Guanxi And Performance The Moderating Role Of Corporate Social Responsibility And Entrepreneurial Orientation

Guanxi And Performance: The Moderating Role Of Corporate Social Responsibility And Entrepreneurial Orientation

Abstract

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Dedication

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Table of Contents

TOC o “1-3” h z u HYPERLINK l “_Toc375654966” CHAPTER 1. INTRODUCTION PAGEREF _Toc375654966 h 2

HYPERLINK l “_Toc375654967” Introduction to the Problem PAGEREF _Toc375654967 h 2

HYPERLINK l “_Toc375654968” Background of the Study PAGEREF _Toc375654968 h 3

HYPERLINK l “_Toc375654969” Statement of the Problem PAGEREF _Toc375654969 h 5

HYPERLINK l “_Toc375654970” Purpose of the Study PAGEREF _Toc375654970 h 5

HYPERLINK l “_Toc375654971” Rationale PAGEREF _Toc375654971 h 5

HYPERLINK l “_Toc375654972” Research Aim and Objectives PAGEREF _Toc375654972 h 5

HYPERLINK l “_Toc375654973” Hypotheses PAGEREF _Toc375654973 h 6

HYPERLINK l “_Toc375654974” Research Questions PAGEREF _Toc375654974 h 7

HYPERLINK l “_Toc375654975” Definition of Terms PAGEREF _Toc375654975 h 7

HYPERLINK l “_Toc375654976” Significance of the Study PAGEREF _Toc375654976 h 9

HYPERLINK l “_Toc375654977” Assumptions and Limitations PAGEREF _Toc375654977 h 10

HYPERLINK l “_Toc375654978” Nature of the Study PAGEREF _Toc375654978 h 10

HYPERLINK l “_Toc375654979” Conceptual Framework PAGEREF _Toc375654979 h 10

HYPERLINK l “_Toc375654980” Organization of the Remainder of the Study PAGEREF _Toc375654980 h 12

HYPERLINK l “_Toc375654981” CHAPTER 2 LITERATURE REVIEW PAGEREF _Toc375654981 h 13

HYPERLINK l “_Toc375654982” Corporate Social Responsibility PAGEREF _Toc375654982 h 13

HYPERLINK l “_Toc375654983” Centrality PAGEREF _Toc375654983 h 20

HYPERLINK l “_Toc375654984” Entrepreneurial Orientation PAGEREF _Toc375654984 h 22

HYPERLINK l “_Toc375654985” Social Capital PAGEREF _Toc375654985 h 23

HYPERLINK l “_Toc375654986” Culture and Business Environment PAGEREF _Toc375654986 h 41

HYPERLINK l “_Toc375654987” CHAPTER 3. METHODOLOGY PAGEREF _Toc375654987 h 62

HYPERLINK l “_Toc375654988” Research Design PAGEREF _Toc375654988 h 62

HYPERLINK l “_Toc375654989” Research Paradigm PAGEREF _Toc375654989 h 63

HYPERLINK l “_Toc375654990” Sampling PAGEREF _Toc375654990 h 63

HYPERLINK l “_Toc375654991” Variables PAGEREF _Toc375654991 h 64

HYPERLINK l “_Toc375654992” Setting PAGEREF _Toc375654992 h 64

HYPERLINK l “_Toc375654993” Types of Data and Focus PAGEREF _Toc375654993 h 64

HYPERLINK l “_Toc375654994” Delimitations and Assumptions PAGEREF _Toc375654994 h 65

HYPERLINK l “_Toc375654995” Validity and Reliability PAGEREF _Toc375654995 h 65

HYPERLINK l “_Toc375654996” Ethical Considerations PAGEREF _Toc375654996 h 66

HYPERLINK l “_Toc375654997” Reference PAGEREF _Toc375654997 h 66

List of Tables and Figures

TOC h z c “Figure” HYPERLINK l “_Toc299972655″Figure 1: Conceptual Framework PAGEREF _Toc299972655 h 2

HYPERLINK l “_Toc299972656″Figure 2: Hierarchy for Corporate Social Responsibility PAGEREF _Toc299972656 h 2

HYPERLINK l “_Toc299972657″Figure 3: Three-Domain model of CSR PAGEREF _Toc299972657 h 2

HYPERLINK l “_Toc299972658″Figure 4: The Impact of Centrality PAGEREF _Toc299972658 h 2

TOC h z c “Table”

HYPERLINK l “_Toc299974821″Table 1: Divergence between Chinese and Western Cultures PAGEREF _Toc299974821 h 2

CHAPTER 1. INTRODUCTIONIntroduction to the ProblemGuanxi is one of the well researched areas of the study when it comes to business in Chinese context. There are various views regarding Guanxi and its significance in the modern business environment of China. Some authors and academicians view it as an effective and strong assistance available to the corporate executives in the business environment whereas others perceive it to be backing corruption and bribes in the business environment. There are some authors who have classified Guanxi on various aspects.

Background of the StudySocial relations are part of any civilized society in the present scenario. The role and influence of social relations in the life of individuals may vary from one society to the other. However, its significance can not be ignored at personal and professional life when it comes to the life of a Chinese individual. One of the exhaustively studied social relationship type existing in the Chinese society from the Confucius’ time is Guanxi. According to Luo (2001) Guanxi has a significant role in the entry to the China’s business and describes the term as “concept of drawing on connections or networks in order to secure favors in personal and business relations.” Guanxi plays a ubiquitous role in the daily life of China.

Sato (2003) describes Guanxi to be at the core of a community in China that has been adopted in the market place representing layers of networks among people. This is an advance form of social relationship that governs the life of people in China. The role and characteristics of these differs from community to community and group to group. In order to understand a market place, it is important to understand the nexus of social network within the society and economy.

Chinese have been able to develop social relationship as a calculated science of social relations. The construction of the Guanxi may start as early as student life of a person and is a common preoccupation for various levels of professionals that includes entrepreneurs, government officials, managers and others (Luo, 2001). Social order is deeply rooted in the history of the culture of China. This represents business links that can mutually benefit each other. In the last few decades, economic reforms have widened the scope of Guanxi. It has more commercial quality and expanded geographical area. Contrary to the thoughts of famous philosophers like Weber and Marx that money is impersonal, Guanxi is a decades’ long practice based on interpersonal relationship for the mutual benefit of the parties involved that can be quantified in terms of money (Wilson, 2004).

According to Chan (2002) “Guanxi provides a balance to the cumbersome Chinese bureaucracy by giving individuals a way to circumvent rule through the activation of personal relations.” Pryce-Jones (1997) says that guanxi simplifies the processes. Over a cup of tea, deals are done without requirements of documentations. However the same aspect has been viewed as an obstacle for open competition among the similar business groups or individuals. The role of guanxi as per Deng & Kennedy (2010) is more important when it comes to relationship of government and business in China. Even government agrees that the connections influence the shape of the government policies.

On the other hand, network centrality is a term that signifies power and control and performance of individuals in a particular social network (Marx, 2004). There have been various studies that explored the network centrality and its implications on the performances of individuals within a social network. McDowell & Voelker (2008) regarded centrality to be very important as it impacts the information exchange within the social network.

Entrepreneurial orientation and performance within Chinese context can be associated with network centrality and Guanxi. However, it is evident that there have been negligible studies conducted in the past to explore and examine the relationship and its implications.

Statement of the ProblemGuanxi in business environment is a normal practice in China that can have relationship with entrepreneurial orientation and corporate social responsibility and overall implication in the performance relationships.

Purpose of the StudyThe purpose of the study is to understand and evaluate the performance of guanxi based relationship with the capacity of entrepreneurial orientation and corporate social responsibility.

RationaleGuanxi makes the opportunities more reachable to the people who maintain it; at the same time for those who lack in guanxi have lesser opportunities irrespective of their caliber and potential. Guanxi is one of the major factors measuring the reliability of an individual who can be trusted over the others.

Research Aim and ObjectivesResearch aim of this study is to explore the role of Guanxi within the business environment of China with respect to the past and present; and understand its impact of corporate social responsibility and entrepreneurial orientation of Chinese business culture.

With respect to this aim, following are the research objectives for this study:

To explore how network centrality moderates guanxi-performance relationship.

To understand the key conditions affecting Guanxi- performance relationships with relation to entrepreneurial orientation.

To provide meaningful practical implications of how firms can utilize Guanxi to improve their performance for corporate social responsibility objectives.

To understand and evaluate Guanxi with respect to the dimensions of entrepreneurial orientation in China.

HypothesesThe research hypotheses of this study are as follows:

Hypotheses 1

Ho1: Network centrality has positive association with performance relationship with relation to entrepreneurial orientation.

Ha1: Network centrality has positive association with performance relationship with relation to entrepreneurial orientation on Guanxi-performance relationship.

Hypotheses 2

Ho2: The organizations with strong Guanxi help in sustaining in different business environment as compared to the companies with strong Guanxi along with high focus on corporate social responsibility.

Ha2:

The organizations with strong Guanxi along with high focus on corporate social responsibility sustain in any business environment as compared to the firms with strong Guanxi only.

Hypotheses 3

Ho3: The organizations with higher Guanxi have low level of entrepreneurial orientation and corporate social responsibilities in highly competitive and turbulent business environment

Ha3: The organizations with higher Guanxi have high level of entrepreneurial orientation and corporate social responsibilities in highly stable, favorable and simple business environment.

Research QuestionsThe domain of this study is to assess the relationship between guanxi and performance. As many people usually talked of the advantages of using guanxi in doing business, it is highly important to get a thorough understanding of the disadvantages of it and the problems caused by this Chinese social capital. Hence, the research questions are as follows:

What relationship exists between network centrality and Guanxi-performance?

What is the capacity of Guanxi to influence a firm achieving the objectives of Corporate Social Responsibilities?

How entrepreneurial orientation, corporate social responsibility and Guanxi are linked together in the context of Chinese culture?

How centrality in Guanxi influences corporate social responsibility and entrepreneurial orientation?

In which manner, the dimensions of entrepreneurial orientation are getting affected by Guanxi in Chinese business environment?

Definition of TermsGuanxi

Literately translated as “relations” or “connections”, a common practice in doing business in China. It is also a typical social capital in China. It has been a central concept in Chinese society and describes a personal connection between two parties in which one is able to prevail upon another to perform a favor or service. Guanxi is also social capital because it involves exchange of social obligations and determines one’s face in society (Park and Luo, 2001).

Guanxixue: This is the practice of building guanxi relationships and is morally neutral aspect of everyday life of an inidvidual in China but it entails high level of moral principles with petty calculations. This process signifies the coexistence of tension and harmony and ethics and tactics as well as human sentiments (Verhezen, 2004).

Renquing: Friendship and long lasting personal relationships are part of this that encourages people to help each other.

Social capital

The goodwill available to individuals or groups. Its source lies in the structure and content of the actor’s social relations. Its effects flow from the information, influence, and solidarity it makes available to the actor (Adler and kwon, 2002).

Entrepreneurial Orientation

This term refers to “the processes, practices, and decision making activities that lead to new entry……….it involves the intentions and actions of key payers functioning in a dynamic generative process aimed at new-venture creation.” (Boehm, 2008, p.67)

Centrality

“The position of an actor in the network, meaning the extent to which the focal actor occupies a strategic position in the network by virtue of being involved in many significant ties (Wasserman and Faust, 1994 as cited by Marx, 2004, p. 87)

Corporate Social Responsibility: This includes all set of obligations of an organization in all its activities beyond the legal obligations of an organization which can be economic, social or ethical that has positive and sustainable impact on the society.

Significance of the StudyAs so many people including scholars, researchers and businessmen around the world regard Guanxi, a Chinese social capital, as a popular and imperative method in successfully doing business in China, they fail or neglect to distinguish the downsides in this gray zone in guanxi utilization. Furthermore, the new Chinese leaders are changing their images and are advocating doing business in a normal way instead of guanxi in an attempt to crush down corruption. It is very important to find out guanxi’s hidden risk and disadvantages. Some recent studies pointed out some disadvantages of guanxi, but just related guanxi to bribery and corruption. They failed to dig deeply into other negative impacts of Guanxi.

In China’s present business environment, guanxi may still help, to some extend, toward doing business in China for both Chinese and foreigners. But quite a number of foreign companies are especially confused with Guanxi. They do not clearly understand this double-edged sword and may easily go astray into the guanxi mine. Some recent developments of lawsuit in China involved Guanxi utilization including some world-famous companies run by either Chinese or foreign executives.

This research is to study and assess the problems in the process of building and using guanxi in China and the costs and risks involved that might moderate the guanxi-performance link. The findings of the study will help companies and businessmen understand the disadvantages and risks of guanxi utilization, prevent them from falling into the trap, alert the companies to avert the risks of negative effects on the firm performance of both Chinese and foreign companies.

Assumptions and LimitationsThis is assumed that the participants in the study will be providing their honest responses as the anonymity and confidentiality is maintained. There have been various studies in order to understand the positive or negative implications of the guanxi in the business environment of China. In the recent past, government has been encouraging to adopt formal way of doing business than relying on the guanxi.

Nature of the StudyThis study is based on quantitative research process. Primary data is collected on the basis of structured questionnaire designed and developed for the purpose of this study. The questionnaire consists of specific segment for collecting responses on demographic and research related queries. The data once collected will be analyzed using SPSS software. The research findings will be presented with the help of appropriate tables and diagrams.

Conceptual FrameworkThe conceptual framework is based on the fact that the information, influence and solidarity shape the social relations, which takes form of guanxi. Guanxi is related with the power, availability of information and costs linked with developing, maintaining and leveraging on the benefits of Guanxi. There have been different studies that indicate that maintaining and developing guanxi requires investment of personal time and resources. Corporate social responsibility is recognized for having potential for long term sustainability for companies. At the same time, entrepreneurial orientation can leverage on the benefits of a good guanxi relations.

Figure SEQ Figure * ARABIC 1: Conceptual FrameworkOrganization of the Remainder of the StudyThe paper is divided into five main chapters namely Introduction, Literature Review, Methodology, Findings and Analysis and Discussion, Implications and Recommendations respectively. The first chapter covers general overview of the entire study and provides basic information to the reader. The second chapter, Literature Review provides the background study of the paper. This section also elaborates on the topics researcher intended to study and helped in developing the initial research questions. This is followed by Methodology section in which researcher describes the research design, approach and intervention and various aspects of systematic review of this research. The Findings and Analysis section is presentation of the eligible studies of the systematic review. The last chapter is concluding chapter in which the research questions and hypotheses are justified.

CHAPTER 2 LITERATURE REVIEWLiterature review section is a comprehensive research and evaluation of conceptual concepts present in the existing literature. This section is divided into corporate social responsibility, centrality or positional embeddedness, social capital, entrepreneurial orientation and culture and business environment.

Corporate Social ResponsibilityCorporate Social Responsibility has been one of the highly debated and studied terms in the last two decades. The term gained attraction and interests of researchers and scholars for various reasons. Some find it strategic for organizations (Crowther and Rayman-Bacchus) while others questioned the legitimacy of corporate social responsibility (Jia & Tomasic, 2009).

Definition

Corporate social responsibility has been defined by various authors in various ways. The definition and meanings given by authors and academicians may differ in terms of wording but at the root level, corporate social responsibility aims for the welfare of some or majority of the stakeholder.

Kolk (2010) describes CSR as “voluntary activities beyond the law but rather, more broadly, as managing a firm in such a way that it can be “economically profitable, law abiding, ethical and socially supportive”. The first approach hinges upon delineating legal obligations, with CSR beginning where the law ends.”(p.9)

Werther & Chandler (2010) define CSR as “A view of the corporation and its role in society that assumes a responsibility among firms to pursue goals in addition to profit maximization and a responsibility among firms’ stakeholders to hold the firm accountable for its actions.” (p.5)

Zheng and Fewsmith (2008) define CSR as the way “companies manage their core business to add social, environmental and economic values in order to produce a positive sustainable impact for both the society and the business”. (p.108)

Jia and Tomasic (2009) identified four layers of responsibilities in the CSR. The first of these four responsibilities is economic responsibility that involves the production of goods and services needed or desired in the society and selling those in the reasonable prices. The second responsibility is the legal responsibilities. Corporations should obey the law of the land. The third responsibility is ethical responsibility. Ethical responsibility has been explained as “[Ethical responsibilities] embody the full scope of norms, standards, and expectations that reflect a belief of what consumers, employees, shareholders, and the community regard as fair, just and in keeping with the respect for or protection of stakeholders’ moral rights.” (p. 129). Ethical responsibilities are gamut of factors falling under the category of community obligation for an organization.

Organizational Strategy and CSR

Werther & Chandler (2010) claim that roots of CSR can be seen in the ancient cultures like Ancient Chinese, Egyptian and Sumerian writings as well as the modern history. They gave account of various studies and views on CSR. CSR activities are more than the legal obligations of organizations on their society. By CSR mean, the businesses and organizations meet their obligations that include the economic, legal, and ethical expectations which are not binding for the organizations.

Figure SEQ Figure * ARABIC 2: Hierarchy for Corporate Social Responsibility(Source: Archie B. Carroll, The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders, Business Horizons, July-August, 1991, p.42 as cited by Werther & Chandler, 2010; p.6)

Quazi and O’Brien (2005) provided two-dimensional model of corporate social responsibility with horizontal axis with narrow and wide responsibility and vertical axis with the perceptions of the consequences. Both the axis represented two extreme parameters of the mentioned factors (as cited by Crowther and Rayman-Bacchus, 2005, eds).

Werther & Chandler (2010) further explain that it is important for the firms to identify all the stakeholders of its operating environment and prioritize different issues of strategic importance. Organizations develop the internal strategic planning on the basis of the corporate social responsibility framework and their stakeholder that can help in long term sustainability for the organization.

According to Ouyang (2011) CSR can be explained as a way of conducting business for the companies that is ethical and takes account of impact on economic, social, environmental and human rights issues.

Schwartz (2011) explained that CSR has economic, legal and ethical components linked with it and excluded philanthropic component with the support of arguments by Strong and Meyer. The corporate philanthropy is regarded limited to the economic motives of the organization. All the CSR activities of an organization are based on their economic motives and responsibilities that is sustainability that is regardless of any philanthropic obligation of a corporation.

Figure SEQ Figure * ARABIC 3: Three-Domain model of CSR(Source: Schwartz, 2011, p.94)

CSR provides social legitimacy to the organizations which is important for their business operations and long term viability. Werther & Chandler (2010) argued that CSR provided means to anticipate and reflect social concerns that helped businesses to minimize resistance for its operations and financial concerns and allows organizations to interpret the societal values and stakeholders’ expectations in the changing business environment. The economic aspects of the CSR is that companies with their activities when reflect their concerns for different stakeholders groups, they maximize their societal legitimacy and sustainability in medium to long run. Corporate social responsibility is reflected in every activity and functions of an organization from branding and image to the day to day operations.

Ouyang (2011) explored various studies conducted in order to study and explore CSR in different contexts. Organizations need to work in an ethical way and take care of social, economical, environmental and ethical issues. This is regarded obligations of the organizations to operate in a manner that they least harm the environment and ecology and contribute to the local community in a positive manner and promote the well being of the employees. The business organizations should treat all the employees fairly and provide them safe work environment and opportunity of growth and development.

Zheng and Fewsmith (2008) listed types of behavior of organizations that can be regarded as responsible corporate behavior in a society i.e. committed and promoted CSR by the board; organizations following local laws and tax rules; taking the opinions of stakeholders into account; high standards for labor and environment safety and protection; proper monitoring and reporting of the performance of firms on economic, social and environmental performances and providing training and increasing awareness of the CSR among the employees of the organization (p.109).

CSR is one of the areas that received huge attention from various groups of professionals such as business professionals, politician and administrators, scholars and other social groups. Obuyang (2011) explored various theories on the notions of CSR such as the social contract theory, the instrumental theory and the stakeholder theory. Each of the theory provided its own explanation for CSR. The Social Contract theory requires businesses to behave like a member of family in the social structure whose interest should be more than the commercial interest and must behave in responsible manner. The instrumental theory considers CSR obligations to be part of social programs that can provide competitive advantage and good image to the organization. The stakeholder theory assumes that business organizations are aware of all the needs and rights of the stakeholders and uses it to develop socially responsible behavior through managers.

Companies decide and determine their corporate social responsibility strategies based on their area of operations and priority of the areas in which they would like to work (Zu & Song, 2006). For instance, for a company into pharmaceutical business can find it easier to educate people regarding the health problems for which it manufactures medicine. At the same time, a company into energy services can fulfill its corporate social responsibility by educating people regarding the energy products and services and energy conservation.

There are various strategies companies adopt for corporate social responsibility.

The role of CSR has increased in the recent past in various ways. All the stakeholders of the company facilitate the business operations in different ways and develop relationship in long run. The customers purchase products and offerings of a business house display certain level of trust on that. Suppliers, buyers, channel members and other business partners show their level of trust and reliability to work with the organization. Investors invest in order to get regular returns. Similarly, a society or community where the business is operational expects transparency and environmental friendly business practices that would contribute to the social and economic development of the region. The significance of CSR has increased due to various reasons. The societal expectations have been changing due to growing concerns over the environmental imbalances and ecological sustainability. Globalization and technological development has facilitated flow of goods, people and information from one part of the world to another. The information technology has also put a pressure on the international organization as any negative news or publicity receives global attention quickly.

Jia and Tomasic (2009) argue over the way CSR has been evolved over the year and stress that role of CSR being the essence of being ethical and committed to the society has been replaced by being a tool to retain competition and manage risks in safest manner.

CSR and China

According to the report of United Nations on the China’s forest products markets, China has been paying attention to the CSR issues in China in the recent past. It is assumed that the CSR activities in China cover different social and economic areas. According to the US-China Business Council (USCBC) several leading MNCs have developed and implemented well planned and effective CSR programs that have clear and measurable goals. Most of the CSR programs in China focus on “community outreach, environmental health and safety (EHS), environmental protection and Education.” (USCBC, 2006).

Belal (2008) argues that CSR reporting for corporate social and environmental responsibility has gained its significance in China due to the deteriorating environmental conditions and increasing overseas listing of the Chinese companies. Zheng and Fewsmith (2008) give account of official estimates of the deaths in industrial accident during the year 2004-2005 which was more than 263, 500. The death in coal mining sector alone was 6000 in the year 2005.

Xu and Yang (2009) explained that the conceptual dimensions of CSR in China have roots in their traditional culture that is very different from the CSR dimensions of the Western world. There are differences in the views and approaches to the CSR issues between China and western world.

According to Zu & Song (2008) there was a work-unit system named danwei provided social protection and safety to the employees. This is the traditional form of social responsibility practiced in the Chinese companies. However this system collapsed since the economic reform. These were particularly practiced by the State owned enterprises.

Zheng and Fewsmith (2008) question the effectiveness of CSR in China with respect to four important factors namely firms, the government, workers and society.

Zu & Song further argue that the multi-dimensional concept of ‘socialist market system’ resulted in incongruity within the business environment of China. However it is expected that the strategy towards CSR that can be justified in order to meet the goals of social and political levels along with the business gains.

Jia and Tomasic (2009) states “CSR in China is still an emerging concept and it will take some time for it to gain wider acceptance. Nevertheless, the government’s requirement that companies report on their SCR practices will no doubt help to promote greater awareness of this idea. ……..Large resource companies in China are already taking a lead in following global standards and adopting good CSR practices.” (p. 134)

CentralityMarx (2004) describes centrality as “the position of an actor in the network, meaning the extent to which the focal actor occupies a strategic position in the network by virtue of being involved in many significant ties (Wasserman and Faust, 1994 as cited by Marx, 2004, p. 87).

Figure SEQ Figure * ARABIC 4: The Impact of Centrality(Source: Marx, 2004, p. 87)

Centrality is linked with the performance of strategic initiatives, power and control, superior r