The Effect of Guanxi on the Foreign Market Entry Process into China : The Swedish Case

Abstract: Business network theory believes that foreign market entry of a firm is the result of the interactions between the actors of the firm and the network. The foreign country’s network conditions will inevitably influence the process. When entering into China, the Western firms have to face some new network conditions that derive from its socio-cultural environment. The purpose of the thesis is to test one of the cultural specialties, guanxi’s effect on the foreign market entry process of the Western firms into China. Using data collected from Swedish firms established in China, this study finds that the market entry process of Western firms into China appear to show some different features compared with that into Western country markets. It takes more time to become established in China, more social activities and more non-business actors are involved in the process. These social activities within business circles are shown to contribute to the longer establishment time for Western firms operating in China. Moreover, establishment in China is more time-consuming for manufacturing firms than service firms. It requires, among other things, that expatriates actively take part in both business and social activities in China and make efforts to maintain social ties with their Chinese counterparts. The findings contribute to the business network theory by suggesting the existence of a social dimension to the business relationships and the need of a multi-level perspective of business relationships and networks.