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ARTICLES

Guanxi’s Changing Nature: A Chinese Born Global’s Experience

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Pages 270-295
Received 25 Apr 2016
Accepted 19 Jul 2016
Published online: 21 Sep 2016
 

ABSTRACT

This article aims to show that using guanxi initially fostered a Chinese born global’s internationalization but later, restricted its decision-making freedom and resulted in the firm’s partial deinternationalization. It concludes that because of guanxi’s reciprocal nature, owners and managers should use it with caution: they should not only focus on what (knowledge, financing, contacts) they can gain but also consider what (time, services, financial resources) they are expected to contribute and what (reputation, some customers, access to financing) they can lose if their partners decide to break the guanxi as a result of of receiving less than they expected.

Acknowledgments

This work was supported by the Estonian Research Council’s grant PUT 1003 and by the Institutional Research Funding IUT20-49 of the Estonian Ministry of Education and Research.

Notes

Born globals are defined as firms that internationalize in three years or less since establishment and also enter at least one continent outside their home continent and achieve a 25% or higher export share during these years (Madsen and Servais 1997 Madsen, T. K., and P. Servais. 1997. The internationalisation of born globals: An evolutionary process? International Business Review 6 (6): 56183.[Crossref] [Google Scholar]; Kuivalainen, Sundqvist, and Servais 2007 Kuivalainen, O., S. Sundqvist, and P. Servais. 2007. Firms’ degree of born-globalness, international entrepreneurial orientation and export performance. Journal of World Business 42 (3): 25367. doi:10.1016/j.jwb.2007.04.010[Crossref], [Web of Science ®] [Google Scholar]; Vissak and Masso 2015 Vissak, T., and J. Masso. 2015. Export patterns: Typology development and application to Estonian data. International Business Review 24 (4): 65264. doi:10.1016/j.ibusrev.2014.11.004[Crossref], [Web of Science ®] [Google Scholar]).

Social capital can be defined as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet and Ghoshal 1998 Nahapiet, J., and S. Ghoshal. 1998. Social capital, intellectual capital, and the organizational advantage. Academy of Management Review 23 (2): 24266.[Crossref], [Web of Science ®] [Google Scholar], 243) and as “an asset available to individual or collective actors that draws on these actors’ positions in a social network and/or the content of these actors’ social relations” (Maurer and Ebers 2006 Maurer, I., and M. Ebers. 2006. Dynamics of social capital and their performance implications: Lessons from biotechnology start-ups. Administrative Science Quarterly 51 (2): 26292. doi:10.2189/asqu.51.2.262[Crossref], [Web of Science ®] [Google Scholar], 262).

Guanxi means relationships for continued reciprocal exchange of favors for personal or organizational purposes (Dunfee and Warren 2001 Dunfee, T. W., and D. E. Warren. 2001. Is guanxi ethical? A normative analysis of doing business in China. Journal of Business Ethics 32 (3): 191204.[Crossref], [Web of Science ®] [Google Scholar]; Fan 2002a, 2002b; Gu, Hung, and Tse 2008 Gu, F. F., K. Hung, and D. K. Tse. 2008. When does guanxi matter? Issues of capitalization and its dark sides. Journal of Marketing 72 (4): 1228. doi:10.1509/jmkg.72.4.12[Crossref], [Web of Science ®] [Google Scholar]; Su, Zhai, and Landström 2015 Su, J., Q. Zhai, and H. Landström. 2015. Entrepreneurship research in China: Internationalization or contextualization? Entrepreneurship and Regional Development 27 (1/2): 5079. doi:10.1080/08985626.2014.999718[Taylor & Francis Online], [Web of Science ®] [Google Scholar]). Several authors—including Alon et al. (2013 Alon, I., O. Yeheskel, M. Lerner, and W. Zhang. 2013. Internationalization of Chinese entrepreneurial firms. Thunderbird International Business Review 55 (5): 495512. doi:10.1002/tie.21566[Crossref] [Google Scholar]), Ding and Akoorie (2009 Ding, Q., and M. E. M. Akoorie. 2009. Constructing global business networks in China. Journal of East-West Business 15 (3–4): 295315. doi:10.1080/10669860903436192[Taylor & Francis Online] [Google Scholar]), Hutchings and Weir (2006 Hutchings, K., and D. Weir. 2006. Understanding networking in China and the Arab World: Lessons for international managers. Journal of European Industrial Training 30 (4): 27290. doi:10.1108/03090590610673641[Crossref] [Google Scholar]), Tsai (2013 Tsai, H. 2013. Towards a Guanxi-based theory of internationalization: Chinese, Taiwanese and evolving MNEs. Chinese Management Studies 7 (1): 11126. doi:10.1108/17506141311307631[Crossref], [Web of Science ®] [Google Scholar]), Xie and Amine (2009 Xie, Y. H., and L. S. Amine. 2009. Social networks and the internationalization of Chinese entrepreneurs. Global Business and Organizational Excellence 29 (1): 6178. doi:10.1002/joe.20299[Crossref] [Google Scholar]), Zhang, Ma, and Wang (2012 Zhang, X., X. Ma, and Y. Wang. 2012. Entrepreneurial orientation, social capital, and the internationalization of SMEs: Evidence from China. Thunderbird International Business Review 54 (2): 195210. doi:10.1002/tie.21451[Crossref] [Google Scholar]) and Zhou, Wu, and Luo (2007 Zhou, L., W.-P. Wu, and X. Luo. 2007. Internationalization and the performance of born-global SMEs: The mediating role of social networks. Journal of International Business Studies 38 (4): 67390. doi:10.1057/palgrave.jibs.8400282[Crossref], [Web of Science ®] [Google Scholar])—have used this term as a synonym of Chinese social networks.

Deinternationalization means reducing geographic scope and/or foreign market penetration (Turner 2012 Turner, C. 2012. Deinternationalisation: Towards a coevolutionary framework. European Business Review 24 (2): 92105. doi:10.1108/09555341211203973[Crossref] [Google Scholar]). Some firms withdraw from all markets completely (Welch and Welch 2009 Welch, C. L., and L. S. Welch. 2009. Re-internationalisation: Exploration and conceptualization. International Business Review 18 (6): 56777. doi:10.1016/j.ibusrev.2009.07.003[Crossref], [Web of Science ®] [Google Scholar]), some exit only a few markets (Benito and Welch 1997 Benito, G. R. G., and L. S. Welch. 1997. De-internationalization. Management International Review 37 (Special Issue 2): 725. [Google Scholar]) while some reduce activities in some or all countries without exiting any (Vissak and Francioni 2013 Vissak, T., and B. Francioni. 2013. Serial nonlinear internationalization in practice: A case study. International Business Review 22 (6): 95162. doi:10.1016/j.ibusrev.2013.01.010[Crossref], [Web of Science ®] [Google Scholar]; Vissak and Masso 2015 Vissak, T., and J. Masso. 2015. Export patterns: Typology development and application to Estonian data. International Business Review 24 (4): 65264. doi:10.1016/j.ibusrev.2014.11.004[Crossref], [Web of Science ®] [Google Scholar]).

Family members provide affective support, labor, information and financial resources that entrepreneurs need in the early stage of their firms’ development (Chen, Chang, and Lee 2015 Chen, M.-H., Y.-Y. Chang, and C.-Y. Lee. 2015. Creative entrepreneurs’ guanxi networks and success: Information and resource. Journal of Business Research 68 (4): 90005. doi:10.1016/j.jbusres.2014.11.049[Crossref], [Web of Science ®] [Google Scholar]).

According to Granovetter (1973 Granovetter, M. S. 1973. The strength of weak ties. American Journal of Sociology 78 (6): 136080.[Crossref], [Web of Science ®] [Google Scholar], 1361) a strength of a tie is a “combination of the amount of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal services which characterize the tie.”

On the other hand, according to Farh et al. (1998 Farh, J.-L., A. S. Tsui, K. Xin, and B.-S. Cheng. 1998. The influence of relational demography and guanxi: The Chinese case. Organization Science 9 (4): 47188. doi:10.1287/orsc.9.4.471[Crossref], [Web of Science ®] [Google Scholar]) and Yau et al. (2010), reciprocity is not always expected in case of family guanxi; still, loyalty to family members is considered natural and, usually, relatives are trusted more.

And, in some cases, also through single business relationships (Hohenthal, Johanson, and Johanson 2014 Hohenthal, J., J. Johanson, and M. Johanson. 2014. Network knowledge and business-relationship value in the foreign market. International Business Review 23 (1): 419. doi:10.1016/j.ibusrev.2013.08.002[Crossref], [Web of Science ®] [Google Scholar]).

Like how the firm used guanxi to enter foreign markets and why it got trapped in guanxi.

The owner’s son (his only child) is currently studying in the United States, thus he can speak English well but in 2000, he was only 10 years old. According to the entrepreneur, his son is not interested in getting involved in his business although he has tried to convince him.

She only knew a few phrases in German but with the help of interpreters and her husband, she managed well enough.

The entrepreneur decided to hire an external person as “employing unqualified relatives only increased pressure on the firm.” He understood that “making structural changes is extremely difficult” but he hoped that “in the longer run, this will eliminate unnecessary conflicts between me and my relatives.”

In June 2014, he promoted his cousin to the position of a Production Manager as “good and trusted guanxi can accelerate our teamwork and cooperation, and I have trusted my cousin through all these years.” In February 2015, he decided to hire an external person for this position and offer his cousin the post of a Deputy Manager of that department as wished to “make the firm more professional.”

The CEO left the firm in February 2016.

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