Recognizing the significant impact of guanxi (the Chinese network of reciprocal business relations) and its influence on everyday dealings in China is important for Western firms. Researchers argue that social capital has limits and is not a commodity that has a place in China aspiring to be a global business hub. Accordingly, the purpose of this paper is to deal with the question of whether guanxi still matters in the Chinese business arena, and if so, to what extent.
To illustrate the evolutional direction of the Chinese institutional system, the authors compare it to a similar system that went through the evolutionary cycle from a social to a rational institutional base of exchange and discuss what one can learn from the institutional evolution process of the global diamond industry and its implications for the current evolution of Chinese institutions. The authors compare two similar cultures/religions, Judaism and Confucianism.
This study found parallels between the evolution of the Israeli diamond industry, dominated by Orthodox Jews, from a social exchange mechanism to a transactional mechanism and the present ongoing rationalization of the Chinese economy, dominated by the Confucianism culture from a social to a transactional business mechanism.
Despite the vast efforts of researchers in the area of guanxi, there is very little published knowledge about its limitations and its usefulness in today's changing business environment. This paper contributes to the existing literature on the future aspects of guanxi from a unique perspective – the evolution of the Israeli diamond industry.
