The Role of the Guanxi Institution in Skill Acquisition Between Firms: A Study of Chinese Firms

• Date: 01 October 2014
• Author: Zhilin Yang,Shaohan Cai
• DOI: http://doi.org/10.1111/jscm.12035
• Published date: 01 October 2014

THE ROLE OF THE GUANXI INSTITUTION IN SKILL

ACQUISITION BETWEEN FIRMS: A STUDY OF CHINESE

FIRMS

SHAOHAN CAI

Carleton University

ZHILIN YANG

City University of Hong Kong

The prevalence of personal connections in China, or guanxi, constitutes

an institution that governs how people exchange favors. This study

explores the effects of the guanxi institution on interfirm relational ties,

information sharing, and the acquisition of skills across firms. According

to social network theory, the marginal benefit of interfirm relational ties

on information sharing should decrease with the strength of ties; accord-

ing to information overload theory, information sharing should have an

inverted U-shaped effect on the acquisition of skills. Institutional theory

further suggests that the links across these three constructs are subject to

the influence of the guanxi institution. With data collected from 338 man-

ufacturing companies, this study shows that the links differ across envi-

ronments that have strong versus weak guanxi institutions. A strong

guanxi institution generally promotes information sharing and skill acqui-

sition, but it also has a dark side.

Keywords: relational ties; acquisition of skills; information sharing; guanxi institu-

tion; institutional theory; social network theory

INTRODUCTION

Guanxi constitutes an important cultural and social

element of Chinese society (Park & Luo, 2001). At a

personal level, guanxi implies that people can draw on

their connections or networks to secure favors in their

personal or business relations (Luo, 1997a). Interper-

sonal guanxi is so widespread that it forms an institu-

tion. An institution is a humanly devised construct

that features both formal rules and informal norms to

structure human interactions (North, 1990). In China,

the guanxi institution often substitutes for support

from formal institutions, such as the rule of law (Xin

& Pearce, 1996), by defining the rules and norms

governing how individuals exchange personal favors.

Furthermore, Chinese managers often draw on their

personal connections to obtain resources that their

firms need (Li, Zhou, & Shao, 2009; Luo, 1997b; Luo,

Huang, & Wang, 2011; Park & Luo, 2001; Wong &

Chan, 1999). Such behavior is governed by the guanxi

institution. In other words, the guanxi institution

affects interorganizational relationships by influencing

individual behaviors in personal relationships.

This article considers the effects of the guanxi institu-

tion on one critical element of interorganizational

relationships, namely skill acquisition. Business part-

ners represent an important source of skills and

knowledge for firms (McEvily & Marcus, 2005; Uzzi,

1997). Because obtaining skills from partners often

involves acquiring tacit knowledge that is difficult to

codify and articulate, it generally demands close rela-

tionships and intensive collaboration between partner

firms (McEvily & Marcus, 2005). Accordingly, prior

studies emphasize the importance of close social link-

ages between organizations to promote the transfer of

tacit knowledge and competitive capabilities (Borgatti

& Li, 2009; Cousins & Menguc, 2006; Dhanaraj, Lyles,

Steensma, & Tihanyi, 2004; Uzzi & Lancaster, 2003).

Acknowledgments: The authors acknowledge grants from the

Research Grant Council of Hong Kong SAR (CityU 152110 &

196513), City University of Hong Kong (9680022, 7008139,

& 7002905) and National Science Foundation of China

(71172215).

October 2014 3

This study similarly considers the effects of social rela-

tionships between firms, or interfirm relational ties,

on skill transfers. These relational ties are defined by

the closeness and interaction frequency that two

parties undertake (Levin & Cross, 2004). In particular,

the present study focuses on how the guanxi institu-

tion affects the mechanisms that relate interfirm

relational ties to skill acquisition. Institutions clearly

exert pressure on firms and influence their interfirm

relationship management (Peng, 2003), which in turn

affects the skill transfer process. However, previous

studies typically have assumed that organizational

learning is cognitive and facilitated by relational or

structural embeddedness (Reagans & McEvily, 2003),

without considering the role of institutions.

To account for the role of institutions in organiza-

tional learning, the current study explores whether the

guanxi institution influences complex relationships

among interfirm relational ties, information sharing,

and the transfer of skills. Strong ties should enable

the acquisition of skills and capacities by encouraging

extensive information sharing (Krause, Handfield, &

Tyler, 2007; Lawson, Tyler, & Cousins, 2008; McEvily

& Marcus, 2005). This study predicts that information

sharing mediates the relationship between strong

interfirm ties and skill acquisition. However, the rela-

tionships among these three constructs are complex.

First, the relationship between relational ties and

information sharing may be affected by the guanxi

institution. Second, the relationship between informa-

tion sharing and knowledge acquisition is unclear, in

that increased information sharing might not always

produce positive outcomes. Hoegl and Wagner (2005)

demonstrate a curvilinear (inverted U-shaped) rela-

tionship between the intensity and frequency of

communication (x-axis) and joint product develop-

ment outcomes (y-axis) for buyers and suppliers.

Information sharing may exert a similar curvilinear

effect on the acquisition of skills, affected by the

guanxi institution in China. No prior study has inves-

tigated these effects empirically.

The current study seeks to advance understanding of

the role of the guanxi institution in relation to the

mechanisms by which interfirm relational ties affect

the acquisition of skills. The theoretical framework for

this study appears in Figure 1. The authors conducted

an investigation in the context of Chinese manufactur-

ing firms and tested the theoretically based hypotheses

with an empirical study of 338 manufacturing firms

located in China.

THEORETICAL FOUNDATIONS AND

HYPOTHESES

Guanxi Institution

The word “guanxi” in Chinese refers to the concept

of drawing on connections or networks to secure

favors in personal or business relations (Luo, 1997a).

Three types of guanxi are available: guanxi by blood,

which involves family members, kinship, in-laws, and

members of the same clan; guanxi by nature, pertain-

ing to others who share similar backgrounds, such as

people from the same town or province, alumni, or

neighbors; and acquired guanxi, which involves

friends, acquaintances, or others who know the same

person (Fan, 2002; Tsang, 1998). Both guanxi by nat-

ure and acquired guanxi represent socially based rela-

tionships (Tsang, 1998). For Chinese people, guanxi

by blood is the most important form, involving the

closest ties and demanding unconditional obligations

(Chen & Chen, 2004). In contrast, guanxi by nature

and acquired guanxi are generally utilitarian (Fan,

2002; Park & Luo, 2001): They lack the long-term

commitment of guanxi by blood and place more

emphasis on money, power, and favors. Most busi-

ness or organizational-level guanxi falls into the

acquired guanxi category, and the actors mostly seek

profit or other benefits from this guanxi.

FIGURE 1

Research Model

Prevalence of

guanxi

institution

Information

sharing Curvilinear Acquisition of

skills

Interfirm

relational ties

Volume 50, Number 4

Journal of Supply Chain Management

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