The transaction cost advantage of guanxi-based business practices

Stephen S. Standifird and R. Scott Marshall

Journal of World Business, 2000, vol. 35, issue 1, 21-42

Abstract: The purpose of this paper is to provide a theoretical explanation of the perpetuation of China's guanxi-based business practices. As a complement to the social embeddedness- and resource-based explanations, we seek to demonstrate the perseverance and relevance of guanxi in terms of the transaction cost advantages it offers. Specifically, we argue that guanxi-based business practices offer certain transaction cost advantages over existing structural alternatives identified in transaction cost theory. Where the guanxi network is well developed, the transaction cost advantages of guanxi-based exchange are sufficient to warrant the integration of guanxi- and market-based exchange mechanisms.

Date: 2000
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