Guanxi is a Mandarin word, translated into English as "connections." In Chinese, the term "Guan" means a door/gate or "to close up" with those who are around while XI means to join a chain. Therefore, "Guanxi" can be translated as making connections and relationships with individuals. In China, the word Guanxi is used for a person who knows many people and has many connections that help him to get things done.
In simple words, guanxi can be defined as the relations and connections that individuals develop in their surroundings. It is a process to make dyadic relationships with the individuals and make unlimited demand from each other. It is different from simple friendship or interpersonal relationship as it involves continuous exchange of favors from each other. This reciprocity is not bounded with time and is intangible and transferable (Park & Luo 2001, p.455).
It is a fact that guanxi has a very long heritage in China; however it gained importance in western academics in the field of sociology, anthropology, social psychology and business management, only in 1980s (Tsang 1998, p.64). Since, than the businesses and social research have started taking interest in this concept and its role is continuously extending and upgrading. Different experts have given their opinion regarding guanxi and its effects on the Chinese business. Some have identified it as the most important and critical factor for doing business in China (Yeung & Tung 1996, p.54; Abramson & Ai 1999, p.17) while some considered it as a source of competitive advantage (Tsang 1998, p.65; Fock & Woo 1998, p.33). In addition, some also perceived as the future direction for doing business in the west during the 21st century (Lovett, et al., 1999, p.231).
Despite being criticized by few experts, Guanxi is considered as a probable solution of the many of the problems for the businesses of China. According to Lou (1997, p.51) and Abramson & and Ai (1999, p.18), personal relationships in China due to the "guanxi" have played a critical role in great success of firms of China. Guanxi focuses on the idea that businesses are done between people and not between the companies. Entrepreneurs of Chinese firms know well about the importance of guanxi and have expertise in managing their personal networks. Furthermore, as Chinese industry is becoming an important figure in the global economy; many foreign businesses have also realized the importance of guanxi and have started following the guanxi management strategy.
In 2001 (p. 455-477), Park & Luo performed a study in which they observed the effect of guanxi on the performance of organization. They concluded from the research that guanxi is used by the Chinese firms to promote their sales growth, expand market and establish a competitive position of the firm. Chinese consider Guanxi as a network of connections that is strategically constructed by the people (Yan 1996, p.1-2). Social interactions are developed through a series of pre-planned activities through this process. For instance, introducing the owners of the business to the people who can benefit them (Fan 2002, p.543; Chen and Chen 2004, p.305).
Guanxi is not linked with a particular group of people; it is dynamically developed and is for everyone. It is not only important for the entrepreneurs but also equally important at the individual level. It is used by different types of people working at different levels and in different departments of the entrepreneurial firm, including supervisors, subordinates and colleagues.
Many experts have focused on the guanxi relations between the superiors and subordinates. Indeed, most of the studies published on guanxi have focused on the relations between the subordinates of the organization and their supervisors (Law et al. 2000, p.751; Chen et al. 2009, p.375; Yan & Altman 2009, p.91)
According to Chen et al. (2009, p.375 -399), there are three elements of subordinate's guanxi relations with their superiors, these include; attachment, personal life inclusion and giving respect & deference to the supervisor. Smith et al. (2011) stated, "Measures of these elements were more predictive of positive outcomes than were simple indices of the presence or absence of guanxi."
Chen et al. (2009, p.375-399) and Law et al. (2000, p.751-765) studied the behaviors that are linked with the presence of guanxi in superior and subordinate relationships in China. They found out that these behaviors predicted different consequences that were related to career progress and other outcomes than those that were derived from the leadership theories of USA.
According to Chua et al. (2009), the affect-based trust "affective ties" in the managers of China was very powerfully associated with the perceived reliability "cognition-based trust" compared to the managers of USA. However, an important point to note is that the respondents in this study were not ask to state the guanxi relationships but the responses obtained from them regarding networking and relations were interpreted by empirically comparing the Chinese guanxi and U.S. networking. It can be observed that each of the above studies support the distinctiveness of guanxi and shows how beneficial is guanxi for establishing and expanding businesses and getting mutual benefit.
Looking at these benefits, Chen & Chen (2004) have described guanxi as an informal relationship or personal connection between the two individuals that are bound by a psychological contract to follow the rules of guanxi; such as "maintaining long-term relationships, mutual commitment, loyalty and obligation"(p. 306).
Along with benefits, guanxi is also criticized by few; for instance Yan and Altman (2009, p.91-104) performed a study in which they asked superiors and subordinates to explain the episodes of guanxi. After analyzing the content, they found out that two-thirds of the incidents or events were expressed positively while the remaining episodes were described as the exploitation or misuse of the subordinate and superior relationship. This showed that guanxi is not beneficial in all cases and at times, it also brings negative outcomes. Focusing on the same point, Cheung et al. (2009, p.77) also stated that a perceived guanxi between the supervisor and subordinate and the positive outcomes was actually due to the job satisfaction and not guanxi.
As stated above, guanxi has not only helped on organizational levels but has also played a significant role in the development of individuals. Studies show that the Chinese subordinates use guanxi for enhancing their relationships with their supervisors and groups that can play a role in their career development (Wei, Lu, Chen and Wu 2010). Bian (1997, p.366-385) also found out in a study that guanxi very much helps the individuals of Urban China at the time of job hunting. Even at the job, subordinates can get better promotions, impressive increments and excellent ratings from their supervisors by creating and maintaining guanxi with the supervisors.
Law et al. (2000 751-765) studied the effect of the guanxi relationship of supervisor and subordinate on the decision making process of supervisors. They found out that the concept of guanxi was very much different from the other concepts of leader and member relationship. In addition, they also observed that if the effect of performance variable is controlled, than guanxi has the additional power to mold the decisions of the supervisors, regarding in increments, bonuses and promotions.
According to Bian and Ang (1997, p.981), the key characteristic of guanxi is the trustworthiness. This trust is created after long time interactions and is very essential, as it becomes the base of future exchange relations. It was found out in a study conducted by Farh et al. (1998, p.471), that guanxi between the supervisor and subordinates, increase the level of subordinate's trust in their supervisor or superior. Moreover, this level of trust is even higher, if they are neighbors or there is kinship relation between them.
Despite these positive points, guanxi also has some disadvantages. Fr instance, according a recent study performed by Teng et al. (2012), the intension of employees to help their colleagues is negatively related to the negative mood of supervisor and positively related to the agreeableness of the employee.
The study also stated the negative effects of employees that have weak guanxi, as they were not able to make strong guanxi with their supervisors. The results showed that the negative mood of the supervisor is negatively related to the intension of the employees to help their colleges. Contrary to this, the case is opposite in case of those employees who have strong guanxi with their supervisors. Therefore, it was suggested in the study that the supervisors should have ability to manage their negative moods and try to establish strong guanxi with their subordinates in order to encourage and motivate their subordinates to help their colleagues
Xin, Farh, Cheng and Tsui (1999) also performed a study to examine the impact of demographic similarities on the guanxi between the superiors and subordinates. The study showed interesting results, confirming that any past relationship between the supervisor and subordinate; which can be same hometowns or old colleagues, results in the better quality of subordinate-superior relationship and results in higher commitment to the organization. In fact the…