Relationship (Guanxi) in Direct Selling Activities of Overseas Chinese

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Direct selling is developing into a multi-billion dollars business worldwide in recent years. Only a few years ago, one may think direct selling as no more than the troublesome mail order things. But, with the development of direct selling both in concept theory and in practical areas, more and more people are involved in direct selling activities. In theory, direct selling is focusing on "the marketing of consumer goods and services directly to consumers in their homes or the homes of friends, at their work place and similar places away from shops, through explanation or demonstration of the goods or services by a salesperson, for the consumer's use or consumption" (Xardel, 1993). In practical, direct marketing has three main formats--internet selling, mail order and face-to-face direct selling. In this research, only the face-to-face selling model is addressed.

Research objectives

Direct selling is also considered as relationship selling, which involves "personal contact between a salesperson and a consumer away from a fixed business location such as a retail store" (Berstein and Associate, 1984).

Chinese society is considered as a social, normative society rather than an instrumental, pragmatic society (Weber, 1968). During the direct selling activities, while the credence of the product is hard to obtain by ordinary consumers, the mutual trust and relationship or Guanxi will act very importantly for the final decision. A couple of extant studies such as S. T. K. Luk's direct selling activity study are all conducting their research on the selling side. The scarcity of research from consumer perspective raise the opportunity to do research to find out what factors are important when consumers making their purchasing decisions.

Firstly, this particular research tries to establish the relationship between such culture factors as relationship or Guanxi with the direct selling activities among overseas Chinese people. Secondly, this research hopes to explore the other factors which will influence the purchasing choice of overseas Chinese. Thirdly, this research is also designed to compare the difference between overseas Chinese and native Chinese considering purchasing format in direct selling/buying activities.

Motivation of research

On the one hand, the Chinese government banned all the direct selling activities except the US company Amway in mainland China a couple years ago due to alleged social stabilization reasons. It is still too early to conclude whether this regulation is good to Chinese economy or not. This research will help researchers to understand the inner culture or economic driver of the direct selling market. Thus this research offers first-hand information for further applied regulation research. On the other hand, to find out what factors affect consumer's buying decision in direct selling activities will definitely improve the performance of those direct selling corporations, especially those doing business in China or those trying to expand their business to China. Last but not least, the information collected in this research will offer useful reference to those managers in making their strategy or operation decisions as well as those officers conducting government regulation research. For example, the data can help HR managers to focus their training to certain factors and can help Marketing managers to aim their specific segment.

Literature review

A recent research in this area was S. Luk, L. Fullgrade and S. Li's research on direct selling in China. Their assumption is that the relationship (or Guanxi) plays an important role while consumers making their purchasing decision. In their study, all the following four culture factors were grouped into relationship (or Guanxi), include:

Group orientation: the need to live in his/her community, all his/her identity was related to his/her group.

Renqing: if you do me a favor, it means I owe you something. I will pay back someday, as well as you are also expecting me to payback the favor one day.

Ganqing (Friendship): the friendship in the Chinese culture implies an expectations and obligation of getting /granting favorable responses from/to ones friends.

Face: the concept of saving face or losing face indicating a person's social status. Having face means that one has good connection within the community, which makes everything done smoothly. But losing face means one get trouble or feel embarrassed in certain circumstance. (Luk et al. 1996)

All the four culture factors play very important role in Chinese social life. As Luk put it in this way: as Chinese live in a "relationship" society, they are connected by a web of social ties. There are direct ties bonding an individual with his peer group and indirect ties connecting him with members from the other groups, which are embedded in the same network of him group. All these ties, either direct or indirect, strong or weak, can play a significant role in several aspects of referral behavior and boost work-of-mouth effects (Luk et al. 1996)

Luk conducted their research in 4 Chinese big cities: Guangzhou, Tianjin, Shanghai and Dalian. In their research, they sent out 119 questionnaires to sales women to collect both qualitative and quantitative information. From the information collected by the 118 qualified returned questionnaires they concluded that: relationship or Guanxi plays very important role in Chinese direct marketing.

Another related study worth to mention was the replicated research did by B. Merrilees and D. Miller in Australia in 1996. Their objective was to find out if the relationship factors were equally important in direct selling in the Western culture context. The Australia study gave out 100 questionnaires which were only a little bit different with those used in Luk's study to western salespersons. Their study results indicated that although some separate factors such as friendship and trust were relevant to the success of direct selling, the relationship or Guanxi concept as a whole does not present in the Australia circumstance. The main difference between China and Australia is that in China the elements of relationship marketing are more coherent and form a specific, cultureal configuration, namely Guanxi. In contrast, for Australia sample, there are several separate dimensions (reciprocity, trust, friendliness and good personal relationship) of direct selling relationship marketing (B. Merrilees and D. Miller 1996).

Research Model and Hypotheses

Both Luk and Merrilees's empirical research (Luk et al. 1996 and B. Merrilees and D. Miller 1996) are based on the selling side of the relationship marketing. In this newer research, the buying side will be investigated. In order to compare with both of the researches, the sample is going to be focused on overseas Chinese. Because on the one hand, the overseas Chinese are deeply rooted with their motherland culture context and normally living in relatively close Chinese communities, they should present some similar characters with the Luk's research. On the other hand, the overseas Chinese are exposed to western culture more or less. They should also bear some characters showing in Merrilees's research. Using Luk's research as the benchmark, this research proposes three main hypotheses:

1.the relationship or Guanxi factors are one of the main reason while overseas Chinese making purchasing decision in direct selling;

2.there are also some factors other than relationship or Guanxi involved in their decision-making process

3.the relative importance of relationship or Guanxi in making buying decision among overseas Chinese is not as much as that among native Chinese.

Research Model

The previous research compared the culture influence in eastern and western culture context. In this new research, a new variable of financial factors is employed to establish the importance of relationship or Guanxi in making direct selling buying decisions.


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Cooper, D. and Schindler, P.: Business Research Method, Sixth Edition, Irwin/McGraw-Hill, 1998

Merrilees, B. and Miller, D.: Direct Selling in the West and East: The Relative Roles of Product and Relationship (Guanxi) Drivers, Journal of Business Research, Vol. 45, No. 3, p. 267-273

Luk, S., Fullgrabe, L., and Li, S.: Managing Direct Selling Activities in China: A Cultural Explanation, Journal of Business Research, Vol. 45, No. 3, p. 257-266

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