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Terence
W. Tam
Leonard
V. Coote
Edward
J. Forrest
School
of Marketing
Griffith
University
Nathan,
Qld 4111
07-3875-7232
07-3875-7126
(fax)
The authors report the results of an empirical study that models the
antecedents of xieyishu (normative contracts) in Chinese business relationships.
The antecedents are derived from literature and research on Chinese business
networks and Western industrial marketing relationships. The authors propose
that xieyishu is related to guanxi (long-term orientation), goutong (two-way
communication), zongyong (harmony), and mianzi (reputation). The conceptual
framework is examined using a sample of 152 Chinese business relationships. The
empirical test supports the conceptual framework. The authors conclude by
discussing implications for marketing theory and practice.
Business networks and relationships have been operating
in the East for centuries. Chinese business networks have achieved notable
success in the past two decades. The dynamic nature of Chinese business
relationships has contributed to the spectacular growth of the Asia Pacific
region over this time. Chinese business relationships link millions of Chinese
entrepreneurs across the Asia Pacific region into a vibrant business and social
network (Luo 1997). Chinese business networks possess substantial a amount of
wealth and influence in the Asia Pacific region (Seagrave 1995). Arguably, with
the exception of Japan and Korea, no economy in the Asian Pacific region will
maximize its growth potential without the involvement of the Chinese business
networks.
Chinese firms are characterized as small and flexible (Montagu
1991). Chinese business networks are remarkable for their ability to adapt to
uncertain environments and quickly grasp new business opportunities. A main
feature of Chinese business relationships is their reliance a mutual
understanding of each party’s roles and responsibilities. Less emphasis is
placed on explicit contracts than in Western industrial marketing relationships
(Buttery and Leung 1998; Xin and Pearce 1996). Xieyishu captures the extent to
which Chinese business relationships are governed by normative contracts. Given
the importance of xieyishu in Chinese business networks, this research attempts
to examine how a mutual understanding of each party’s roles and
responsibilities develops.
The conceptual framework and hypotheses are presented
in the next section. The methods used to test the hypotheses are then discussed.
The results, based on analysis of data from 152 Chinese business relationships,
are presented. The paper concludes by discussing the implications of the study,
identifying the limitations of the study, and suggesting directions for further
research.
Figure
1
A
Model of the Potential Antecedents of Xieyishu in Chinese Business Networks
We begin with a conceptual definition of xieyishu in
Chinese business networks, and then present a framework describing the
antecedent conditions of xieyishu. The conceptual model is presented in Figure
1. Based on extant theory and empirical research, the antecedents include guanxi
(long-term orientation), goutong (two-way communication), zongyong (harmony),
and mianzi (reputation). Interrelationships among the antecedents are also
examined.
There is much evidence to suggest that xieyishu is a
key factor in the success of Chinese business relationships and their ability to
adapt to external uncertainty. In 1995 Australia’s Department of Foreign
Affairs and Trade’s (DFAT) East Asia Analytical Unit conducted a major study
of Chinese business networks. A key conclusion was that Chinese businesspeople
prefer exchanges built on personal and social relations rather than formal legal
contracts. Under xieyishu, the terms and conditions of contracts are based on
informal and mutually understood agreements. These agreements capture
expectations about each party’s roles and responsibilities, and mechanisms for
conflict resolution. Xieyishu encourages flexibility and facilitates adaptation
to actual circumstances (DFAT 1995; Menkoff 1993). More generally, xieyishu
parallels the Western notion of normative contracts (cf. Lusch and Brown 1996).
As shown in Figure 1, guanxi is a direct antecedent of
xieyishu. Guanxi exists when the parties have a long-term orientation and are
committed to maintaining the relationship (Buttery and Leung 1998; Xin and
Pearce 1996). High levels of guanxi give rise to expectations of future
interaction and relationship continuity. Further, the parties may be willing to
make short-term sacrifices due to an expectation that long-term goals will be
realized. Guanxi is analogous to the Western concepts of long-term orientation
and relationship commitment (cf. Ganesan 1994; Morgan and Hunt 1994). Moreover,
commitment and expectations of continuity provide a foundation for the
development of xieyishu.
Goutong can be defined as the extent of two-way
communication between the parties. Many Chinese business relationships are
formed on the basis of kinship (Tsui and Farh 1997). Partly as a result, Chinese
business networks are characterized as having high levels of communication.
Further, goutong fosters a sense of trust and encourages the belief that one’s
partner will fulfill their formal and informal contractual obligations (Carroll
and Hwang 1992). In many respects, goutong parallels the Western concept of
information exchange (cf. Heide and John 1992). Goutong allows the parties to
form a better understanding of each other’s roles and responsibilities and is
a prerequisite for xieyishu.
The third direct antecedent of xieyishu is zongyong.
The notion of zongyong is derived from the Confucian goal of harmony (Chen and
Pan 1993). Confucian philosophy dictates a set of responsibilities and
obligations that each person in society has to others (Jacobs, Guapei, and
Herbig 1995). Harmony is a desirable goal and key aspect of successful personal
and business relationships. By definition, harmony is the antithesis of
interfirm conflict. More generally, Confucian principals like zongyong
constitute a cultural governance mechanism (Buttery and Leung 1998). Moreover,
we argue that zongyong helps build high levels of xieyishu.
Finally, we examine the direct effects of mianzi on
xieyishu. Mianzi exists when an exchange partner has a reputation for fairness.
Mianzi also stems from Confucianism (Wilkinson 1996). A reputation for fairness
helps stimulate relationship formation and creates an expectation that parties
will fulfill their contractual obligations. Chinese businesspeople place a great
deal of importance on maintaining high levels of mianzi. Damage to one’s
reputation erodes trust and, due to group sanctions, reduces the number of
potential exchange partners (Buttery and Leung 1998). Mianzi corresponds to the
Western concept of reputation for fairness (cf. Ganesan 1994). We predict a
positive relationship between mianzi and xieyishu.
A rationale for the interrelationships among the
antecedents in Figure 1 is now offered. Goutong is critical to the development
of guanxi. Social and personal interaction results in two-way communication,
which is necessary for the development of a long-term orientation in Chinese
business relationships (Leung, Wong and Wong 1996). Research on Western
industrial marketing relationships also provides support for this path (Anderson
and Weitz 1992). Next, zongyong influences guanxi directly. Actions that promote
harmony and stability provide a basis for developing expectations of
relationship continuity (Montagu 1991). Further, mianzi influences both goutong
and zongyong. Chinese business networks sanction actors that breech formal or
informal agreements. Chinese businesspeople will not interact with parties that
have a poor reputation (Wong 1998). Finally, the need to maintain high levels of
mianzi helps to maintain zongyong. A reputation for fairness is crucial to the
development of harmonious social and business exchanges (Hofstede 1991).
Xieyishu is essential to the successful operation of
Chinese business networks. Xieyishu captures the normative nature of contracts
that feature so prominently in Chinese business relationships. Our conceptual
framework attempts to illustrate how high levels of xieyishu develop.
Research
Methodology
Research
Context
Chinese business relationships in Australia were selected to examine the
research hypotheses for several reasons. Restricting the sampling frame to
Chinese business relationships in a single region minimizes extraneous sources
of variation. Further, Chinese business relationships in Australia were
accessible to the researchers. The questionnaire was pretested in a series of
ten qualitative interviews. An initial version of the questionnaire was
developed based on the preliminary interviews and a review of past research.
Note that the questionnaire was written in English. Piloting was undertaken via
directly administering the questionnaire to Chinese businesspeople. At this
stage, no particular problems with the measures or response formats were
revealed.
Sample
Characteristics
The sampling frame for our study was a mailing list 1,600 Chinese
businesses operating in Australia. A survey packet including a personalized
cover letter and self-administered questionnaire was sent to each firm. The
cover letter was clearly addressed to the owner/manager of each business. The
survey was closed out two months after the initial mailing. A total of 152
questionnaires were returned during this period. Another 129 survey packets were
returned undeliverable because of bad addresses. The 152 questionnaires that
were returned yielded a response rate of 10.3 percent. Missing values were
treated using listwise deletion, which resulted in an effective sample size of
145 observations. A natural concern is the sample size needed to obtain
meaningful parameter estimates. However, the sample size for our study is within
acceptable limits for using structural equation modelling techniques (Anderson
and Gerbing 1988).
Additional efforts to collect data from nonrespondents were not possible
due to financial constraints. However, the response rate is comparable to other
industrial marketing research (e.g., Lusch and Brown 1996). The Armstrong and
Overton (1977) technique of comparing early and late respondents was used to
examine nonresponse bias. Comparing waves of early and late respondents on a
range of firm characteristics revealed no significant differences (p
> .05) and suggests that nonresponse bias may not be a problem.
Further, the sampling method succeeded in providing
observations that varied greatly on firm characteristics. The businesses
represented in the sample varied widely in size, as measured by annual sales
(mean = $9 million; standard deviation = $32 million) or number of employees
(mean = 71 employees; standard deviation = 432 employees). The average
relationship length was approximately 8.2 years (standard deviation = 6.2
years). The average dollar volume of the relationships in our sample was $2.4
million (standard deviation = $8.6 million). Thus, we were successful in tapping
a variety of relationships.
Measures
Self-report measures are used for each theoretical construct. Further,
the constructs are measured using multiple-item scales. Because research on
Chinese business networks is new, we adapted scales from the Western industrial
marketing literature (e.g., Anderson and Weitz 1992; Ganesan 1994). To maximise
scale reliability, we conducted a pretest assessment of each item’s
substantive validity (Anderson and Gerbing 1991). The xieyishu scale is derived
from research by Lusch and Brown (1996) on normative contracts. Xieyishu exists
when the parties have a mutual understanding of each other’s roles and
responsibilities. Measure and reliability estimates for each theoretical
construct are available from the authors upon request.
Analytic
Technique
Initially, separate congeneric measurement models for each theoretical
construct were estimated using LISREL 8 (Joreskog and Sorbom 1996). Congeneric
measurement models are useful for assessing the reliability of measures and
verifying unidimensionality (Anderson and Gerbing 1988). Next, the structural
model was estimated for an examination of the hypotheses. Composite variables
were created using the factor score regression weights from the congeneric
measurement models. Further, the structural model is written as a completely
endogenous model. This approach to model estimation is advantageous, because
only the beta and psi matrices are estimated (Joreskog and Sorbom 1996). This
modeling strategy is efficient and does not require researchers to nominate
constructs as exogenous. Further details on the modeling strategy and related
results are available from the authors upon request.
Estimating the hypothetical model of Figure 1 produced a nonsignificant
chi-square statistic (c2(2)
= 4.551, p = .103). The root mean
square residual is small (.022), and the goodness-of-fit index (.990) and
adjusted goodness-of-fit index (.922) are large. These results suggest the
structural model fits the sample data well, at least in terms of overall
goodness-of-fit. Our structural model explains 75.1 percent of the variation in
xieyishu. Further, the structural model explains 54.7 percent, 48.7 percent, and
4.9 percent of the variation in guanxi, goutong, and zongyong, respectively.
These results provide additional support for the structural model.
The results indicate that xieyishu is influenced by guanxi, supporting H1.
A long-term orientation provides a foundation for building a mutual
understanding of each party’s roles and responsibilities (b12
= .224, p < .01). Further, xieyishu
is strongly influenced by goutong (H2). Two-way communication
contributes to the development of normative contracts (b13
= .446, p < .01). Xieyishu is also
influenced by zongyong. Harmonious relationships help support normative
contracts (b14
= .164, p < .01), which provides
support for H3. Finally, mianzi influences xieyishu (H4).
A reputation for fairness is an important prerequisite for the development of
normative contracts in Chinese business relationships (b14
= .220, p < .05).
Guanxi is influenced by goutong (H5) and zongyong (H6).
Two-way communication between exchange participants helps build a long-term
orientation and fosters commitment to the relationship (b23
= .602, p < .01). A harmonious
atmosphere also helps build a long-term orientation (b24
= .295, p < .01). Further, the
results indicate that mianzi influences goutong (H7) and zongyong (H8).
When a party has a reputation for fairness, two-way communication between the
exchange participants is enhanced (b35
= .698, p < .01). A reputation for
fairness also contributes to the development of harmonious exchange
relationships (b45
= .394, p < .01). In sum, these
results support our hypotheses.
Our results, taken as a whole, provide substantial
support for the conceptual framework of Figure 1. The constructs in the
conceptual model are direct antecedents of xieyishu. Further, the theoretical
constructs operate largely as hypothesized and explain a substantial proportion
of the variation in xieyishu.
The purpose of our study was to examine the potential
antecedents of xieyishu in Chinese business relationships. Because Chinese
business networks are governed by normative contracts (Buttery and Leung 1998),
identifying the antecedents of xieyishu is critical to understanding how Chinese
business relationships function. Goutong is very important to the development of
xieyishu in Chinese business networks. Two-way communication provides the basis
for developing a mutual understanding of each party’s roles and
responsibilities. Guanxi and zongyong are also important to the development of
xieyishu. Moreover, guanxi is influenced by both zongyong and goutong. Normative
contracts flourish where the parties have a long-term orientation and the level
of conflict is trivial. Finally, mianzi has a crucial role in Chinese business
relationships. A reputation for fairness supports the development of normative
contracts, enhances two-way communication, and reduces conflict.
Further, the results have implications for relational
contracting theory and marketing practice. Our study reinforces the view that
norms are an essential element of successful relational exchange (Gundlach and
Murphy 1993). Moreover, the conceptual framework highlights several norms,
including reputation for fairness, that are not emphasized in the Western
industrial marketing literature (cf. Heide and John 1992). In addition, our
results provide empirical evidence for Macneil’s (1978) view that close
business relationships take on the characteristics of minisocieties. In our
research context, however, Confucian principles govern exchange relations. For practitioners, our
model highlights factors that should be considered when conducting business with
Chinese businesspeople. Interestingly, the findings from our study might also
help improve the management of Western industrial relationships.
Limitations
Though this research provides some useful insights into
the determinants of xieyishu, certain limitations should be recognized. First,
we adapted measures of the focal constructs from the Western industrial
marketing literature. Importantly, we took several steps to ensure that the
measures were reliable and valid. As noted, we examined the substantive validity
of each item and piloted the questionnaire prior to the main study. Second, we
examined Chinese business relationships in Australia. The possibility exists the
Chinese businesspeople in Australia are somehow different from those in other
overseas Chinese communities. Testing the model in other research settings, both
Eastern and Western, would add credibility.
Finally, it is possible that other models could produce an equally good fit to
the sample data. In response to this potential limitation, it should be
recognized that our model is firmly based on extant literature and prior
research.
Directions
for Further Research
This research suggests several useful avenues for
further research. First, other constructs might be incorporated in the proposed
model. For instance, trust has been identifed as essential to successful
relational exchange in Western industrial networks (Morgan and Hunt 1994). The
Chinese notion of xinyong captures a party’s confidence in the integrity and
reliability of their exchange partner, and parallels the Western notion of
trust. Second, further research might explore the relationship between xieyishu
and the development of formal legal contracts. Research on the outcomes of both
normative and explicit contracts is becoming an area of increasing interest to
industrial marketing researchers (Lusch and Brown 1996).
Conclusion
Economic development in the Asia Pacific region will
contribute to the growth of Western economies. For this growth potential to be
maximized, however, further integration of Eastern and Western economies is
required. Successful integration is partly dependent on a thorough understanding
of widely different social and business practices. This research contributes to
our understanding of Chinese business networks. Such knowledge will be critical
to the success of marketing organizations in the next millennium. An intriguing
possibility is that Eastern and Western practices may not so different as
business textbooks usually suggest.
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