Does guanxi influence product performance and customer loyalty?
| Date | 06 August 2018 |
| Pages | 233-252 |
| Published date | 06 August 2018 |
| DOI | https://doi.org/10.1108/JABS-06-2016-0082 |
| Author | Man Zhang,Janet Hartley |
| Subject Matter | Strategy,International business |
Does guanxi influence product
performance and customer loyalty?
Man Zhang and Janet Hartley
Abstract
Purpose –This paper aims to propose and testa model examining the relationship of guanxi with new
product performance andcustomer loyalty in the context of internationalizing small- and medium-sized
enterprises (SMEs) in China. Social network theory and information processing theory provide the
theoreticallenses for this research.
Design/methodology/approach –Guanxi with suppliers, distributorsand customers is measured as a
second-order construct consisting of ganqing, renqing, and xinren/xinyong. Researchhypotheses are
tested using survey data(n= 212) gathered in Anhui and Shandong Provinces. The data are analyzed
using smartpartial least squares technique.
Findings –The findingsreinforce existing studies, whichshow that a locally based socialnetwork can be
extended to the success of early-internationalizing SMEs. Results also suggest that the relationship
between guanxi and customer loyalty is stronger when technical uncertainty is low and when market
uncertaintyis low rather than high.
Research limitations/implications –The data were gathered from the point of viewof the SMEs and
may not accurately reflect the perspective of the foreign customer. The findings may not generalize
beyond the regions surveyed.The study does not differentiate among the type of supply chain member,
and the locationof the supply chain member was not measured.
Practical implications –Although guanxi is typicallyviewed as being localized within a country, guanxi
with suppliers, distributorsand customers can provide information and resourcesneeded for successful
export products.Second, internationalizing SMEs mustunderstand that even though guanxi has positive
impacton newproduct performance whichdirectly leads to customer loyalty only when uncertaintyis low.
Originality/value –Although guanxi has been studied, there are a limited numberof empirical studies
of guanxi in a supply chain context and most focus on buyers’ guanxi with suppliers. The research on
guanxi with customersand distributors is also limited. This research addresses this gap by focusing on
guanxiwith suppliers, distributors and customers.
Keywords Customer loyalty, Guanxi, Environmental uncertainty, Internationalizing SEMs
Paper type Research paper
Introduction
Many companies strive to build customer loyalty as one way to increase profits and reduce
costs (Reichheld, 1993;Agustin and Singh, 2005;Watson et al.,2015). For small- and
medium-sized enterprises (SMEs) in China, customer loyalty and retention are important,
especially when targeting foreign customers. Internationalizing SMEs typically have less
experience and fewer financial resourcesto attract new customers than large firms (Karlsen
et al., 2003;Westhead et al., 2001;Sanderberg and Jansson, 2013). When customers are
loyal, companies do not have to invest in sales and marketing to attract new customers
(Reichheld, 1993). Thus, organizational resources can be deployed in different ways such
as developing and improving products to focus on specific customer needs, which may
vary from country to country. Research shows that product performance and customer
relationships influence customer loyalty (Agustin and Singh, 2005;
Cater and
Cater, 2010;
Pan et al., 2012;Rafiq et al., 2013;Reichheld, 1993;Watson et al., 2015).
Man Zhang is Dr and Janet
Hartley Dr, both at the
Department of
Management, Bowling
Green State University,
Bowling Green, Ohio, USA.
Received 2 June 2016
Revised 2 March 2017
Accepted 9 March 2017
DOI 10.1108/JABS-06-2016-0082 VOL. 12 NO. 3 2018, pp. 233-252, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 233
We address the call to explore networking as an organizational capabilityfor SMEs who are
internationalizing through exporting (Tang, 2006). Based on case studies, Xie and Amine
(2009) conclude that building and using social networks (guanxi) to gain an advantage
(Lovett et al.,1999;Luo, 1997;Morgan and Hunt, 1994;Nie et al., 2012;Park and Luo,
2001) contributes to the success of internationalizing SMEs in China. We build upon this
research to understand how guanxi contributes to success. Specifically, we explore if
guanxi affects customer loyalty directly, as well as indirectly, through improving product
performance. Further, because many firms face increasing technical and market
uncertainty (Dyer et al., 2014), we examine if uncertainty moderates the direct relationship
between guanxi and customer loyalty. Social network theory (Granovetter, 1973),
information processing theory (Daft and Lengel, 1986) and contingency theory (Lawrence
and Lorsch, 1967) are the theoreticallenses for this research.
This research makes several contributions. Relationship marketing researchers have
identified several relational factors that are antecedents of customerloyalty (Palmatier et al.,
2006;Watson et al., 2015). Guanxi is similar but not identical to the concept of relationship
marketing (Shaalan et al.,2013;Yau et al.,2000). However, the results of the limited studies
examining guanxi and customer loyalty have been mixed (Shi et al., 2011;Wang et al.,
2014). Thus, our research contributes to the literature by examining the mediating role of
product performance and the moderating role of uncertainty. These relationships may help
to explain the mixed results. Although guanxi is important for doing business in China,
especially for SMEs (Park and Luo, 2001;Xie and Amine, 2009;Zhou et al.,2007), and is
positively related to various measures of overall firm performance (Gu et al.,2008;Luo
et al.,2012
;Park and Luo, 2001;Zhou et al., 2007), sales growth and market share (Gu
et al., 2008), product development speedand degree of innovation (Cui et al., 2013;Zhang
and Wu, 2013), the mediating role of new product performance (quality, delivery and price)
has not been empirically examined. Further, we did not find any published studies
examining the moderating roleof technical and market uncertainties.
Another contribution is that we explore guanxi in a supply chain context (suppliers,
distributor and customers). To ensure products meet their customers’ needs in terms of
quality, delivery and price, exporting SMEs must be able to coordinate activities throughout
their supply chains. Guanxi provides access to high-quality information from within a
diverse network (Gu et al., 2008) and thus should facilitate supply chain integration and
coordination (Cai et al., 2010). Integration with suppliers and customers is positively related
to cost, quality, flexibility and delivery performance (Wong et al., 2011). There are a limited
number of empirical studies of guanxi in a supply chain context, and most focus on buyers’
guanxi with suppliers (Chen et al.,2011;Leung et al., 2011;Shou et al., 2011;Yen et al.,
2011). The research on guanxi with customers (Chen et al., 2011;Sheng et al.,2011) and
distributors is also limited (Jia and Wang, 2013). This research addresses this gap by
examining the role of guanxi within a broader supplychain.
In the next section, guanxi and its dimensions are examined, and the similarities and
differences versus social networks are briefly discussed. Then, the conceptual model and
research hypotheses are developed. The survey research method used to gather the data,
the analysis and results are presented, followed by discussion,managerial implications and
limitations.
An overview of guanxi
The concept of guanxi, whose roots are traced back to Confucianism and the need to
establish social order, is an integral part of Chinese culture, business and daily life (Lin,
2011;Park and Luo, 2001;Yen et al., 2011). Making connections with others and being a
member of many different networks is an essential aspect of guanxi (Yang, 1994). The
strength of guanxi differs based on the type of connections, with guanxi being strongest
with one’s family members and weakest with acquaintances (Lin, 2011;Park and Luo,
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