Automobile industry, guanxi, and social networks in China

Purpose - The purpose of this paper is to examine the factors that affect the stability of interfirm trading ties in China's transitional economy. In particular, the paper explores whether the propensity to engage in repeat transactions with past partners is attributable to rational choice based on expectations for the benefits of social capital, or an outcome of institutional pressure that binds firms sharing similar positions within the institutional structure bequeathed from China's socialist past.Design methodology approach - This study utilizes data on the actual trading ties between 32 final vehicle assemblers and 477 parts and components suppliers in the auto industry during the period from 1998 to 2005. Using logistic regression analysis, the study highlights the factors that lead to the greater likelihood of repeat transactions between a particular pair of assemblers and suppliers.Findings - The result of the analysis suggests that while rational motives, such as transaction cost economization, do account for the propensity to engage in repeat transactions with past partners, it also confirms the persistence of a strong tendency to continue transacting with firms sharing similar institutional lineage, regardless of the benefits that could be accrued from such durable networks.Originality value - This study adds to the existing literature on social networks in China by highlighting the path-dependency and institutional legacy in the formation of business networks during China's transition towards a market economy.