Shibin Sheng, Kevin Zheng Zhou, & Julie Juan Li
The Effects of Business and Political
Ties on Firm Performance: Evidence
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
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 (Hoskisson et al. 2000). Thus, building relationships with various government agencies (i.e., political ties) is imperative for firm survival (Ambler and Witzel 2004; Hillman, Zardkoohi, and Bierman 1999). However, previous studies have tended to
treat business and political ties as the same (Peng and Luo
2000) or have captured ties with one dimension (Gu, Hung,
and Tse 2008; Li, Poppo, and Zhou 2008), so it is still
unclear whether business or political ties play more salient roles in emerging economies.
Second, according to institutional theory, social ties as
informal governance become less important when legal and
regulatory institutions improve and market-supporting systems develop (North 1990; Peng 2003). Market transitions in emerging economies foster dramatic changes in both formal (e.g., laws, rules, regulations) and informal (e.g., cultures, ethics, norms) institutions, which diverge across regions and industries (Hoskisson et al. 2000). For example, despite the continued efforts of China’s central government to develop a unified legal framework, it has not established a stable legal institution for enforcing contract law nation-
n recent years, strategic issues in emerging economies
have attracted increasing attention in marketing strategy
and relationship marketing literature (Ambler and Witzel
2004; Gu, Hung, and Tse 2008; Johnson and Tellis 2008;
Walters and Samiee 2003). As a consequence of their economic liberalization and transition toward market systems, emerging economies experience rapid changes in their economic, social, and legal institutions, which create severe challenges for marketers (Zhou and Poppo 2010). In such
turbulent circumstances, social ties emerge as an important
strategic option that may enable firms to secure resources
and deal with uncertain environments (Ambler and Witzel
2004; Peng 2003). Because social ties coordinate exchanges
through informal, interpersonal social mechanisms (Granovetter 1985), they help overcome the limits...
References: Aiken, Leona S. and Stephen G. West (1991), Multiple Regression: Testing and Interpreting Interactions. Newbury Park, CA;
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
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,
Please join StudyMode to read the full document