Using Pest Analysis as a Tool for Refining and Focusing

Shibin Sheng, Kevin Zheng Zhou, & Julie Juan Li

The Effects of Business and Political
Ties on Firm Performance: Evidence from China
Despite increasing attention to the role of social ties in emerging economies, few studies have explicitly distinguished the differential roles of business versus political ties. Drawing on relational governance and institutional theories, this study offers a contingent view of business and political ties in China. The findings from a survey of 241 Chinese firms indicate that business ties have a stronger positive effect on performance than political ties, and both effects depend on institutional and market environments. Business ties are more beneficial when legal enforcement is inefficient and technology is changing rapidly, whereas political ties lead to greater performance when general government support is weak and technological turbulence is low. These findings indicate that firms operating in China should be cautious in their use of business and political ties and adapt their tie utilization to changing institutional and market environments.
Keywords: social ties, emerging economy, relational governance, institutional theory, institutional environment, guanxi I

Despite increasing interest in this topic, several aspects of social ties in emerging economies remain underdeveloped. First, extant research from a relational governance perspective (Granovetter 1985; Heide 1994; Uzzi 1997) recognizes the benefits of business ties, including relational connections with buyers (Heide and John 1992), suppliers
(Jap and Ganesan 2000), and collaborators (Rindfleisch and
Moorman 2001). Yet few studies in marketing explicitly consider political ties or distinguish the effects of business and political ties. Because of the lack of market-supporting institutions, governments in emerging economies are active in regulating industry development, guiding business policies, and influencing corporate operations

References: Aiken, Leona S. and Stephen G. West (1991), Multiple Regression: Testing and Interpreting Interactions. Newbury Park, CA; Sage Publications. Ambler, Tim, Chris Styles, and Xiucun Wang (1999), “The Effect of Channel Relationships and Guanxi on the Performance of InterProvince Export Ventures in the People’s Republic of China,” ——— and Morgen Witzel (2004), Doing Business in China. London: RoutledgeCurzon. Anderson, Erin and Barton Weitz (1989), “Determinants of Continuity in Conventional Industrial Channel Dyads,” Marketing Science, 8 (4), 310–23. Balfour, Frederik (2007), “You Say Guanxi, I Say Schmoozing; How East Is Meeting West and Building a Lingua Franca of Business Connections,” BusinessWeek, (November 19), (accessed September 4, 2010), [available at http://www.businessweek.com/ Burt, Ronald S. (1997), “The Contingent Value of Social Capital,” Administrative Science Quarterly, 42 (2), 339–65. Cohen, Wesley M. and Daniel A. Levinthal (1990), “Absorptive Capacity: A New Perspective on Learning and Innovation,” Dacin, M. Tina, Christine Oliver, and Jean-Paul Roy (2007), “The Legitimacy of Strategic Alliances: An Institutional Perspective,” Strategic Management Journal, 28 (2), 169–87. Diamantopoulos, Adamantios and Heidi M. Winklhofer (2001), “Index Construction with Formative Indicators: An Alternative Dinc, I. Serdar (2005), “Politicians and Banks: Political Influences on Government-Owned Banks in Emerging Markets,” Journal Du, Julan, Yi Lu, and Zhigang Tao (2008), “Economic Institutions and FDI Location Choice: Evidence from U.S Dubini, Paola and Howard Aldrich (1991), “Personal and Extended Networks Are Central to the Entrepreneurial The Economist (2009), “Business: Original Sin; The Stigma of Wealth in China,” 392 (8647), 70–71. Faccio, Mara (2006), “Politically Connected Firms,” American Economic Review, 96 (1), 369–86. Financial Times (2007), “China’s Billionaires Begin to Add Up,” (October 23), 14–15. Ganesan, Shankar (1994), “Determinants of Long-Term Orientation in Buyer–Seller Relationships,” Journal of Marketing, 58 (April), 1–19. Gerbing, David W. and James C. Anderson (1988), “An Updated Paradigm for Scale Development Incorporating Unidimensionality and Its Assessment,” Journal of Marketing Research, 25 Ghosh, Mrinal and George John (1999), “Governance Value Analysis and Marketing Strategy,” Journal of Marketing, 63 Glazer, Rashi and Allen M. Weiss (1993), “Marketing in Turbulent Environments: Decision Processes and the Time-Sensitivity of Effects of Business and Political Ties / 13 Granovetter, Mark (1985), “Economic Action and Social Structure: The Problem of Embeddedness,” American Journal of Grewal, Rajdeep and Ravi Dharwadkar (2002), “The Role of the Institutional Environment in Marketing Channels,” Journal of Gu, Flora F., Kineta Hung, and David K. Tse (2008), “When Does Guanxi Matter? Issues of Capitalization and Its Dark Sides,” Gulati, Ranjay (2007), Managing Network Resources: Alliances, Affiliation, and Other Relational Assets ——— and Martin Gargiulo (1999), “Where Do Interorganizational Networks Come From?” American Journal of Sociology, 104 (5), 1439–93. Hamilton, Bart and Jackson Nickerson (2003), “Correcting for Endogeneity in Strategic Management Research,” Strategic Heide, Jan B. (1994), “Interorganizational Governance in Marketing Channels,” Journal of Marketing, 58 (January), 71–85. ——— and George John (1992), “Do Norms Matter in Marketing Relationships?” Journal of Marketing, 56 (April), 32–44. ——— and Kenneth H. Wathne (2006), “Friends, Businesspeople, and Relationship Roles: A Conceptual Framework and a Hillman, Amy J., Asghar Zardkoohi, and Leonard Bierman (1999), “Corporate Political Strategies and Firm Performance: Indications of Firm-Specific Benefits from Personal Service in the Ho, Suk-ching (2001), “Growing Consumer Power in China: Some Lessons for Managers,” Journal of International Marketing, 9 (1), 64–83. Hoskisson, Robert E., Lorraine Eden, Chung Ming Lau, and Mike Wright (2000), “Strategy in Emerging Economies,” Academy Jap, Sandy and Shankar Ganesan (2000), “Control Mechanism and the Relationship Life Cycle: Implications for Safeguarding Jarvis, Cheryl B., Scott B. MacKenzie, and Philip M. Podsakoff (2003), “A Critical Review of Construct Indicators and Measurement Model Misspecification in Marketing and Consumer Jaworski, Bernard J. and Ajay K. Kohli (1993), “Market Orientation: Antecedents and Consequences,” Journal of Marketing, 57 (July), 53–70. Johnson, Joseph and Gerard J. Tellis (2008), “Drivers of Success for Market Entry into China and India,” Journal of Marketing,