Academic journal article International Journal of Business and Information

Institutional Reform and the Changing Face of Guanxi

Academic journal article International Journal of Business and Information

Institutional Reform and the Changing Face of Guanxi

Article excerpt

1. INTRODUCTION

Many leading scholars (e.g., North, 2005: Redding and Witt, 2007) suggest that a transition from particularistic personal networks and informal institutions, such as guanxi in the Chinese context, to impersonal formal institutions is an essential factor for sustained economic growth in developing polities. Therefore, it is both timely and important to better understand what guanxi is and how and whether it is changing, as Chinese business people are increasingly exposed to more formal "Western" institutions. The latter part of this paper is likely to add to such knowledge through a detailed look at the changing nature of guanxi 's role in Chinese business practices in two Mainland and six overseas Chinese polities. Before beginning to examine the implications of guanxi, however, we need to establish a contextual theoretical framework for analyzing the nature of guanxi and its processes and practices - a framework that allows for comparisons between different polities [Child, 2009].

There is an immense body of literature on institutions, but surprisingly few theoretical or conceptual tools for empirical analysis. Researchers such as Redding [2008], Child [2009], and Hodgson [2010] have made excellent inroads in this regard. We suggest, however, that it is necessary to look deeper into the antecedents of institutions in order to better understand how they evolve and change over time.

This paper first develops a more comprehensive theoretical framework using an interdisciplinary perspective - a perspective that Dunning [1989] and Cheng, Henisz, Roth, and Swaminathan [2009] suggest is important for international business research. To do this, we draw on Trivers's [1971] theory of reciprocal altruism from evolutionary biology; North's [1990; 2005] theory of institutional and economic change from new institutional economics; Hodgson's [2010] work on choice, habit, and evolution; and the eco-cultural framework from cross- cultural psychology [Berry, Portinga, and Pandey, 1997].

The paper then discusses the research methods used in an application of the framework to a case based on an investigation of guanxi. This paper reports on the findings from three research questions. These three questions were developed to elicit perceptions of Chinese business people into how the practice of guanxi might be changing as a consequence of their exposure to a range of socio- economic and socio-political variables. The paper concludes with a discussion of the framework and its strengths and weaknesses, and with a final elaboration on specific research on guanxi and its key

2. THEORETICAL BACKGROUND

Over the last 200 years, international business practices and the institutions that govern them have been dominated mainly by state, private, and public organizations from Western polities. During this period, Western business practice and social reality have evolved from interpersonally based gemeinschaft, or a community built on particularistic ties, toward gesellschaft, or a society based on more impersonal exchange [Tönnies, 2001 (1887)]. This gradual shift has been accompanied with increasing reliance on formal institutions, or "rules of the game" [North, 2005]. Such a shift assists in managing and preventing opportunism, reducing search and transaction costs, reducing environmental uncertainty, and facilitating knowledge transfer through formally contrived institutions.

Over the last 50 years, and particularly since the early 1980's, polities such as South Korea, Singapore, Taiwan, China, Malaysia, India, Vietnam, and Thailand have increasingly engaged in international trade and commerce. China and India in particular are rapidly emerging as potential economic superpowers. In comparison with Western polities, constituents of these Eastern polities have quite different value and ethics systems underpinning their formal and informal institutions, and business in these polities is still largely governed by particularistic interpersonal relationships. …

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