External entrepreneurs/investors and guanxi : hostels in a tourism area, Xinjiang, China

International Journal of Contemporary Hospitality Management Ext ernal ent repreneurs/ invest ors and guanxi: host els in a t ourism area, Xinj iang, China Jingjing Yang Chris Ryan Lingyun Zhang Article information: To cite this document: Jingjing Yang Chris Ryan Lingyun Zhang , (2014),"External entrepreneurs/investors and guanxi: hostels in a tourism area, Xinjiang, China", International Journal of Contemporary Hospitality Management, Vol. 26 Iss 6 pp. 833 - 854 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) Permanent link t o t his document : http://dx.doi.org/10.1108/IJCHM-01-2013-0049 Downloaded on: 11 January 2015, At : 19: 56 (PT) Ref erences: t his document cont ains ref erences t o 55 ot her document s. To copy t his document : permissions@emeraldinsight . com The f ullt ext of t his document has been downloaded 181 t imes since 2014* Users who downloaded this article also downloaded: Yi Chen, Zhuowei (Joy) Huang, Liping A. 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Design/methodology/approach – This paper is derived from an ethnographic study undertaken by the irst author who lived for 12 consecutive months in the case area. Findings – This research indicates that outsider entrepreneurs need to balance between standards required by industry associations and sound “guanxi”, between bureaucratic arrangements and business practice, between economic proit and lifestyle within a guanxi-dominated society. It may be argued that the continuance of relationships represents the continuance of resources and beneits and the maintenance of social and political capital. Practical implications – One issue in the relationship with local governments is the question to what degree politicians can inluence enterprises’ business? Political guanxi is thus an important key to any understanding of the local political scene. In China, the Chinese philosophy that Harmony is the most precious (和为贵pinyin: yiheweigui) is a strategy often adopted in mediation and operation. Originality/value – Factors including guanxi, entrepreneurs’ operation motivations, governmentdirected political system, indigenous people and culture and Butler’s tourism area life cycle (TALC) model are considered in the discussion. This study expands the knowledge pertaining to hostels in China in relation to their interaction with local governments and locals to maintain a good guanxi. It highlights the multiple dimensions of guanxi in terms of micro-and macro-perspectives with reference to functionality and cultural requirements. Keywords Entrepreneurs, Guanxi, China, Ethnic community Paper type Research paper Introduction Currently, an increasing number of international branded enterprises are beginning to emerge in western China. A number of these developments are based upon franchise operations, thereby permitting questions to be asked about the potential differences that may impact on management styles between, not only Western countries but also between eastern and western China. However, a key factor in organizational International Journal of Contemporary Hospitality Management Vol. 26 No. 6, 2014 pp. 833-854 © Emerald Group Publishing Limited 0959-6119 DOI 10.1108/IJCHM-01-2013-0049 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 834 management in China is the social and business networking characteristic of guanxi, a practice that is thought to inluence cognitive styles, information processing and social interaction (Lashley and Barron, 2006). By its nature, the modus operandi will be speciic to a place and context, and hence the semi-developed nature of northwest China potentially provides opportunities for case studies to assess whether guanxi is of importance in such environments. Consequently, this paper aims to explore how two entrepreneurs maintain harmonious guanxi with stakeholders in a destination in a less-economically developed part of northwestern China. The paper will explore these issues by discussing two case studies of Youth Hostel Association (YHA)-branded hostel’s interaction with stakeholders (especially governments and locals) in an ethnic community in Xinjiang. The dilemmas between standards required by industry associations and sound guanxi, between bureaucratic arrangements and business practice and between economic proit and lifestyle maintenance will be explored. It is commonly recognized that Chinese social and cultural elements, such as mianzi (face), harmony, government-directed development and the relation between economic power and political power need to be considered when discussing business operations within China. However, underlying all of these is guanxi, a social network of interlocking relationships that is essential to the conduct of business and public and private life in the Chinese society (Park and Luo, 2001). The importance of social networks is, of course, not wholly unique to Chinese society. Indeed Bordieu (1986, p. 281) notes: […] capital can present itself in three fundamental guises: as economic capital, which is immediately and directly convertible into money and may be institutionalized in the form of property rights; as cultural capital; which is convertible, on certain conditions, into economic capital; and as social capital, made up of social obligations (“connections”), which is convertible, in certain conditions, into economic capital and may be institutionalized in the form of a title of nobility. As is discussed below, in the Chinese society, the concept of guanxi is more pervasive and is not restricted to a form of noblesse oblige, as is perhaps implied in the preceding quotation. The context of the discussion and case studies relate to the Kanas Scenic Area in Xinjiang Uyghur Autonomous Region, China. This adds another element as it illustrates a common situation in China where tourism development is often dependent upon an alliance between the local administrative organs of the State and business ownership external to the area, as is the case here. Furthermore, the Kanas is the home to two minority group, the Tuva and the Kazakh people, who still retain a life style that is based upon nomadic summer pasturing of their herds (their economic capital). Consequently, Kanas represents an appropriate location for a study of business development for that include: • given a growing emphasis on minority peoples’ cultures (cultural capital) as a tourism resource that can be exploited for economic development in previously marginalised areas; • Kanas raises a number of interesting issues in terms of cultural acquisition by different groups (Yang et al., 2013a, 2013b); and • issues of how local communities engage in tourism in a Chinese context when lacking social and inancial capital (Wang et al., 2010). Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) The paper is, therefore, constructed around a series of literature reviews that relate to the role of externally owned, small business enterprises in such areas, their relationships with local administrations and residents and the role and nature of guanxi. The paper describes the hostels involved and the issues that the business operators faced and is representative of many such rural “on the ground” developments where progress is measured in small developments. The two hostels represent different situations: one enjoying high degrees of patronage from the local administration, while the second business operator sought to achieve a speciic “vision” described below. That they succeeded was as much due to the growth of tourist numbers in what had previously been an under-valued tourism destination as to any degree of guanxi that had been possessed. The paper thus commences with observations about small businesses in ethnic minority areas in China. Entrepreneurs and tourism In ethnic communities, many enterprises are owned and operated by non-locals (Yang and Wall, 2008; Yang, 2012), although it needs to be noted that variation in practices does exist in China. For example, it has been argued that Bai people in Yunnan Province play entrepreneurial roles, albeit primarily in small-scale businesses (Morais et al., 2013; Xu and Ma, 2013). Nonetheless, despite these variations, it is commonly argued that external entrepreneurs gain much more beneits from tourism than the local communities do. (Li, 2004; Oakes, 1998; Yang, 2007). Such economic leakage is detrimental to the community development (Oakes, 1998; Bao and Zou, 2013). External entrepreneurs’ main interest is the short-term economic beneit (Yang and Wall, 2008), which motivates them to create, preserve and protect the ethnic images to meet tourists’ preference (Yang, 2007). On the other hand, it also needs to be recognized that in some destinations where there is a unique culture or heritage, or an outstanding landscape, some outsider entrepreneurs are not wholly motivated by economic proit, but by lifestyle and enjoyment of a destination that differs from urban areas (Xu and Ma, 2013). These entrepreneurs are not strongly motivated by proit; therefore, their behaviours and choices can hardly be explained using rational economic calculation theories. This study will provide an example of such entrepreneurs, although their motivation changes from life style at the beginning to one of economic proit during the operation process. Many studies focus on the role of entrepreneurship in tourism (Echtner, 1995; Shaw and Williams, 2002); however, there is a lack of research about the actual modus operandi of entrepreneurship (Yang and Wall, 2008). Therefore, there is a need for more studies on entrepreneurship in relation to indigenous communities. This paper is one response to such a call. Within tourists sites in China, there are a great number of hostels that may also be licenced to accommodate international visitors. Such hostels require relatively modest inancial capital, but do require social capital in terms of persuading the authorities to provide a license. The social capital thereby involves not only linguistic abilities but also the connections to obtain the required permits (i.e. guanxi is a pre-requisite for success). Consequently, this paper draws on ield research in Kanas, China, and does so with speciic reference to the patterns of relationships with other actors in local tourism networks. It does so by irst briely stating the nature of hostel accommodation. External entrepreneurs/ investors and guanxi 835 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 836 International hostels Hostelling International (2014, p. 2), formerly known as International Youth Hostel Federation, deines its mission as follows: To promote the education of all young people of all nations, but especially young people of limited means, by encouraging in them a greater knowledge, love and care of the countryside and an appreciation of the cultural values of towns and cities in all parts of the world, and as ancillary thereto, to provide hostels or other accommodation in which there shall be no distinctions of race, nationality, color, religion, sex, class or political opinions and thereby to develop a better understanding of their fellow men, both at home and abroad. The concept of Hostelling International was introduced in China by Guangdong Tourism Bureau, in 1998, and hostels were irst established in Guangdong Province. Today, there are over 220 international hostels in 27 cities and regions in China (YHA China, 2014). From a geographical perspective, most research studies about international hostels have been undertaken in Australia, New Zealand and Europe (Hecht and Martin, 2006), with little research undertaken in China. Additionally, the majority of the research focuses on backpackers and other tourists who use hostels. For example, Hecht’s and Martin’s (2006) study is conducted in the Greater Toronto Area, Canada, seeking to understand hostel backpackers’ characteristics and their service preferences. Hence, it may be observed that little attention has been given to hostel owners themselves as well as their interaction with stakeholders. It might also be observed that Butler, drawing in part upon the theories of Cohen (1974, 1984) and Plog (1977, 2002), noted in the early stage of tourism development that a destination tends to be visited by drifters, backpackers and those tourists motivated by a search for “off the beaten” track destinations that retain characteristics that differ from their own home regions. Consequently, it is suggested that once a critical mass of visitation occurs wherein resident populations begin to view visiting tourists no longer as “guests” but as sources of supplementary income, hostel accommodation becomes one of the irst forms of structured tourist accommodation that appears. Many reasons dictate this, including the wish by the tourists for affordable accommodation that is simply basic, clean and low priced and thus is a means of inancially affording extended stays and maintaining contact with a local community. Within the Chinese context, a range of such accommodations has emerged, of which perhaps the best known is the Happy Stay at Farmer (nongjiale) farm stay or rural accommodation. Initially, these were very basic with little more than a room, access to some toilet facilities and a family kang or hard bed, under which heating might be provided by glowing embers in a container. However, partly through State-sponsored policies and through private sector initiatives as demonstrated in the northern suburbs of Beijing, a range of farm stays has developed, some of which, while illegal through not being licensed, are nonetheless quite luxurious. Until recently, however, access to these by international tourists has been relatively limited for reasons that include language issues, lack of local knowledge and lack of an industry chain of distribution offering such accommodation to overseas visitors. On the other hand, the hostel, especially if accredited by the YHA, is well recognized by international as well as domestic tourists, and can be more easily accessed from afar through lists of hostels, often found on the Internet. Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) However, the establishment of a hostel in China is not a simple matter of establishing a hostel and then opening it for business, especially in rural, peripheral and ethnic regions, where many will know of the actions of a few, and thus oficial support, sponsorship or the condoning of practices by turning a blind eye is essential to the success of the hostel. This is even truer given the licensing system that operates. It is in this context that the resident or outside entrepreneur will be very dependent on the network of relationships that they command. This is even truer in China for both cultural and legal reasons. Culturally, the network of relationships or guanxi represents social capital (Braendle et al., 2005). This capital possesses great signiicance in the absence of a law of contract as generally understood in Western countries. Thus, Zhou and Poppa (2010, p. 863) note: Despite continued institutional reform since 1979, the central government has not created a stable legal structure to enforce contract law throughout its provinces; enforcement is subject to particularism and personal accommodation due to intervention from local or regional government oficials; lack of independent law enforcement; and, at times, frequent unjustiied law changes (Luo, 2007). Consequently, guanxi as social capital needs to be considered. Guanxi Guanxi, as an ancient Chinese form of networking, is now one of its most characteristic elements (Hwang, 1987). Hwang further suggests that guanxi is a complex power game based on concepts of renqing and the differing natures of reciprocity. Similarly Parnell (2005, p. 30) views guanxi as a “complex, multifaceted socio-cultural phenomenon that is dificult to conceptualise scientiically and perhaps impossible to instrumentalise”. For their part Park and Luo (2001, p. 455) describe guanxi as “an intricate and pervasive relational network consisting of mutual obligations, assurances and understandings”. Yang (2012) seeks to provide more insight into the nature of guanxi, arguing that it is embedded in sets of long held classical Chinese norms drawn from Confucian and Taoist teachings. One can note the importance of li (propriety or rules of proper behaviour) and ren (humanity). Gu et al. (2013) take the argument further in two directions. First, they extend the classical moral teaching and guanxi to also encompass the pragmatics of the ming (thing) and shi (the thing in question), and second, argue that for a transitional economy and political system, guanxi has an important role by illing a gap that exists in a legal system that lacks the administrative and legal certainties of a Western system. It does this by tying parties together in mutual networks of support. Based on previous studies, Zhang and Zhang (2006) propose three guanxi typologies at the individual level: the obligatory, reciprocal and utilitarian types. The obligatory relates to the hierarchical nature of relationships in Chinese society, but even those holding superior positions had to discharge responsibilities and duties towards those in an inferior status. Hence, the sets of relationships are mutual. In an interesting aside, Yang et al. (2013a) note that in negotiations over land compensation, each concession by the government actually represents a reinforcement of the hierarchy, as it is only the State that can concede compensation – and thus the tension between individual and State is held in a state of guanxi. Such an example is also an example of the utilitarian in that acts of concession, negotiation and reward are the means of achieving action. Thus, External entrepreneurs/ investors and guanxi 837 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 838 it is of little surprise that Peng (2003) suggests that the informational and interpersonal relationships with stakeholders form the competitive advantage for entrepreneurs. Study site The Kanas Scenic Area is located in the Altay Region of Yili Kazakh Autonomous Prefecture, Xinjiang Uygur Autonomous Region, China. The southern boundary of the Kanas Scenic Area reaches N 48°13=, and it is bordered by Kazakhstan and Russia to the north and Mongolia to the northeast. It covers an area of 10,030 km2 including the 2,200 km2 Kanas State-level Nature Reserve. It is well known for its tourism resources including lakes, forests and mountains (Figure 1). The Kanas Scenic Area has a total population of 4,330 people. It is multi-minority in character. Tuva and Kazakh are the main ethnic groups, and there are also Hui, Russia and Han inhabiting in this area. It has seven administrative villages under the direction of two township governments. Three villages are involved in tourism: Hanas Village, Hemu Village and Baihaba Village. The tourists were predominantly national tourists. Han tourists accounted for over 90 per cent of the total tourists. Past research indicates that the primary motives for tourists visiting the Kanas Scenic Area were those of sightseeing and related leisure pursuits that represent an escape from the daily life of large urban areas. It does appear that cultural activities are at best secondary as reasons for visiting the area (Yang et al., 2013b). The Kanas Scenic area contains a series of different locations with reference to accommodation, and is now annually attracting almost a million visitors with a total annual expenditure in excess of RMB900 million according to the Kanas Scenic Area Administration. Degrees of development thereby vary considerable from the main centre of accommodation at the resort complex at the Jiadengyu Tourism Area, to, at the other extreme, the village of Baihaba where, until very recently, there has been rapid increase of tourism development. This village and Hemu Village provide the case study for an examination of how small enterprises utilize guanxi to permit the development of a tourism enterprise. The development of tourism is relected in the visitor numbers shown in Table I. Research methods This paper is derived from an ethnographic study: the irst author undertook a year of ieldwork between 2009 and 2010 in the case area for her doctoral thesis. During the initial period, she lived for 10 days in the Xinjiang Kanas AHA International Youth Hostel, Baihaba Village. This permitted the establishment of relationships with the entrepreneurs that she was able to build upon during the late period of her stay. In addition, she often visited Hemu Village and the Xinjiang HOM AHA International Youth Hostel which also belongs to the owners of the YHA, Baihaba Village. Later the researcher was able to help the operators cater to the tourists when the numbers of tourists were many, including serving food to tourists. The irst author is luent in Chinese, and has some luency in the Tuva and Kazakh languages. This meant that she was not dependent upon translations or translators, and the duration of her stay meant that in a relatively small community, she became a igure familiar to residents. She also participated in many local events, and once the initial period was over, she stayed with a Tuva family and came to be regarded as an adopted daughter. External entrepreneurs/ investors and guanxi Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 839 Figure 1. Location of the Kanas scenic area and the villages IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 840 A combination of multiple methodological practices in a single study is regarded as a good strategy to answer any inquiry (Flick, 1998). The speciic research methods adopted were ethnographic participant observation and speciically related to the context of village life, unstructured interviews with residents, tourism operators, those involved in the running and ownership stakeholder of the hostels and various authorities (both formal and informal). The material available for analysis thereby included oficial documents in addition to recorded conversations; notes of unrecorded discussions; and a research diary comprising notes, observations, feelings, questions and other material based on a daily record of things done and observed. In addition, there were numerous opportunities for spontaneous informal “chats” in addition to more formal research methods – such chats being recorded in the daily diary – and these conversations and the minutes of daily life (especially in winter when temperature could reach ⫺40°C) constituted the greater part of the data. Given this context, the research included the taking of ield notes, a traditional means in ethnography for recording observational and conversational data, on a daily basis. Some ield notes were typed directly onto a laptop; while some were handwritten when there was a blackout or when the laptop was not available, and then, subsequently, entered into a laptop. Field notes were written in English or Mandarin, depending on the time and the content. For a variety of reasons, some of the ield notes taken were jottings, but they were valuable aids in the construction of a more detailed account. As Schatzman and Stauss (1973, p. 95) suggest: A single word, even one merely descriptive of the dress of a person, or a particular word uttered by someone usually is enough to “trip off” a string of images that afford substantial reconstruction of the observed scene. There are mainly four methods to research social– cultural changes: historical reconstruction analysis, cross sectional analysis, study–restudy analysis and longitudinal analysis (Woods, 1975). Cross-sectional analysis and historical reconstruction analysis are both adopted in this study, as are content and conversation analysis. It was within this total research process that the two cases studies of the hostels emerged as having signiicance. The data relating to the hostels were irst separated from the other data, but linkages with wider social events were noted. Analysis commenced with repeated readings of text of conversations and ield notes, with themes being marked, taking into account the degree of repetition, the role of positive and negative statements, time context (remembering that Mandarin does not possess tenses of verbs in the same way as English), status and role of speaker, commonalities of subject matter across different speakers, and, when required by checking with informants, initially in person and subsequently via calls and Internet. Given the paucity of information about small business enterprises in ethnic minority areas in China, which is not wholly an unimportant topic given the emphasis the Chinese Village Table I. Tourist growth in the three main Tuva Villages Total Kanas Village Hemu Village Baihaba Village Tourist numbers in 2010 Compared with 2009 (%) 662,000 397,000 204,000 61,000 181 152 1131 1222 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) Government is placing on its Pro-Poor Tourism programmes (Zeng and Ryan, 2012, p. 239), a case study approach also appeared appropriate to assess the nature of the issues involved and the degree to which guanxi aided the establishment and continuance of the businesses. As a research method, case studies are said to have many advantages. For example, Yin (1994, p. 9) suggests that case studies are an appropriate form of research when “[…] a how or why question is being asked about a contemporary set of events over which the investigator has little or no control”. Similarly Eisenhardt (1989, pp. 548-549) writes that a case study is: Particularly well suited to new research areas or research areas for which existing theory seems inadequate. This type of work is highly complementary to incremental theory building from normal science research. The former is useful in early stages of research on a topic or when a fresh perspective is needed, while the latter is useful in later stages of knowledge. The context of the study – the two hostels Xinjiang Kanas AHA International Youth Hostel is located in Baihaba Village, while Xinjiang Hom AHA International Youth Hostel is located in Hemu Village. The two hostels are owned by a couple from Urumqi City – the capital of Xinjiang – under the franchise of the YHA of China. This external ownership of tourism assets in China is quite common and relects a simple fact that in the rural, and particularly western, parts of the country, small communities lack the inancial resources to develop such businesses. This lack of inance has several implications. It can inhibit tourism development, but it can also leave communities at risk of less than ideal practices as noted by Bao and Zou (2013) in their description of major investments in western China or the compulsory land purchases for resort development in rural Anhui as described by Li and Ryan (2013). It can equally be the case that small-scale enterprises see an advantage to be gained when tourism commences in relatively new areas, especially in ethnic minority areas as noted by Morais et al. (2013) and Xu and Ma (2013). It is in these areas that small-scale entrepreneurs with arguably restricted resources can nonetheless secure properties and investments due to having access to more inancial capital than local residents and being able to utilize guanxi. The issue with reference to capital acquisition is, in China, shaped by what is still primarily a State-run banking system where loan funding to the private sector, especially in a poorly understand industry such as tourism is very much second to the funding of State, Provincial and Local Government priorities. Hence, much of the funding used in the construction of buildings such as a hostel is raised from within family connections or an extended guanxi-based network. Hence, those already in business, however small, have advantages over those who are primarily earning an income from subsistence farming or, as in this case, from a culture that is still primarily nomadic and pastoral during the summer season. As an international hostel brand, YHA is commonly labelled as hostels or other simple accommodation for people, especially the young, who are travelling, often over an extended period. However, within the ethnic community with low-level economic and social development in northwest China, the YHA brand is regarded as providing a sound, comfortable, modern accommodation compared with other competing and often very basic accommodation facilities. Both hostels have electric power, equipped with water system. They offer free services including travel consultation, wireless Internet, books and magazines, boiled water and luggage storage. Additional services available External entrepreneurs/ investors and guanxi 841 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) IJCHM 26,6 at a fee include bike rentals, self-help laundry, car rentals, food/drinks and the availability of tourist guides (YHA Kanas, 2014). As previously noted, Table I illustrates the growth in tourist demand for sightseeing in the two villages and hence it is assumed that some of this would be translated into demand for accommodation by a proportion of these numbers. 842 The Baihaba Hostel The tourism development of Baihaba Village started in the late 1990s. Baihaba is famous for its beautiful landscape and cultural environment, the No. 5 Boundary Tablet and the boundary river between China and Kazakhstan and the title of “First Village of Northwest China”. The village itself is located alongside the Habahe River – the natural border between China and Kazakhstan. It is 31 miles from Hanas Village and 108 miles from the nearby county administrative centre in Habahe County, from where Baihaba was governed until 2006. Tourism development of Baihaba Village started in the late 1990s. Baihaba Village is normally not in the standard itinerary of package tourists but serves as an optional tour attraction that tour guides suggest to tourists visiting Kanas. Package tourists normally spend around two hours in the village. They irst visit the No. 5 Boundary Tablet, then a stone carved with “The First Village of Northwest China” and then look around in the village. Individual tourists probably visit other tourist attractions nearby, such as White Lake and Naren Farm. Until 2009, there were 19 accommodation businesses. The hostel owners also had a vision that the architecture of the hostel should relect local architectural styles and be consistent with other buildings in the village. This adherence to local culture was one means of acquiring permission to build the hostel. The hostel has 10 bedrooms or sleeping areas and 56 bed spaces. In looking at the guanxi relationships that possessed importance, various actors can be identiied, and these included the local Kanas Scenic Area administration, residents and those in the tourism industry. The patterns of local involvement in tourism are identiied in Table II. The primary motivation for establishing the business was, according to one of the owners: Our primary purpose was to build a unique hostel of our own here (Kanas) and put our blueprint into practice in this beautiful area. We originally planned to open the business in Hanas Village (the most popular tourist attraction in this area), but the government did not allow us to build houses in Hanas Village and Hemu Village’. So if we operate the business in Hanas Village, we have to rent house from locals. The blueprint the owners had was based upon their experiences of hostels in other regions, and at that time, the concept of a hostel as described above had not been put into operation. The selection of Baihaba Village was simply determined by the local administration not permitting the establishment of the business elsewhere, and the decision meant revenue was much less than that which could be gained from operating in either Hemu or Hanas Village due to the smaller number of tourists in Baihaba Village. In 2010, the tourist number in Baihaba Village was 61,000, representing only 15 per cent of the number of tourists in Hanas Village (397,000 tourists) and 30 per cent of Hemu Village (204,000 tourists). According to the owners, they had suffered losses from the operation of the hostel in Baihaba Village until 2010. The reasons included: Participation modes Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) Administration Entrance ticket Administrative institution Boundary station Locals ⫻ ⫻ External entrepreneurs/ investors and guanxi 843 On-site shuttle bus Accommodation operation Restaurant operation Souvenir shops operation Convenience stores Peddlery Tour guiding Horse-riding renting Financial subsidies Tourism entrepreneurs Middle-scale Small-scale outsider enterprises enterprises ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ • political policies in that foreigners are not allowed access to Baihaba Village due to its border location; • seasonality. Due primarily to climatic conditions, the tourism season only takes around three months; and • the short duration of stays of many of the tourists. As mentioned above, indeed the majority of tourists do not stay in Baihaba Village overnight, but only stay for around 2 hours for general sightseeing. That the hostel was even permitted is so much due to guanxi in terms of contacts with local oficials, but rather due to policy changes. There had been a growing tension between some village residents and the local administration about the relative lack of revenue that accrued from tourism and found its way to local residents. The hostel thus became a means whereby the local administration could argue that it was complying with the pro-tourism policies of the Provincial and Central Governments by attracting new capital that employed local people while potentially avoiding further dificulties that could arise from failure. In short, it as a compromise that meant little risk for local actors, and thereby met the needs of both residents and administration who could then simply observe how tourism would develop. From an entrepreneurial perspective, there was, on the one hand, a simple passive acceptance of government policies, yet at the same time, signiicant risk-taking. This risk-taking was intensiied by the operators holding to their vision of how a YHA hostel should operate. In China, local governments normally have some special funds for entertaining important visiting guests (normally oficials) in local restaurants and hotels. Consequently, for both altruistic and pragmatic motives, the local township Table II. The stakeholders’ participation in tourism: Baihaba Village, 2010 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 844 government advised the hostel owners to rebuild the hostel and cater to governments’ guests in the hostel, so that the government could allocate a certain amount of funds to the hostel. This is not uncommon practice, and Ping and Ryan (in press) also provide similar examples. Most entrepreneurs would have regarded this as a sound business opportunity, as it permits a “stable” income from the government and reduces the effort needed to attract tourists. However, the owners of the hostel refused the proposal, giving the excuse that there was insuficient space in the restaurant to place the big round tables required for catering to governmental guests. The government oficials responded by suggesting an expansion of the current public recreation area to place the big round tables inside. The owners replied that YHA headquarter would not approve such changes, as it is not consistent with the YHA guidelines. However, the owners admitted that the primary reasons for their refusal were their view that catering for governmental guests would negatively inluence the tourists’ experience in the hostel. During the tourism season, tourists chatted in the public common room, and the staff often played guitars and sang for tourists in the evening. The behaviour of governmental oficials at the dinner table on formal occasions is, on the other hand, especially in rural areas, commonly characterized by shouting, drinking and smoking. The owners felt such behavior was incompatible with the behaviors of hostel guests. In short, the owners’ vision overcame the need for proits or indeed guanxi building in the initial years of the hostel’s existence. The second key actor in the scenario was obviously that of the locals, and generally they were not supportive of the hostel in its early years because there was view that the hostel was simply an “outsider’s incursion” and that the “YHA occupied their ‘territory’” (interview with the YHA owners). Gradually, the attitudes changed as frequent social interaction became more common. First, social distance was reduced by the movement of local families from Baihaba Old Village to Baihaba New Village where the hostel is located. Seven local families have moved to this new residential area in recent years, some of whom are now involved in tourism and have established some guanxi with the YHA. The hostel’s construction style, facilities and the service quality and quality of catering has slowly impressed local people who are encouraged to visit when it is mutually acceptable. In evidence to the irst author, local residents expressed some surprise that their own daily foodstuffs such as Nang bread and could become the subject of “higher cuisine” when cooked and served in the ways adopted by the hostel to those guests. However, inancial self-interest also became a means of establishing local guanxi with residents. First, the owners hired local men to build the hostel and paid them RMB100 per day. The construction continued for over 30 days. Such a rate represented a very high level of income for the recipients and even if some worked for just three or four days, it represented the equivalent of a number of weeks of normal income. The irst author was also told that local alcohol consumption also increased in this period, and the role of alcohol in the local society does possess importance as a ritual of social cohesiveness (Yang, 2012). Local people have also been employed within the hostel, even though the tourist season occurs during a period traditionally associated with nomadic pasturing of cattle. For example, one local woman had been employed as a waitress in the hostel for three years until 2010. Her house is located two minutes’ walk from the hostel, and this job greatly facilitates her taking care of her child at home. Having both an income and easing the role of childcare during the summer represented a social asset for this female. Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) This emergent guanxi with local people hence became important as the tourist numbers increased for a number of reasons. First, not only did the proitability of the hostel increase but the opportunity to offer a good standard of accommodation to visitors helped to retain tourists within the village and thereby help create a tourist demand for the other small tourism businesses that local people were able to start up such as horse riding and small catering outlets. Second, the increasing success of tourism and the hostel’s role in it validated the owners’ vision and meant that it could be seen as a useful partner for the local administration. Third, the success of the hostel vindicated the initial decision by the administration to permit the hotel to be built, and while the owner had not “played ball” initially, both recognised that the “compromise”, as outlined above, had worked well. This of course gave the local administration mianzi with more senior levels in the governmental hierarchy. At the same time, the third actor in the process of guanxi building (the tour companies) became increasingly important as the growing numbers of tourists attracted the attention of tour companies and tour guides. In this respect, the hostel owners have a relatively good negotiating position as bed capacity is relatively limited during the peak season when compared to demand, and the hostel offers higher standards of accommodation when compared to other levels of local accommodation outside the resort complex of Jiadengyu. In addition, the YHA hostel is properly licensed, which is not wholly true of all alternative accommodation. The Hemu Village Hostel Tourism development of Hemu Village started in the late 1990s. It is famous for its abundant natural resources and variety of lora, as well as its distinctive cultural facilities. It is regarded as possessing the most beautiful autumnal colors in the Kanas area. It also is renowned for its picturesque landscape and tranquility, and is positioned as the “Sacred Garden” in promotional materials. Many tourists stay in this village for several days for not only relaxation but also for photography. In 2009, there were 39 accommodation businesses. The degrees of involvement by the local community and other stakeholders in tourism are identiied in Table III. In 2010, the YHA owners rented a hostel from an outsider in Hemu Village, redecorated it and then opened Xinjiang Hom AHA International Youth Hostel. All the guest rooms of the previous business were standard rooms with ensuite provision, meaning that the original layout of the accommodation made it impossible to strictly comply with the usual hostel pattern of common sleeping and other arrangements of the YHA. Nonetheless, this is not wholly disadvantageous, as worldwide YHA hostels are upgrading as the market segments change (Cave et al., 2007). According to the Xinjiang Kanas Scenic Area Hemu Village Cultural Landscape Protection Plan (Planning and Design Institute of Sun Yat-sen University & Center for Tourism Planning and Research of Sun Yat-sen University, 2008), a tourism area was suggested for the entrance area of Hemu Village. It was proposed that all the then existing hostels and restaurants in the village be closed and moved to this tourist area. New businesses were not allowed to be built in the village. By 2011, the construction of the Tourist Area was inished and in response to the regulations of the local administration, the YHA moved from the village to its new location. The leasees therefore, spent the year of 2011 on decoration, and during that period, the operation of the hostel was suspended. As before, the hostel is rented by the operators, and the new External entrepreneurs/ investors and guanxi 845 IJCHM 26,6 Participation modes Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 846 Table III. The stakeholders’ participation in tourism: Hemu Village, 2010 Administration Entrance ticket On-site shuttle bus Accommodation operation Restaurant operation Souvenir shops operation Convenience stores Peddlery Tour guiding Horse-riding renting Home visit operation Financial subsidies Administrative institution Tourism entrepreneurs Middle-scale Small-scale enterprises outsider enterprises Locals ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ ⫻ building is owned by the local administration, namely, the Kanas Administrative Committee. For this period of 2011, the Committee suspended payments of the rent. In itself, this rental arrangement implies close guanxi between the local administration and the leases, and such guanxi is reinforced by expected mutual gain for both parties as described below. The current hostel has 10 bedrooms and 42 bed spaces. The Kanas Administrative Committee sets a number of requirements on the design and decoration for the enterprises in the Tourist Area; therefore, the entrepreneurs could not design the hostel as they wished due to those regulations. The entrepreneurs spent RMB600,000 on the decoration. The hostel’s decoration, facilities and architectural features are very similar to the Hemu Villa, which is a high-end hotel next to the hostel, and both comply with regulation requiring the adoption of a local vernacular style of architecture. The standard of accommodation exceeds that of most hostels, but the prices remain at the hostel levels. In due course, the leasees plan to upgrade it to villa standards and then construct a new hostel in the village. Their current levels of guanxi with the local administration will, it is thought, permit this to occur as tourism numbers increase as the local administration would expect higher rentals while also such policies would be in keeping with the pro-tourism policies of growth and modernization that are fast developing for this region. The importance of links with the government was illustrated a number of times. For example in Hemu Village, there were three restaurants/home visits that mainly cater for governments’ guests. All these three restaurant owners have a good guanxi with the township oficials. Other restaurants are jealous about this, and commented that: They have a very good relationship with the local township government heads; they are either relatives or old friends of the heads. They do not need to worry about the income. An outsider hostel operator in Hemu Village also wanted to attract government oficials’ guests and, therefore, he treated the township oficials to a special meal to discuss this issue. When the irst author asked him why he felt he had to do this, he commented that: This will greatly help the performance of the business. The government normally orders 10-20 dishes and expensive alcohols for entertaining their guests, but normal tourists just order few dishes and some beers/drinks. The income will be very higher if I succeed persuading these oficials to bring their guests to cater here. The key is to establish a good relationship with the government oficials. Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) Relationships with the local residential community is more complex. During the irst year of operation in Hemu Old Village local horsemen waited outside the hostel for tourists touting for business. In the new hostel in the Hemu “New” Village, the entrepreneurs and the locals have had far less interaction. None of the local people is currently employed in this hostel. On the other hand, seasonality will have a signiicant impact on operations, but this seasonality is simply, currently, a fact of life, as the winters are harsh in this part of China – but new roads and means of clearing them continue to improve with each passing year. Discussion As described, the entrepreneurs sought to maintain “good guanxi” with local governments and people in both villages. The practical outcome of a positive relationship with oficials is access to both information and a greater convenience in oficial dealings, while there is also potential economic gain by, for example, being selected as a venue for guests or functions, of by being endorsed as accommodation. State regulation legitimizes businesses and may further involve active endorsement or patronage. Therefore, tourism entrepreneurs need strong support from the government, and all tend to cooperate with governments to gain the political and economic capital (Yang and Wall, 2008). This is of speciic importance in terms of access to inance. Generally, the small business sector in China inds access to capital both dificult and subject to very high interest rates, and indeed such access may be almost impossible without State sponsorship (Allen et al., 2005). Indeed Allen et al. (2005) identify State sponsorship as one of the key factors that has permitted private business (when approved) to acquire rapid growth. Hence, guanxi represents a major resource, as it permits access to funding and may arguably be more important than the possession of budgetary and forecast marketing and operational plans when seeking inance. Indeed this control of access to resources including funding is arguably one of the essential components of guanxi as a business practice. As Luo (1997, 2000) comments, the two Chinese characters that make up the characters of guanxi are derived from the pictographs for “gate” and “to connect” – and thus guanxi can be interpreted in a mode of “gate keeper” and hence as “gate opening”. If, therefore, one is to judge whether in this case guanxi existed for the two companies, then one needs to look for evidence of such “gate opening”. A second measure of guanxi exists within the numbers of “managerial ties” (Park and Luo, 2001) that the entrepreneurs possessed. These managerial ties are evidenced by the use of the hostels by local government and the patronage of the restaurants by local people. The very standard of accommodation of the Hemu Village Hostel also indicates the existence of those managerial ties due to an expectation that the planned upgrading of the hostel will gain the necessary permissions. It is worth noting in passing that Zhang and Fung (2006) used the criterion of entertainment costs to represent an organization’s investment in guanxi, but in this case, a reciprocal relationship existed whereby local government obtained “a special price”, the hotel entrepreneur gained revenue that might otherwise have been lost and reputation for both having connections External entrepreneurs/ investors and guanxi 847 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 848 and for providing service that satisied government contracts, and thus gained additional business. A key aspect of the managerial ties also exists with reference to connections with externally based travel agencies and tour operators, and it could be said that these represent business ties as distinct from the political ties discussed above. As noted above, the very good standard of the accommodation on offer has meant the hostels appeal to tour operators, travel agents and tour guides, thereby reinforcing the mutual economic interests of the parties concerned. It can be argued that such guanxi is illustrates the utilitarian in Zhang and Zhang’s (2006) typologies of guanxi. The scope of the relationship is mere acquaintances, the nature of relationship is beneit exchanges, and the motivations for the relationship is utilitarianism (Zhang and Zhang, 2006). This interest also draws in the local administration whose own mianzi with Urumqi and Beijing is improved by having successful operations within their legislative domain. In addition to these managerial ties, familial ties may also exist. Two of the external entrepreneurs entered the community by marrying two sisters, both of whom had existing small enterprises within the community. In the one case, a hostel was established within the home during the summer season. Serendipity may also play a role. Thus, other entrepreneurs had visited the area three to ive times before deciding to set up a business, with the irst visit to the area being for vacation purposes, but they realized the business potential and decided to set up the business. One entrepreneur told the irst author that: I did not plan to operate hostel before. I accompanied a friend to visit here several times in 1995. My friend wanted to operate business here. Then they encouraged me to run a business also, and I also think it is a good place. So I did. The pattern of relationships and of guanxi is thus illustrated in Figure 2. The business, political and community relationships are sustained through frequency of contact, degrees of reciprocity and outcome and performance. The hostel owners established relationships with tour operators that were mutually advantageous, as were their relationships with the community. The government held the position of gate keepers through being able to provide the necessary licensing, while the local government could also sustain its own guanxi with the Provincial Government by being able to report progress in achieving economic planning goals through supporting tourism. Gate Keeping Obtaining Licence to Operate and Host Strength of Ties Frequency Reciprocity Internaonal Guests Hostel ConnecƟons Government Outcome/Performance Figure 2. Hostel entrepreneurs and guanxi (gates and connections) Tour operators Business Government Community Entertain Government Community Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) In passing though, it should be noted that small irms are not helpless in raising inance (Chow and Fung, 2000), and there exists some past evidence that they may be more eficient than their larger counterparts (Chow and Fung, 1996, 1997, 2000), although to what degree the past is a good guide to the present and future in China’s luid inancial positioning is a moot point. One reason for the relative eficiency of small- and medium-size enterprise is their ability to avoid what would be almost crippling fund-raising costs by drawing upon internal revenues, or for many very small tourism enterprises, extended family incomes (Gu and Ryan, 2008). In the case of Baihaba Village, the enterprise drew upon these internal sources of funding while, as indicated in the latter case, there appears to have been some governmental support. In terms of local communities though, both operators were in a position to access more funding than local residents due to their links into eastern China. This is one of the aspects that drives the “Hanisation” of the peripheral regions. This is especially the case in Kanas, as the Tuva, while classiied as “minority” people, do not have open to them the full range of support that is made to an oficially declared “ethnic minority”. It is this feature that creates a distinction between Chinese destination development and Butler’s (1980) model. In that model, the stage of involvement largely refers to local residents providing facilities primarily or even exclusively for visitors. It is suggested that the Western model of community participation in tourism development becomes almost impossible to implement in a transition economy such as China. First, while seeking to move from a wholly centralized controlled economy, it does not seek unbridled capitalism but rather a socialist market economy “with Chinese characteristics”. In practice though, this is combined with a drive towards modernisation of rural areas based upon a wish to make returns on resort-style complexes (Ying and Zhou, 2007) and thus many rural areas emerge in a developmental market form that is neither capitalist nor socialist, but is rather based on condoned contractual local monopolies that can often hide corrupt practice (Bao and Zou, 2013). In the case of Kanas, the outsider entrepreneurs were and continue to be attracted to a region that is in the evolving stages of development that continue to accelerate towards consolidation, as the Kanas area now attracts about one million visitors per annum. Consequently, local residents (particularly Tuva) continue to be marginalized other than in the role of supporting actors in the businesses operated by others. In this process of modernization and commodiication, there exists some potential for circumstances that militate the processes of standardization, for as shown by the irst example, in some destinations where there is unique culture and folk (e.g. Yunnan, Tibet, Xinjiang, etc.), some outsider entrepreneurs are not wholly motivated by economic proit, but by the desire for a lifestyle and environment that differs from the big cities. As described in these case studies of the hostels, their operational strategies and interaction with stakeholders are different from those for economic proit, and they are more likely to seek a rapprochement with local residents to sustain many aspects of local culture. Their guanxi lies in the balance of tensions between residents, local administrations, tour companies and tourists, all of whom seek local colour as a negotiating tool in the systems of power and countervailing power that exist. Institutional organizations may also exist and the strength of the remnants of old village communes as at Xidi (Gu and Ryan, 2010), or strong senses of local identity shape the outcome of these tensions. With reference to Kanas, Yang et al. (2013a, 2013b) suggest the theories of Coser (1956) and Simmel (1955) as means of analyzing the External entrepreneurs/ investors and guanxi 849 IJCHM 26,6 Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) 850 situation. However, arguably their analysis suffers from an inadequate examination of the role of guanxi as the theories upon which they draw are dependent upon the culture of earlier patterns of Western thought. It is thus suggested that guanxi needs to be considered more explicitly. While it may be argued that all societies operate on the basis of social networks, it is here argued that the difference between Western and Chinese patterns of thought is that in the West, the social network can arise from an interaction between parties at a functional level (that form a contract between parties seeking to secure a speciic end), whereas in China, the functionality of a contract emerges from the previous patterns of social networks. Those without the social network thus lack social capital. It is suggested that China currently exists within three broad cultural traditions, namely, those of the classical age, the period of Maoist hubris and those of an emerging consumerist society. Over this cultural complexity, a Chinese Communist Party that may be said to be no longer communist nor Maoist (despite Xi’s comments of the need to recognize seamless traditions), seeks an ideology that legitimizes its authority through appeals to a traditional value system. How this translates to the daily process of policy-making at a local level is still often far from clear, other than a new pragmatism may be observed. Some of that orientation towards pragmatic outcomes may be observed in the above case studies. Conclusion and implication Within a context of an ethnic community, Xinjiang, China, the paper takes as a case study two YHA hostels’ interactions with the local government and local people to illustrate bureaucratic arrangements and business practices, and by implication, the importance of the role of guanxi. Within the context of the speciic political system and indigenous community, a good guanxi with stakeholders, especially the public administration, is crucial for entrepreneurs. One issue in the relationship with local governments is the question to what degree can politicians inluence enterprises’ business? Political guanxi is thus an important key to any understanding of the local political scene. In China, the Chinese philosophy Harmony is the most precious (和为贵pinyin: yiheweigui) is a strategy often adopted in mediation to release the emotional factors of conlict. It is suggested that this concept represents simply guanxi writ large as it involves the three aspects of guanxi noted by Zhang and Zhang (2006). It is the acceptance of a hierarchy, the recognition of mutual social obligation and the functional requirement of achieving progress. In these two cases, the hostel owners adopted different approaches, but each showed themselves to be indispensable in promoting the achievement of local government policies and generating local economic beneit. The functional success was intertwined with the social and political, as demonstrated when, in the one case, local payments of rents were suspended. Without recognition of this over-riding philosophy and cultural characteristic, it is not possible to fully understand Chinese tourism developmental policies at either the micro-level as illustrated in this paper or the macro-level. However, if the key component of guanxi in this instance was functional, then it raises the question as to what degree did guanxi actually play a role in the success of these two ventures? The success of the hostels was due as much to a lack of competing accommodation acceptable to a growing demand from urban-based domestic tourists and the access to YHA Internet sites by a small number of international tourists – and both market segments can be expected to grow. Other factors in their success was the Downloaded by UNIVERSITY OF WAIKATO At 19:56 11 January 2015 (PT) existing human and inancial capital that, while not overly great, was more than that possessed by other actors at the time in Kanas. Guanxi was a factor although in that the ideas and accommodation being provided by the entrepreneurs could easily be copied, but the local administration choose to support the two families concerned, and the mutual recognition of inter-dependence against a background of success has reinforced the guanxi for future development. 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Research interests include tourism impacts, indigenous tourism, tourism management and sport tourism. Chris Ryan is a Professor at the University of Waikato, Hamilton, New Zealand. Research interests include tourism impacts, research methods in tourism, tourism management and the environment and tourist behaviour Lingyun Zhang is a Professor at the Beijing Union University, Beijing, China. Research interests include tourism geography, tourism economics and tourism management. Lingyun Zhang is the corresponding author and can be contacted at: zhanglingyun1960@163.com To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints