“Guanxi” is a term in Chinese referring to the reciprocal nature of interpersonal relationships. Its attributes, which are specific to Chinese culture, have been the focus of recent literature. Whereas the impact of guanxi seems to be quite similar to that of general relationships, ties or connections, it is characterized by a number of different dimensions. In this paper, we studied 44 entrepreneurial companies in the pharmaceutical industry in China to examine these attributes in greater detail. We use a system dynamics model to simulate the influence of various guanxi variables – the strength, scale and structure of guanxi – on the development of entrepreneurial companies.
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Renqing consists not of the exchange of equal value in a market economy but in “Kula Ring” among social behavioral exchange. Renqing is the accumulation of unpaid debts emanating from guanxi (Chen 2011).
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Guanxi Scale: Entrepreneurial companies are willing to consciously establish guanxi, but not all guanxi are effective. Just like “a friend in need is a friend indeed,” the members in an entrepreneurial company’s guanxi network should indeed represent connections with those companies or institutions who are willing to help the entrepreneurial company even without high returns (Arribas et al. 2012; Yu et al. 2013; Batjargal and Liu 2002; Semrau and Werner, 2013).
Guanxi Structure: Entrepreneurial companies’ guanxi structure is decided by not only the links among guanxi members, but also the rank of importance and necessity of guanxi members (Theingi and Phungphol 2008; Yang and Jiang 2010; Arribas et al. 2012).
Sales Based on Guanxi: Guanxi leads to higher firm performance (e.g., sales growth) and creates some values for entrepreneurial companies (Park and Luo 2001; Yu et al. 2013; Yang and Jiang 2010; Webb et al. 2010).
Exit: For reasons belonging to either the guanxi members themselves or the entrepreneurial companies, some members may be eliminated from the entrepreneurial companies’ key circle or even the guanxi network (Zolin et al. 2011; Ucbasaran et al. 2003).
Interactions: Entrepreneurial companies and their guanxi members like to communicate by telephone, mail, face-to-face visits and activities for promoting friendship, whether or not they are cooperating (Park and Luo 2001; Boso et al. 2013).
Reciprocity: Real guanxi should involve mutually beneficial cooperation, in which both the entrepreneurial company and the guanxi members benefit (Yu et al. 2013; Puffer et al. 2010; Park and Luo 2001; Batjargal and Liu 2002).
Transformation rate: Through “guanxi investments” made for commercial reasons, some potential guanxi members will become real guanxi members for the entrepreneurial company (Troilo and Zhang 2012).
Life cycle: As time goes on, some guanxi members and entrepreneurial companies that started with close collaborations will eventually choose to end them (Haggerty and Haggerty 2011; Batjargal and Liu 2002).
Decay rate: Not all of an entrepreneurial company’s guanxi necessarily maintain their value-creation ability. As time goes by, that ability decreases or destructive actions can even occur (Yang and Tang 2004; Yu et al. 2013).
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Peng, H., Duysters, G. & Sadowski, B. The changing role of guanxi in influencing the development of entrepreneurial companies: a case study of the emergence of pharmaceutical companies in China. Int Entrep Manag J 12, 215–258 (2016). https://doi.org/10.1007/s11365-014-0323-6
- Entrepreneurial companies
- System dynamics
- Network evolution