Supply risk management via guanxi in the Chinese business context: The buyer's perspective

Previous research on supply risk management mainly focuses on the general risk management process based on case studies. In this study, we explore supply risk management via the relational approach in the Chinese business environment (i.e., guanxi) from the buying firm's perspective. We develop a theoretical model grounded in the social capital theory. Theorizing from the three forms of social capital (i.e., obligation, expectation, and trustworthiness; information channel: and norms and effective sanctions), we hypothesize that when a buying firm faces supply risk, it tends to form guanxi networks with its key supplier to reduce risk. We collect data to test the model by surveying manufacturing firms in Hong Kong and apply structural equation modeling to analyze the survey data. The research findings show that purchasing firms form guanxi networks with their key suppliers when they perceive supply risk. We also find that with guanxi development between the buyer and the supplier, both communication and supplier trust are improved, which in turn are positively related to supplier performance. This research contributes to theory by identifying the role of guanxi in supply risk management and to practice by providing insights to purchasing professionals that guide their effort in managing supply risk. (C) 2011 Elsevier B.V. All rights reserved.