Unlocking the Secrets of Guanxi in Supply Chains…

Professor Baofeng Huo left to return to Zhejiang University this week.  Baofeng and I have spent a great deal of time together this fall, discussing and comparing the importance of supply chain relationships in China and North America.  We have launched several major research programs together that will span the next five to ten years.

One of the topics we have been exploring is the interesting nature of social and economic relationships between buyers and sellers in China.  This set of relationships doesn’t fall under the typical theoretical rubrics that are conveniently applied in Western culture.  Somewhere between the strong predicted relationships identified by transaction cost economics (Williamson, 1985) and social exchange theory (Blau, 1964), there seems to be white space when it comes to understanding how buyer-seller relationships are governed.    Nowhere is this more the case than in emerging economics such as China.    When one overlays the cultural artifacts that exist in Chinese culture and the roles of “guanxi”, there is comparably little research that specifies how such relationships unfold, and how the types of outcomes that can be predicted.    Recent research calls for a deeper set of explanations that translates the typical Western pragmatic business relationships into a Chinese context and provides substantive guidance for how to build effective business relationships that build trust in China (Chua, 2012; Chua et al., 2008, 2009).

This recent research points to the fact that “guanxi” is in reality an important cultural artifact that embodies the level of trust that exists in a relationship.    The two forms of trust that develops in Chinese managers include cognitive trust that emanates from the confidence one has in the partner’s accomplishments, skills and reliability (“trust from the head”) as well as the emotional trust that arises from the feelings one has in the partner’s emotional closeness, empathy, and rapport (“trust from the heart”).    Both forms of trust are needed to effectively establish business ties in a Chinese buyer-seller relationship (Chua et al., 2009).    However, comparably little understanding of the relative importance of these forms of trust and how they are established through patterns of communication between buyers and sellers, under different conditions of power, which are oriented in Chinese high power distance culture.    This is made even more so when Western managers travel to China, and fail to understand what goes wrong when they attempt to build supplier relationships in China.  To some extent, the nature of power plays an important role here.  When power distance is higher, coercive power will be more effective in influencing others, while when collectivism or guanxi culture is more typical, non-coercive power will be more effective.    So, the predictive power of the power theory developed in the western world will be weak in Chinese combined high power distance and guanxi culture.

We explored this in our empirical analysis, and have also takenon other interesting studies, including a taxonomy/typology of supply chain integration, the nature of contracts and opportunism in China, and a host of other subjects.

Professor Huo also had an opportunity to sit in on our MBA supply chain projects at the SCRC this semester, and believes he has taken away some important ideas on how to adapt the approaches we’ve developed here to similar studies in China.  We are also exploring co-development of a textbook that could be adopted for Chinese supply chain programs….

We will miss you Baofeng!  But we look forward to our continued work together!

The SCRC Team