Logistics service innovation by third party logistics providers in China: Aligning guanxi and organizational structure

Transportation Research Part E 118 (2018) 291–307

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Logistics service innovation by third party logistics providers in China: Aligning guanxi and organizational structure☆

T

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Zhaofang Chua, Bo Fenga, , Fujun Laia,b a b

Research Center for Smarter Supply Chain, Dongwu Business School, Soochow University, Suzhou, Jiangsu, PR China College of Business, University of Southern Mississippi, Hattiesburg, MS 39406, United States

A R T IC LE I N F O

ABS TRA CT

Keywords: Logistics service innovation Guanxi Organizational structure China

In response to intensifying competition and escalating customer expectations, third-party logistics (3PL) providers need to become more innovative. In logistics service innovation, external relationships are important sources of resources and knowledge. Drawing on social capital theory and the strategy-structure-performance paradigm, this study proposes that guanxi (Chinese system of social networks and relationships that facilitates business and other dealings), expedites logistics service innovation by 3PL providers in China. This study also proposes that the effect of guanxi on logistics service innovation is contingent on the alignment between the type of guanxi and the provider’s organizational structure. We tested our proposed model using survey data from 165 3PL providers in China. Our findings suggest that both political and business guanxi have a positive effect on logistics service innovation; however, those types of guanxi should be used in consideration of the firm’s organizational structure. The results suggest that with respect to logistics service innovation, political guanxi is more effective for 3PL providers whose organizational structure is highly centralized or has low formalization. The converse applies to business guanxi.

1. Introduction Given intensifying competition and escalating customer expectations, third-party logistics (3PL) providers need to become more innovative (Flint et al., 2005). That is particularly true in China. There, most 3PL providers lack sufficient value-added service provisions (Cui et al., 2012), while facing mounting requirements for modern, comprehensive logistics services from customers, especially from multinational companies (Cui et al., 2012). Innovation is essential for 3PL providers in responding to demands for advanced logistics services (Pedrosa et al., 2015). Through innovation, 3PL providers can increase customer satisfaction (Bellingkrodt and Wallenburg, 2015), expand market share, outperform competitors, and enjoy a first-mover advantage (Pedrosa et al., 2015; Wagner, 2008). Again, that is particularly true in China. With such significant benefits, recent logistics studies have called for research into service innovation for 3PL providers (Busse and Wallenburg, 2011; Flint et al., 2005; Grawe, 2009). Busse (2010) highlighted significant differences in service innovation by 3PL providers from that by manufacturers and other service providers. A few studies have investigated 3PL industry-specific service

☆ Bo Feng would like to acknowledge the support from the National Natural Science Foundation of China (Project Nos. 71522002 and 71371076). Zhaofang Chu is supported by the National Natural Science Foundation of China Grants 71772132 and 71402174. Fujun Lai is grateful for the support from the National Natural Science Foundation of China (Project No. 71471125). ⁎ Corresponding author. E-mail addresses: [email protected] (Z. Chu), [email protected] (B. Feng), [email protected] (F. Lai).

https://doi.org/10.1016/j.tre.2018.08.007 Received 9 December 2017; Received in revised form 13 August 2018; Accepted 14 August 2018 1366-5545/ © 2018 Elsevier Ltd. All rights reserved.

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innovation and identified several drivers of such innovation; the drivers include customer requirements, absorptive capability, environmental issues, and geographic coverage (Cui et al., 2012; Panayides and So, 2005). Nevertheless, research on service innovation by 3PL providers remains in its infancy (Busse and Wallenburg, 2011; Grawe, 2009), and “research on logistics innovation in China is almost nonexistent” (Cui et al., 2012 p. 100). Considering the uniqueness of China’s logistics context (e.g., distinctive culture, recent deregulation, and booming logistics markets), there is an urgent need to understand service innovation by 3PL providers in China. Thus, the present study examines whether guanxi (a characteristic of Chinese culture) facilitates logistics service innovation by 3PL providers; it examines how the alignment between guanxi and the organizational structure affects logistics service innovation. Guanxi has profound implications for doing businesses in China (Park and Luo, 2001). It refers to particular connections that bond partners through exchanges of favors and mutual obligations (Lovett et al., 1999). In Western relationship building, cooperative behavior is stressed at the organizational level, such as through trust and commitment to the system (Grawe et al., 2015; Wang, 2007). By contrast, guanxi emphasizes the use of individual connections and social interactions at the personal level, such as the exchange of personal care, favors, and ganqing (affection) (Chen et al., 2013; Shaalan et al., 2013). As a result of these differences, it is important for Western managers operating businesses in China or conducting businesses with Chinese partners to understand the essence of guanxi. Such understanding is particularly important for managers of international 3PL providers, who may lack experience with China or familiarity with Chinese ways of doing business (Rahman et al., in press) as the Chinese logistics industry was not deregulated until the end of 2005. However, research on guanxi in the context of 3PL is scarce (Chen et al., 2010). Moreover, the bridging role of the 3PL provider as an orchestrator of the supply chain and extensive interactions among multiple supply chain members (Zacharia et al., 2011) make guanxi critical for 3PL providers. It is possible that guanxi for such providers is different from guanxi among manufacturers. Accordingly, an understanding of guanxi needs to be extended to the 3PL context. Drawing on the social capital theory, this study proposes that guanxi facilitates service innovation of 3PL providers in China. In fact, guanxi has been documented as a Chinese version of social capital; it allows firms to access external resources and information (Zhang and Li, 2010), and it thus facilitates innovation (Cui et al., 2013; Wu, 2011). This approach is particularly relevant in relation to service innovation by 3PL providers in China because most 3PL providers in China lack the resources for innovation (Cui et al., 2012). Therefore, guanxi tends to be regarded as more important and effective for Chinese 3PL providers that wish to access external resources and knowledge for logistics service innovation. However, in the literature on manufacturer innovation, the findings regarding the effect of guanxi on innovation are inconclusive: some studies identified the positive impact of guanxi on innovation (Liu et al., 2012; Ng and Law, 2015); others suggested that guanxi may not always facilitate innovation (Cui et al., 2013; Wu, 2011). This may be because, besides its benefits (Chen et al., 2013; Luo et al., 2012), guanxi also has a “dark side” (i.e., potential damaging effects due to corruption, collective blindness, and domino effects when firms within the guanxi network fail) (Gu et al., 2008). This issue is important because it addresses the potential paradox in the relationship between social capital and innovation raised by Florida et al. (2002). Those scholars argued that a strong social network might result in conformity, which undermines innovation; weak social ties allow new ideas to be accepted quickly into the social network, thereby encouraging innovation. To better understand this point, drawing on the strategy-structure-performance (SSP) paradigm (Chandler, 1962; Rumelt, 1974), this study further examines the contingent effect of organizational structure. According to SSP, the effectiveness of a strategy depends on alignment between the strategy and the organizational structure. Thus, we argue that the effect of guanxi on logistics service innovation is dependent on its alignment with the organizational structure (e.g., decentralization, formalization, and specialization). The rest of this paper is structured as follows. In Section 2, we provide a literature review and develop our hypotheses. In Section 3, we describe our methodology. Our findings along with their implications are covered in Section 4, followed by conclusions in Section 5. 2. Literature review and hypothesis development 2.1. Logistics service innovation Owing to globalization and deregulation, 3PL providers are facing mounting demands for value-added, comprehensive logistics services and increasingly severe competition (Pedrosa et al., 2015). To survive in a competitive market, providers have to innovate. Innovation among 3PL providers is fundamentally different from that in other service industries and manufacturing (Busse, 2010; Wagner, 2008): it often arises not as a result of a formal plan or process but as an ad hoc response to customer requests (Busse, 2010; Cui et al., 2012). Accordingly, industry-specific studies on innovation are important for 3PL providers. However, service innovation by 3PL providers has been insufficiently studied (Busse and Wallenburg, 2011). There is even a lack of common understanding as to what logistics service innovation actually signifies (Cui et al., 2012). For example, following a broad definition of innovation, Panayides and So (2005) defined innovation by 3PL providers as “the adoption of an idea or behavior—whether pertaining to a device, system, process, policy, program, product or service—that is new to the adopting organization” (Panayides and So, 2005, p. 182). From a user’s perspective, Daugherty et al. (2011) defined logistics service innovation as “a new, helpful ideal, procedure, or practice in logistics operations that is different from a company’s current practice” (Daugherty et al., 2011, p. 26). In contrast, Flint et al. (2005) defined logistics service innovation as “any logistics related service from the basic to the complex [developed by 3PL providers] that is seen as new and helpful for a particular audience” (Flint et al., 2005, p. 114). Such variation in the definitions reflects the diversity in the literature related to service innovation (Biemans et al., 2016; Witell et al., 2016); several conceptualizations of service innovation and related terms appear (Snyder et al., 2016; Witell et al., 2016). Some studies have conceptualized service innovation with different dimensions or categories, such as product versus process service 292

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innovation (Anning-Dorson, 2018) and radical versus incremental service innovation (Wagner, 2013); other studies have used an encapsulated definition for the overall meaning of service innovation (e.g., Bellingkrodt and Wallenburg, 2013; Flint et al., 2005). Focusing on innovations in logistics services offered by a 3PL provider, the present study follows the encapsulation approach: we define logistics service innovation as any newly developed or significantly improved logistics service offered by a 3PL provider that is new and helpful for that provider. This definition supports the Schumpeterian view of service innovation, whereby innovation should be carried into practice, provide benefits to the developer, and be reproducible (Snyder et al., 2016); it is in line with studies that adopt the definition of Flint et al. (2005) (e.g., Bellingkrodt and Wallenburg, 2013; Flint et al., 2008; Flint et al., 2005). We have adopted an encapsulation approach; however, logistics service innovation in China tends to be incremental rather than radical owing to the 3PL industry-specific characteristics in that country. First, the high dependence on and closeness to individual customers leads Chinese 3PL providers to focus specifically on reacting to the needs of their current customers; they neglect any innovation potential outside those customers’ requirements (Busse and Wallenburg, 2011). Second, most Chinese 3PL providers lack the resources and qualified employees for innovation, resulting in an overall low level and rather incremental nature of innovation (Cui et al., 2012). Third, most 3PL providers in China offer only a narrow range of basic services, such as warehousing and transportation (Cui et al., 2012); in contrast to their counterparts in developed countries, they lack knowledge of and expertise in modern logistics (Shi et al., 2016). As a result, 3PL providers in China tend to focus on small innovation through improvements in existing services or adopting advanced logistics concepts, technologies, and practices (Rahman et al., in press). Examples of logistics service innovations include the introduction of automated freight consolidation, intelligent vehicle routing (Wagner, 2008), new packaging for fresh fruits and foods as well as drug products (Lorenzini et al., 2018), and other value-added services, such as third-party purchases (Shi et al., 2016) and consulting and financial services. Flint et al. (2005) pointed out that logistics research has largely ignored the area of innovation. Subsequently, several studies have investigated the importance of logistics service innovation for 3PL providers to gain a competitive advantage (Grawe, 2009), improve customer loyalty (Wallenburg, 2009), enhance supply chain performance (Panayides and So, 2005), and boost financial performance (Bellingkrodt and Wallenburg, 2013; Flint et al., 2008). Other studies have explored the factors that influence logistics service innovation (Daugherty et al., 2011; Grawe et al., 2015; Wagner, 2013). For example, Grawe (2009) argued that both environmental factors (e.g., organization of labor, competition, and capital scarcity) and organizational resources (e.g., knowledge, technology, relationship networks, and financial and managerial resources) influence logistics service innovation. Cui et al. (2012) found that customer requirements, market forces, and entrepreneurial orientation are drivers of logistics service innovation by 3PL providers in China. In addition, organizational structure (Daugherty et al., 2011), shipping knowledge, and learning and absorptive capabilities (Panayides and So, 2005) have been identified as antecedents to logistics service innovation. In particular, the importance of customer involvement (Pedrosa, 2012) and external relationships (Bellingkrodt and Wallenburg, 2013; Wagner, 2013) have been documented as important facilitators of logistics service innovation. Although research has been conducted on logistics service innovation, the uniqueness of China’s logistics context has not been studied. Notably, to the best our knowledge, guanxi has not been examined; however, guanxi may play a critical role in facilitating logistics service innovation. 2.2. Guanxi Given the increasing importance of China in the global economy, guanxi, a Chinese-specific concept that dominates business activities throughout the country (Lovett et al., 1999), has been widely recognized by Western scholars and practitioners (Chen et al., 2013). Guanxi is defined as social connections that are bonded by specific social norms, such as mutual obligation, long-term exchange of favors, and ganqing (affection) (Lovett et al., 1999). The emotional facet is a fundamental characteristic of guanxi. Decision makers may treat requests differently based on their guanxi with request senders. Decision makers may give special consideration to people with whom they have good guanxi: the decision makers may feel they are obligated (to keep mianzi) to maintain good guanxi. Decision makers may encounter sanctions in their guanxi network if they always fail to do favors for individuals with whom the decision makers have good guanxi. As a Chinese-specific business practice, guanxi differs from Western relationship-building activities (Chen et al., 2013; Wang, 2007). For example, the essential principles of guanxi in China are driven more by morality and social norms (e.g., ganqing and mianzi), whereas the core principles of relationship building in the West are driven by the law and rules of behavior (Wang, 2007). In China, guanxi is often formed between people who share a common background (such as family members, coworkers, and classmates) (Chen et al., 2004); it is maintained through personal social interactions (such as the exchange of favors and personal care). By contrast, relationships in the West are built and maintained through successful transactions (Park and Luo, 2001). Guanxi involves an exclusive circle of members that does not extend to members of other social networks; relationship networks in the West are comparatively open as long as the members play by the rules (Shaalan et al., 2013). Despite these significant differences from Western relationship building, guanxi is also an important strategic option for managing and creating values with interpersonal and inter-organizational relationships in China (Chen et al., 2013; Chen et al., 2011). Guanxi was originally defined as a personal-level construct; however, it has emerged as an asset at the corporate level because it can enable a firm to gain and maintain a competitive advantage when the personal guanxi is dedicated to and effectively utilized by the firm (Park and Luo, 2001; Peng and Luo, 2000). Therefore, some management scholars suggest that guanxi also exists—and therefore should be studied—at the firm level (Chen et al., 2015; Peng and Luo, 2000). At the corporate level, research has demonstrated that guanxi is an important form of social capital in China (Chen et al., 2015); it allows firms to acquire scarce resources and information (Park and Luo, 2001; Zhang and Li, 2010), thereby contributing to improving their performance and innovation (Cui et al., 2013; Luo et al., 2012). 293

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In line with this view, guanxi has been recognized as including inter-organizational networks (Park and Luo, 2001). Two distinct types of such guanxi have been identified: political and business (Chen and Wu, 2011; Peng and Luo, 2000). Political guanxi refers to managers’ guanxi with government officers, including officers in central and local government and in regulatory agencies (Park and Luo, 2001; Peng and Luo, 2000). Business guanxi refers to managers’ guanxi with other organizations in the business community, such as suppliers, buyers, competitors, and other market collaborators (Peng and Luo, 2000; Sheng et al., 2011). Political and business guanxi both involve utilization of a firm’s top managers’ personal guanxi for the firm’s purposes (Park and Luo, 2001; Wu, 2011); however, they differ fundamentally in terms of collaborative direction and the benefits they provide. First, by definition, political guanxi operates vertically (or hierarchically); it enhances transient collaborations with various levels of government and regulatory authorities. By contrast, business guanxi operates horizontally (or equally) and facilitates long-term collaborations in market exchanges (Park and Luo, 2001). Second, in terms of benefits, political guanxi offers shortcuts to various regulated resources, such as bank loans, tax concessions (Wu, 2011), and land for factories (Sheng et al., 2011), as well as information regarding government policies (Sheng et al., 2011), industry-wide reform trends (Chen and Wu, 2011), and government support plans (Park and Luo, 2001). Business guanxi provides firms with market resources, such as quality materials from suppliers, reliable payments from customers (Peng and Luo, 2000), and market information (e.g., variations in market demand and changing customer needs and preferences) (Zhang and Li, 2010). Third, political guanxi enables firms to gain political legitimacy (Sheng et al., 2011) and avoid uncertainty in relation to economic transition (Peng and Luo, 2000). Business guanxi provides firms with network legitimacy in business communities (Sheng et al., 2011) and acceptance by other firms in the same networks. As a result of these differences, the two types of guanxi have different effects on a firm’s performance (Sheng et al., 2011), capability building (Chen and Wu, 2011), and innovation (Wu, 2011). For example, Sheng et al. (2011) found that business guanxi has a stronger effect on performance than political guanxi. Chen and Wu (2011) determined that political guanxi facilitates the development of a firm’s resource-bridging capability, whereas business guanxi has a positive effect on its adaptive capability. Therefore, following this research stream, the present study examines these two types of guanxi and their differing effects on logistics service innovation. While several previous studies have examined the relationship between guanxi and innovation of manufacturers (Cui et al., 2013; Liu et al., 2012; Ng and Law, 2015), logistics and supply chain research has just begun to address guanxi (Chen et al., 2010; Chu et al., in press). Several studies have demonstrated the importance of guanxi in supply chain management, such as improving supply management, enhancing buyer–3PL provider collaboration (Chen et al., 2010), helping supply risk management (Jia and Zsidisin, 2014), and assisting with supply chain dependency (Chu et al., in press). For example, Cheng (2011) found the positive moderating effect of guanxi on the connection between relational risks and knowledge sharing. Luo et al. (2015) determined that guanxi plays an important mediating effect on the connection between the buyer-seller relationship and green supply chain collaboration. However, there is a lack of research on the relationship between guanxi and logistics service innovation. 2.3. Theoretical foundations and conceptual model 2.3.1. Social capital theory Social capital theory (SCT) postulates that social actors (e.g., individuals, organizations, and communities) engage in network relationships for their own benefit to gain access to the resources embedded in such relationships (Lin, 2001). Social capital consists of networks of social relationships and the resources inherent in such relationships (Coleman, 1988). Using social capital, firms can acquire essential external resources, facilitate innovation (Zhang and Li, 2010), and improve performance (Peng and Luo, 2000). A firm’s top managers can develop social capital through a variety of personal, social, and economic relationships with their constituencies. Guanxi is the Chinese version of social capital: it involves exchanges of social obligations and asking for and providing favors (Park and Luo, 2001). Research has demonstrated that guanxi helps a firm acquire scarce resources, business information, and opportunities that can be leveraged to the firm’s advantage in terms of performance and innovation (Chen and Wu, 2011; Cui et al., 2013). Therefore, SCT provides a theoretical foundation for the proposition that guanxi facilitates logistics service innovation by 3PL providers through enhancing resource and information acquisition. 2.3.2. SSP paradigm The SSP paradigm advanced by Chandler (1962) and developed by Rumelt (1974) has been widely employed to examine the relationship among organizational strategy, structure, and performance (Chow et al., 1995; Defee and Stank, 2005). The SSP paradigm suggests that strategy is followed by organizational structure (Chandler, 1962) and that the degree of alignment between strategy and structure determines firm performance (Rumelt, 1974). Organizational structure is an essential element of strategic implementation (Galbraith and Nathanson, 1978); a proper fit between strategy and organizational structure is considered a baseline requirement for superior performance (Rumelt, 1974). In recent years, the SSP paradigm has been expanded to include the examination of new measures of strategies and structures, such as logistics strategies (Chow et al., 1995) and supply chain strategies and structures (Defee and Stank, 2005). Guanxi at the firm level has been widely conceptualized as an organizational strategy (Chen et al., 2011; Luo et al., 2012; Park and Luo, 2001) for several reasons. First, by definition, the organization-level guanxi is shaped when managers’ personal networks are used for organizational purposes (Lee and Humphreys, 2007). Second, as a type of social capital, guanxi can be used to gain a competitive advantage by offering broader access to needed resources and information that might otherwise be unavailable (Chen 294

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Political Guanxi Logistics service innovation Business Guanxi Organizational structure: Decentralization Formalization Specialization

Controls: Ownership Firm size Firm age

Fig. 1. Conceptual model.

et al., 2011). Third, establishing and maintaining guanxi is a complex and costly process (Chen et al., 2004). Guanxi can be used for various purposes of an organization (Chen et al., 2013); however, in the present study, guanxi is a strategic option employed to gain external resources and information for service innovation by 3PL providers. We argue that an appropriate fit between guanxi and 3PL providers’ organizational structure is effective in facilitating logistics service innovation. Therefore, the SSP paradigm provides a theoretical foundation for the conditional effects of organizational structure on the effects of guanxi on logistics service innovation. 2.3.3. Conceptual model While the SCT provides a theoretical foundation for the positive impact of guanxi on logistics service innovation, it cannot explain the inconsistency of the relationship between guanxi and innovation in the literature. Fortunately, the SSP may help address such discrepancy by suggesting that the effectiveness of guanxi on logistics service innovation is contingent on the organizational structure. Thus, integrating SCT and the SSP paradigm can better examine the role of guanxi in facilitating logistics service innovation. Furthermore, the combination of SCT and SSP may help address the potential paradox in the relationship between social capital and innovation raised by Florida et al. (2002). Therefore, we integrated SCT and the SSP paradigm to develop a conceptual model (Fig. 1). In our model, we propose that both political and business guanxi have a positive effect on logistics service innovation; we also propose that the effectiveness of these two types of guanxi is contingent on the organizational structure in terms of decentralization, formalization, and specialization. The hypotheses are developed in the next section. 2.4. Hypotheses 2.4.1. Guanxi and logistics service innovation According to SCT, social capital can facilitate innovation by providing access to necessary scarce resources and information (Lin, 2001). This phenomenon is particularly evident in transition economies, such as that of China. As a result of high levels of uncertainty and market imperfections and the presence of institutional voids, firms in China are heavily reliant on guanxi to expedite economic exchanges (Chen et al., 2013). Several empirical studies on guanxi have confirmed that it has a significant effect on innovation (e.g., Cui et al., 2013; Zhang and Li, 2010); the evidence suggests that different types of guanxi have different effects on innovation (Wu, 2011). Extending these findings to the 3PL context, we argue that both political and business guanxi facilitate logistics service innovation by 3PL providers. In China’s transition economy, there are high levels of market imperfection; thus, political guanxi may serve to compensate for the lack of well-established institutions by offering firms shortcuts to policy information and valuable resources (Peng and Luo, 2000). Those commodities are extremely important in relation to firms’ performance and innovation (Li and Zhang, 2007; Ng and Law, 2015). This observation is particularly relevant with regard to service innovation by 3PL providers in China for two reasons. First, most 3PL providers in China are relatively new companies; they lack the necessary resources and information for innovation (Cui et al., 2012) because the Chinese 3PL industry is still in its infancy (Wang et al., 2006). As a result, government support is essential in stimulating service innovation among 3PL providers by providing financial incentives, technical resources, pilot projects, and training programs. In recent years, the Chinese government has encouraged the development of the 3PL industry (The Central Government of the People's Republic of China, 2011) by providing financial support, helping 3PL providers obtain bank loans and access new technologies, and training logistics practitioners. Given China’s culture, which emphasizes collectivism rather than individualism and views people as relational beings (Barkema et al., 2015), a decision maker may treat requests differently depending on their guanxi with the person submitting the request (Barkema et al., 2015). Thus, top managers’ good guanxi with government officials helps firms achieve shortcuts when seeking government support. Second, China’s logistics industry became deregulated at the end of 2005. The regulatory policies and industrial standards relating to the development of the Chinese 3PL sector are still undergoing change and being reinforced in response to the previous lack of well-established nationwide and industry-wide standards (Wang et al., 2006). Political guanxi can help firms obtain high-quality information related to those emerging policies earlier than might otherwise be the case (Wu, 2011). Political guanxi can thus provide advantages in terms of service innovation by 3PL providers, such as a first-mover advantage. For example, before establishing new policies or standards on environmental packaging, government officials may visit some 3PL providers with whom they have good guanxi to gain an understanding of the firms’ requirements and knowledge regarding environmental packaging. During such 295

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meetings, the 3PL providers receiving the officials may obtain valuable information about the proposed environmental standards ahead of their competitors. In that way, the providers can introduce innovative services in advance to meet the new environmental standards. Therefore, we hypothesize the following: H1. Higher levels of political guanxi lead to higher levels of logistics service innovation. In this study, business guanxi focuses on guanxi with customers, competitors, and technology and marketing collaborators (Sheng et al., 2011). In China’s transition economy, business guanxi is an essential strategic option for firms to obtain external resources and information toward facilitating innovation (Wu, 2011; Zhang and Li, 2010). That situation is particularly relevant to service innovation by 3PL providers for two reasons. First, given the unique nature of logistics service innovation as an ad hoc process (Busse, 2010; Cui et al., 2012), external information—such as changing customer requirements and preferences, variations in demand, and new technological developments—is very important. Business guanxi (such as top managers’ good guanxi with customers and technology providers) can help 3PL providers obtain such information in a timely manner. Second, most 3PL providers in China lack the resources necessary for innovation (Cui et al., 2012); thus, external resources are required for service innovation by 3PL providers (Bellingkrodt and Wallenburg, 2013). Business guanxi can enable 3PL providers to obtain complementary resources and capabilities from members of their guanxi networks, such as customers, technology collaborators, marketing collaborators, and other supply chain members. In particular, as orchestrators of the supply chain, 3PL providers have extensive interactions with multiple supply chain members (Zacharia et al., 2011); the latter can help extend and enhance the business guanxi networks of 3PL providers. As a result, through their business guanxi networks, 3PL providers acquire greater opportunities to cooperate with partners in undertaking joint innovations; such a development is very important for successful innovation (Wagner, 2013). For example, good guanxi with technology collaborators may help 3PL providers develop new tracking services with radio frequency identification tags and satellite technologies—or even codevelop such innovations with technology collaborators. Thus, business guanxi facilitates innovation by providing quality information in a timely manner, easier acquisition of skills and resources from partners, and greater opportunities for joint innovations. Accordingly, we hypothesize as follows: H2. Higher levels of business guanxi lead to higher levels of logistics service innovation.

2.4.2. Moderating effects of organizational structure Organizational structure may be considered the anatomy of an organization, providing the foundation through which the organization functions (Dalton et al., 1980). Organizational structure is typically defined as “the sum total of the ways in which it divides its labor into distinct tasks and then achieves coordination among them” (Mintzberg, 1979 p.2). This structure is believed to affect the behavior of an organization’s members; it is recognized as an essential element of strategic implementation (Galbraith and Nathanson, 1978) because it determines how power is exercised, decisions are made, and the organization’s activities are conducted (Dalton et al., 1980). In this regard, three structural dimensions have been identified in the literature: decentralization, formalization, and specialization (Olson et al., 2005). Decentralization refers to the degree to which the right to make decisions and evaluate activities descends to lower levels of an organization (Olson et al., 2005). Formalization refers to the degree to which formal rules and procedures govern decisions and working relationships (Olson et al., 2005). Specialization refers to the degree to which tasks and activities are divided within an organization and the degree to which workers have control over how they perform those tasks and activities (Daugherty et al., 2011). In line with the literature on the SSP paradigm, organizational structure, as an aspect of strategic implementation, should be designed to fit strategy so that the strategy can be properly developed and better performance achieved (Chandler, 1962; Rumelt, 1974). Therefore, organizational structure moderates the relationship between guanxi and logistics service innovation. The moderated effects of specific organizational structure (i.e., decentralization, formalization, and specialization) are as follows. In centralized organizations, top executives tend to be influential: the right to make decisions is concentrated at the highest level (Olson et al., 2005), and strategic implementation tends to be straightforward once a decision has been made. By contrast, in a decentralized organization, top executives may not have as much authority because of the more dispersed nature of the decision-making process (Olson et al., 2005). In a guanxi network, individuals are more willing to exchange resources and information with those who are influential in terms of decision making and strategic implementation owing to the nature of guanxi in relation to exchanging favors and mutual obligation (Chen et al., 2004). Network members believe that someone with considerable power will be able to return a favor in the future by providing more valuable resources and information. Therefore, compared with top managers in a decentralized organization, top executives in a centralized firm are more likely to obtain desirable resources and information through either political or business guanxi. Moreover, the more straightforward strategic implementation process in centralized firms may enhance the utilization of resources and information acquired through top managers’ political or business guanxi in terms of both effectiveness and efficiency. Therefore, the effect of both political and business guanxi on service innovation tends to be stronger for 3PL providers with a centralized organizational structure than for those with a decentralized one. This leads us to hypothesize as follows: H3a. Decentralization negatively moderates the positive effect of political guanxi on logistics service innovation. H3b. Decentralization negatively moderates the positive effect of business guanxi on logistics service innovation. Formalization emphasizes the presence of written rules and procedures (Lin and Germain, 2003). In highly formalized firms, work practices are controlled by formal procedures and rules; such firms are thus less flexible (Lin and Germain, 2003). Conversely, firms 296

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with a low level of formalization encourage horizontal and vertical interaction and flexible roles (Olson et al., 2005). Given the complexity and cultural nature of guanxi (Lovett et al., 1999), there are no prescribed rules or procedures for guanxi practices. Instead, guanxi requires flexibility—especially in relation to the exchange of favors (Lovett et al., 1999; Wang, 2007), including resources and information. In a guanxi network, individuals (top managers) seek to exchange resources and information with partners (top managers in other firms) who are flexible so that the favors can be returned as desired in the future. In sum, guanxi is not compatible with formalization. According to a Chinese business proverb, “Guanxi is gray; formalization is black and white.” The exchange in guanxi is implicit, whereas the exchange in formalization is explicit. Guanxi needs flexibility; formalization demands rigidity. Consequently, guanxi is more compatible with firms with a low level of formalization; in such firms, guanxi is more efficient in obtaining resources and information and has greater margins to influence service innovation. Moreover, a high level of formalization may also hinder the creative use of the resources and information gained through guanxi. Therefore, we hypothesize as follows: H4a. Formalization negatively moderates the positive effect of political guanxi on logistics service innovation. H4b. Formalization negatively moderates the positive effect of business guanxi on logistics service innovation. Specialization within an organization relates to the extent to which jobs are narrowly defined in terms of required knowledge, skills, and experience (Daugherty et al., 2011). We would anticipate that in a highly specialized firm, the impact of guanxi on service innovation would be smaller than in a firm that was not highly specialized. We make this inference based on four reasons. First, highly specialized firms have a higher proportion of individuals who are experts in their fields and direct their efforts toward a welldefined set of activities (Olson et al., 2005). Such specialists are the source of resources and information needed by service innovation; thus, firms with these specialists have relatively less need of guanxi to obtain external resources and information for service innovation. In addition, although such firms may still use guanxi to obtain resources and information for service innovation, the resources and information gained through guanxi may be increasingly less valuable for service innovation. That is because the firms already have many valuable resources and information through their specialists. Second, in general, highly specialized organizations may be more adaptive but less flexible (Daugherty et al., 2011); they may require a higher level of coordination than organizations with poor specialization. Therefore, given the flexibility required to use guanxi to obtain resources and information (as noted above), an organizational structure with poor specialization may be better than a highly specialized structure for 3PL service providers to use (both political and business) guanxi to facilitate service innovation. Third, the high level of coordination required when the level of specialization is high may hinder efficient use of the information and resources acquired by 3PL providers through guanxi to expedite service innovation. Fourth, the services provided by a highly specialized firm are also highly specialized: they may have fewer potential substitutes, which lessens the competitive pressure. That low competitive pressure may decrease the efficiency in using guanxi to obtain external resources and information for service innovation. Putting these factors together, we would expect that the effect of both political and business guanxi on facilitating service innovation tends to be stronger in 3PL providers with a low level of specialization than in those that are highly specialized. This leads us to hypothesize as follows: H5a. Specialization negatively moderates the positive effect of political guanxi on logistics service innovation. H5b. Specialization negatively moderates the positive effect of business guanxi on logistics service innovation.

3. Methodology 3.1. Sample and data collection The data from 3PL providers in China were collected using a key informant approach. To examine the effects of different types of guanxi on service innovation by 3PL providers, we targeted firms’ senior managers (e.g., chief executive officers, general managers, owners); we did so because we expected them to be knowledgeable about such issues. As our focus group interview suggested, the chief executive officer or general manager of a big company or owner of a small firm could understand the state of their guanxi with governments and market players if that guanxi had been used by the firm for organizational purposes. Managers’ guanxi with governments and business players is regarded as sensitive information. Thus, following the procedures of Peng and Luo (2000), we preserved our respondents’ anonymity by asking them more general questions that did not require the disclosure of sensitive information, such as the names of officers or partners with whom they had guanxi (see Appendix A). Previous studies have indicated that this survey approach is more likely to obtain accurate information from Chinese managers (Peng and Luo, 2000; Sheng et al., 2011). We selected our sample from a database of firms registered with the China Federation of Logistics and Purchasing (CFLP). First, firms were contacted by telephone to obtain their agreement to participate in our study. Then, a senior manager from each firm that had agreed to participate was e-mailed a questionnaire and requested to return the completed document within 2 weeks. Individuals who had failed to reply after 3 weeks were contacted again by telephone and asked to complete the survey. In all, 585 questionnaires were e-mailed to managers; 165 completed questionnaires were returned, i.e., a response rate of 28.2%, which is common among comparable sample sizes (Bellingkrodt and Wallenburg, 2013). Table 1 details the characteristics of the responding firms. 297

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Table 1 Profile of responding firms. Ownership State-owned Chinese private Joint-Venture Wholly Foreign

26% 42% 12% 20%

Number of years operating Less than 4 4–8 9–14 15–20 21or more

15% 27% 35% 12% 11%

Number of full-time employees Less than 100 100–499 500–999 1000–4999 5000 or more

39% 21% 14% 14% 13%

Annual sales (million RMB yuan) Less than 5 5–10 10–50 50–100 100–300 300–500 500 or more

16% 7% 11% 9% 22% 7% 28%

3.2. Measures The measures were adapted from well-established items from previous studies, where possible. We then took several steps to enhance the content and face validity of the measurement. First, we adapted items from the literature to make them appropriate for logistics service innovation in China. Second, we subjected the adapted items to a focus group discussion with several logistics managers and experts. The items were revised according to their feedback. Third, we conducted a pilot study to validate the modified measures and further revised the items. All measures were assessed using a seven-point Likert scale, ranging from 1 (“strongly disagree”) to 7 (“strongly agree”). The final version of the scale appears in the Appendix A and is described briefly here. Items for both political guanxi and business guanxi were largely from Peng and Luo (2000) and Sheng et al. (2011). Informants were asked to assess the extent to which the top executives in their firms had good guanxi with government officials and market players. As previous studies (Lee and Humphreys, 2007; Sheng et al., 2011) found and our focus group discussion revealed, good guanxi is a well-understood concept in Chinese society: it is based on personal social interactions and connections bonded by specific social norms. We adapted four items to measure political guanxi. Those items largely derived from Peng and Luo (2000): they comprised good guanxi with governments, industrial bureaus, and regulatory agencies (such as tax bureaus and commercial administration bureaus). We added an additional item reflecting guanxi with the regional government from Sheng et al. (2011): that was because our focus group discussion indicated that regional governments were also extremely important for 3PL providers. We measured business guanxi using four items, which were adapted from Sheng et al. (2011): guanxi with customers, competitors, technology collaborators, and marketing collaborators. However, we omitted the item of guanxi with suppliers included in Sheng et al. (2011): that was because our focus group discussion suggested that suppliers of 3PL providers were not very relevant to service innovation. Previous logistics studies have suggested that market players (i.e., customers, competitors, and technology and marketing collaborators) are all major potential sources of external knowledge for service innovation by 3PL providers (Bellingkrodt and Wallenburg, 2013; Cui et al., 2012). Those items have also been employed in other studies on guanxi (e.g., Park and Luo, 2001; Peng and Luo, 2000). Logistics service innovation was measured by four items from Li and Atuahene-Gima (2002). In the present study, logistics service innovation signified product innovation by 3PL providers. As such, it differs from the logistics innovation of manufacturers and retailers (Daugherty et al., 2011); it also differs from innovativeness of 3PL providers (Bellingkrodt and Wallenburg, 2015; Panayides and So, 2005). Our comprehensive literature review revealed that there is no established measure for logistics service innovation by 3PL providers. Therefore we adapted all four items of product innovation employed by Li and Atuahene-Gima (2002) with reference to conceptual studies on logistics service innovation by 3PL providers (Flint et al., 2005; Grawe, 2009). With four items, we asked respondents to indicate the degree to which their firm engaged in developing and introducing new services and its commitment to that engagement. It should be noted that logistics service innovation in the present study refers to an ad hoc response to customer requests. Therefore, respondents were asked to indicate how the firm passively and actively responded to requests or needs from its major user. We defined the major user as the logistics user that accounted for the largest proportion of the 3PL provider’s sales in terms of revenue. 298

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Table 2 Measurement model. Item

Loading

T-value*

AVE

C.R.

Cronbach’s alpha

Political Guanxi PT1 PT2 PT3 PT4

0.92 0.89 0.93 0.82

15.44 14.36 15.59 12.77

0.794

0.939

0.938

Business Guanxi BT1 BT2 BT3 BT4

0.83 0.80 0.82 0.81

12.58 11.97 12.28 12.22

0.664

0.888

0.889

Decentralization DE1 DE2 DE3

0.90 0.89 0.89

14.51 14.33 14.29

0.798

0.922

0.923

Formalization FO1 FO2 FO3

0.86 0.87 0.83

13.27 13.36 12.62

0.728

0.889

0.891

Specialization SP1 SP2 SP3

0.80 0.77 0.80

11.28 10.71 11.30

0.624

0.833

0.833

Service innovation SI1 SI2 SI3 SI4

0.72 0.85 0.88 0.76

10.30 12.89 13.67 11.05

0.648

0.880

0.878

Note: CR – composite reliability; AVE – average variance extracted. * All item loadings are significant at the p < 0.01 level.

We obtained the items regarding organizational structure (i.e., decentralization, formalization, and specialization) from Daugherty et al. (2011). Respondents were asked to indicate their level of agreement with statements regarding their firm’s decisionmaking processes, work practice governance, and degree of specialization. In our analysis, we included ownership, firm size, and firm age as control variables. We employed ownership as a dummy variable: 1 represented Chinese firms (both state- and privately-owned firms); 0 otherwise. We measured firm size using the natural logarithm of the number of full-time employees. We assessed firm age using the natural logarithm of the number of years that the firm had operated in Mainland China. 3.3. Measurement assessment Following Fornell and Larcker (1981), we undertook confirmatory factor analysis (CFA) to assess the construct reliability and validity using LISREL 8.80. Our measurement model provided an acceptable fit for the data: χ2 (174) = 193.76; RMESA = 0.026; NFI = 0.95; CFI = 0.99; SRMR = 0.047. For all research constructs, the values of Cronbach’s alpha and composite reliabilities (Table 2) exceeded the suggested level of 0.70, indicating adequate reliability (Fornell and Larcker, 1981). Table 2 shows that all factor loadings were greater than 0.70 and significant at the P < 0.01 level; all average variance extracted (AVE) values (range, 0.624–0.798) were above the recommended value of 0.50 (Fornell and Larcker, 1981); that demonstrated adequate convergent validity. We assessed discriminant validity by comparing the square roots of the AVE of each construct with the correlations between the focal construct and each other construct (Fornell and Larcker, 1981). Comparison of all the correlations of the diagonal of the matrix and square roots of the AVEs on the diagonal in Table 3 indicated adequate discriminant validity. 3.4. Common method assessment Following Podsakoff et al. (2003) and Schwarz et al. (2017), we employed four approaches to determine whether common method variance (CMV) was present in our study. First, Harman’s single-factor test suggested that no one factor accounted for more than 30% of the covariance. Second, as evident in Table 3, there were no excessively high correlations (> 0.7) (Tabachnick and Fidell, 2013). Third, as suggested by Lindell and Whitney (2001), we employed a method variance (MV) marker test to assess potential common method bias. We used a scale theoretically unrelated to at least one variable in our analysis as the MV marker to proxy for common MV. In our test, we employed a three-item variable to measure the respondents’ positive emotion, e.g., joy 299

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Table 3 Correlations.

Political Guanxi (X1) Business Guanxi (X2) Decentralization (X3) Formalization (X4) Specialization (X5) Service innovation (X6) Ownership (X7) Firm size (X8) Firm age (X9) Method variable (MV)

X1

X2

X3

X4

X5

X6

X7

X8

X9

MV

0.891 0.556* 0.285* 0.118 0.235* 0.446* 0.058 0.214* −0.019 −0.050

0.552* 0.815 0.236* 0.143 0.222* 0.418* −0.062 0.066 −0.033 0.010

0.278* 0.229* 0.893 0.238* 0.286* 0.157 −0.121 −0.201* −0.208* −0.104

0.109 0.134 0.230* 0.854 0.361* 0.121 0.071 0.080 −0.064 0.058

0.227* 0.214* 0.278* 0.355* 0.790 0.188* 0.089 0.067 −0.141 −0.036

0.441* 0.413* 0.149 0.112 0.180* 0.805 −0.010 0.109 −0.015 −0.002

0.048 −0.072 −0.133 0.062 0.080 −0.020 n.a. 0.122 0.106 0.163

0.206* 0.056 −0.214* 0.071 0.058 0.100 0.113 n.a. 0.398 0.141

−0.029 −0.043 −0.220* −0.074 −0.152 −0.025 0.097 0.392 n.a. 0.063

−0.061 0.000 −0.115 0.049 −0.046 −0.013 0.155 0.132 0.054 0.884

Note: Squared root of variance extracted is shown on the diagonal of each matrix with bold; n.a. not applicable for single-item construct; interconstruct correlations are shown below the diagonal; above the diagonal are the correlation adjusted for potential common method variance with the MV marker technique. N = 165; * p < 0.05(two-tailed).

(Richins, 1997), as the MV marker. We adjusted the construct correlations by the lowest positive correlation (r = 0.010) between the MV marker and other variables. None of the significant correlations was non-significant after this adjustment (Table 3). This outcome suggests that the results of the present study were not unduly affected by CMV. Further, with this MV marker, we conducted a CFA marker test. Following the procedures of Schwarz et al. (2017), we created five models with the results of goodness-of-fit and model comparisons (Table 4). The non-significant difference between the baseline model and method-C model suggests that common method bias did not severely affect our data. 3.5. Analysis and results We tested our models using hierarchical multiple regression analysis (Cohen and Cohen, 1983). We conducted several tests to check the prerequisites and robustness of the estimation (Table 5). Results of the Kolmogorov-Smirnov test exhibited the normality of residuals. Breusch-Pagan and White tests demonstrated the homoscedasticity of residuals. The estimations of variance inflation factor suggest that multicollinearity did not appear to have adversely affected the regression results. The Ramsey Reset test results indicated that omitted variable bias did not unduly impact the hypothesis testing of the study. The regression results appear in Table 5; a summary of the hypothesis tests is shown in Table 6. Among the eight hypothesized relationships proposed in the conceptual model, two path coefficients were non-significant; six were significant at the 0.05 level. As Model 2 in Table 5 shows, the positive, significant coefficients of political (β = 0.260, P < 0.01) and business (β = 0.245, P < 0.01) guanxi indicate that both types have a positive effect on logistics service innovation. This outcome provides support for hypotheses H1 and H2. That inference is also supported by the significant ΔR2 (0.226) in Model 2: it indicates that political and business guanxi account for 22.6% of the variance (R2) in logistics service innovation. We also calculated the effect size (Cohen’s f2) to assess the above effects (Cohen, 1988). Both political (f2 = 0.230) and business 2 (f = 0.204) guanxi had an intermediate effect on logistics service innovation. No control variables were found to have a significant influence on logistics service innovation. Regarding the moderating effects of organizational structure, we observed that decentralization and formalization moderated the positive effect of political guanxi on logistics service innovation. There were significant coefficients for the interaction between political guanxi and decentralization (β = −0.158, P < 0.01) in Model 4 in Table 5 and between political guanxi and formalization (β = −0.129, P < 0.05) in Model 5 in Table 5. This finding offers support for hypotheses H3a and H4a. The coefficient for the Table 4 Chi-square, Goodness-of-Fit Values, and Model Comparison Tests. Model

χ2

df

NFI

CFA Baseline Method-C Method-U Method-R

260.29 263.19 262.96 242.51 332.96

232 242 241 221 255

0.94 0.94 0.94 0.94 0.92

ΔModels

Δχ2

Δdf

χ2 critical value at 0.05

Baseline vs. Method-C Method-C vs. Method-U Method-C vs. Method-R

0.23 20.45 70.00*

1 20 14

3.84 31.41 23.68

Chi-square Model Comparison Tests

Notes: * significant at 0.05 level. 300

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Table 5 Hierarchical multiple regression estimations. Dependent variable

Service innovation

Model

1

2

3

4

5

6

Controls Intercept Ownership Firm size Firm age

4.968** −0.048 0.109 −0.101

2.506** −0.036 0.028 −0.020

2.203** −0.057 0.021 −0.001

2.258** −0.048 0.007 −0.012

2.603** 0.024 −0.019 −0.043

2.340** −0.084 0.015 −0.036

0.260** 0.245**

0.254** 0.233**

0.242** 0.232**

0.261** 0.195*

0.308** 0.209*

−0.003 0.028 0.052

−0.006 0.011 0.097

−0.037 0.019 0.081

−0.041 0.011 0.082

Main effects Political Guanxi (PG) Business Guanxi (BG) Moderators Decentralization (DE) Formalization (FO) Specialization (SP) Moderating effects PG * DE BG * DE PG * FO BG * FO PG * SP BG * SP R2 F ΔR2 ΔF VIFmax K-S test Breusch-Pagan test White test Ramsey RESET test

−0.158** 0.042 −0.129** −0.098* 0.037 −0.212** 0.016 0.890

1.197 0.066 (p = 0.08) 0.00 (p = 0.96) 4.16 (p = 0.84) 0.19 (p = 0.90)

0.242 10.161** 0.226 23.692** 1.546 0.050 (p = 0.20) 1.01 (p = 0.31) 19.09 (p = 0.45) 0.01 (p = 0.99)

0.247 6.394** 0.005 0.331 1.657 0.036 (p = 0.20) 0.44 (p = 0.51) 37.38 (p = 0.71) 0.89 (p = 0.45)

0.304 6.713** 0.057 6.263** 1.670 0.061 (p = 0.20) 0.06 (p = 0.80) 52.43 (p = 0.77) 0.01 (p = 1.00)

0.378 9.350** 0.131 16.189** 1.721 0.052 (p = 0.20) 0.11 (p = 0.74) 48.70 (p = 0.87) 0.47 (p = 0.71)

0.299 6.571** 0.052 5.726** 1.909 0.062 (p = 0.20) 0.69 (p = 0.41) 53.10 (p = 0.75) 0.36 (p = 0.78)

Note: ** significant at 0.01 level; * significant at 0.05 level.

Table 6 Results of hypothesis tests. Hypothesis

Outcome

H1. The level of political guanxi has a positive effect on logistics service innovation H2. The level of business guanxi has a positive effect on logistics service innovation H3a. Decentralization negatively moderates the positive effect of political guanxi on logistics service innovation H3b. Decentralization negatively moderates the positive effect of business guanxi on logistics service innovation H4a. Formalization negatively moderates the positive effect of political guanxi on logistics service innovation H4b. Formalization negatively moderates the positive effect of business guanxi on logistics service innovation H5a. Specialization negatively moderates the positive effect of political guanxi on logistics service innovation H5b. Specialization negatively moderates the positive effect of business guanxi on logistics service innovation

Supported Supported Supported Rejected Supported Supported Rejected Supported

interaction between political guanxi and specialization in Model 6 was non-significant (β = 0.037, n.s.); this indicates no support for hypothesis H5a. These results are also supported by those related to effect size. The effect sizes show that decentralization moderated the relationship between political guanxi and logistics service innovation with a small effect (f2 = 0.077); formalization had an intermediate moderating effect (f2 = 0.175); however, the moderating effect of specialization was very weak (f2 = 0.004). By contrast, formalization and specialization had a moderating influence on the effect of business guanxi on logistics service innovation. There were significant coefficients for the interaction between business guanxi and formalization (β = −0.098, P < 0.05) in Model 5; there were also significant coefficients for that between business guanxi and specialization (β = −0.212, P < 0.01) in Model 6 in Table 5. These findings support hypotheses H4b and H5b. However, the coefficient for the interaction between decentralization and business guanxi in Model 4 in Table 5 was non-significant (β = 0.042, n.s.); this result provides no support for hypothesis H3b. Formalization (f2 = 0.146) and specialization (f2 = 0.071) did in fact have a small moderating effect on

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Fig. 2. Moderation effect of decentralization.

the relationship between business guanxi and logistics service innovation; decentralization had a very weak moderating effect (f2 = 0.010). For a closer examination of the moderating effects, Figs. 2–4 present the effects of political and business guanxi on logistics service innovation for the values of decentralization, formalization, and specialization (as means and one standard deviation above and below the means). These findings provide support for hypotheses H3a, H4a, H4b, and H5b; they offer no support for hypotheses H3b and H5a.

3.6. Post hoc analysis We conducted a series of post hoc analyses to compare the influences of political and business guanxi on logistics service innovation. We divided the sample into two sub-samples using a moderator’s mean value. We used the approach in Aiken and West (1991) to define a moderator’s high and low levels as one standard deviation above or below the mean. We ran regressions on the subsamples. We then compared the path coefficients of the two sub-samples. The results appear in Table 7 and Fig. 5. The results in Table 7 and Fig. 5A are consistent with the non-significant and significant moderating effects of decentralization for business (β = 0.042, n.s.) and political guanxi (β = −0.158, P < 0.01). These findings show that when decentralization changes from low to high, the influence of business guanxi does not change significantly; however, the influence of political guanxi falls significantly. Accordingly, when decentralization is low, the influence of political guanxi on logistics service innovation is significantly stronger than that of business guanxi (t = 12.598). By contrast, when decentralization is high, the influence of political guanxi is slightly (and non-significantly) stronger than that of business guanxi (t = 1.981). The pattern of the moderating effects of specialization is the reverse of that of decentralization (Fig. 5C). When specialization changes from low to high, the influence of political guanxi does not change significantly (β = 0.037, n.s.); however, that of business guanxi significantly declines (β = −0.212, P < 0.01). When specialization is low, business guanxi is significantly stronger than political guanxi in influencing logistics service innovation (t = −10.731). Conversely, when specialization is high, business guanxi is slightly (and non-significantly) stronger than political guanxi (t = −0.515). Regarding formalization (Fig. 5B), the effects of both political and business guanxi on logistics service innovation significantly decrease (respectively, β = −0.129, P < 0.01; β = −0.098, P < 0.05) when formalization changes from low to high. When formalization is low, the effect of business guanxi is significantly stronger than that of political guanxi (t = −3.193). However, when formalization is high, the influence of business guanxi is slightly (and non-significantly) weaker than that of political guanxi (t = 0.996).

Fig. 3. Moderation effect of formalization.

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Fig. 4. Moderation effect of specialization.

Table 7 Comparing political guanxi with business guanxi. All

Political Guanxi Business Guanxi T-value

Decentralization

0.260 0.245 1.732

Formalization

Specialization

Low

High

Low

High

Low

High

0.712 0.052 12.598

0.237 0.045 1.981

0.497 0.638 −3.139

0.148 0.105 0.996

0.125 0.695 −10.731

0.126 0.163 −0.515

A

B

Logistics service innovation

C

Logistics service innovation

Logistics service innovation

* *

* n.s.

n.s.

n.s.

Political Guanxi

Business Guanxi

Low

High

Decentralization

Low

High

Formalization

Low

High

Specialization

* p<0.01, n.s.: not significant Fig. 5. Comparison between Political Guanxi and Business Guanxi.

4. Discussions and implications 4.1. Major findings The analyses in the present study have identified a number of interesting findings, summarized below. We conducted further indepth interviews with 3PL managers to elaborate on these findings. First, our results provide strong support for both political and business guanxi having a positive effect on logistics service innovation by 3PL providers in China. That finding was also supported by additional in-depth interviews. The manager of a well-known Chinese private express logistics firm confirmed the importance of political guanxi; the manager provided several examples illustrating the role of political guanxi in facilitating innovation. The manager stated, “Guanxi with the government is of course very important. Our firm has received financial support to invest in technologies of express drones from the government. That was through our good guanxi with the government officers in charge. The connection greatly helped us introduce new drone delivery services.” Regarding the role of business guanxi, the manager of another well-known logistics service firm remarked “Our innovation is often driven by customers’ new requirements. Having good guanxi with customers can help us gain accurate information about their needs. For example, a couple of years ago, one customer—an online fruit retailer with whom I have good guanxi—wanted to sell a special type of cherry to consumers nationwide. But at that time, those cherries could not be delivered to customers who lived far from Gansu (a province in the northwest of China), where it was harvested. That was because of time-consuming logistics and the fragile nature of 303

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the fruit. The customer came to our company and explained his requirements. We developed a new type of thermostatic packaging so that the cherries could be freshly delivered to customers within 3 days. Now, various types of thermostatic packaging have been used for many types of fruit and other fresh foods.” The interviews confirmed our findings that both political and business guanxi constitute valuable social capital that can provide access to external resources and information for use in service innovation. The interviews also revealed that the level of guanxi influenced the extent to which such external resources can become available and that the level of guanxi depended on efforts toward building and maintaining that relationship. Second, both political and business guanxi should align with organizational structure to better promote logistics service innovation. Specifically, we found the alignment between political guanxi and lowly formalized and/or highly centralized structure in improving logistics service innovation. That finding was also supported by the in-depth interview with the first manager who stated “To leverage good guanxi with the government, our company set up a flat team with a centralized but informal structure for the project related to express drones”. We also found that business guanxi can better improve logistics innovation when the firm is not highly formalized, and is more efficient when the firm is not highly specialized. Third, overall, political guanxi is similar to business guanxi in terms of facilitating logistics service innovations; however, political and business guanxi may occupy different positions in firms with different organizational structures. For example, political guanxi is more efficient in a firm with low decentralization, but business guanxi is more efficient in a firm that has low formalization and low specialization. However, political guanxi is just as important as business guanxi for facilitating logistics service innovation when the firm is highly decentralized, formalized, or specialized. Fourth, decentralization was found to be an important moderator when considering the effect of political guanxi on logistics service innovation, but it did not affect the relationship between business guanxi and logistics service innovation. This is likely the result of two aspects of highly centralized firms: (1) the possibility of rapid, straightforward implementation of the strategy; and (2) the reduced communication necessary among functional specialists (Daugherty et al., 2011; Olson et al., 2005). The first aspect enhances the effect of business guanxi on innovation through rapid strategic implementation. The second aspect limits the effect of business guanxi on innovation: it hampers the effective utilization of the knowledge and resources that were acquired through the business guanxi network. Given the trade-off between those two effects, the effect of business guanxi shows no significant differences between centralized and decentralized firms. We also found that the degree of specialization moderates the relationship between business guanxi and logistics service innovation, but it doesn’t alter the effect of political guanxi on logistics service innovation. This might be reasonable. As stated earlier, the strategic choice in using political guanxi to obtain the external resources and information necessary for service innovation is at the macro level and should involve top-level managers; thus, functional experts are irrelevant. Accordingly, the extent to which the firm’s tasks and activities are divided and the number of specialists in the organization are of no concern with respect to using political guanxi. 5. Research implications The present study contributes to research in several ways. First, our investigation contributes to the literature on logistics service innovation. Research on 3PL providers’ service innovation is still in its infancy (Busse and Wallenburg, 2011), especially in China (Cui et al., 2012). Our investigation is a response to the call for more research on logistics service innovation (Busse and Wallenburg, 2011; Grawe, 2009). Specifically, although several studies have offered seminal, conceptual discussions of logistics service innovation, such conceptual models have not been well tested with empirical evidence. Our study provides empirical evidence for logistics service innovation in China’s context. More importantly, our investigation introduces guanxi, a special element of Chinese culture, to the literature on logistics service innovation. Hitherto, this literature has largely overlooked this unique Chinese element (Chen et al., 2010). Second, the present study enriches the literature on guanxi. A number of studies have examined the relationship between guanxi and innovation in the manufacturing context (Li and Zhang, 2007; Liu et al., 2012); however, the results have been inconsistent. Our study provides new evidence in the service context; it also examines the contingent effect of organizational structure in an attempt to clarify the reasons for that inconsistency. Instead of aiming to identify a universal mechanism, which was adopted in previous studies, our investigation elaborates on how different types of guanxi influence logistics service innovation under different conditions. Therefore, our study is also a response to Chen et al. (2013), who called for more guanxi research about contingent effects. In addition, guanxi is the Chinese version of social capital, and so our findings provide new insights into understanding the potential paradox in the relationship between social capital and innovation raised by Florida et al. (2002). Third, this study contributes to research into the SSP paradigm: we provide evidence of the importance of a proper fit between guanxi and organizational structure in generating service innovation in the 3PL context. Our investigation is a response to Chow et al. (1995), who called for the SSP paradigm to be extended to the context of logistics, and Defee and Stank (2005), who called for the SSP paradigm to be applied to supply chains. 5.1. Managerial implications Our findings offer valuable implications for 3PL providers aiming to develop new services. First, 3PL providers can use guanxi to leverage external resources and knowledge to aid logistics service innovation. Most 3PL providers lack the resources to introduce 304

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innovations (Wagner, 2008); thus, our findings suggest that in China, guanxi could be a strategic option for 3PL providers to gain external resources for innovations (such as regulatory resources and information from government officers and market intelligence from market players). These findings are particularly important for Chinese 3PL providers since most of them need to differentiate themselves in highly competitive markets (Cui et al., 2012); they have to do so through innovation and offering advanced logistics services they could not hitherto provide. These findings are also vital for multinational 3PL providers operating in China. In developing innovative services, such providers need to learn and utilize guanxi: building guanxi with local governments to obtain regulatory support and establishing guanxi with customers and other collaborators to gain information about customers’ everchanging requirements and complementary resources. Second, 3PL providers need to carefully evaluate what guanxi should be developed and used in consideration of their organizational structure. Overall, both political and business guanxi are efficient in facilitating logistics service innovation; however, one type of guanxi may be more efficient than the other according to a firm’s organizational structure. For firms with low formalization and specialization, business guanxi should be developed and utilized for facilitating logistics service innovation. By contrast, a lowly decentralized firm should emphasize political guanxi for promoting logistics service logistics. Third, our results offer suggestions about how a 3PL provider should assess the impact on its existing guanxi if it has to restructure to facilitate logistics service innovation. Our results indicate that business guanxi is immune to decentralization, but political guanxi is not. Conversely, political guanxi is immune to specialization, but business guanxi is not. This means that if a firm restructures to become more decentralized, its existing business guanxi will retain their former efficiency, but the firm’s political guanxi will become much less efficient. Equally, if a firm restructures to become more specialized, its existing political guanxi will retain their former efficiency, but the firm’s business guanxi will become much less efficient. Formalization is entirely incompatible with guanxi. If a firm restructures to become more formalized, both political and business guanxi will be significantly less efficient. Fourth, our findings provide insights for multinational 3PL managers in understanding guanxi. As Rahman et al. (in press) demonstrated, guanxi is one of the most critical challenges confronting multinational 3PL providers that operate or intend to operate in China or do business with Chinese customers. Our findings suggest that such providers should learn and develop guanxi; toward doing so, they may hire Chinese managers to oversee joint venture operations in China. Moreover, to leverage the advantage of guanxi in aiding innovation, those providers should adjust their organizational structure. More importantly, they should be aware of the alignment between guanxi types and organizational structure; those providers may have to prioritize the development of guanxi with different external players according to their own organizational structure. It should be noted that although political guanxi is an important strategic option for 3PL providers toward facilitating their logistics service innovation, political guanxi should be used with caution. Such a provider applying political guanxi could become trapped into performing illegal acts. We would encourage 3PL providers to use political guanxi to obtain resources and information legally from governments and their agencies through just and fair means. Any illegal use of political guanxi, such as bribing, illicit swapping of interests with officers, or breaching classified information, should be strictly prohibited. 6. Conclusion and limitations Drawing on SCT and the SSP paradigm, this study investigated the effects of political and business guanxi; it examined the fit between guanxi and organizational structure in facilitating logistics service innovation by 3PL providers. The empirical evidence from 165 3PL providers in China indicates that both political and business guanxi have a positive effect on logistics service innovation; however, guanxi should be used in consideration of a firm’s organizational structure. This study makes a contribution in terms of both theory and practice, but it has several limitations that open avenues for future research. First, this study investigated only the relationships among guanxi, organizational structure, and logistics innovation. In addition to achieving a fit between strategy and structure, a firm’s strategy has to respond to the external environment (Defee and Stank, 2005; Lin and Germain, 2003). Future studies should simultaneously explore the degree of fit among guanxi, the external environment, and firms’ organizational structure. Second, this study examined only the contingent effect of organizational structure; however, the effect of guanxi on service innovation may also be contingent on other factors, such as innovation type and innovation focus (Bellingkrodt and Wallenburg, 2013). Future studies could investigate how those factors influence the effect of guanxi on service innovation. Third, we differentiated only between business and political guanxi: various external actors, such as customers, universities, and competitors, may play differing roles regarding logistics service innovation by 3PL providers (Bellingkrodt and Wallenburg, 2013; Wagner, 2013). Future studies could seek to differentiate various types of business guanxi (such as guanxi with customers, competitors, and universities) and examine the effect of each type on logistics service innovation. Fourth, the present study only used the contingency approach to determine the inconclusive effect of guanxi on innovation. Future studies could explore other potential explanations. For example, several studies suggested an inverted U-shaped relationship between guanxi and innovation (Cui et al., 2013; Wu, 2011). Future research may examine the possibility of this non-linear relationship between guanxi and service innovation in the 3PL context. Fifth, as the current study was survey-based and cross-sectional in design, future investigations should be designed to test causality through longitudinal or panel data studies. They should control for more factors that could influence innovation (such as investment in research and development, firm profitability, and advertising expenditures) and may examine the interactive effects of guanxi and those factors on innovation.

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Appendix A. Measurement items

Political guanxi PG1 Corporate PG2 Corporate PG3 Corporate PG4 Corporate

executives executives executives executives

have have have have

good good good good

guanxi guanxi guanxi guanxi

with with with with

government officials at all levels industry officials local government officials officials in the tax department and business administration department

Business guanxi BG1 Corporate BG2 Corporate BG3 Corporate BG4 Corporate

executives executives executives executives

have have have have

good good good good

guanxi guanxi guanxi guanxi

with with with with

major customers’ executives major competitors’ executives executives of technology collaborators executives of marketing collaborators

Logistics service innovation SI1 The company is always engaged in developing new services SI2 The company often improves existing services or introduces new services SI3 The company accelerates the introduction of new services SI4 The company increases its overall commitment to developing new services Decentralization DE1 Front-line managers have flexibility in how work gets done DE2 Front-line managers have substantial autonomy DE3 Many important decisions are made locally rather than centrally Formalization FO1 Usually, employees in our firm do things by the book FO2 The need to go through the proper channels to complete a job is constantly stressed to our employees FO3 Whenever we have a problem, we are supposed to go to the same person for an answer Specialization SP1 Our firm has a large number of “specialist” employees who perform narrowly defined sets of activities SP2 Most of our firm’s employees are generalists who perform a wide variety of tasks (reverse-coded) SP3 We expect our employees to be experts only in their areas of responsibility

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