Guanxi’s Contribution to Commitment and Productive Conflict Between Banks and Small and Medium Enterprises in China

Abstract

Guanxi has long been thought to play a critical role in understanding and practicing leadership, teamwork, and organizational partnerships in China. Researchers have argued that guanxi can be usefully understood as a kind of close relationship that obliges partners to assist each other. This study proposes that the theory of cooperation and competition as developed in the West can help us to understand how guanxi affects partner relationships. Findings from data on partnerships between banks and small or medium enterprises in Shanghai support the argument that guanxi strengthens cooperative goals, which in turn results in relationship commitment and productive conflict. Our study’s findings suggest that partners with guanxi interact in mutually beneficial ways that enhance their cooperative goals. Further research is needed to provide a stronger foundation for the causal inferences of these findings, and to investigate whether guanxi as it is known in China can also serve to develop cooperative goals, relationship commitment, and productive conflict among partnerships in other Asian societies and in the West.

Keywords

guanxi cooperation and competition relationship commitment productive conflict

Guanxi involves relationships between individuals and groups, and it is theorized to have a pervasive role in Chinese management (Hwang, 1987; Ko & Liu, 2016; Law, Wong, Wang, & Wang, 2000; Yu, Nahm, & Song, 2016). The concept of guanxi has been used to understand the nature of effective leadership and partnership in China (Chou, Cheng, Huang, & Cheng, 2006). Guanxi relationships have been theorized to have a major effect on fundamental outcomes such as commitment, productivity, career success, and succession planning (Gu, Hung, & Tse, 2008; Wei, Liu, Chen, & Wu, 2010). Indeed, guanxi is considered to be a highly distinctive phenomenon in China, and a key to understanding the cultural differences between China and the West (Gu & Nolan, 2015; Yeung & Tung, 1996). Clear theorizing and solid evidence on guanxi has the potential to enable a broader understanding of Chinese management and such new understanding can stimulate further research on leadership, partnerships, and cross-cultural management in both China and the West.

A number of studies have supported the theorizing that guanxi promotes successful partnerships in China (Bu & Roy, 2015; Lovett, Simmons, & Kali, 1999; Luo, Huang, & Wang, 2012). Luo and Chen (1997), for example, found that firms that rely on guanxi practices were able to use these relationships to share knowledge and coordinate their work so that they were more efficient than those with few guanxi practices. Asian theorists have also argued that guanxi reduces conflicts that frustrate collaborative work and undermine firm efficiency in Asia (Gu et al., 2008; Hwang, 1987).

However, more investigation is needed to identify and document the dynamics by which guanxi causes such effects. Our study addresses the research question of how partners use guanxi to strengthen their relationships and joint work (H. Chen, Tian, Ellinger, & Dougherty, 2010; N. Y.-F. Chen & Tjosvold, 2007; Wong & Tjosvold, 2010). Researchers have increasingly recognized that the nature of relationships has a major effect on the way teams and organizations function (Ferris et al., 2009). Our study uses cooperation and competition theory to propose that guanxi partners are able to develop strong cooperative goals, which in turn enhance their motivation to maintain their relationship and to manage conflict productively. Specifically, this study collected data from bank managers and firm customers in China to test the framework that guanxi strengthens cooperative goals that in turn develop relationship commitment and productive conflict.

This study makes several contributions to the literature. In addition to confirming previous research on the value of guanxi for productive partnerships in China (Lovett et al., 1999; Luo et al., 2012; Yu et al., 2016), our study further investigates the mediation between guanxi relationships and outcomes. We recognize that guanxi has to be continuously reinforced, so that the partners can strengthen their mutual commitment to help each other and enhance their ability to manage conflicts. Our study therefore integrates cooperation and competition theory with the guanxi literature, and identifies cooperative goals as an important mediator between guanxi and productive outcomes. This study also shows that cooperative goals help partners to use their guanxi for continuously reinforcing commitment to their relationships and improving their ability to use their conflicts in a productive way. Theorists have identified such personal ties as the same schools, and families and other particular groups as important bases of guanxi but these bases do not automatically result in guanxi (Farh, Tsui, Xin, & Cheng, 1998; Tsui & Farh, 1997). This study documents that partners can develop guanxi on these and other particular ties to enhance cooperative relationships that develop mutual commitment and productive responses to conflict.

Defining Guanxi

In their comprehensive review, C. C. Chen, Chen, and Huang (2013) found that researchers have generated various definitions and frameworks for understanding guanxi and its effects in China (Wan & Ng, 2013). The most common definitions describe guanxi in terms such as “mutually beneficial relationships,” “mutual obligations,” “reciprocity,” and “trust” (Luo et al., 2012; Luo, Liu, & Xue, 2009). Guanxi can be based on particularistic ties, such as ties between relatives, former colleagues, or classmates. Upon such ties, quality relationships can be developed (Bstieler & Hemmert, 2010; Farh et al., 1998).

This study builds upon arguments made by Law et al. (2000); Wong, Tinsley, Law, and Mobley (2003); and Mao, Peng, and Wong (2012), who claim that guanxi in China involves close relationships in which partners incur obligations and accept norms for interacting with each other both inside and outside the workplace. Guanxi partners make commitments to support, benefit, and assist each other. Therefore, guanxi concerns how people interact with each other, and what favors and benefits they give to each other (Law et al., 2000; Mao et al., 2012; Wong et al., 2003). Researchers have argued that guanxi is a kind of close relationship that emphasizes mutually supportive interactions outside the workplace, and that this kind of connection can be distinguished from the Western notion of quality relationships as measured by variables such as liking, satisfaction, or leader–member relations (Law et al., 2000; Wong et al., 2003).

Guanxi Outcomes

Researchers have increasingly realized that guanxi, like other kinds of relationship, needs to be built, maintained, and restored (Dou & Li, 2013). Education and school backgrounds or other particularistic ties do not necessarily lead to high-quality, mutually beneficial relationships (Farh et al., 1998). When it is maintained, guanxi can provide ongoing support that sustains relationships and encourages the partners to continue working together over time. Guanxi is not so much about helping to solve one issue or to make one exchange of favors as it is about continued assistance and support (Law et al., 2000; Mao et al., 2012; Wong et al., 2003).

This study measures the outcomes of guanxi in terms of mutual commitment between partners. Employees have been found to be motivated to develop guanxi with their supervisors to gain their insight and information so that the employees could advance their careers, resolve issues with teammates, and develop a richer personal life (Zhai, Lindorff, & Cooper, 2013; Y. Zhang, Long, Wu, & Huang, 2015). To realize these objectives, guanxi partners have to develop personal links and commitment with each other. Indeed, guanxi has been found to result in positive interactions and attitudes (X. A. Zhang, Li, & Harris, 2015). Guanxi partners work to develop mutual commitment so that they can realistically expect to gain assistance and support from each other in future (Murray & Fu, 2016; Wan & Ng, 2013). With such mutual commitment, guanxi partners realistically expect that their efforts will continue to be reciprocated. This study directly tests the dynamics by which guanxi can develop relationship commitment.

This study also tests the extent that guanxi helps partners deal with conflicts. Cultural theorists have long back proposed that guanxi is important as it reduces open conflict that disrupts collective work in Asia (Hwang, 1987). However, researchers have begun to recognize that simple harmony where people do not have to deal with conflict is unrealistic and that Asian managers and employees must be able to manage conflicts (Leung, Koch, & Lu, 2002). Indeed, partners are motivated to develop guanxi so that they can negotiate effectively to obtain needed resources and strengthen their collaborative work (Yu et al., 2016). Developing conflict management capability is a vital outcome of guanxi. Considerable research has documented that conflict, when well managed, can be very useful for relationships and collaborative work (Deutsch, 1973; Tjosvold, Wong, & Chen, 2014a, 2014b). Indeed, guanxi can strengthen the feelings that partners want to manage their conflicts for mutual benefit that help partners use conflict to develop sustaining relationships that benefit them in the long term. This study directly tests the dynamics by which guanxi can develop productive conflict capabilities as well as relationship commitment.

Guanxi Mediators

Researchers have traditionally focused on documenting the value of guanxi between colleagues and organizations (Farh et al., 1998; Luo et al., 2012). Recently, researchers have begun to identify mediators to develop a more specific understanding of how guanxi has its valuable outcomes (Liu, Hui, Lee, & Chen, 2013). H. Chen et al. (2010) found that guanxi helps partners work together to develop new ideas and exchange proprietary information that in turn improves performance. N. Y.-F. Chen and Tjosvold (2007) found that guanxi helped managers and employees express their various ideas open-mindedly which thereby helped employees gain the confidence of their manager that resulted in job promotions and challenging new assignments. Studies on mediation relationships can identify the dynamics by which guanxi has its effects as well as document these effects. In addition to increasing our understanding, identifying dynamics may suggest how to enhance guanxi’s beneficial effects.

Researchers have begun to recognize that the nature of relationships shapes the way teams and organizations function (Ferris et al., 2009). Peng, Schaubroeck, and Li (2014), for example, found that developing high-quality relationships with and among their employees help managers lead effectively. This study proposes that analyzing relationships is a useful way to understand the mediation between guanxi and its outcomes. It uses cooperation and competition theory to specify the nature of the relationships that guanxi develops.

Theory of Cooperation and Competition

Many researchers have recognized the need to clarify how quality relationships between organizations are developed (C. C. Chen et al., 2013). Our study uses Deutsch’s (1973) theory of cooperation and competition. We test the proposal that guanxi enhances cooperative goals, and it reduces competitive and independent goals.

The theory of cooperation and competition proposes that the way individuals or groups view the relationships between their goals very much affects the way they interact (Deutsch, 1973; Johnson & Johnson, 2005). In cooperation, people believe that their goals are positively related; the attainment of one person’s goals helps others to achieve their goals. People with cooperative goals believe that they have mutually beneficial relationships in which they can reach their own goals through helping others to achieve theirs (Deutsch, 1973).

In competition, goals are considered to be negatively correlated, so that different peoples’ goals have a win–lose relationship. The more one organization achieves its goals, the less likely it is that other organizations can reach their goals. People in a state of competition believe that if others attain their goals, it will interfere with their own success. Therefore, they strive to pursue their own interests at the expense of others’ interests. They try to “win” by reaching their own goals while obstructing the goals of others.

People with independent goals believe that their success depends on their own efforts. As they feel that the goals of different people are neither positively nor negatively related to their own, they prefer to pursue their own goals by themselves. As the success or failure of others does not affect whether they can reach their own goals, independent people focus on pursuing their own interests without concern for the goals of others.

Guanxi to Develop Cooperative Goals

Research has focused on documenting the dynamics and consequences of goal inter-dependence; fewer studies have sought to clarify the antecedents of cooperation and competition (Tjosvold, Wong, Chen, & Li, 2012). In this section, we argue that guanxi strengthens cooperative goals and reduces competitive and independent goals.

Deutsch (1973) theorized that goal inter-dependence and interaction reinforce each other. Therefore, cooperative goals promote mutually beneficial interactions, which in turn reinforce the sense that the various partners’ goals are positively related. As they interact socially, guanxi partners become linked together, engaging in mutually beneficial activity (Law et al., 2000; Wong et al., 2003). Guanxi partners are expected to show that they want to be together and find each others’ presence rewarding (X. A. Zhang et al., 2015). They feel that they are gaining the social support and shared information that will help them to further enjoy each other, to better coordinate their actions, and to succeed together. These interactions of guanxi are expected to provide organizational partners with concrete evidence that they share cooperative goals and are helping each other to accomplish those goals. According to this reasoning, guanxi is expected to help in making partners believe that their goals are cooperatively related and that they will succeed together.

Engaging in the mutually beneficial interactions of guanxi is also hypothesized to demonstrate that the partners have few competitive and independent goals. Guanxi partners have consistent evidence that their goals are cooperative, but little direct evidence that their goals are competitive or independent. However, studies have generally found that cooperative goals are negatively related to competitive and independent goals and that competitive goals are positively related to independent goals (Tjosvold et al., 2012). These correlations suggest that partners without mutually beneficial interactions tend to conclude that they have competitive and independent goals. It may be that partners want evidence that their goals are cooperative; without evidence, they are apt to believe their goals are competitive and independent. By engaging partners in helping each other to achieve goals, guanxi helps partners believe their goals are cooperative. With these cooperative goals, they are also likely to believe that their goals are not competitive or independent.

Based on the above research and reasoning, we propose the following hypotheses:

Hypothesis 1: Guanxi is positively related to cooperative goals.

Hypothesis 2: Guanxi is negatively related to competitive goals.

Hypothesis 3: Guanxi is negatively related to independent goals.

Cooperative Goals for Commitment to the Relationship and to Productive Conflict

This study aims to document that guanxi promotes cooperative goals and thereby to connect the guanxi and the cooperation and competition literatures. Many field and experimental studies summarized in meta-analyses have documented the contrasting effects that cooperative, competitive, and independent goals have on relationships and interactions (Johnson, Johnson, & Roseth, 2012; Johnson, Maruyama, Johnson, Nelson, & Skon, 1981). Specifically, studies suggest that cooperative goals promote relationship commitment and enable the productive discussion of diverse views (Deutsch, Coleman, & Marcus, 2014; Tjosvold et al., 2014a, 2014b).

With cooperative goals, partners are likely to be committed to their relationship because they expect to have a mutually rewarding exchange that will promote each partner’s success (Wong, Su, & Tjosvold, 2012). Their own self-interest in achieving their shared goals motivates them to maintain the relationship. They realize that by strengthening their cooperative relationship, they will gain more benefits. Cooperative goals develop expectations that partners will be helpful and supportive because they recognize that they all benefit when either one reaches his or her goals (Deutsch, 1962; Lewicki & Wiethoff, 2000).

Theorizing that guanxi develops cooperative goals also suggests that guanxi-related activities result in productive conflict. Even if the partners have cooperative goals, they are still likely to disagree with each other as they make various decisions and seek to coordinate their efforts (Walter, Kellermanns, & Lechner, 2012). Considerable research suggests that cooperative goals greatly contribute to managing conflict productively. In particular, experimental and survey results have indicated that cooperative goals promote integrative, open-minded discussions, which in turn help to resolve issues and strengthen relationships (Tjosvold et al., 2014a).

In contrast, independent or competitive goals provide little incentive for partners to maintain their relationships. Meta-analyses of studies indicate that independent and competitive goals undermine relationships (Johnson et al., 2012; Johnson et al., 1981). With independent goals, the partners do not have an interest in either helping or in undermining each other, because their own success is unrelated to the attainment of the other person’s goals. With competitive goals, the partners have no incentive for mutual assistance, and indeed they have reasons for undermining each other’s efforts, because they believe that they are more likely to reach their own goals if the others fail to reach their goals.

Independent and competitive goals are expected to undermine conflict management (Tjosvold et al., 2014a, 2014b). Competitive goals are apt to foster win–lose discussions where partners try to impose their solution on each other. Independent goals provide few incentives for integrative discussions and resolving conflicts for mutual benefit.

Based on the above research and reasoning, we propose the following additional hypotheses:

Hypothesis 4: Cooperative goals are positively related to relationship commitment and productive conflict.

Hypothesis 5: Competitive goals are negatively related to relationship commitment and productive conflict.

Hypothesis 6: Independent goals are negatively related to relationship commitment and productive conflict.

Overall Model

The theory and research reviewed suggests that guanxi builds cooperative goals between partners, because they believe that their goals are positively related, so that as one partner moves toward accomplishing his or her goals, that success helps the other partners to reach their goals as well. Such cooperative experiences in turn help to strengthen their relationship commitment and their productive conflict that can be expected to maintain the guanxi relationship. We therefore theorize that cooperative goals mediate between guanxi and relationship commitment and productive conflict. Firms with guanxi develop cooperative goals that become foundations for relationship commitment, and the ability to manage conflicts productively, as proposed in the following Hypothesis 7 (also see Figure 1):

Hypothesis 7: Cooperative goals mediate the link between guanxi and relationship commitment and productive conflict.

Method

Participants

We approached the loan departments of four banks in Shanghai, China, namely, the China Bank of Construction, the Bank of Communications, the Shanghai Bank, and the China Minsheng Bank. We selected these banks because the first two are ranked among the top five banks in China, and the second two banks have been supporting small- and medium-sized enterprises (SMEs) in recent years. The head of each bank’s loan department authorized our efforts for collecting data from their departments. Following previous studies of inter-organization relationships (Morgan & Hunt, 1994; Rindfleisch & Moorman, 2001), our study used the key informant approach. The bank loan officers responsible for SME loans were key informants in the study. These officers were each asked to focus on a particular SME, and to rate their collaboration with that SME. We then approached the SMEs concerned, identified the firm’s managers who were knowledgeable concerning their relationship with the bank’s loan department, and invited these managers to complete our questionnaire. The respondents knew which bank or SME that they were reporting on, but they did not know the identity of the person completing the questionnaire for the other organization.

We collected the data in a direct and labor-intensive way. Rather than mailing the surveys, an author or research assistant hand delivered the surveys, thanked the respondents for agreeing to complete them, and answered any questions they might have. Souvenirs were given to respondents for participating in the survey. We distributed 120 sets of questionnaires, and 117 sets were collected. Out of these 117 returned sets, 106 sets of questionnaires were found usable, after deleting those questionnaires that were not finished completely, or that did not have their matching pairs. The final sample was therefore comprised of 106 sets of questionnaires.

For each set of questionnaires, the bank officers had to complete a survey on their relationship with an SME, and the SME managers had to complete a different survey on their relationship with the bank. The bank officers rated measures of goal inter-dependence and guanxi, and the company managers rated measures of relationship commitment and productive conflict. We considered that this arrangement would help to reduce same-source bias.

Regarding the educational background of respondents from the SMEs (46 male, 60 female, M_age = 38 years), 54% had received a bachelor’s degree, 33% had obtained a community college degree, 8.5% had completed high school, and 4.5% had gone to graduate school. On average, the respondents had worked in their SMEs for 6.3 years, and most of them were finance managers. The average number of employees in these SMEs was 313. Regarding the industries of these SMEs, 66% were in wholesale, retail, or catering; 10% were in manufacturing; 10% were in construction; and the remaining 14% were in various other industries.

Concerning the educational level of respondents from the bank loan departments (58 male, 48 female, M_age = 32 years), 82% had received a bachelor’s degree, 10% had gone to graduate school, 6% had obtained a community college degree, and 2% had completed high school. On average, the respondents had worked in their loan departments for 6.2 years, and most of them held the post of account executives. Their loan departments had an average of 16 members.

Measures

All the measures used in this study were applied in the format of 7-point Likert-type scale items (1 = strongly disagree, 7 = strongly agree). The measures were based on previous studies, and they are given in the appendix. Two native Chinese research assistants translated the questionnaires from English into Chinese. To ensure conceptual consistency, two other native Chinese research assistants translated the questionnaires back into English to check for possible deviations (Brislin, 1970). We conducted pre-testing of the questionnaires to ensure that the respondents understood every phrase, concept, and question.

Guanxi

This scale measured the relationships between the bank officers and company managers who were responsible for the collaborative work between their organizations. The 4-item scale was developed from Law et al. (2000), who argued that close relationships of guanxi are developed largely through social interactions after office hours. The bank officers rated their own likelihood of displaying such behavior. A sample item was “members in both the firm and this loan department invite each other for lunch or dinner.” The Cronbach’s alpha for this scale was .77.

Goal inter-dependence

The measures of cooperative, competitive, and independent goals were adapted from previous research (Alper, Tjosvold, & Law, 1998). The bank officers were asked to rate their business relationships through three scales concerning goal inter-dependence. The cooperative goal scale measured the degrees of emphasis on mutual goals, shared rewards, and common tasks. One of the five-item cooperative goal scale items was “The firm and this loan department seek compatible goals.” The competitive goal scale assessed the level of emphasis on incompatible goals and rewards. A sample item of this four-item scale was “The firm’s goals are incompatible with our goals.” The four independent goal items measured the degree of emphasis on unrelated goals and rewards. A sample item was “Our success is unrelated to the other firm’s success.” These three scales of goal inter-dependence had good reliability. The cooperative, competitive, and independent goal scales had Cronbach’s alpha values of .92, .86 and .90, respectively.

Relationship commitment

We measured relationship commitment using the scale from Morgan and Hunt (1994). This scale measured the extent to which a partner believed that an ongoing relationship with the other partner was sufficiently important to warrant maximum efforts to maintain it. In other words, the scale indicated whether the committed party believed that the relationship was worth working on to ensure that it endured indefinitely. One of the items of this two-item scale was “The relationship that my firm has with the loan department is something we are very committed to.” The company managers rated this scale, which had a Cronbach’s alpha of .96.

Productive conflict

The productive conflict scale was adapted from a previous study conducted in North America (Alper, Tjosvold, & Law, 2000). This scale assessed whether partners believed that their partnership could successfully manage situations involving conflicts. A sample item of this four-item scale was “All things considered, we are highly pleased with the way we negotiate with each other.” Company managers rated this scale, which had a Cronbach’s alpha of .95.

Results

Reliabilities of Scales

The study followed the two-step procedure proposed by Anderson and Gerbing (1988), which involved examining the measurement model through confirmatory factor analysis (CFA) prior to estimation of the measurement and structural models. Hence, a series of CFAs were conducted to assess whether the respondents’ ratings would load on six distinct factors, namely, guanxi social activities, the three types of goal inter-dependence, relationship commitment, and productive conflict.

Table 1 shows the CFA results for the different measurement models. Model M0 in Table 1 suggests that the proposed six-factor model fit the data quite well. All the items for the six-factor model had high factor loadings, ranging from .40 to .94. This six-factor model was then compared with two five-factor models. Each of these five-factor models was formed by merging two of the six variables into one aggregate factor. We selected these two alternative five-factor models based on the inter-correlations among the six variables (Table 2). Competitive goals had a strong correlation with independent goals (r = .60). Relationship commitment and productive conflict were also related in a highly positive way (r = .72). We combined these two pairs of variables into a single factor, and then compared this model against the proposed five-factor model. This method has been used in previous studies to assess construct validity (Brooke, Russell, & Price, 1988; Mathieu & Farr, 1991).

Table 1.

Confirmatory Factor Analysis Results.

Model	χ²	df	Δχ²	NNFI	CFI	IFI	RMSEA
Baseline six-factor model (M0)	312.55	201		.95	.96	.96	.073
Five-factor model (M1) combined competitive goals with independent goals	390.66	207	78.11**	.93	.94	.94	.092
Five-factor model (M2) combined productive conflict with relationship commitment	438.19	206	125.64**	.90	.92	.92	.100

Note. The baseline six-factor model (M0) includes guanxi, cooperative goals, competitive goals, independent goals, relationship commitment, and productive conflict. χ² is the model chi-square; Δχ² is the change in model chi-square. NNFI = non-normed fit index; CFI = comparative fit index; IFI = incremental fit index; RMSEA = root mean square error of approximation.

**p< .01.

Table 2.

Means, Standard Deviations, Reliabilities, and Correlations.

Variables	M	SD	Item	α	1	2	3	4	5
1. Guanxi	3.52	1.24	4	.77	—
2. Cooperative goals	5.78	1.16	5	.92	.19*	—
3. Competitive goals	2.55	1.20	4	.86	.10	−.33**	—
4. Independent goals	3.38	1.36	4	.90	.16	−.10	.60**	—
5. Productive conflict	5.46	1.14	4	.95	.25**	.59**	−.31**	−.05	—
6. Relationship commitment	5.75	1.10	2	.96	.19*	.48**	−.37**	−.23**	.72**

*p< .05. **p< .01.

The results given in Table 1 show that the model’s chi-squares increase significantly when we drop the six-factor model and move to either of the two five-factor models. The comparisons of the fit indices of the three models suggest that the six-factor model has the best-fit indices.

Hypotheses Testing

Table 2 provides the correlational analyses of guanxi, goal inter-dependence, relationship commitment, and productive conflict. Structural equation analyses were used to test the theorized model connecting guanxi, goal inter-dependence, relationship commitment, and productive conflict. The causal relationship among these constructs was analyzed using LISREL8 (Joöreskog & Soörbom, 1996). Apart from evaluating the overall model fit and the specific parameter estimates, it was useful to compare alternative models to identify the best model (Ullman & Bentler, 2003). Table 3 outlines the results of the different structural models of the study. We used the chi-square difference test (Kaplan, 2009) to assess the argument that goal inter-dependence mediates the links between guanxi, relationship commitment, and productive conflict. This mediating effects model (also called the hypothesized model) was compared with the full effects model, which included both the direct effects of guanxi on the outcome variables and the mediating effects of goal inter-dependence. The difference between the mediating effects model and the full effects model was insignificant (Δχ² = 5.76, df = 2, ns), which indicated that the mediating effects model provided a fit similar to that of the full effects model. Therefore, the mediating effects model was considered a better model than the full effects model, due to its parsimony in explanation (Kaplan, 2009). Moreover, the mediating effects model was also compared with the direct effects model, which theorized that guanxi and goal inter-dependence had direct effects on the outcome variables. To find out whether there was a possibility of reverse causality, we also tested an alternative causality model by which goal inter-dependence would affect guanxi, instead of guanxi affecting goal inter-dependence. Structural equation results indicated that the mediating effects model had a better fit than the direct effects model and the alternative causality model. Therefore, we accepted the mediating effects model as the study’s best model. We also used bootstrap analyses to directly test the mediating effects of goal inter-dependence (Preacher & Hayes, 2004, 2008).

Table 3.

Full Effects, Direct Effects, Mediating Effects, and Alternative Causality Models.

Model	χ²	df	Δχ²	NNFI	CFI	IFI	RMSEA
Full effects model	386.12	205		.92	.94	.94	.092
Direct effects model	395.63	208	9.51*	.92	.93	.93	.093
Mediating effects (or theorized) model	391.88	207	5.76	.92	.94	.94	.092
Alternative causality model	485.03	211		.89	.91	.91	.110

Note. χ² is the model chi-square; Δχ² is the change in model chi-square. NNFI = non-normed fit index; CFI = comparative fit index; IFI = incremental fit index; RMSEA = root mean square error of approximation.

*^p< .05.

The path coefficient results of the accepted mediating effects model helped us to explore the findings more specifically (Figure 2). Guanxi had a significant positive effect on cooperative goals (β = .33, p< .01), but it had a non-significant effect on competitive goals (β = .03, ns) or independent goals (β = .17, ns). Cooperative goals had a significant positive effect on both relationship commitment (β = .62, p< .01) and productive conflict management (β = .59, p< 01). Conversely, competitive goals had a significant negative effect on relationship commitment (β = −.37, p< .01) and on productive conflict (β = −.51, p< .01). However, independent goals had a significant positive effect on productive conflict (β = .32, p< .01) and a non-significant positive effect on relationship commitment (β = .03, ns). These path coefficient results generally supported Hypotheses 1, 4, and 5. However, the path coefficients did not support Hypotheses 2 and 3. These results suggest that engaging in guanxi-related social activities did not strengthen competitive or independent goals. The results failed to support Hypothesis 6, as the effect of independent goals on relationship commitment was not significant, and the effect of independent goals on productive conflict was both positive and significant.

To directly test whether the mediation effects of goal inter-dependence on commitment and productive conflict were significant, we used the Preacher and Hayes’s (2008) SPSS bootstrapping macro with 20,000 iterations to calculate bias-corrected confidence intervals (CIs) for the indirect effects. CIs that did not include zero provided evidence of mediation. Table 4 summarizes the results of these bootstrap analyses.

Table 4.

Bootstrap Results for Indirect Effects of Guanxi on Productive Conflict and Relationship Commitment Through Goal Inter-Dependence (N = 106).

	Bootstrap results for indirect effect
Model: Guanxi → Goal inter-dependence → Productive conflict and relationship commitment	Bootstrap indirect effect	BootstrapSE	95% CI
	Bootstrap indirect effect	BootstrapSE	Lower limit	Upper limit
Guanxi → Cooperative goals → Productive conflict	.11	.05	.03	.23
Guanxi → Competitive goals → Productive conflict	−.01	.03	−.07	.04
Guanxi → Independent goals → Productive conflict	.01	.02	−.01	.07
Guanxi → Cooperative goals → Relationship commitment	.08	.05	.01	.21
Guanxi → Competitive goals → Relationship commitment	−.01	.03	−.08	.03
Guanxi → Independent goals → Relationship commitment	−.01	.02	−.08	.01

Note. Bootstrap sample size = 20,000. CI = confidence interval.

Guanxi had significant direct effects on productive conflict (β = .23, p< .01) and relationship commitment (β = .16, p< .05). It also had a significant effect on cooperative goals (β = .23, p< .01). Cooperative goals had significant direct effects on productive conflict (β = .48, p< .001) and relationship commitment (β = .35, p< .001). Results indicated that the paths describing the indirect effects of guanxi on productive conflict and relationship commitment through cooperative goals were significant. On the contrary, the paths for the indirect effects of guanxi on the two outcome variables through competitive goals and independent goals were not significant. The bootstrapping analysis further confirmed the mediation effects of cooperative goals on the relationship between guanxi and the two outcome variables. Specifically, the results indicated a significant indirect effect of guanxi on productive conflict via cooperative goals (effect size = .11; 95% CI = [.03, .23]) and a significant indirect effect of guanxi on relationship commitment via cooperative goals (effect size = .08; 95% CI = [.01, .21]). The other indirect effects of guanxi (on the outcome variables via competitive goals and independent goals) were not significant, as their CIs included zero. These indirect effect results were similar to the results from the structural equation analyses.

Discussion

This study’s findings shed light on how business partners use guanxi to develop their relationships and joint productivity. Results support the theorizing that guanxi partners strengthen their cooperative goals as they support and assist each other. These cooperative goals in turn were found positively related to relationship commitment and productive conflict between partners. Cooperative goals appear to stimulate commitment to maintain relationships, because the partners understand that it is in their mutual interest to continue assisting each other (Deutsch, 1973; Johnson et al., 2012). Consistent with considerable research (Deutsch et al., 2014), cooperative goals developed through guanxi were found to promote productive conflict management between organizations.

Theorists have long argued that guanxi and other Chinese relationship values induce conflict avoidance (Leung et al., 2002). Chinese people are thought to believe that open discussions of conflict threaten relationships (Hwang, 1987). However, considerable research conducted in China and in the West indicates that cooperative goals promote productive conflict in which the partners can express their views and work to integrate them in creating mutually beneficial resolutions (Deutsch et al., 2014; Tjosvold et al., 2014b). This study’s findings indicate that by developing cooperative goals, guanxi can serve to promote productive conflict (Deutsch et al., 2014). Rather than assuming that traditional Chinese values promote conflict avoidance, researchers should document how these values affect conflict management (N. Y.-F. Chen, Tjosvold, Huang, & Xu, 2011).

Values and Challenges of Guanxi in Developing Partnerships

This study’s hypotheses and results address the increasing practice by which business organizations join forces and achieve greater success through working together than they could by working alone (Bae, Wezel, & Koo, 2011). Various researchers in the fields of management, strategy, and marketing have argued that close interpersonal relationships are key for effective partnerships, especially in China (Gaurav, 2008; Lui & Ngo, 2004; Palmatier, Dant, Grewal, & Evans, 2006).

This study collected data on partnerships between banks and SMEs in China. Previous studies have specified that close interpersonal relationships between banks and borrowing firms can support bank performance (Morgan & Hunt, 1994; Saparito, Chen, & Sapienza, 2004). Peltoniemi (2007) found that long-term relationships tend to lower the costs of credit, which can especially benefit high-risk firms. Business managers in China and Hong Kong who develop long-term relationships with banks, government agencies, and other organizations have been found to contribute more substantially to their firms (Guthrie, 2002; Peng, 2000; Wong & Tjosvold, 2010).

However, we should recognize that partnerships are challenging to develop and manage, and therefore their value can be difficult to realize. Frustrating conflicts often create doubts as to whether a partnership is viable (Anderson & Narus, 1990). Indeed, partnerships often fail despite their early promise and considerable effort to make them work (Luo et al., 2012). Strategic management theorists have argued that high-quality relationships between organizations are so valuable, yet difficult to develop, that these relationships provide important, enduring competitive advantages (Ireland, Hitt, & Vaidyanath, 2002). This study builds upon previous research by showing how guanxi, with its ongoing process of mutual support and assistance, helps to develop cooperative goals that can in turn contribute to relationship commitment and productive conflict between partners.

The Negative Face of Guanxi

Researchers have argued that guanxi can have both harmful and beneficial effects on people and partnerships. Guanxi is sometimes disparaged, because it is thought to involve using relationships for personal advancement at the expense of the collective good. Critics claim that guanxi creates a system in which having the right connections is rewarded, rather than hard work or actual contribution to the organization (C. C. Chen & Chen, 2009; Dunfee & Warren, 2001). Indeed, some research has shown that guanxi can result in feelings of injustice, when individuals go unrewarded because they do not engage in guanxi interactions, rather than due to their job performance (Y. Zhang et al., 2015). Western theorists have taken a similar viewpoint, arguing that guanxi is a form of cronyism that corrupts and undermines company’s performance (Davis, 2003).

Lin and Si (2010) proposed that guanxi can frustrate the development of efficient partner relationships. Guanxi, they argued, builds relationships that are mutually beneficial for the participants, but it also locks them into these relationships and reduces their efforts to develop broader arrangements that may prove more efficient. For example, local governments and firms are often satisfied with their business arrangements, and therefore neglect to explore others, potentially more efficient collaborations with partners in other cities. These arguments remind us that the findings of studies such as ours have to be applied ethically and intelligently. The analysis and results of this study suggest that guanxi is useful for developing relationship commitment and productive conflict. However, close interpersonal relationships can be applied to pursue antisocial objectives (English, 2007).

Limitations and Future Research

The findings of this study are limited by its sample and its operations. One critical limitation is that the results are correlational, and do not directly support the theorized causal relationships between guanxi, cooperative goals, relationship commitment, and positive conflict. This study’s data do not offer direct evidence of underlying causation. Experimental evidence is needed to provide more confidence in the theorized relationships.

The correlational results support the theorized links between guanxi, cooperative goals, commitment, and productive conflict. However, it is also possible that the causal relationships could be reversed, that is, that it could be cooperative goals that induce guanxi, and then the resulting guanxi could induce commitment and productive conflict. Our findings do not indicate that this reverse order of causation is impossible or unlikely. However, the model analyses results support this study’s theorized ordering, as they suggest that the proposed order of effects (from guanxi to goals and then to outcomes) is more consistent with this study’s evidence than a model in which cooperative goals cause guanxi, which then causes commitment and productive conflict. Furthermore, the study’s results may not be highly representative, as the data were collected in one area of mainland China.

In terms of the study’s operations, organizational and behavioral studies often use the same questionnaire to provide ratings for both the independent and dependent constructs, thus presenting the possibility of bias through common source variation. The bank officers participating in this study completed the measures of guanxi and goal inter-dependence; the firm’s participants completed the measures of relationship commitment and productive conflict, thus presenting the possibility of common method variance between the ratings of guanxi and the goal measures. We thought that this approach of collecting data, although may have been subjected to common method variance, would involve well-informed respondents and would help to limit the potential for bias through same-source data.

Unexpectedly, the evidence did not support the theorizing that low levels of guanxi result in competitive or independent goals. The participating partners did not feel that without guanxi their goals would be largely competitive and independent. It may be that guanxi is very useful for developing cooperative relationships, but its absence does not necessarily imply that the relationships are competitive and independent. Future research is needed to explore this issue.

The results also suggested that the theory of cooperation and competition, although it was developed in the West, is useful for understanding the dynamics and outcomes of Chinese guanxi. Although a theory developed in one culture cannot be assumed to apply in another culture (Hofstede, 1993), the concepts and theories developed in one culture can still prove useful for understanding other cultural and social contexts. Further research could explore whether guanxi can help to develop cooperative goals between partners in the West. There is currently much discussion about the value of networking and leader-member exchange relationships in the Western management literature (Ferris et al., 2009). In addition, close relationships are thought to play important roles for organizations in the Middle East and the rest of Asia (Chua & Wellman, 2015). Future studies could investigate the extent to which guanxi can affect the quality of relationships in international and cross-cultural partnerships.

Practical Implications

In addition to strengthening theoretical understanding, the findings of this study can, if they continue to be replicated, have important practical implications for how to enhance partnerships. The results suggest that strengthening cooperative goals between partners is an important way in which guanxi can contribute to partnerships. Partners can supplement guanxi by applying research findings identifying common tasks, integrated roles, personal relationships, and shared rewards as antecedents of cooperative goals (Li, Xin, Tsui, & Hambrick, 1999). Partners with cooperative goals are likely to be motivated for maintaining their relationships and to gain confidence that they can manage their conflicts productively.

The findings of this study suggest that productive conflict management is an important outcome of both guanxi and cooperative goals. Developing the skills to manage conflicts open-mindedly can help to strengthen business relationships. The partners can be trained to express their opinions directly, to seek understanding of other views, and to integrate those views for developing mutually beneficial resolutions (Tjosvold et al., 2014a). Business partners then can deal productively with potentially divisive issues in a way that helps them maintain and support their guanxi.

Researchers, theorists, and managers have long proposed that guanxi has an important role in Chinese organizations, and that understanding guanxi can contribute to business success in China. This study’s theories and findings indicate that guanxi can contribute to productive partnerships when it is applied in ways that enhance cooperative goals and the confidence of business partners that they can succeed together. On the basis of such cooperative goals, business partners can develop commitment to their relationships and improve their abilities to manage conflict productively. The outcomes of this process should help them continue to work together for mutual benefit in the future.

Footnotes

Appendix

Acknowledgements

The authors appreciate the support of the able research assistants in Shanghai, China.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work has been supported by the General Research Fund project (CB13A9) awarded by the Research Grants Council of Hong Kong.

Associate Editor: Jin Nam Choi

Author Biographies

Alfred Wong (Ph.D., Sheffield Hallam) is associate professor of Management at Lingnan University, Hong Kong. He has research interests in the areas of leadership, cooperation and competition, conflict management, and supply chain management. He has published research articles in a variety of international journals.

Lu Wei (Ph.D., Shanghai University of Finance and Economics) is associate professor in the School of International and Public Affairs at Shanghai Jiao Tong University, China. His research interests include public finance, public economics and public policy.

Xinyan Wang (Ph.D., Huazhong University of Science and Technology) is professor of the School of Business Administration and Associate Director of Research Center for Innovation and Strategic Human Resource Management at Jiangxi University of Finance and Economics. Her research direction is organizational behaviour and human resource management.

Dean Tjosvold (PhD., University of Minnesota) is professor, Research Center for Innovation and Strategic Human Resource Management, Jiangxi University of Finance and Economics, and emeritus professor, Lingnan University in Hong Kong. He has published over 250 papers on managing conflict, cooperation and competition, and other management issues.

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