Managing dependency in China outsourcing relationships

Abstract

This paper examines manufacturing firms’ use of guanxi and formal control to address dependence on suppliers and achieve desired outsourcing performance in China. Using survey data collected from manufacturing firms operating in China, a structural equation model is used to test the research model. The results suggest that manufacturing firms with high dependence on suppliers build Chinese guanxi with those suppliers to overcome the dependence and enhance outsourcing performance. In addition, Chinese guanxi also appears to facilitate the use of formal control, which was also found to have a positive relationship with outsourcing performance. This paper contributes to the literature by illustrating the importance of guanxi in achieving desired outsourcing performance in the China context, particularly in the case where a manufacturer perceives high dependency on its major supplier.