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The changing role of guanxi in influencing the development of entrepreneurial companies: a case study of the emergence of pharmaceutical companies in China

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Abstract

“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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Notes

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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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Author information

Correspondence to Huatao Peng.

Appendixes

Appendixes

Appendix 1

Table 2 Basic information of respondents

Appendix 2

Variables

Level variables

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).

Rate variables

Entry: When an entrepreneurial company wants to expand market share or overcome legitimacy barriers, it will engage in new guanxi (Yu et al. 2013; Park and Luo 2001).

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).

Clustering coefficient: Some guanxi members are in the core layer or closed clique of the entrepreneurial company’s guanxi network (Park and Luo 2001; Arribas et al. 2012; Batjargal and Liu 2002).

Loose degree: Some guanxi members do not become close to the entrepreneurial company (Park and Luo 2001; Granovetter 1985; Pitt et al. 2006).

Sales growth: Entrepreneurial companies’ sales growth can be created by new guanxi (Park and Luo 2001; Yu et al. 2013; Boso et al. 2013; Yang and Jiang 2010).

Cost: Guanxi cultivation has become very costly (Park and Luo 2001; Troilo and Zhang 2012) and entrepreneurial companies must pay for it.

Auxiliary variables

Potential guanxi scale: Many of the entrepreneurial company’s stakeholders have the potential to enter the guanxi network (Evald and Bager 2008; Chen 2011).

Guanxi strength: The strength of ties, connections or relationships between an entrepreneurial company and its guanxi members (Park and Luo 2001; Boso et al. 2013; Chen 2011).

Mutual trust: Trust is not about whether the entrepreneurial companies believe their social network members, but to what degree they can believe one another (Yu et al. 2013; Caliendo et al. 2012).

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).

Constants

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).

Value creation coefficient: Different guanxi have different value-creation abilities (Park and Luo 2001; Troilo and Zhang 2012).

Appendix 3

Fig. 9
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi strength on transformation rate

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Sensitivity analysis between guanxi strength and transformation rate

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Sensitivity analysis of the correlation between sales based on guanxi and guanxi strength on decay rate

Fig. 12
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Sensitivity analysis between guanxi strength and decay rate

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Sensitivity analysis of the correlation between sales based on guanxi and guanxi strength on life cycle

Fig. 14
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Sensitivity analysis between guanxi strength and life cycle

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Sensitivity analysis between guanxi strength and value creation coefficient

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Sensitivity analysis of the correlation between sales based on guanxi and guanxi strength on value creation coefficient

Fig. 17
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi scale on transformation rate

Fig. 18
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Sensitivity analysis between guanxi scale and transformation rate

Fig. 19
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Sensitivity analysis between guanxi scale and decay rate

Fig. 20
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi scale on decay rate

Fig. 21
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi scale on life cycle

Fig. 22
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Sensitivity analysis between guanxi scale and life cycle

Fig. 23
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Sensitivity analysis between guanxi scale and value creation coefficient

Fig. 24
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi scale on value creation coefficient

Fig. 25
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi structure on transformation rate

Fig. 26
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Sensitivity analysis between guanxi structure and transformation rate

Fig. 27
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi structure on decay rate

Fig. 28
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Sensitivity analysis between guanxi structure and decay rate

Fig. 29
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Sensitivity analysis between guanxi structure and life cycle

Fig. 30
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Sensitivity analysis of the correlation between sales based on guanxi and guanxi structure on life cycle

Fig. 31
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Sensitivity analysis between guanxi structure and value creation coefficent

Fig. 32
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S Sensitivity analysis of the correlation between sales based on guanxi and guanxi structure on value creation coefficient

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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

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Keywords

  • Guanxi
  • Entrepreneurial companies
  • System dynamics
  • Network evolution