Guanxi and Modern Finances

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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: 215- 573-2006 email: dunfeet@wharton.upenn.edu 2 Management Department, The Wharton School, University of Pennsylvania Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104, voice: 215-898-9113, fax: 215-898-0401 email: warren@management.wharton.upenn.edu 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.

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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 aspects of certain forms of guanxi from a normative perspective, noting among other things, the close association of particular types of guanxi with corruption and bribery. We

conclude that there are many different forms of guanxi that may have distinct impacts on economic efficiency and the well-being of ordinary Chinese citizens. Consistent with Donaldson and Dunfee (1999), we advocate a particularistic analysis of the different forms of guanxi.

Keywords: Guanxi, China, Normative, Bribery, Corruption, Hypernorms

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A critical dimension of international business ethics deals with cross-cultural issues (Donaldson, 1996) and how managers “can successfully maneuver the disturbing trends that lie at the intersections of different cultures.” (Donaldson and Dunfee, 1999, p. 46). Whenever a strongly ingrained, culturally derived practice confronts a dynamically changing business environment, cross-cultural ethical dilemmas arise. Such predicaments occur more often today because growth in international capital markets often involves the imposition of international business practices onto formerly isolated economies. China is enjoying rapidly increasing foreign investment while at the same time it must cope with local changes influenced by Western legal forms and concepts. The role of guanxi in Chinese business culture provides one of the most dramatic examples of an entrenched cultural norm under pressure from international business trends. To date, the popular and academic literature has focused on descriptive and instrumental dimensions of guanxi (Xin and Pearce, 1996; Yeung and Tung, 1996; Leung et al., 1996; Tsui and Farh, 1997) to the virtual exclusion of normative aspects. The few who do recognize the ethical issues regarding guanxi consider mainly efficiency arguments (Lovett et al., 1999)3. This paper extends previous analyses by going beyond merely asking “Does guanxi work?” to focus on the critical normative question “Is the practice of guanxi ethical?...
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