An Exploratory Study of Guanxi Practice and Business Ethics in Mainland China: Foreign Firms

53 Pages Posted: 17 Apr 2014

See all articles by Hubert Shea

Hubert Shea

LVMH Moet Hennessy Louis Vuitton China

Date Written: April 15, 2014

Abstract

Guanxi has been viewed by the extant scholarly studies as the most widely adopted business practice for local and foreign firms to grow and sustain their businesses in mainland China. However, the practice of Guanxi has being criticized as the main cause of bribery and corrupt activities which are in contravention of business ethical standards adopted by foreign firms in their home countries. This exploratory research aims at shedding light on Guanxi practice of foreign firms and how it relates to their businesses and business ethics in mainland China.

Based on in-depth interviews with 10 senior executives from foreign firms and qualitative data collected from different sources, the findings of this research demonstrate that the reliance on Guanxi practice is still salient to foreign firms due to the influence of numerous formal and informal constraints in mainland China. A majority of the researched foreign firms had a clear view that drawing on Guanxi with government officers and other business parties can possibly involve interpersonal exchange of favours that might lead to dubious business behaviours. In addition to the establishment of formal and informal forms of governance mechanism, a variety of Guanxi building and maintenance strategies were adopted by the researched foreign firms and due attention was paid not to run afoul of legal compliance issues in mainland China and their host countries as well as the local business convention.

The findings of this research raises a number of theoretical and managerial issues pertinent to ethical practice of Guanxi and the institutional environment in which foreign firms operated. Findings of this research argue that foreign firms should commit themselves to business ethics in light of the new rules of globalisation but the influence of path dependence is still resilient in light of ambivalent socio-politico configurations in mainland China which can ingrain key challenges to their ethical business practice. Accordingly, a governance mechanism to maintain ethical Guanxi practice is recommended in this research. Furthermore, this research demonstrates that the Chinese government should strive to promote ethical business culture and enforce a range of administrative and legal reforms that can incrementally wipe out and disincentivise unethical Guanxi practice. This research offers essential insights for executives who intend to advance a better understanding of ethical business practice with different government officers and business parties in mainland China.

Keywords: Guanxi practice, business ethics, foreign firms, institutional perspective, mainland China

JEL Classification: F23, G30, L20, M14

Suggested Citation

Shea, Yiu Ting, An Exploratory Study of Guanxi Practice and Business Ethics in Mainland China: Foreign Firms (April 15, 2014). Available at SSRN: https://ssrn.com/abstract=2425152 or http://dx.doi.org/10.2139/ssrn.2425152

Yiu Ting Shea (Contact Author)

LVMH Moet Hennessy Louis Vuitton China ( email )

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