A model of institutionalising practices by SMEs in China

Abstract

How and to what effect small businesses in China build and utilise their guanxi networks as informal institutions remain unanswered questions. Modelling and testing a model of institutionalising, or the performance-conducive managerial practices involved in building, leading, and utilising a SME's guanxi institution, is the purpose of this paper. Drawing from the literature and interviews with business leaders, we propose key aspects of institutionalising practices as well as the antecedents of each aspect, which are then tested using a survey questionnaire which was hand-delivered to 308 SMEs in China, achieving 212 valid samples. Governing, diversifying, weaving, sharing and distributing, the five institutionalising aspects hypothesised in the SME institutionalising model, were found to moderately co-vary with each other and contribute significantly to SME performance. The strategic actions corresponding to the five aspects can help an SME identify its institutionalising deficiencies and acknowledge its institutionalising achievements. The model also enables SME stakeholders to effectively explain, anticipate and respond to institutionalising actions. The findings indicate that institutionalising is not only to gain institutional legitimacy as suggested in the extant literature, but also to strive for institutional prestige within the Chinese institutional environment.