How Business Guanxi Affects a Firm’s Performance : A Study on Chinese Small and Medium Sized Construction Companies

The Chinese term “Guanxi” literally refers to interpersonal relationships which have aroused growing interests among researchers and business practitioners. Common research interests are mainly centered on theoretical study and model building instead of applying them to business practices while this paper is aimed to investigate how business Guanxi works from a practical view, and in particular how business Guanxi affects the performance of small and medium-sized Chinese construction companies. Three independent managers in different regions are chosen as the initiating point to explore how Guanxi works by tracing back their inter-connectivity as well as interactions among different stakeholders. The empirical findings indicate business Guanxi acts as an important source of information and the efficient way to seek financial and technical support, to increase market shares and reduce risks, has a positive effect on to the performance of small and medium-sized Chinese construction firms. Based on the empirical findings, it is further argued that a good business Guanxi is likely to create competitive advantages in supporting Tsang’s arguments. Finally a managerial implication is provided which tries to remind practitioners that business Guanxi is a necessary factor for the survival of Chinese construction enterprises but it is not sufficient. Managers should not solely rely on Guanxi even if two parties have high quality of connections, and the institutional tools are needed in order to secure the health of Guanxi.