Guanxi is guided by two key concepts related to the Chinese code of conduct: the code of brotherhood ( yi ) and the code of reciprocity ( bao ). As Confucius (551–478 B.C.) has taught, “All people from our country are brothers.” Chinese people deem it a moral act to help others with no strings attached. However, people receiving assistance must consciously reciprocate to avoid feeling guilty and losing face. Therefore, gift giving in China allows people to express their appreciation for any assistance received. To the party who provides assistance, the gift signifies appreciation; to the party who receives the assis- tance, the gift is an expression of reciprocity. Therefore, gift giving is a typical way of cultur- ally developing guanxi , that is, respect, friendship, and trust. Because China is a collectivist culture, guanxi reflects norms involving social interdependence (Hofstede, 1980). The Chinese people believe that everything has two sides ( yin/yang ); that is, life alternates between advantageous and disad- vantageous situations. Thus, social interdepen- dence is like a “stock” that can be put away in times of abundance and plenty and used in times of need and necessity (Yeung and Tung, 1996). Given the scarcity of resources and uncertainty in life, it is believed that the security of resources for survival should be consolidated by means of a large web of renqing (exchange of favors) and mianzi (saved face for help when in need) through long-term cooperation. Many empirical studies have shown that compared to firms with low guanxi , high guanxi firms tend to: • Be more efficient (Lovett et al., 1999), • Possess a sustained competitive advantage (Tsang, 1998), • Have more access to scarce resources (Davies et al., 1995; Luo, 1997), and • Enhance long-term survival and growth (Pearce and Robinson, 2001; Yeung and Tung, 1996). Based on a classification of Chinese organiza- tions (Nee, 1992), Xin and Pearce (1996) found that private companies have a stronger guanxi orientation than state-owned or collectively hybrid companies. Private-company executives care more about business connections, have more government connections, and depend more on resources or protections secured by guanxi , which otherwise are not available. These findings are interesting in that they highlight the importance of resource dependence and exchange in guanxi orientation. In a transitional Chinese economy, private companies are more market-oriented but lacking necessary economic resources compared with state-owned or collectively-hybrid compa- nies, which have greater access to the govern- ment-granted resources (Xin and Pearce, 1996). Therefore, guanxi represents an important way for private companies to secure or share scarce resources for survival. In summary, guanxi in China is a cultural orientation in people’s social activities, reflecting a set of Chinese cultural ethics such as hierarchy, interdependence, and reciprocity (Hwang, 1987).
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