The ethic of bao and supplier-buyer relations in China: an empirical test

Abstract

Purpose Based on a review of the Chinese ethic of bao (reciprocity), this paper aims to study the issue of reciprocity of trust at firm level by analyzing multiple-source data while controlling for the effects of several contextual variables. Design/methodology/approach The authors collected data from the supplier–buyer partnerships in China’s automotive industry. Hierarchical linear regression approach is adopted to test the hypotheses. Findings The data show that reciprocity of trust between parties involved has a significantly positive effect on the stability of the supplier–buyer partnership, and that this reciprocity also moderates the relationship between trust itself and stability. In addition, several contextual variables, i.e. the suppliers’ sensitiveness to their buyer’s need, personal contact of top managers, motivation to develop symbiotic partnership and firm location, can also have significant and positive effects on the stability of the supplier–buyer partnership. Originality/value This study presents empirical evidence on how the Chinese ethic of bao may influence the stability of the supplier–buyer partnerships, suggesting that examining this Chinese cultural element is a useful exercise. Related to this issue, the data show that the level of trust between the parties in business transactions differs, and that this difference influences the stability of the partnership. In addition, the study suggests that several other factors have significant and positive effects on the stability of the partnership. Interestingly, the data suggest that these effects are more likely to be observed when the reciprocity of trust or bao between the partners is taken into account. By demonstrating empirically the significant direct and moderating effect of bao or reciprocal trust, this study makes an important contribution to the literature on trust and the stability of the supplier–buyer partnership.