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The Joint Effects of Formal Institutions and Business Characteristics on Interfirm Guanxi in China: A Fuzzy Set Analysis

ABSTRACT Purpose: This research intends to investigate the effects of formal market institutions on managers’ willingness to use personal networks, such as guanxi in China, for business success. Methodology: We collect data from a major cellular phone manufacturer and its 277 retailers across China. We employ Fuzzy set Qualitative Comparative Analysis (FsQCA) to identify necessary conditions and causal recipes (combinations of antecedent conditions) for three elements of guanxi between boundary spanners (i.e., ganqing, information favor, and business support) and a firm’s operational performance. Findings: We find that formal market institutions are not the sole factor influencing managers’ decisions on exercising guanxi practices and, in turn, achieving interfirm collaboration. We also find that there exists more than one causal recipe leading to each key element of guanxi between boundary spanners. The results also suggest that well-established formal market institutions would never be able to completely eliminate guanxi practices in China. Originality: This paper is among the first to examine the joint effects of formal market institutions and key characteristics of interfirm relationships on the use of guanxi practices.