Leveraging Social Capital for Business in China: The Power and Pitfalls of Guanxi
Flora Gu, Kineta Hung, and David Tse (see the article When Does Guanxi Matter? Issues of Capitalization and Its Dark Sides in the July 2008 issue) shed fascinating light on guanxi within a collectivist society, such as China. The authors rely on social capital theory to argue that guanxi, or the influence stemming from social connections or networks in Chinese settings, represents an organizational resource that can be leveraged for competitive advantage.
Their study considers the role of guanxi as a governance mechanism, affirms its direct and positive impact on the firm’s market performance, and acknowledges indirect impact through channel capability and responsive capability. That is, guanxi has a positive influence on both channel and responsive capabilities that, in turn, generate positive impact on firm performance. Furthermore, the authors identify the dark side of guanxi: Technological turbulence and competition intensity are presented as “structure-loosening” factors that diminish the governance effects of guanxi. They also alert readers that reciprocal obligations stemming from guanxi can become damaging and potential fatal. In addition, the “ties that bind” can become “ties that blind.” In other words, guanxi at its worst may contribute to collective blindness among the social network entities.
As usual, I welcome the thoughtful contributions from JM readers on this article. Ultimately, a key goal of JM’s blog feature is to provide readers and authors with a forum to engage in a productive and intellectually stimulating dialog.
by Siva K. Balasubramanian, Journal of Marketing Web Site Editor
Comments
I really enjoyed the thought-provoking article.
In the U.S., we're so often used to strong-tie relationships being embedded within the hierarchy of a company--where people in higher positions are able to locate and mobilize resources within the firm because of their position. However, Guanxi places durable kinship ties (or virtual kinship ties) over structural/positional ties.
The findings on channel capability and resource capability show that there's definite value in "corporatizing" the individual managers' guanxi network.
Overall, a very interesting piece of research on social capital theory. I had been rereading Yanjie Bian's article "Guanxi Capital and Social Eating in Chinese Cities" earlier today, so it proved a very timely follow-up.
Posted by: Bill Sherman | July 15, 2008 2:54 AM
Very interesting article which I find ads fuel to the ongoing mini-controversy about the nature and the influence of social connections on business activities and results when institutional and economic structures change in emerging economies. On the one hand, the camp around Guthrie, Peng, and others argues that as emerging economies evolve networks and personal connections decline vis-à-vis competitive resources and capabilities. The need for or significance of social connections to conduct business in such an emerging country is fading, they argue, because as economic reform progresses the emerging institutions erode the importance of idiosyncratic cultural behavior (e.g., guanxi practice) and increasing competition in these markets favors efficiency over indebtedness.
On the other hand, there is quite some disagreement with above perspective by another camp around Wank because the impact of social networks and tie-based business relationships remain salient in Asian countries, including China, due to its cultural roots and despite changing influences. Wank argues that patron-client ties are active elements of transitional economies shaping the course and future of a transition toward a market economy that are unlikely to decline in significance. Rather, new networks and social ties emerge and become an integral element of this transition by facilitating resource access and information flows.
The study presented here appears to parallel and reconcile some of these prior assessments of the proponents of the two perspectives.
Posted by: Ludwig Bstieler | July 29, 2008 5:16 PM