WHERE DO STRONG TIES COME FROM? A DYAD ANALYSIS OF THE STRENGTH OF INTERFIRM EXCHANGE RELATIONS DURING CHINA'S ECONOMIC TRANSITION

Abstract

The emergence of dyadic resource exchange relations in transition economies provides a unique opportunity to study the process by which interfirm exchange relations develop. I use data on China's 40 largest business groups and their 535 member firms in the first five years of business group formation to investigate the effects of environmental uncertainty, interfirm familiarity, and organizational flexibility on the strength of repeated interfirm resource exchange ties. I model 16,306 ordered pairs of dyadic relations as a function of organization, dyad, and regional covariates to evaluate ideas derived from resource dependence theory and research on social dilemmas. I find that even when less expensive alternatives are available, exchange ties are stronger when the sending firm has secure access to the resource and when the receiving firm is located in an uncertain environment. In addition, exchange ties are stronger between firms that had prior social connections, particularly when environmental uncertainty is high. Finally, the strength of ties decreases where the receiving firm is able to modify its basic priorities so as to do without the resource, particularly when the receiver is exposed to relatively high levels of environmental uncertainty. These results simultaneously lend support for some of the basic propositions of resource dependence theory, provide insight into the process by which interfirm relations develop, and identify relationships of interest to strategists and policy makers.