Guanxi: competitive advantage or necessary evil?: Evidence from high-tech firms in Taiwan science parks

Purpose Guanxi, an invisible aspect of many levels of interaction in economic life, has increased in importance in recent years; however, this subject has been underappreciated in high-tech industries. High-tech firms can choose to use guanxi with their partners as a key component of their competitive advantage or to view guanxi as necessary evil that is required to complete business exchanges. This paper aims to evaluate how guanxi contributes to or impedes a high-tech firm's innovation performance. Design/methodology/approach This study proposes and tests a nonlinear model that explores the positive and negative impact of guanxi on the innovation performance using a sample of 184 high-tech firms located in Taiwan Science Park. Findings In contrast to the mainstream of findings in the previous literature, the authors find that guanxi is a competitive advantage in constructing new business networks; however, additional increase of guanxi may even decrease innovation performance. This view opens up new research avenues in the context of high-tech industries and suggests directions for future research and practice. Research limitations/implications Academics and practitioners know little about the unfavorable aspects of this variable. Future studies might develop specific measurement scales that capture the negative side of strong guanxi. Beyond the positive side of variables that have been amply studied, such as affection and kindness, other interesting negative side of variables that may be considered in future studies are blood (Tsang, 1998), extortion (Dunfee and Warren, 2001) and favoritism (Hwang et al., 2009). Originality/value The authors contribute to the research on guanxi and innovation performance, in that this study extends guanxi literature beyond the intuitive conclusion that innovation performance can be significantly enhanced in Asian countries' business networks by leveraging guanxi as competitive advantage, and further demonstrating when and how guanxi can be harmful for high-tech firms' innovation performance.