CHINESE BUSINESS NETWORKS : EVIDENCE AND IMPLICATIONS

Abstract

The economic success of the Chinese has captivated the interest of many scholars. Their dramatic accomplishments as ethnic minorities in Southeast Asia, as propellers of economic growth in the East Asia economies, and finally as the driving force behind China's economic "revival" have generated diverse sources of explanations.

This is an economist literature review of their phenomenal success. The objectives of this study are of four-folds. Firstly, it is to provide an overview of their economic success. Secondly, it will examine the existing explanations under three aspects: environmental context, cultural context (the 'post-Confucian hypothesis') and the mechanics of operation. Networking as a mode of business operation will be the prime focus. Thirdly, it also attempts to validate the phenomenon of networking through a critical review of its evidence. Finally, this study will take an inquiry into the economic implications of networking in the light of network theories and transaction costs analysis.

An investigation into the literature reveals that the impressive achievements of the Chinese have taken on a global dimension and one of their key strategies is the utilization of networks for access to financial resources, business contacts and information, state contracts and licenses, for enhancement of competitiveness and also for business protection. Networks take the forms of familial networks, inter-firm networks, political alliances and networking through ethnic ties. In the perspective of economics, the utilization of networks facilitates the efficient running of the firm through its through its reduction of transaction costs. This is attained through the mechanism of guanxi (interpersonal relationship) and xinyong (trust). They function as implicit contracts which supplement formal agreements in curbing opportunistic behaviour.