The role of guanxi networks and contracts in Chinese vegetable supply chains

Abstract

This paper investigates the effect of personal relationships (called guanxi in China) and contractual governance on compliance with channel requirements and on market performance for both vegetable farmers and processing and exporting firms in China. A survey of 167 farmers and 84 firms in Jiangsu Province, P.R. China provides the data for empirical study based on a structural model. The results demonstrate that guanxi networks in China significantly improve small-scale farmers' compliance with buyers' delivery requirements based on formal contracts, which eventually improves farmers' market performance. Vegetable firms, on the other hand, place more emphasis on formal contracts in order to improve suppliers' compliance with delivery requirements and thereby improve their own profitability. The results reveal that personal relationships and contracts have different impacts on farmers and firms.