Guanxi has been identified as having an important influence on business behavior. This paper investigates the influence of guanxi on three elements of supply chain management: strategic purchasing, outsourcing, and supplier development. Survey data was collected from 175 companies in the electronics sector of Hong Kong. The results indicate that guanxi has a significant influence on these three supply management constructs. The managerial implications are examined from a relationship perspective and in terms of transaction cost economic theory. The failure to appropriately assess the impact of guanxi-based supply management practices can have a detrimental effect on organizations attempting to enter the Chinese market.
With the economic ascendancy of China, much has been made of its future economic prospects. The movement to a market economy and high growth rates has encouraged significant foreign investment. Many investors were drawn initially by the attraction of China as a low-cost manufacturing base and more recently as a market for consumer and industrial goods in its own right. One of the main concerns facing investors is the lack of a stable legal and regulatory system and the need to rely on trust-based personal relationships as a means of obtaining resources (Fan, 2002).
In the literature, China is often described as being a relational society, where concepts such as guanxi (relationships or connections) have a major influence on both social and business norms ( Tseng et al., 1995). Guanxi, in many respects, is analogous to the concept of supply management, involving mutual obligations, assurance and understanding, a long-term perspective and cooperative behavior ( Arias, 1998).
However, foreign investors often experience highly transactional behavior, with the focus being on the short-term and the immediate benefits emanating from it, which seem to dominate business dealings (Styles et al., 2000). Thus, within the Chinese business context there is this ambiguity between elements of the long-term business relationship and the short-term transaction.
It is therefore important for foreign investors to understand the implications of guanxi. The development of an effective guanxi network has an important role in helping to gain a commercial foothold. Foreign investors most often establish business linkages through a joint venture or wholly owned subsidiary. Under either option, they must be able to gain access to the appropriate guanxi webs, through their Chinese partners, in order to facilitate quick acceptance of the investor.
In regard to supply management, while suppliers have been widely considered as one of the effective sources of competitive advantage in the past decade (e.g., McCutcheon and Stuart, 2000; Dyer and Ouchi, 1993), a number of studies have estimated the failure rate of adopting closer or partnering inter-firm relationships to be around 30–50% (Anderson and Jap, 2005). This implies that a firm's decision to adopt supply management practices must proceed with extreme caution. Consequently, considering the wide prevalence of guanxi culture in China, a study investigating how guanxi impacts on the adoption of supply management should offer useful insights to managers. Nonetheless, studies exploring the association between guanxi and supply management are limited in the literature.
This paper investigates the relationship between guanxi and supply management practices. It is divided into a number of sections. Firstly, the literature is presented with the term guanxi being defined and its linkages to supply management practices. Secondly, a conceptual framework is developed and a number of hypotheses are proposed linking strategic purchasing, outsourcing, and supplier development to the guanxi concept. The study concludes with the need for organizations to take into consideration both a short-and long-term orientation in developing supply chain relationships with firms in China.
