SMALL BUSINESS SURVIVAL IN CHINA:GUANXI, LEGITIMACY, AND SOCIAL CAPITAL

Abstract

Previous research suggests that guanxi "costs" are significantly higher for private Chinese enterprises versus all other enterprise types, i.e., state, township and village (TVE), domestic and foreign enterprises. Also, consistent with its cultural context, guanxi is considered to be equally important in business as it is in life for all types of Chinese enterprises. Herein, the discussion is extended to describe the concept of guanxi as a means of garnering social capital in order to maintain legitimacy. Furthermore, some practical means are suggested for entrepreneurs and small business owners to build a necessary foundation for survival.

Supply risk management via guanxi in the Chinese business context: The buyer's perspective

“…Many researchers consider guanxi as a form of social capital (Luo and Chen, 1997;Carlisle and Flynn, 2005). Lovett et al (1999) explain that the process of building guanxi is the same as the process of accumulating social capital.…”

Social capital in Southeast Asian business relationships

“…Individuals use guanxi to obtain favors (requing), develop trust and access resources. Guanxi is similar to social capital, especially in relation to the structure and benefits obtained (Carlisle & Flynn, 2005;Hitt et al, 2002). However, differences between guanxi and social capital include the bases from which the relationships develop.…”

“…As the majority of Thai managers are ethnic Chinese, guanxi significantly impacts on business relationships (Itthiopassagul & Blois, 2000). Guanxi is closely linked to social capital and is used as a deliberate strategy for developing business opportunities (Carlisle & Flynn, 2005;Hitt et al, 2002). Social capital significantly affects firm performance (Luo, Griffith, Liu & Shi, 2004), yet, research exploring social capital use within Southeast Asian business networks is lacking (Hitt et al, 2002).…”

The role ofguanxiin buyer–supplier relationships in Chinese small- and medium-sized enterprises – a resource-based perspective

“…While the Chinese government has pursued its liberalisation reform and promotion of foreign investment, it has also encouraged a wide variety of privately owned small-and medium-sized enterprises (SMEs) to emerge (Carlisle and Flynn 2005). In the past decade, private SMEs have been starting to gain tremendous economic momentum and have been playing an important role in the Chinese economy (Cunningham and Rowley 2010).…”

“…In addition, many Chinese SMEs face enormous handicaps such as lack of legitimacy, resources and lack of government support. In an environment such as this, guanxi becomes crucial in cultivating business relationships, managing scarcity, securing production factors, distribution channels and institutional support and for that matter the firm's survival (Xin and Pearce 1996;Carlisle and Flynn 2005). Su, Sirgy, and Littlefield (2003) suggest that SMEs are perhaps more dependent on guanxi and thus might have different needs and capacities than larger companies due to their scarce resource base.…”