Beyond Guanxi: Network Contingencies in Taiwanese Business Groups

Abstract

Business groups consisting of legally independent affiliates with institutionalized relationships with each other exist in almost every market economy. While the groups are important and pervasive, little attention has been paid to the processes by which business groups emerge and grow. Reasons for this gap include a) a deficiency of the top-down, macro perspective of many business group studies, and b) the overemphasis of Guanxi networks in the literature of business organizations in East Asia. Personal relationships ( Guanxi) are treated as the necessary and sufficient condition for the entrepreneurship and evolution of business groups. In an attempt to refine the Guanxi perspective, the author uses case studies of five major Taiwanese business groups to propose a set of contingency factors. The suggestion offered in this paper is that entrepreneurs’ attributes and contextual factors are inseparable from the functions of the Guanxi network in the entrepreneurial process. Tracing the movements of these groups over the past four decades, it appears that group diversification evolves in a path-dependent fashion as opposed to a Guanxi-driven, idiosyncratic pattern as suggested by the Guanxi perspective. The influences of Guanxi for group diversification were clear in the early stages when markets were tightly controlled and the personalistic networks became the core capabilities underlining diversification. However, as groups grew and institutions developed, the significance of political Guanxi diminished and the decision-making of diversification strategy became hinged mainly upon the resources firm accumulated overtime.