Abstract
As Chinese economy has become one of the world’s economic powerhouse, research on guanxi, social or business ties in China, has been gaining ground in business research. The study is couched in the theoretical framework of social embeddedness in which the flows of information, resources, and opportunities occur across recognized members of a social network to create mutual benefits. This study empirically tests the major impetus for Taiwanese small to medium sized firms (SMEs) to utilize guanxi networks with business community, local governments, and the central government in China. The study results indicate the extent to which Tawanese firms utilize different types of guanxi differ by firm characteristics (i.e., resources, capabilities, and entry mode) and market factors (i.e., market stability and competition).
Highlights
Guanxi studies in an FDI context mainly focus on its role in entry mode decisions
Taiwanese small and medium-sized enterprises (SMEs) thrive in China by creating social capital, which they do by effectively using various institutional and social networks to induce entrepreneurial opportunities, maintain legitimacy, and ensure their survival
Managers who network with managers at other firms and with government officials help improve firm performance in the Chinese market (Peng & Luo 2000)
Summary
Coleman (1990) defines social capital as any aspect of a social structure that creates value and facilitates the actions of persons within that social structure. Departing from this network view though, others stress the role of guanxi: People exchange favors through guanxi based on trust, affect, or the friendship among persons (Jacobs, 1979; King, 1991; Pye 1982) This view evolves toward the idea of guanxi as social networking (Hwang, 1987; King, 1991; Yang, 1994), such that people interact within the network, engaging in an infinitely repeated game with a set of people they already know (Davies, Leung, Luk, & Wong, 1995) to obtain access to a gateway or passage (Yeung & Tung, 1996). We theorize and test both firm characteristics (i.e., resources, skills, and entry mode) and market conditions (i.e., stability and competition) as potential drivers of guanxi with different networks (i.e., business communities, local government, and the central government)
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