The world’s factory and informal ties – organisation of firm networks in the electronics industry in the Greater Pearl River Delta, China

Abstract

Abstract Institutional transition in countries such as China is expected to go hand in hand with the formalisation of interactional behaviour in firm networks. Recently, however, a different string of arguments has entered the academic discussion emphasising the limited extent of the formalisation of firms’ behaviour despite the institutional transition being complete. The aim of this paper is to show conceptually and empirically that a balance of formal and informal interactions is considered optimal for firms due to economic opportunities resulting from informality. The Greater Pearl River Delta (PRD), where Hong Kong (HK) firms act as cross-border intermediates between global customers and Chinese producers, serves as an example for studying the degree of informality applied when operating in two distinct institutional settings. A survey of electronics firms in HK investigates the way in which firms organise their contacting and selecting as well as their contracting processes when approaching global customers and Chinese producers. The findings show (1) that the degree of informality is greater when interacting with producers in the PRD due to the incompleteness of the institutional setting, but (2) that when acting with global customers, the behaviour of firms is only formalised to a certain extent. Informal interaction also serves as an opportunity for firms and is strategically used in an innovative organisational and management processes.