Guanxi and organizational dynamics: Organizational networking in Chinese firms

Seung Ho Park, Yadong Luo

Research output: Contribution to journalArticle

1089 Scopus citations

Abstract

This paper focuses on the utilization of guanxi, which is an important cultural and social element in China, and the impact of guanxi on firm performance. Although guanxi is embedded in every aspect of Chinese social life, companies demonstrate different needs and capacity for guanxi cultivation. Chinese firms develop guanxi as a strategic mechanism to overcome competitive and resource disadvantages by cooperating and exchanging favors with competitive forces and government authorities. We develop an integrative framework theorizing guanxi utilization according to institutional, strategic, and organizational factors, and we explore the impact of guanxi on firm performance, primarily sales growth and net profit growth. Our findings, based on a survey of 128 firms in central China, provide strong support that institutional, strategic, and organizational factors are critical determinants of guanxi with competitive forces. However, only institutional and strategic factors are significant for guanxi utilization with government authorities. In general, guanxi leads to higher firm performance, but is limited to increased sales growth, and has little impact on profit growth. Guanxi benefits market expansion and competitive positioning of firms, but does not enhance internal operations.

Original languageEnglish (US)
Pages (from-to)455-477
Number of pages23
JournalStrategic Management Journal
Volume22
Issue number5
DOIs
StatePublished - May 1 2001

Keywords

  • Firm performance
  • Guanxi
  • Organizational networking
  • Transition economy

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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