Guanxi and supplier search mechanisms in China

Supply localization is an expressed desire among western MNCs with manufacturing subsidiaries in the People's Republic of China (PRC), but poor information coding and diffusion poses problems in identifying suitable local supply firm partners. This article investigates the mechanics of personal connections, and in particular guanxi, in local supplier search and appraisal within a large sample of UK-and US-invested manufacturers in China. The results emphasize the importance of business rather than family and community connections as sources of guanxi, supporting Guthrie's (1999) view that industrialization and modernization has reduced the importance of traditional forms of guanxi. The results also suggest that social networks derived from relational contracting and the expatriate community are important sources of information. On the basis of this analysis we make a number of recommendations for improvement of firms' supplier search capabilities.