GUANXI - OR MEI GUANXI?* 关系 - 还是没关系?

GUANXI - OR MEI GUANXI?* 关系 - 还是没关系? Purpose This study aims to investigate the future role of guanxi and identify the factors that can influence its future importance, as described in business literature. Design/methodology/approach The analysis is based on the two underlying perspectives of cultural and institutional explanations of guanxi, and the existing literature and their views. Findings We found that there are many factors outside of the perspectives of cultural and institutional explanations of guanxi, that might have a great influence on the future importance of guanxi. Practical implications Business practitioners in China should be aware and pay attention to the factors presented, and changes among these. Originality/value The thesis should be of value to business practitioners such as managers and consults in China, as it may provide valuable information and a summarizing analysis of the factors that might change their working environment. It may also be of value for future research on the subject as it contributes to the discussion about the future developments. *"mei guanxi" is a Chinese idiomatic expression which meaning can be translated to "(it) doesn't matter". 05-01-2011 Bachelor thesis, 15 hp Department of Business Studies Uppsala University, Autumn term 2010 Authors: Gunnar Hansson and Karin Gambe Supervisor: Rian Drogendijk

Introduction Ever since the beginning of the Chinese economic reforms in the late 1970's, China has had an increasing influence in the business world and has added another level to the concept of globalization. The market opened up gradually, and the China of today is no longer just a cheap source of production resources, but also a developing consuming market, which have attracted many foreign business actors. But from a Western perspective, entering the Chinese market is not the same as entering another Western country. The Chinese society stands on a different cultural foundation than the West, which is expressed in everything from the language and values to the way people interact. While the traditional cultural values of the West largely are based on religion, the Chinese values are rather based on Confucianism, a philosophical system. One distinctive feature of Confucianism, and furthermore of the Chinese society, is the reliance on relationships - guanxi. Guanxi is a rather complicated phenomenon that is not easily explained. In a simple translation, guanxi means relationships or connections (Wong and Leung, 2001). However, a single word explanation is, according to So and Walker (2006), not enough to give a fair meaning to the many facets of this concept. Park & Luo (2001), refer to the concept as an establishment of a web of connections in order to secure favors in personal and organizational relations. The core idea of guanxi can be characterized as relationships between or among individuals creating obligations for the continued exchange of favors (Dunfee & Warren, 2001). Along with China s growing involvement in the business world, the importance of understanding and implementing guanxi has been increasingly understood by foreign companies wanting to do business in China. Guanxi has even been identified as an essential factor for business success in China (Yeung & Tung, 1996), and it has been argued that no company can come far without a wide business network (Luo, 2000). However, it has been argued that even though guanxi might be important in some aspects when doing business in China, it should not be considered the sole explanation to business success (Fan, 2002). The role of guanxi in social and economic interaction has been debated extensively among scholars and there is a distinction in the existing literature on the subject, between scholars that see guanxi as a cultural phenomenon, and those who believe that guanxi has emerged from China s social institutional environment (Gold et al., 2002). The Chinese society has been characterized by a weak institutional structure, and the role of guanxi has been described as a substitute for the absence of strong formal institutions (Xin & Pierce, 1996) that provide legal framework, rules and regulations 2

of behavior (Dunning & Kim, 2007). This argument of guanxi acting as a substitute for a weak institutional structure, e.g. lack of legal support etc., is closely related to a discussion about the future of guanxi, and it has been argued that the role of guanxi will diminish as the institutional structure in China continues to develop (Guthrie, 1998; Fan, 2002; Anderson and Lee, 2008; Wilson and Brennan, 2010). If guanxi is rather a phenomenon deeply rooted in the Chinese culture, it will not necessarily change in the same way as the institutional structure changes. China is still undergoing major legal, social and economic development and the debate among researchers concerning the future strategic importance of guanxi is an ongoing process. With a background in Chinese language and culture studies, along with our ongoing business studies, we wanted to explore the subject of guanxi and its future further. As we both have our minds set on a continuing involvement in the Chinese business world, we wanted to deepen our knowledge of this rather complicated phenomenon. The purpose of this thesis is to investigate the future role of guanxi and identify the influential factors, as described in business literature. With the two underlying perspectives of cultural and institutional explanations of guanxi in mind, and with the existing literature and their views on the subject as a foundation, this thesis will summarize and extend the discussion by critical analysis. 3

A literature review The research will be performed in the form of a literature study, investigating our research question using a number of articles on the subject. The literature selection process started off with two articles: Questioning guanxi: definition, classification and implications, by Ying Fan (2002), and Doing business in China: Is the importance of guanxi diminishing? by Wilson and Brennan (2010), which reference lists were utilized as starting points for the literature search. The article by Ying Fan was selected because it provides a wide, explanatory view on the subject, something that the literature on guanxi has not been providing a redundancy of. The second article, by Wilson & Brennan, was selected since it is the most recent work discussing the future of guanxi, and its list of references would therefore provide a complimentary, up-to-date summary of existing literature on the subject. We tried to find the core of the discussion of our research question and by using the method of snowball sampling (Saunders et al. 2009), we worked our way through the reference lists of these two initially chosen articles, scanning for literature relevant to our study. To further deepen the selection process we used Scopus, an online citation database that helped us to find relevant additional research literature, in which these initial articles have been cited. Since the article by Wilson and Brennan is recently published and not yet cited by others, it was not usable in Scopus. When we repeatedly came across the same references in the articles reference lists, we identified the ones most relevant to our research topic, providing an overview of literature discussing guanxi and its development published in the last two decades. Before that, the literature discussing guanxi were still in a highly exploratory stage, and the focus was more on identifying what guanxi is, rather than discussing its future importance. Hence, it can be regarded as less relevant to the subject of this thesis. The articles selected for our literature review are presented in the literature summary, Table 1. There are also a few sub-topics that can have an influence on the future role of guanxi. One example is the ethical discussion, which we do present in the thesis. There are plenty of literature discussing whether or not guanxi is ethical, or if it is efficient or not in terms of resource usage, but all those articles would be highly unpractical, if not impossible, to include in this study. We still consider it important to include these subtopics to get a complete overview of the factors that can influence the future role of guanxi. Hence, for practical reasons, we selected a couple articles to represent the presence of the discussions. Moreover, far from all literature about guanxi can contribute to the discussion of its future role, thus, a majority of the literature we initially went through are not included in the main literature framework, presented in Table 1. 4

Table 1. Literature summary Main research topic Derivational factors (Institutional/cultural) Future Bian, 1994 Guanxi and job allocation Implies both Jobs found through guanxi has increased since the reforms started Davies et al., 1995 The benefits of guanxi Implies both Implicitly assumes continued importance Xin and Pearce, 1996 Guanxi as a substitute for structural support Lack of structural support Cross-organizational connections will be increasingly important Yeung and Tung, 1996 The importance of guanxi Main focus on culture Guanxi will continue to be a dominant factor Arias, 1998 Guanxi from a relationship marketing perspective Both (explicitly) Guanxi will remain as a social construct, but some aspects will change and/or diminish Guthrie, 1998 The declining significance of guanxi in the economic transition Institutionally defined system The role of guanxi will decline as the economic transition progresses Lovett et al. 1999 Evaluate guanxi from an ethical perspective Both (implicitly) Implicitly state that guanxi in some aspects will remain important Lai et al., 2001 The effect of electronic commerce on guanxi Both Electronic commerce can affect the traditional role of guanxi Dunfee and Warren, 2001 Discuss whether or not corporations should use guanxi Both (implicitly) The many different forms of guanxi make it difficult to determine the overall impact Fan, 2002 Conceptualizations and implications of guanxi Business guanxi - institutional environment, Family guanxi - cultural Guanxi's role in business will diminish with the open market system Davison and Ou, 2008 The effect of online intermediaries on guanxi and knowledge Mainly a weak legal infrastructure Online intermediaries can work as subtitutes for guanxi to an increasingly high extent Anderson and Lee, 2008 How practices change with Chinese entrepeneurship Both Guanxi may remain essential, but will change its ways Wilson and Brennan, 2010 The future importance of guanxi Both Guanxi might remain essential, but a number of factors imply that its importance will diminish 5

The thesis will be divided into four parts: culture, institutional system, additional factors and a discussion. The first two parts will begin with a theoretical background, followed by a section discussing guanxi in relation to the presented theory. As we analyzed the literature, we found factors that can affect the future role of guanxi, but cannot easily be categorized into either the cultural or institutional parts. This resulted in the third part, which addresses any issues that fall outside of the cultural/institutional discussion's boundaries. All this will be followed by the fourth part, where the factors that can affect the future role of guanxi will be discussed and analyzed, in relation to the theoretical background. The theoretical backgrounds are largely based on literature outside of the main literature framework (i.e. the literature discussing the future of guanxi) to provide a deeper, and more complete, view of these sub-topics. The Chinese culture Many scholars have characterized the Chinese culture and the concept of Confucianism as appearing hand-in-hand, arguing that Confucianism has played a profound role in defining Chinese culture. The Confucianism emphasizes the value of hierarchy, the importance of strong order, and relationships that define an individual in every part of society (So & Walker, 2006). The Confucian organizing of society has its foundation in its hierarchy of superior-inferior relationships (Fairbank, 1998). The hierarchy particularly identifies five different kinds of relationships, forming the basis of the Chinese social system: ruler-subject, father-son, husband-wife, brother-brother and friend-friend (Dunning & Kim, 2007). With the exception of the relationship between friends, the others are vertical relationship between superior and inferior. The traditional family, where every member within the extended family has its set part, has influenced the Chinese acceptance of the hierarchical patterns of status in other social institution, even the official hierarchy of the government (Fairbank, 1998). All relationships, from family, kinship, friendship and colleagues, to neighbors, classmates and even casual acquaintances, constitute social networks that form one's behavior. According to Anderson and Lee (2008), culture is the base of all values in a society and determines the rules of what is appropriated and accepted and Fairbank (1998) stressed the idea of proper behavior according to status. For the Chinese, a social sharing concept guides most behavioral norms and one s existence is largely influenced by one s relationship with others (Wong and Leung, 6

2001:44). In Confucian thoughts, an individual is first and foremost a social and relational being (Luo, 2000). Dunning & Kim (2007) stressed that the Confucian legacy may have influenced the Chinese in the way they view themselves as being part of a social system. According to Ip (2009:465), the nature of a person s self is defined and constituted by the bundles of his or her social relationships in the world. With his or her socially embedded self, a person s identity and place in the world are to be understood through his or her social attachments and positions in the social hierarchy. Guanxi in the Chinese culture As said, Confucianism has had a deep influence on Chinese culture and is, according to Luo (2000), a legacy one must see to in order to understand the importance of guanxi relationships. The Chinese people see guanxi as special relationships that are built into hierarchically structured networks, referring to interpersonal relationships and connections in every aspect of social life (Luo, 2000). The conception of guanxi comes from Confucianism, which has been establishing social rules, values and structures since the sixth century B.C (Zhang & Zhang, 2006). The philosophy and cultural ideology of Confucianism seek to establish harmony in a complex society, through strong and organized hierarchy (Park & Luo, 2001). Harmony is one of the main values of Confucianism and a primary goal of personal and social life (Ip, 2009:466). In order to secure a functioning and socially stable society, a person needs to accept and fulfill their role in the hierarchical system (Dunning & Kim, 2007). The Confucian culture puts family guanxi as the most important relationship in the Chinese society (Lin, 2010), and as the basic foundation of social order (So & Walker, 2006). In Chinese culture, the family is a social unit, emphasizing collectivism and harmony. According to Dunning & Kim (2007) harmony is closely related to the concept of collectivism. In a harmony-oriented society, the emphasis is placed upon relationships and collectivism as the foundation of guanxi (Dunning & Kim, 2007). In the collectivistic view, the individual is a part of a social system where members are tied together through a common identity and where the collective interests are in forefront, placing group goals above individual goals (Wang & Liu, 2010). The Confucian culture puts much value on guanxi, especially in aspects of mianzi (face) and reciprocal exchange (Lin, 2010). The Chinese people are in general concerned about, and emphasize the importance of the concept of face, which is explained by So & Walker (2006) as the respect another will have upon the person. Lin (2010) describes the concept of face as a 7

positive social value that one successfully earns from others in specific social interaction. Yang (1994) identified face as an important mechanism through which both obligation and reciprocity operate. When favors are given to you, there is an unwritten obligation of returning the favor, in order to maintain reputation and face (Yau et al., 2000). A person s face is an individual s social image which is established through certain social roles and that has a significant impact on the social life of the Chinese people. The concept of face is a key element of Chinese relationship dynamics, closely related to a person s relationships network, and indicates a social status or reputation that one earns from one's achievements in society (Lin, 2010). In China, your relationships define who you are, and your relationships define your status in society (Vanhonacker, 2004). As Yeung & Tung (1996:54) stated, who you know is more important than what you know. One example of a guanxi ingredient that can be related to culture can be found in the employment processes in China. Guanxi often plays an important role for people looking for jobs or for companies during the hiring process (Bian, 1994). This phenomenon is not purely a Chinese one, and can be found in similar forms in the West. However, although knowing the right people and having the right connections can help when looking for a job in any area of the world, this is perhaps more evident in China than in many other locations. It can be argued that the exent to which this phenomenon can be found in a country is a cultural issue. China is considered to have a high level of collectivism embedded in their culture, and has, according to Hofstede's cultural dimensions (Hofstede, 2010), a lower level of indivualism than any other country in Asia. The low Individualism ranking is manifest in a close and committed member 'group', be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount. The society fosters strong relationships where everyone takes responsibility for fellow members of their group. Geert Hofstede (Hofstede, 2010) This view of a collective responsibility for the extended family and extended relationships can be identified in the Chinese job market. This can be put in contrast to the Western societies, where there is a focus on individual performance, and often considered slightly controversial to extensively use relationships in the hiring process. 8

A developing institutional system As described earlier, the Chinese judicial system and the values of society have traditionally been heavily influenced by Confucianism, a philosophical system that focuses on a harmonious society by setting up guidelines for relationships, ethics etc. After the Cultural Revolution, the legal institutional system experienced heavy development, resulting in the legal system reaching an unprecedented level of prominence (Lubman, 2004). Since then, legislations has been enacted in an extremely rapid pace, trying to fit this new "social market economy". With both economic and judicial reforms being that intense, a lot of the legislations were ad hoc, reflecting the apparent leadership issues for the government. Lubman (2004:1740) describes the situation as "a continuing struggle between concepts of law as a framework for economic activity by autonomous actors and as an administrative instrument." The underlying reasons for the increasingly heavy legislated society is, not only the economy's transition towards a market economy, but also a society that is being increasingly globalized. There has been a need for legislations addressing, not only intra-national trade issues, but also legislations concerning foreign investment, import- and export issues and international agreements have become integrated in the Chinese law. These, together with legislations addressing for example intellectual property and bank lending have a big influence on business life in China (Lubman, 2004). The legal reforms concerning intellectual property was initiated in the early 80's with a number of laws. In addition, China has joined most of the international intellectual property treaties and is continuously developing its property rights (Zhang, 1997). Zhang (1997:65) reflected on the fact that China has implemented the legal functions concerning intellectual property rights in just a decade, that took several decades or even centuries, for most developed countries: Clearly, protection of intellectual property rights has become a priority in China's national policy. But statutes are only statutes until enforced properly. As this statement implies, there are still remaining issues in the Chinese judicial system. The lack of well-defined and enforced property rights and governmental regulations of business activities, which still are present today, are two of the primary causes of the extensive corruption that still exists (Stachowicz-Stanusch, 2010). Fiscal decentralization of governmental power has resulted in 9

that the provincial or local governments have a high level of influence in the business conducted locally, and also often to some extent over the local courts. Trials are conducted by judges with relatively poor education, often to some extent guided by higher instances, and constrained by being ordered to follow party policies. In addition, they are appointed by, and have their salaries paid by, their jurisdictions' local governmental instance, which can result in a "local protectionism" (Lubman, 2004). The Chinese legal system is divided into several judicial and administrative instances and the boundaries are loosely set when it comes to who and how rules can be established and implemented. Lubman (2004:1741) describes the situation like this: Although sub-national units and more than 20 functional bureaucracies of the central government issue regulations, distinctions among the rules that they issue, and between rule making and implementation, are blurred. No effective mechanism has existed to measure legal norms for consistency with higher-level norms, and the Constitution is not justiciable. All this means that, even with an increasing amount of rules and laws protecting business actors and stimulating business, the effect of these laws will not reach optimality unless obstacles like structural problems, corruption and lack of enforcement are properly dealt with. However, as the society gets more internationalized and the legal education improves, the pressure to handle these issues increases from intellectuals and legal scholars (Lubman, 2004). In addition, the public resent against corruption is increasing, and according to People's Daily (People's Daily a, 2010), the government-controlled newspaper, the government are intensifying their focus on these issues in recent years, and not only on the straight-forward bribery, but also on the "soft corruption", like using governmental funds for your own gain. In the last few years there have been several death penalties as results of bribery (Stachowicz-Stanusch, 2010), and one recent example made public by the People's Daily, concerns a Chinese police officer who was sentenced to his death for accepting bribes earlier in 2010 (People's Daily b, 2010). In summary, the Chinese institutional system has undergone rapid and revolutionary changes since the economic reforms started, and is likely to continue to change in one way or another, perhaps towards a similar system to what we are used to in the west. The next section will discuss guanxi in relation to this transforming structure. 10

Guanxi and the institutional system Although guanxi in a broader, cultural sense existed long before the legal system started developing towards anything similar to what we see today, the business-related guanxi that might be relevant for companies, especially foreign ones, in China have often been related to the structure of the institutional environment. Scholars have identified that a weak structural system, e.g. deficient protection from the legal system, lack of loaning possibilities, uneven grounds for competition etc., gives business actors incentives to create and make use of other tools, such as relationships, i.e. guanxi. Given the "rushed" transition towards a market economy there have been, and still are, gaps and weaknesses in the institutional and legal installations, and using guanxi is a way to increase efficiency when doing business (Fook & Woo, 1998). Without either a sufficient legal and institutional set-up or substitutional tools like guanxi, business is unlikely to happen. The result of Xin and Pearce's empirical research (1996) supports the idea of guanxi as a substitutional tool for managers acting within a weak legal system or a transitional society. In the abscence of a protectional legal foundation, they have to increase the level of security when facing threats like extortion, expropriation etc. by using guanxi. Anderson and Lee (2008) suggests that "entrepreneurs may be able to create fortunes through formal business channels rather than through guanxi", presenting statistics showing a number of very successful entrepreneurs gaining their wealth by listing their companies in the Chinese stock market. According to the results of Anderson and Lee's empirical research, guanxi has experienced a clear decrease in terms of its significance since the economic reform. However, not only the laws that helps companies protect themselves, such as laws against copy right infringement etc., have affected the need for guanxi, but also laws against the usage of some parts of the traditional guanxi. In an interview conducted by Guthrie (1998:273) one interviewee reflects on one of these laws: In 1994 the government came out with the Anti-Corruption Competition Law. This law very clearly specifies that you can't use guanxi practice to get things done. 11

While constructing a legal framework is a major step towards change, the actual results of the implications of laws and in other ways a structural framework for doing business will show gradually over time. With the routines and mindsets of society being deeply buried in the guanxi way of thinking, integrating the changes into the actual processes, putting the changes into effect, might be a slow process (Guthrie, 1998). Also, there might be a lag in some aspects between establishment of the laws and the actual enforcement of them. A significant part of the power is locally assigned (Tong, 1989), and with the absolute lack of independent, scrutinizing press or opposing political forces, an efficient control system from higher instances, together with the right mindset integrated into the government and society, would be needed to avoid corruption or corruption-like practices. Additional factors There are factors discussed in the guanxi literature that might affect the future role of guanxi, but that cannot easily be related to either culture or structural system. One of these are the technological development, a factor that appear as the main topic in two of the articles in our literature framework, discussing the effect of increasing influence of electronic commerce and online intermediaries on the role of guanxi. There is also a discussion whether or not guanxi is ethical/unethical, and if using guanxi is equal to inefficient use of resources. It could be argued that any parallels between these issues and our research question are a bit ambiguous, but it is possible that these factors might have an indirect effect on the role of guanxi, and we will describe the reasoning behind these factors. Electronic commerce Lai et al (2001) suggest that the electronic commerce will play an essential role in the future Chinese business networks, and that this decrease in verbal and face-to-face communication is likely to affect the traditional role of guanxi network significantly. This view is further explored by Davison (2008), who performed an exploratory study about the potential impact of the increasing influence of online intermediaries on guanxi or tacit knowledge. The result of their study suggests that the online intermediaries do have a revolutionary effect on the possible ways of doing business and that they can work as substitutes for the social networks, i.e. guanxi. In an increasing digitalized society the online intermediaries are experiencing, and most likely will continue to experience, a growing importance for business actors and an increasingly dominant role on the market. The transition to an online business environment might not be new to Western 12

business actors, but on the Chinese market it is still a novel phenomenon and very much on the rise. The research by Davison (2008) was performed in the form of a case-study on Alibaba, a Chinabased online B2B business platform that according to Davison (2008) had over 30 million users all over the world, but now this number has increased to over 56 million users. As a side note, the Chinese language version of the site (china.alibaba.com), which claims to be "the largest Chinese language B2B marketplace for domestic China trade" has over 16 million users and could signal the growth of online intermediaries in China (Alibaba, 2010). However, there are still some obstacles. It can been argued, that without guanxi or legal security, business is unlikely to happen. Without the face-to-face communication and trust building, there will be no guanxi, which implies that other forms of security need to be present. The research by Millington et al. (2006) presents that the relatively poor quality of alternatives to guanxi in terms of supplier search is still perceived as a problem. Alternatives include internet business platforms, but also trade fairs and such. Among the interview responses in the study this was found: We don t see the Internet as a very formal way of searching for suppliers: the information they give is often unreliable and firms were found to lie frequently about their expertise or customer base. Without any face-to-face control, or formal structural controlling system, companies can claim a wide range of capabilities or resources which they do not necessarily possess. The risks continue with a lack of structural control and legal enforcement if, for example, goods do not arrive, or are lacking in terms of quality etc. These problems can partially be solved by setting up secure payment methods, internal control system from the online service provider, rating systems etc. but not entirely. Again, a lot of the apparent problems stem from the lack of structural security. Ethics / Efficiency Guanxi may help individuals or organizations to gain access to resources, reduce costs and gain market advantages, but there is an ongoing discussion in the business literature about whether or not guanxi usage should be considered unethical. Traditionally, a large part of guanxi has been B2G (business-to-government) guanxi, which has often been closely related to corruption. The B2G guanxi might be a tool to gain advantages for organizations, but these advantages is often gained at the expense of other companies. The actual guanxi-creating process might or might not involve bribery, but either way the outcome is often manifested in unfair market conditions, since as guanxi 13

favors the participants within the guanxi network, difficulties increase for those outside of the network, and can affect the society as a whole (Fan, 2002). When discussing ethics one should apply a careful approach, not falling into subjective standards formed by personal background. Societies around the world have differences in their ethical standards, often deriving from their current or former religious values. Lovett et al. (1999) discussed the difference in ethical theories between the East and the West, arguing that the different views on the justification of principles constitutes a problem in the way actions are meant to be guided. The authors characterized justice as equal opportunity, equal access, and equal treatment but stressed the fact that Confucian cultures operate on different ethical principles, where the human being is supposed to be treated according to Confucius superior-inferior interpersonal relationships. In relationships where different cultures meet, both parties may act according to a set of principles, but those of one may not be acceptable to the other. The discussion on the ethics of guanxi includes statements like When in Rome, do as the Romans do referring to the idea of no ethical standard, and that one should act as expected in the present location. However, even within China, opinions are divided with views on guanxi ranging from positive and beneficial, to negative, unfair and anti-social (Lovett, 1999). As presented earlier, public resent towards corruption is increasing and governmental efforts are being made to deal with these issues. The cross-cultural ethical difficulties often occur when a deeply rooted culture meets a dynamic changing business environment. China is enjoying the increasing amount of foreign investment, while the country at the same time must come to terms with the changes influenced by Western legal forms and concepts (Dunfee&Warren, 2001). Closely related to the unfair market conditions mentioned above, is the discussion of guanxi efficiency. With business deals being made with personal relationships as a foundation, rather than competence or company performance, and with hiring people from within one's guanxi network, rather than applying a competence-based job allocation process, one can argue that this is a nonoptimal, inefficient use of resources, at least with Western economic theories in mind. As said, the public opinion on guanxi among the actors on the Chinese market and in the Chinese society is likely to have an effect on the future role of guanxi, so if the use of guanxi would be widely considered unethical and economically inefficient, this might affect the future role of guanxi indirectly. 14

The future role of guanxi / Discussion We started this research by reviewing the literature with the different views of the derivational factors of guanxi in mind, since we had read that significant disparities existed among the literature. However, although we found that to be true, the differences in opinion were rather concerning to what extent guanxi derives from a weak institutional structure or the traditional culture of China. As our purpose was to investigate the future role of guanxi, we also found a number of other factors that could not easily be integrated into the institutional/structural discussion. In this last part, we will map out and analyze the factors that might have an influence on the future role of guanxi, and discuss the potential future changes, or lack of such, for guanxi. Considering the both theoretical and empirical research that has been done, most of the results in our selection of literature suggest guanxi is most important when weak, unstable or transforming structural conditions are present. If the institutional environment continues to change in the direction of legal, competitive, financial security for companies, guanxi will be likely to change. There is also a fairly wide agreement to the argument suggesting that the role of guanxi has experienced a change since the economic reforms started, but regarding the extent of that change, and the importance of guanxi at present, there are some disparities among scholars' views. Although many of the factors that might affect the future importance of guanxi are closely related to each other, the factors will be presented one by one, to get a clear overview of the findings. The factors that may imply a declining importance of guanxi, and that can be found in the literature discussing guanxi, are: An open market system (Anderson & Lee, 2008; Wilson & Brennan, 2010; Guthrie, 1998; Yeung & Tung, 1996) The transformation towards an increasingly open market system affects the situation for business actors in terms of competition. With an open, competitive market, other factors own the role of determinant factors for business success, not just having a wide personal network. Fan (2002) argues that ultimately, the crucial factors for succeeding when doing business in China, as well as anywhere else, are the quality of the product and marketing strategy. It has been argued that even today, the benefits of guanxi are mostly present in the start-up processes, and other factors take over the importance in the long run. 15

Improvement of legal support (Wilson & Brennan, 2010; Anderson & Lee, 2008; Fan, 2002; Guthrie, 1998; Arias, 1998) One of the foundations of the argument of a diminishing importance of guanxi is that it acts as a substitute for weak legal institutions. As described earlier, the Chinese society have not traditionally been characterized by legalism, but since the economic reforms started after the cultural revolution, an increased legal focus has appeared, and laws and regulations have been passed in a rapid pace. Thus, if the legal system can provide the support and security otherwise provided by guanxi, the importance of guanxi is bound to decline. Western influence (Wilson & Brennan, 2010; Anderson & Lee, 2008) By opening up the market, China has opened the doors to international trade and has in recent years both experienced foreign investment within the boundaries of China, as well as outward investments. This affects the Chinese society in a number of ways. Western views can be assumed to some extent to be integrated into the Chinese society, and upcoming generations of Chinese managers and entrepreneurs have to some extent different views than the older generations. When participating in international trade, one must adapt to international regulations and agreements in order to reach acceptance, and this in turn affects the legal system mentioned above. Anti-corruption measures (Guthrie, 1998; Fan, 2002; Lovett et al. 1999) Guanxi is often closely linked to corruption, especially the guanxi between businesses and governmental institutions, which is described by Fan (2002) as inherently corrupt. The views on corruption in China is getting increasingly negative, and the government not only acknowledges the problem, but is also passing and enforcing laws and regulations with the purpose of managing this problem. If the use of corruption decreases, some parts of guanxi might be affected. Online intermediaries (Lai et al., 2001; Davison & Ou, 2008; Wilson & Brennan, 2010; Fan, 2002) China has the highest number of internet users in the world, and is increasingly utilized not only for personal matters, but also for doing business. In business deals taking place online, partly or entirely, maintaining trustworthy relationships is relatively hard to achieve. This decline in verbal and face-to-face communication is argued to affect the role of guanxi (Lai et al., 2001). Moreover, when using online intermediaries in the procurement/purchasing process, e.g. to search for suppliers, some aspects of guanxi are likely to decline (Davison & Ou, 2008). As a criticism, nonelectronic business activities are likely to parallelly co-exist with those described above, so the changes are presumably restricted to parts of the business world. 16

Clash with business ethics (Wilson & Brennan, 2010; Fan, 2002; Lovett et al. 1999; Dunfee & Warren, 2001) Along with the changing business environment in China today, the traditional forms of guanxi might in some aspects no longer be considered appropriate. When different cultures meet, different ideas, norms and expectations on how business should be conducted, will appear. In order to compete worldwide, business actors need to adapt their behavior and ways of doing business, to stay in line with their business partners and competitors. With the opening of the Chinese market towards the outside world, organizations becomes more aware of their competitive advantage, which will lead to greater appraisal on economic transactions than on their relational obligations. A new generation (Anderson & Lee, 2008; Arias, 1998) Younger generations of academics and entrepreneurs are found to have a negative perception of guanxi, which could be argued to reflect the development of opinions among the society as a whole as well as of the future managers. Anderson and Lee (2008) found an increasing reluctance among the younger Chinese entrepreneurs to the usage of guanxi. This can be related to the new generations of Western-style managers that are emerging, described by Arias (1998:152) as one of the important changes that will "erode the structural foundations of guanxi and its relevance in doing business in China". Also, with a public opinion against the use of guanxi, the potential phase out process of guanxi is less likely to experience resistance. Interviewees experiencing a declining significance (Anderson & Lee, 2008; Guthrie, 1998) A large majority of the interviewees in the study performed by Anderson and Lee (2008) expressed that the importance of guanxi has diminished since the early 80's. This is by no means satisfactory evidence of a continuing decline of the importance of guanxi, but it might provide a complimentary contribution to predictions about the future role of guanxi. It should also be mentioned that a majority also believed that the importance of guanxi will continue to diminish with improving legislations and western exposure, but these predictions should be treated with a fair amount of caution, due to their speculative nature. Exaggerated importance of guanxi (Wilson & Brennan, 2010; Fan, 2002; Guthrie 1998) The importance of guanxi might be vastly overstated, since there are, according to Ying Fan (2002), no reliable proof or direct evidence that presents the importance of guanxi. The empirical research on the subject is often based on loose definitions of guanxi and the results are obscure and often contradicting each other. However, opposing views can be found in other literature, where it has 17

been identified as highly important or even essential to doing business in China. There are also discussions on whether or not guanxi is still important in the hiring process, arguing that people nowadays are hired based on competence rather than on connections. Development of Chinese societies with a different market system (Anderson and Lee, 2008) This argument is closely related to the discussion of the cultural and structural derivational factors. Hong Kong, one of the special administrative regions of China, is a Chinese society which, according to Hofstede's cultural foundation, is culturally similar to the mainland (Hofstede, 2010). Hong Kong has however been globalized and has had a completely different market system for a long time. If guanxi is deeply attached in the Chinese culture, then it would be expected to still be important in Hong Kong business activities. However, the results from Anderson and Lee's study indicates otherwise, which could be interpreted to suggest that the guanxi will be less important with an improved legal system and increasing exposure to western business practices. Other findings suggests otherwise, however, which will be presented later on. All these factors are in some way implying that the future importance of guanxi will decrease, but they represent just one side of the coin. We also found a number of other factors that rather imply a continuing importance of guanxi. These are presented below: Interviewees believe it is still important (Wilson & Brennan, 2010; Anderson & Lee, 2008; Yeung & Tung, 1996; Bian, 1994) Many interviewees in the literature discussing the future of guanxi have stated that guanxi is still very much important in the business activities of today (Wilson & Brennan, 2008; Anderson & Lee, 2008) There are also some scepticism towards the argument that guanxi derives from a lack of structural support and that the reforms will result in a diminishing role of guanxi. The interviewees in the study by Wilson and Brennan (2010) express a belief in that guanxi is still important, and will remain as such, at least in the near future. The same critique as with the interviewees that experienced a declining significance can be applied here, i.e. that the speculative nature of the interview results should be considered. Also, as mentioned by Wilson and Brennan (2010), it is possible that the managers and other business people being interviewed might adopt a careful approach to the cultural differences in China, as under-estimating those might result in devastating consequences. The legal system and ways of doing business might not necessarily change towards a "westernized" system (Lubman, 2004; Wilson & Brennan, 2010) Many of the factors suggesting a diminishing role of guanxi stands and falls on the assumption that 18

the Chinese institutional system and ways of doing business will continuously develop towards being increasingly "westernized". However, not all literature supports this view, and that should be taken into consideration when analyzing the future of guanxi. Wilson and Brennan (2010) are warning about taking on a "Western imperialist" view, assuming the superiority of Western business practices over the Chinese and that they automatically will adapt to this "best" approach to doing business. Guanxi is embedded in the culture (Anderson & Lee, 2008; Fan, 2002; Yeung & Tung, 1996) It is fair to say that most of the literature discussing guanxi, agree about being at least to some extent, embedded in the Chinese society. Some go further in their claims than others. While Fan (2002) distinguishes between "family guanxi", which would remain, and other kinds of guanxi, Yeung and Tung (1996) describe it as a core cultural value. They claim that the institutional laws will not replace the importance of relationships and connections, core values that uphold the society. Furthermore, they refer to Geert Hofstede, who characterized these values as the core of the onion, more reluctant to change than the outer layers of the onion, such as symbols and rituals. Guthrie (1998) also discusses the possibility that just passing laws will not automatically transform the mindset of society. It is argued that the legal way of thinking is not yet integrated in the Chinese society, and that the legalistic culture is much deeper rooted than in the construction of laws. According to these arguments, Guanxi will continue to play an important part in the Chinese society for some time to come. Most literature does not in general, explicitly or implicitly acknowledge guanxi as a part of the Chinese culture, at least to some extent. Development of Chinese societies with a different market system (Yeung & Tung, 1996) As described earlier, taking a look at Chinese societies outside of the mainland, can provide valuable information when making predictions about the future of guanxi. Those Chinese societies are expected to have similar culture, even though their institutional systems are completely different. Among the factors suggesting a diminishing role of guanxi, this argument was presented, based on literature suggesting that guanxi is much less present in Hong Kong than the mainland. There are, however, contradicting views regarding the presence and importance of guanxi in societies like Taiwan and Hong Kong, which consequently suggests a continuing importance of guanxi. One example of this is the article by Yeung and Tung (1996), where they also extend the comparision by including other Asian societies largely based on Confucianism, such as Japan and South-Korea. 19

A largely conceptual idea (Wilson & Brennan, 2010) From an academic viewpoint the idea of a diminishing importance of guanxi can be supported by a strong argumentation. However, as with the benefits of guanxi, literature on the diminishing importance has not presented any strong empirical evidence (Wilson & Brennan, 2010). This might be due to the difficulties in investigating the future without the discussion turning too speculative, or it might stem from the lack of unification of the classifications of guanxi. As presented above, more or less strong argumentation can be made for both a continuous importance of guanxi, and the argument of a diminishing role. Even though some factors seem to contradict each other, and some of them certainly are, they might just reflect the diversity of guanxi. Fan (2002) might be right, or get close to the truth, in his conceptualization of guanxi. As most literature, with a few exceptions, are agreeing on the basic idea of guanxi as a part of both the culture and as a result of a weak institutional environment, it seems probable that the future of guanxi is reliant on what the changes in the institutional environment will look like, at least the "business guanxi", as Fan put it. The arguments suggesting a diminishing role of guanxi are most often based on the assumption that the institutional environment and market conditions in China are heading towards increasing openness and adaptation to Western models. However, even though it is true that the trend during the last 30 years or so, has been a development towards a market economy similar to Western standards, and that this is assumed by many scholars, it is worth mentioning that with a wider approach, not all literature suggests that the institutional environment is heading there in practice. Stanley Lubman, one of the most prominent scholars specialized on Chinese law, argues that the future development of the Chinese legal system will essentially depend on a number of factors outside of the legal framework, with political change as the most important (Lubman, 2004). It should not be assumed that legal development will lead to Western-type institutions or to liberal democracy. The domain considered legal and the boundaries between it and other areas of Chinese state, society, and economy will not necessarily converge with Western concepts, and rights may remain soft. Nor should Western observers overstate the supposed virtues for China of Western concepts and institutions, themselves imperfect and under question. (Lubman, 2004:1742) 20