Guanxi and Modern Finances

TITLE

Is Guanxi Ethical? A Normative Analysis of Doing Business in China

CITE “Is Guanxi Ethical? A Normative Analysis of Doing Business in China," Journal of Business Ethics 32 (3): 191-204, with Danielle Warren, August, 2001.

AUTHORS

Thomas W. Dunfee1 Danielle E. Warren2 The Wharton School

1

Legal Studies Department, The Wharton School, University of Pennsylvania Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104, voice: 215-898-7691, fax: [phone] email: [e-mail] 2 Management Department, The Wharton School, University of Pennsylvania Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104, voice: 215-898-9113, fax: [phone] email: [e-mail] 1

Paper Submission

Journal of Business Ethics

Biography: Thomas W. Dunfee is the Kolodny Professor of Social Responsibility and Director of the Carol and Lawrence Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania. His current research interests focus on the role of morality in markets, how social contract theory can be applied to business and professional ethics and global business ethics. Danielle E. Warren is a doctoral candidate in the Management Department at The Wharton School, University of Pennsylvania. Her research interests include workplace norms and employee deviance.

2

ABSTRACT This paper extends the discussion of guanxi beyond instrumental evaluations and advances a normative assessment of guanxi. Our discussion departs from previous analyses by not merely asking, “Does guanxi work?” but rather “Should corporations use guanxi?” The analysis begins with a review of traditional guanxi definitions and the changing economic and legal environment in China, both necessary precursors to understanding the role of guanxi in the Chinese business transactions. This review leads us to suggest that there are distinct types of, and uses for guanxi. We identify the potentially problematic

References: Ambler, Tim.: 1994, 'Marketing’s third paradigm: Guanxi ', Business Strategy Review 5(4), 6981. American Chamber of Commerce.: 1997, 'Overseas Chinese Are China’s Economic Engine ', Journal of the American Chamber of Commerce in Hong Kong, 3/1/97. Bain, Yanjie.: 1994, Work and Inequality in Urban China (Albany: State University of New York Press). De George, Richard T.: 1993, Competing with Integrity (New York: Oxford University Press). Donaldson, T.: 'Values in Tension: Ethics Away from Home ', Harvard Business Review Sept.Oct.(1996), 48-62. Donaldson, Thomas, and Thomas W. Dunfee.: 1999, Ties That Bind: A Social Contracts Approach to Business Ethics (Cambridge: Harvard Business School Press). Donaldson, Thomas, and Thomas. W. Dunfee.: 1995, 'Integrative Social Contracts Theory: A Communitarian Conception of Economic Ethics ', Economics and Philosophy 11, no. 1, 85-112. Donaldson Thomas, and Thomas W. Dunfee.: 1994, 'Towards a Unified Conception of Business Ethics: Integrative Social Contracts Theory ', Academy of Management Review 19, no. 2, 252-84. Donaldson, Thomas and Preston, Lee E.: 1995. 'The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications ', Academy of Management Review 20(1), 65-91. Dunfee, Thomas W., N. Craig Smith and William T. Ross.: Marketing Ethics ', Journal of Marketing 63 (July): 14-32. 1999. 'Social Contracts and Dwyer, F. Robert, Paul H. Schurr and Sejo Oh.: 1987. 'Developing Buyer-Seller Relationships ', Journal of Marketing 51, no. 2 (April 1987): 11-27. Eakeley, Douglas.: 1997. 'China is Showing an Interest in the Rule of Law ', The National Law Journal. Nov. 10, 1997, p. A23. Etemad, Hamid.: 1996. 'From Obscurity to Powerhouse: The Process of China’s Two Decades of Development ', Business and the Contemporary World: An International Journal of Business, Economics, and Social Policy, 8(3/4):171-222. 29 Eu, David.: 1996. 'Hong Kong and China: The 1997 Transition: Note: Financial Reforms and Corporate Governance in China ', 34 Columbia Journal of Transnational Law 469. Fan, Xiucheng and Tim Ambler.: 1998. ‘Relationship Marketing: Guanxi and Its Role in Marketing in China’, Nankai University, Working Paper. Fang, Liufang.: 1995. 'China’s Corporatization Experiment ', Duke Journal of Comparative and International Law 5:149- . Freeman, R. E.: 1984. Strategic Management: A Stakeholder Approach. (Boston: Pitman). Garten, Jeffrey E.: 1998. 'Opening the Doors for Business in China ',. Harvard Business Review 76(3): 167-175. Greenblatt, Sidney, Richard W. Wilson and Amy Auerbacher.: 1982. Social interactions in the Chinese society. (Praeger Publishers). Hwang, Kwang-kuo.: 1987. 'Face and Favor: The Chinese Power Game ', American Journal of Sociology 92(4): 944-974 Kaltenheuser, Skip.: 1998. 'Corruption by the numbers ', Across the Board. 35(10): 40. Leung, T.K.P., Y.H. Wong, and Syson Wong.: 1996, 'A Study of Hong Kong Businessmen’s Perceptions of the Role “Guanxi” in the People’s Republic of China ', Journal of Business Ethics, 15: 749-758. Li, Lily H.: 1999. 'World Watch ', The Wall Street Journal. Aug. 18, 1999, p. A 12. Lovett, S., L. C. Simmons, and R. Kali.: 1999. 'Guanxi versus the market: Ethics and efficiency ', Journal of International Business Studies. 30(2): 231. Lucas, Louise.: 1998. 'China Projects Seek New Financing Methods ', Privitasation International. Sept. p. 7(1). Luo, Yadong.: 1997. 'Guanxi and performance of foreign-invested enterprises in China: An empirical inquiry ', Management International Review, 37(1): 51-70. Morgan, Robert M., and Shelby D. Hunt.: 'The Committment-Trust Theory of Relationship Marketing ', Journal of Marketing 58, no. July (1994): 20 - 38. Nikkel, Michael Irl.: 1995. 'Note: ‘Chinese Characteristics’ in Corporate Clothing: Questions of Fiduciary Duty in China’s Company Law ', 80 Minnesota Law Review 503. 30 Smith, Craig.: 1998. 'Foreign Investors Break Loose From Chinese Partners ', Wall Street June 11, 1998. Section A, p. 17. Journal, Tsang, Eric W.K.: 1 998. 'Can guanxi be a source of sustained competitive advantage for doing business in China? ' Academy of Management Executive, 12(2): 64-73. Tsui, Anne S. and Jiing-Lih Larry Farh.: 1997. 'Where Guanxi Matters: Relational Demography and Guanxi in the Chinese Context ', Work & Occupations, 24(1): 56-79. Tung, Rosalie L., and Verner Worm.: 1997. The Importance of Networks (Guanxi) for European Companies in China. Paper presented at the Academy of Management Conference. Vanhonacker, Wilfried.: 1997. 'Entering China: An Unconventional Approach ', Business Review, March-April. 130-140. Harvard Wall, James A.: 1990. 'Managers in the People’s Republic of China. ', Academy of Management Executive, 4(2): 19-32. Webb, Sara.: 1997. 'World Stock Markets: Chinese Shares Show ‘Guanxi’ Appeal ', Wall Street Journal, September, 29, 1997. Section C, p. 1. Xin, Katherine R. and Jone L. Pearce.: 1996. 'Guanxi: Connections as Substitutes for Formal Institutional Support ', Academy of Management Journal, 39(6):1641-1658. Xinhua News Agency - CEIS.: 1999. ‘China Boasts 1,001 Stocks’, September, 17 1999. Yadong, Luo.: 1997. 'Guanxi and performance of foreign-invested enterprises in China ', Management International Review. 37(1): 51-70. Yeung, Irene Y.M. and Rosalie L. Tung.: 1996. 'Achieving business success in Confucian societies: the importance of guanxi (connections) ', Organization Dynamics, 25(2): 54-66. 31