Guanxi-Based Business Strategies

Part of the Contributions to Management Science book series (MANAGEMENT SC.)


Significant progress has been made with respect to defining, operationalizing, and measuring the guānxì system in the business field. Yet research still lacks a clear understanding of exactly how its elements (identified in Chapter 2) are embedded in the theory behind business strategy.


Action Parameter Business Strategy Indifference Curve Sustainable Competitive Advantage Consumer Benefit 
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  1. 163.
    This book deliberately neglects collective market conduct (e.g. alignment with the market leader’s action parameters), for its analysis requires the application of game theory (Gibbons 1992: xi; see Section 2.2.8.).Google Scholar
  2. 165.
    Consider Shapiro’s (1989: 127ff.) six typical examples of areas in which strategies are crucial: investment in physical capital, investment in intangible assets, strategic control of information, horizontal mergers, network competition, and contracting.Google Scholar
  3. 167.
    In a more detailed manner, The Supply Chain Operations Reference Model splits elements into process, category, element, task, and activity (Supply Chain Council 1999: 17f.).Google Scholar
  4. 169.
    Acknowledging that guānxì strongly affects the optimal choice of business strategy (Day 2002: 87), Ye and Zhang (2003: 1) formally incorporated miànzi as an independent variable into a game theory model. In spite of the fact that, in a mixed environment of guānxì and a market system, such a formal model is needed, too many of the basics are still disconnected (Lovett et al. 1999: 237), preventing precise integration.Google Scholar
  5. 170.
    Such practices severely damage social wealth, for the unjustified high price is usually not lowered in subsequent bid clarification meetings. Furthermore, public funds (Open image in new window) are regularly used by low-quality bidders to improve their chances (Si 1996: 17).Google Scholar
  6. 171.
    The specificity of this finding was qualified, however, by a replication study by Merrilees and Miller who found that presumed key “components of guanxi [reciprocity, trust, friendliness] play the same role in Australian direct selling activities” (1999: 272).Google Scholar
  7. 172.
    For further analysis, see Bian (1994: 971ff.) and Bian and Ang (1997: 981ff.).Google Scholar
  8. 173.
    Shanghai, July 12–13, 2005.Google Scholar
  9. 174.
    Clissold (2004: 285f.) provides an insightful example of ever-changing regulations. In China, exploding bottles of beer injure scores of people—which is, mentioned in passing, why in the 1990s many people with facial injuries could be seen in the streets. Made of poor glass and bearing thin patches, beer bottles in China were reused many times. Each time they were steamed during the cleaning process, which weakened the bottle walls. Also, variations in temperature further weakened the glass. In early 1999, the Chinese government introduced a new regulation that required breweries to use “B-bottles”, which had a minimum wall thickness. Since B-bottles were much more expensive, their implementation was enforced by announcing fines in case of non-observance. While the Chinese-foreign JV Five Star Brewery immediately replaced its bottles, Yanjing Beer Brewery, in which the Beijing government was a major shareholder, refused. Instead, it used lateral guānxì and made the government withdraw the regulation. Shortly thereafter, Five Star Brewery went bankrupt.Google Scholar
  10. 176.
    guānxì with members very high in the hierarchy, however, may be disadvantageous. Although officials in a higher bureaucratic position have more discretionary power, it is more expensive to cultivate guānxì with them. In addition to being an overinvestment, it would also be shortsighted, for some decisions require commitment by lower level officials; for a negative example, see Clissold (2004: 254–291).Google Scholar
  11. 177.
    Therefore, it is not surprising that Tang Jinsu (1998: 108f.) supported his analysis of chīkuī in business with international examples (e.g. the strategy of car producer Ford).Google Scholar
  12. 178.
    Note that monetary remuneration works better for male Chinese employees than for their female counterparts (Ang 2000: 56).Google Scholar
  13. 179.
    Empirics suggest that this figure well reflects the labor market conditions: in a July 2005 report, the US-based employment consulting firm Mercer (2005 China CBM) found an average turnover rate of 19% in consumer goods companies. Drawing on field research by Hewitt Associates (Hewitt Annual Study Reports 2005), the newspaper Xinhua (September 28, 2005) reported that an average of 14% of employees left their companies in 2005. However, the turnover rate topped 20% in some sectors (e.g. non-manufacturing) and some business functions (R&D).Google Scholar
  14. 180.
    As Hu and Chen (1996: 165, 172) have observed, this disability is correlated to the socio-cultural distance between the foreign investor’s country of origin and China.Google Scholar
  15. 181.
    However, Westerners may fall back on their attractiveness in terms of the “internationalism” with which Sino-foreign JVs are associated. Plus, many Chinese realize that with “foreign friends” a visit or study program abroad becomes easier (Seligman 1999: 36).Google Scholar

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© Physica-Verlag Heidelberg 2007

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