Guanxi’s Changing Nature: A Chinese Born Global’s Experience

ABSTRACT

This article aims to show that using guanxi initially fostered a Chinese born global’s internationalization but later, restricted its decision-making freedom and resulted in the firm’s partial deinternationalization. It concludes that because of guanxi’s reciprocal nature, owners and managers should use it with caution: they should not only focus on what (knowledge, financing, contacts) they can gain but also consider what (time, services, financial resources) they are expected to contribute and what (reputation, some customers, access to financing) they can lose if their partners decide to break the guanxi as a result of of receiving less than they expected.

KEYWORDS:

• Born global
• case study
• China
• guanxi
• internationalization

Acknowledgments

This work was supported by the Estonian Research Council’s grant PUT 1003 and by the Institutional Research Funding IUT20-49 of the Estonian Ministry of Education and Research.

Notes

Born globals are defined as firms that internationalize in three years or less since establishment and also enter at least one continent outside their home continent and achieve a 25% or higher export share during these years (Madsen and Servais 1997; Kuivalainen, Sundqvist, and Servais 2007; Vissak and Masso 2015).

Social capital can be defined as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (Nahapiet and Ghoshal 1998, 243) and as “an asset available to individual or collective actors that draws on these actors’ positions in a social network and/or the content of these actors’ social relations” (Maurer and Ebers 2006, 262).

Guanxi means relationships for continued reciprocal exchange of favors for personal or organizational purposes (Dunfee and Warren 2001; Fan 2002a, 2002b; Gu, Hung, and Tse 2008; Su, Zhai, and Landström 2015). Several authors—including Alon et al. (2013), Ding and Akoorie (2009), Hutchings and Weir (2006), Tsai (2013), Xie and Amine (2009), Zhang, Ma, and Wang (2012) and Zhou, Wu, and Luo (2007)—have used this term as a synonym of Chinese social networks.

Deinternationalization means reducing geographic scope and/or foreign market penetration (Turner 2012). Some firms withdraw from all markets completely (Welch and Welch 2009), some exit only a few markets (Benito and Welch 1997) while some reduce activities in some or all countries without exiting any (Vissak and Francioni 2013; Vissak and Masso 2015).

Family members provide affective support, labor, information and financial resources that entrepreneurs need in the early stage of their firms’ development (Chen, Chang, and Lee 2015).

According to Granovetter (1973, 1361) a strength of a tie is a “combination of the amount of time, the emotional intensity, the intimacy (mutual confiding), and the reciprocal services which characterize the tie.”

On the other hand, according to Farh et al. (1998) and Yau et al. (2010), reciprocity is not always expected in case of family guanxi; still, loyalty to family members is considered natural and, usually, relatives are trusted more.

And, in some cases, also through single business relationships (Hohenthal, Johanson, and Johanson 2014).

Like how the firm used guanxi to enter foreign markets and why it got trapped in guanxi.

The owner’s son (his only child) is currently studying in the United States, thus he can speak English well but in 2000, he was only 10 years old. According to the entrepreneur, his son is not interested in getting involved in his business although he has tried to convince him.

She only knew a few phrases in German but with the help of interpreters and her husband, she managed well enough.

The entrepreneur decided to hire an external person as “employing unqualified relatives only increased pressure on the firm.” He understood that “making structural changes is extremely difficult” but he hoped that “in the longer run, this will eliminate unnecessary conflicts between me and my relatives.”

In June 2014, he promoted his cousin to the position of a Production Manager as “good and trusted guanxi can accelerate our teamwork and cooperation, and I have trusted my cousin through all these years.” In February 2015, he decided to hire an external person for this position and offer his cousin the post of a Deputy Manager of that department as wished to “make the firm more professional.”

The CEO left the firm in February 2016.