Informal financing of Chinese entrepreneurs in a Western environment

Abstract

This chapter discusses the impact of guanxi on the capacity of small- and medium-sized businesses accessing informal financial resources. Entrepreneurs starting a business outside their country of origin can face barriers in accessing capital, customers, or suppliers. Guanxi facilitates interaction between companies and people in Confucianist societies, including when they emigrate to other nations. Does this type of social construct still play the key role, when Confucian entrepreneurs live in Western societies? Based on interviews with Chinese entrepreneurs active in the principal business center of Brazil and nonparametric test data, our results suggest that different levels of guanxi allow SME businesses to access informal financial resources; the entrepreneur's different levels of guanxi, in terms of parental and nonfamily ties, influence the types of informal financing that might be available; unlike the Western literature on the financial cycles of start-ups, this type of informal financing can extend beyond the initial stage of the business; and finally, an entrepreneur's lack of speaking the local language presents a barrier for Chinese entrepreneurs to access formal bank loans.