlemen’ opening the right doors or even government officials that take roles of “gatekeeper” (Gomez-Arias, 1998).

Guanxi and International Buisiness Management