Guanxi and risk-taking propensity in Chinese immigrants’ businesses

1 Guanxi and risk-taking propensity in Chinese immigrants’ businesses Rodríguez-Gutiérrez, María José Affiliation: Department of Applied Economics, University of Seville, Seville, Spain Postal address: Av. Ramón y Cajal, 1. 41018 Seville. Spain. Phone: +34 954 557 548 [email protected] Romero, Isidoro (corresponding author) Affiliation: Department of Applied Economics, University of Seville, Seville, Spain Postal address: Av. Ramón y Cajal, 1. 41018 Seville. Spain. Phone: +34 954 554 486 [email protected] Yu, Zhikun Affiliation: Department of Applied Economics, University of Seville, Seville, Spain Postal address: Av. Ramón y Cajal, 1. 41018 Seville. Spain. [email protected] ABSTRACT This paper studies the determinants of the risk-taking propensity in immigrantowned businesses. The paper has a particular focus on first-generation Chinese immigrants and the effect of the so-called “guanxi”, a specific form of social capital for Chinese communities. The empirical research is based on a survey conducted in 2012 on Chinese immigrant entrepreneurs in Andalusia (Spain). An ordinal logistic regression specification was employed to test the hypotheses. The results show that the Chinese immigrant entrepreneurs with better “guanxi” run businesses with a higher risk-taking propensity. Furthermore, those Chinese immigrant entrepreneurs who have other business owners in their families and undertake business planning and control activities are more prompted to take risks in the management of their companies. The risk-taking propensity of immigrant-owned businesses increases over time starting from the immigrant entrepreneurs’ arrival to Spain. In contrast, the education levels of Chinese entrepreneurs’ bear no significant effect on the risktaking propensity of their businesses. Keywords: risk-taking; social capital; entrepreneur; Chinese immigrant; guanxi 2 INTRODUCTION The increase in business activities undertaken by immigrants is a subject of growing interest for policy makers and theorists (Clark and Drinkwater 2010; Hormiga and Bolívar-Cruz 2014; Rath and Swagerman 2016; Dheer 2018). Studies in this field reveal that immigrants are people with strong motivation towards entrepreneurship (Collins 2002; Levie 2007; Soydas and Aleti 2015), but have to face, to varying degrees, obstacles and situations of uncertainty associated with unfamiliarity with the culture and society of the host countries (Ram and Jones 1998; Ndoen et al. 2002). Immigrants tend to develop strong ties with other migrants in their own ethnic community within the host region and they may use this ethnic social capital to overcome some of the previously mentioned limitations (Con et al. 1982; Salaff, Greve and Wong 2006; Katila and Wahlbeck 2012). Social capital is widely recognised as a valuable asset in the process of business creation, survival, and growth (Johannisson 1995; Mackea and Dilly 2010; Romero and Yu, 2015). However, the mechanisms through which social capital can support immigrant entrepreneurship have not been sufficiently investigated in the previous literature. This paper aims to contribute towards a better understanding of immigrant entrepreneurship. In this respect, the main hypothesis of this paper is that ethnic social capital increases the propensity of undertaking risky projects in immigrant businesses. To the best of our knowledge, no empirical research has examined this influence in previous studies. In particular, Chinese immigrant entrepreneurs benefit from a specific type of social capital, known as “guanxi”, which has very strong historical roots in Chinese culture (Park and Luo 2001; Lin 2011). “Guanxi” represents a socio-cultural institution consisting of personal ties, delimited by implicit moral contracts, which establish the basis for long-term relationships of mutual commitment and loyalty (Romero and Yu 2015). Previous literature has explored the influence of “guanxi” on entrepreneurial activity and firm organisation and performance (Xin and Pearce 1996; Troilo and Zhang 2012; Chen et al. 2013). This paper studies one of the mechanisms through which this influence may be exerted. The analysis carried out shows that “guanxi” crucially influences the organizational risk-taking in the small businesses of first-generation Chinese immigrants, and hence assumes a critical role in the development of these companies. 3 Ferris et al. (2017) have observed that CEO social capital exerts a positive influence on risk-taking behaviour on companies around the world, and several studies have pointed out that “guanxi” plays a major role in reducing uncertainty and risk in China in the context of a changeable institutional environment (Park and Luo 2001; Puffer et al. 2010). However, to the best of our knowledge, no empirical research has previously examined the influence of “guanxi” on the risk-taking propensity of Chinese immigrant entrepreneurs. In addition, the paper also studies the effect of the time the immigrant entrepreneur has lived in the host country, the existence of other business owners in the family of the immigrant entrepreneur, and the development of proactive management as factors that can influence the risk-taking propensity of the immigrant´s business. The paper is organised as follows. The second section reviews the literature. The third section postulates the research hypotheses. The fourth section presents the data and describes the research methodology. The fifth section shows the results and the paper ends by presenting some final conclusions. LITERATURE REVIEW Migrant entrepreneurship and risk-taking A company’s organizational risk-taking reflects, among other factors, the risk assumed by its business owners and managers to deal with uncertainty associated with investments and strategic decisions in general (Covin and Slevin 1991). Previous research suggested that entrepreneurial success and business performance depend on the entrepreneur’s risktaking propensity (Stewart et al. 1999), and on the capacity to adapt to and tolerate ambiguity (Bhide 2000). This can be especially relevant in small firms, in which business owners often assume a core role in the strategic decisions and the management of the company (Stewart et al. 1999; Guzmán and Santos 2001; Romero and Martínez-Roman, 2012), thereby directly influencing its entrepreneurial orientation (Lumpkin and Dess 1996). Therefore, in spite of individual and organizational risk-taking being two separate concepts, they do remain narrowly related, particularly in the context of small businesses owned by immigrants, which forms the focus of this paper. Many studies show the positive relationship between risk tolerance and self-employment (Ekelund et al. 2005; Van Praag and Cramer 2001) along with the entrepreneurs’ high 4 capacity for risk-taking (Sexton and Bowman 1985; Anh 2010). However, this view is not unanimous (Brockhaus 1980; Macko and Tyszka 2006). According to a number of studies, entrepreneurs are less willing to take more risk than non-entrepreneurs (Busenitz and Barney 1997; Gartner and Liao 2012). Indeed, certain authors claim that entrepreneurs do not actually perceive themselves to be doing anything risky at all (Palich and Bagby 1995; Simon, Houghton and Aquino 2000). This lack of consensus concerning entrepreneurs’ risk-taking propensity may be partly explained by two reasons. On the one hand, entrepreneurs may be able to venture into a new business because they have a different perception of risk (Palich and Bagby 1995; Simon et al. 2000). On the other hand, many entrepreneurs seem to take risks only after carefully analysing the situation and evaluating the probability of outcomes. Thus, Macko and Tyzska (2009) consider entrepreneurs are actually more risk-prone than other people, but only in skill-related risky situations and not in purely chance-related risky situations. The difference between these two kinds of risk is the extent to which the entrepreneur has control over the outcome. Thus, it is believed that entrepreneurs accept moderate risks in situations where they have a certain degree of control or skill in realising a profit (Sarasvathy, Simon and Lave 1998). Risk as perceived by entrepreneurs depends on their self-confidence regarding their entrepreneurial knowledge, skill and abilities (Krueger and Dickson 1994) and on the perception of control on the outcomes of their entrepreneurial behaviour (Sitkin and Weingart 1995; Markman, Balkin and Baron 2005). Therefore, some knowledge of the entrepreneurial context can influence future entrepreneurs’ confidence and reduce their perception of uncertainty (Caliendo, Fossen and Kritikos 2014; Hormiga and Bolivar- Cruz 2014). Furthermore, García-Pérez, Yanes-Estévez and Oreja-Rodríguez (2014) note that in the context of SMEs, where the entrepreneur’s perceptions are more decisive, the level of risk in the strategic choices depends on how entrepreneurs perceive the situation with regard to the capabilities of the firms. Though immigrant entrepreneurship is a topic that has generated a broad interest in the entrepreneurship research domain (Dheer 2018), there are still few studies on the risktaking propensity in this specific type of entrepreneurs and businesses. Those studies suggest, according to the literature about entrepreneurship, that a positive personal attitude towards risk-taking positively affects the immigrants’ entrepreneurial activity (Peterson and Meckler 2001). The migration experience may make an immigrant more 5 tolerant to taking risks (Hormiga and Bolívar-Cruz 2014). Spatial agglomeration of entrepreneurs decreases the perception of risk associated with entrepreneurship and increases the self-employment rate of immigrants (Guerra and Patuelly 2014; Contin- Pilart and Larraza-Kintana 2015). Furthermore, access to cheaper resources and risktaking propensity in markets characterized by low economies of scale and entry barriers, enable the migrant entrepreneurs to take advantage of business opportunities (Aldrich and Waldinger 1990). Entrepreneurship and social capital. The entrepreneurial process represents a particular economic behaviour that is embedded in the social structure and is constrained and shaped by the characteristics of the social institutions (Granovetter 1973 and 1985). In this respect, social capital (Coleman 1988; Putnam 1993) has been considered a resource that supports entrepreneurial activity by means of facilitating the acquisition of knowledge, information, funding, labour, and other resources for individuals and organisations (Davidsson and Hoing 2003; Gedajlovic et al. 2013). This positive role of social capital in entrepreneurship has particularly been observed in the case of immigrants (Sanders and Nee 1996; Salaff, Greve and Wong 2006; Romero and Yu 2015). Through social capital, entrepreneurs can obtain useful information and knowledge which improves the managerial decision process, while intangible assets, such as advice, trust, encouragement and acknowledgement, provide them with emotional support for entrepreneurship (Shane and Venkataraman 2000). Difficulty in attaining suitable financing is one of the most significant obstacles for entrepreneurs and business owners. Nevertheless, network ties and mutual trust can facilitate the access to formal (Batjargal and Liu 2004) and informal finance (funding from family, friends and other members of the ethnic community, even from suppliers), a resource widely used by immigrants (Sanders and Nee 1996). Social relationships are also helpful in the process of recruitment and selection of workers, and can increase their work commitment through personal relationships and mutual trust, thereby reducing the risk of opportunism (Sanders and Nee 1996). In addition, social capital can facilitate the detection and exploitation of business opportunities (DeCarolis, Litzky and Eddleston 2009; Smans, Freeman and Thomas 6 2013) and reduce the transaction costs both in the market and within organisations (Landry et al. 2002). This broad set of resources may also increase entrepreneurs´ self-efficiency and perception of control on the results of their entrepreneurial behaviour, and can therefore reduce uncertainty and the risk perceived in the entrepreneurial activity (Liñán and Santos 2007; Lipparini and Sobrero 1994; Chen and He 2011). Self-efficiency and perception of control, which are positively correlated, are developed from external experiences (Bandura 1997). Social capital strongly influences the extent to which the set of resources embedded within said capital is shared between the members of the network/community, and it improves the ability to combine information to create new knowledge (Nahapiet and Goshal 1998). Subjects with greater social capital receive more feedback about themselves and their entrepreneurial competences, which them enhances their selfefficacy (Han, Chu, Song and Li 2014). Resources shared in social networks provide security for the entrepreneurs and could increase their perception of control (DeCarolis, Litzky, and Eddleston 2009). Moreover, social capital allows risks to be shared and reduced from an individual perspective. Members of a social network might expect to receive support from other members when experiencing problems or failing in their business ventures. Therefore, social capital might stimulate members of a social network to start up a business, engage in innovations and assume higher risk levels in their entrepreneurial ventures (Janney and Dess 2006). “Guanxi” as a form of ethnic social capital. In recent years, the Chinese term “guanxi” has gained relevance in the social science literature (Hwang 1987; Xin and Pearce 1996; Chen et al. 2013). It refers to a system of connections to secure favours in personal and organisational relations which are ruled by specific socio-cultural norms. “Guanxi” is deeply embedded in China’s Confucianism culture and has ancient historical roots (Park and Luo 2001; Lin 2011). In Chinese society, “guanxi” has a great influence on business activity, ethics and organisation (Xin and Pearce 1996; Lin 2001; Troilo and Zhang 2012). Following Chen and Chen (2004), “guanxi” can be defined as a casual and unique personal connection between two individuals that is delimited by an implicit psychological contract. This contract implies complying with social norms and 7 maintaining a long-term relationship based on a mutual commitment of loyalty associated with certain obligations. A good quality “guanxi” is also characterised by mutual trust between individuals derived from numerous interactions within a framework of reciprocity. There are various typologies of “guanxi” with different features (Romero and Yu 2015; Chen, Chang and Lin 2018). Family, personal, and informal “guanxi” are characterised by a more affective nature, whereas non-family, impersonal, and contractual “guanxi” are relatively more instrumental. Friends, colleagues, and acquaintances fall in between, although close friendship can be family-like. In the workplace and in business relationships, “guanxi” presents a mixture of family and non-family, personal and impersonal characteristics (Chen et al. 2013; Peng, Duysters, and Sadowski 2016). A combination of different “guanxi” is designated by the Chinese term “guanxiwang”, which refers to a network of “guanxi”. Thus, the “guanxiwang” of an individual is formed by his/her network of social relations including all the direct and indirect “guanxi” (Romero and Yu 2015). “Guanxi” is based in two main elements: “mianzi” and “renqing”. The “mianzi” is an intangible asset that represents the power and personal status determined by the individual’s social position and material wealth (Park and Luo 2001; Lin 2011). Those individuals who have a high level of “mianzi” can attain multiple favours within the “guanxiwang” and can also provide significant help to other members of the network. The “renqing” is another Chinese cultural institution related to “guanxi” (Park and Luo 2001). “Renqing” can be defined as an informal social obligation derived from the use of “guanxi”, and represents a private advantage of a member within the “guanxiwang”. The rules of reciprocity also regulate “renqing” (Tsui and Farh 1997). Those who fail to follow these rules lose their position in the “guanxiwang” and thus lose the benefits that derive from it. Risk, ethnic social capital, and migrant entrepreneurship Various studies suggest that immigrants tend to be a collective with a high entrepreneurial spirit (Levie 2007; Collins 2002). This is unsurprising since these two processes, immigration and entrepreneurship, have the assumption of risk in common. Migration, irrespective of the individual’s origin or ethnicity, often constitutes a high-risk situation characterised by uncertain income (Katz and Stark 1987), an uprooting experience, and significant social stress (Noh and Avison 1996). Migrants move towards 8 an unfamiliar place, a new social, economic, and political context. They must face numerous decisions with imperfect knowledge about the host country. Indeed, migrants tend to be favourably “self-selected” towards risk-taking. Their decision to venture into a migration process provides an indicator that they are more likely than non-migrants to be risk tolerant (Levie 2007) and have a greater capacity for risk-taking (Constant and Zimmermann 2006). Moreover, it has been suggested that exposure to the migration experience might modify risk perceptions and, thus, increase the inclination to become involved in entrepreneurial activity (Clark and Drinkwater 2010). Immigrants have to overcome particular obstacles when trying to start up and develop a business project due to their insufficient language skills, the difficulty that they experience accessing the formal financial sector and, sometimes, due to their irregular legal or administrative status (Ram and Jones 1998; Ndoen et al. 2002). Social capital is especially relevant for migrant entrepreneurship since immigrants are highly dependent on access to local contacts and support from local people to acquire sufficient knowledge about a new society and business opportunities (Zhou 2004; Salaff, Greve, and Wong 2006). Thus, social networks have a positive impact on self-efficacy and motivation of Chinese immigrants to start businesses (Dai, Wang and Teo 2011). However, immigrants usually have weak social links with the native population in the host region and sometimes suffer linguistic isolation due to their rudimentary knowledge of the local language. For this reason, “ethnic enclaves” arise and immigrants can suffer a “blocked opportunity” problem (Con et al. 1982; Waldinger 1993; Li 2001). Immigrants often have pre-existing links with other migrants in their destination area and tend to develop strong ties with other migrants in their own ethnic community within the host region. The combination of these two types of social capital (with local natives and within the immigrant ethnic group) shape the “mixed embeddedness” of immigrants. This is a key concept in the analysis of the process of insertion of immigrant entrepreneurs in their destination areas (Kloosterman et al. 1999; Kloosterman and Rath 2001). In this sense, Ward (1984) proposed an archetypical developmental sequence of ethnic businesses based on the experience of South-Asian self-employment in British cities, which can be broken down into four stages. In the first stage of “replacement minority labour”, immigrants take up jobs that locals reject. In the second stage, the “ethnic niche” phase, the immigrant population has reached a sufficient size to allow the development of ethnic businesses oriented towards serving the demands of the immigrant group. In the 9 third stage, the “middleman minority”, immigrant business owners start to serve the local population as well as their own ethnic enclave, typically with retail shops, restaurants, or laundries. In the final stage, that of the “economic assimilation”, the expansion and diversification of immigrants’ businesses could allow them to integrate into the mainstream local economy. These phases are associated with various combinations of social capital within the ethnic group and/or with the rest of the host society. From this perspective, ethnic forms of social capital play a critical role in the initial stages and lose importance in the latter stages. The opposite can be stated regarding the social links with the host society (Zhang and Zhang 2016). Moreover, the ascending trajectory in this business scale implies the necessity to assume new entrepreneurial risks in order to jump to the upper stages of the business development. RESEARCH HYPOTHESES Organizations’ risk-taking propensity is influenced by a number of individual, corporative and environmental factors (Covin and Slevin 1991; Zahra 2005). In the particular case of small companies, the relevance of the personal characteristics of the entrepreneurs/business owners might be crucial (Stewart et al. 1999; Guzmán and Santos 2001; Romero and Martínez-Roman, 2012). In this respect, the literature on entrepreneurship has explored the features and determinant factors of immigrant entrepreneurs’ behaviour (Dheer 2018). Scholars have studied different aspects, including psychological, sociological, and economic factors, that facilitate or hamper immigrants’ start-up processes or the entrepreneurial development of their businesses. Many of these factors are the same as those discussed in the general entrepreneurship literature. For example, the entrepreneurs’ age or gender, their entrepreneurial motivation, their resources (human capital, social capital and financial capital), and other aspects linked to the entrepreneurs´ prior experience and/or exposure, such as family ownership and related factors (Dheer 2018; Wang 2015; Soydas and Aleti 2015; Li 2001). However, other studies focus on specific factors of immigrant entrepreneurship, such as the length of stay in the host nation, language, discrimination, culture and ethnicity (Dheer 2018; Wang 2015; Cueto and Rodríguez Álvarez 2015; Li 2001). 16 characteristics of the sector. A variable identifying the businesses in the retail sector was included in the analysis to control for this possible effect (retail). Additionally, the age of a firm (firm_age) may also influence risk-taking. Organisations may be slow to respond to negative signals from their environment due to established routines. This suggests that entrepreneurs in older organisations might be less likely to engage in risky activities and organisational change than their counterparts in newer organisations (Zahra 2005; Anderson and Eshima 2013). Firm age, measured by the number of years since the firm was founded, is therefore included in the analysis. In this analysis, the dependent variable is an ordinal variable. Therefore, an ordered logistic regression specification was employed to test the research hypothesis. The ordinal logistic regression model involves the assumption that the β coefficients are the same for all categories such that the estimation results are a set of parallel lines, one for each category of the dependent variable. The test of parallel lines, used to evaluate the plausibility of this hypothesis, showed no significant result, which indicates that the ordered regression model is suitable for this case. The model was estimated using the maximum likelihood method. The same models were also estimated as linear regression models using the ordinary least squares (OLS) method with equivalent results (which are available under request). The overall results of the regression analysis show that the models are well constructed. The omnibus test is always significant (p>0.05), denoting the acceptance of the hypothesis that β coefficients are different from zero. The estimated models present a high goodness of fit. The empirical analyses were carried out using the Statistical Package for Social Sciences (SPSS), version 24.0. Table 3 shows the correlation matrix. High correlations can be observed between the “guanxi” variable and other independent variables. Social capital within the ethnic community increases reasonably with the length of time that the immigrant reside in Spain and is higher for those Chinese immigrants who have other business owners in their family. Therefore, the existence of a family business contributes towards the expansion of social networks for immigrant groups. The age of the firm is also highly correlated with the time in Spain, as could be expected. Nevertheless, the variance inflation factors (VIF) and condition indices (CI) indicate that multicollinearity represents no serious problem in the models. The highest condition index is 22.57 and the highest VIF is 2.59, 17 this being observed for the variable “Time in Spain” in Model 4, which includes all the independent variables. INSERT TABLE 3 AROUND HERE EMPIRICAL RESULTS The results obtained are presented in Table 4 as follows: Model 1 includes only the control variables; Model 2 gathers the control variables and the “guanxi” variable; Model 3 includes the control variables and the rest of the explanatory variables (with the exception of the “guanxi” variable). Model 4 presents all the control and the explanatory variables together. INSERT TABLE 4 AROUND HERE Regarding the control variables, the coefficients for the age of the firm (firm_age) (with a positive sign) and operating in the retail sector (retail) (with a negative sign) are statistically significant in Model 1. However, the coefficient for firm_age turns out to be negative (albeit statistically non-significant) in Models 2, 3 and 4, as suggested by previous literature (Zahra 2005; Anderson and Eshima 2013). Therefore, the significant and positive coefficient of the age of the firm in Model 1 can be attributed to this variable being correlated with the variables referring to “guanxi” and to the time in Spain (see Table 3), which are observed to have a significant effect on risk-taking propensity, as explained below. On the other hand, the businesses in the retail trade sector are observed to have a lower propensity to take risks compared to those operating in other sectors. Notwithstanding, that effect also turns out to be non-significant in the remaining models. In the case of the education level (education), the coefficient presents a negative sign in the four models, but is not statistically significant. The main explanatory variable in this paper is “guanxi”. As can be seen in Table 4, the “guanxi” variable has a positive sign and its effect is statistically significant in Model 2 and Model 4 (at a 99% confidence level in both cases). Other model specifications were estimated (also including other controls) as robust checks and the results were consistent 18 in showing a significant effect of the “guanxi” variable on the risk-taking variable, as postulated in Hypothesis H1. Consequently, the main hypothesis is supported by these results: the risk-taking propensity of Chinese immigrants’ businesses seems to be stimulated by the “guanxi” of the entrepreneurs. A better “guanxi”, that is, the availability of greater social capital resources within the Chinese immigrant ethnic group, represents a crucial factor that conditions the management and the development of the first-generation immigrants’ businesses. This factor might contribute towards explaining the entrepreneurial success of Chinese immigrants in Spain and, probably, in other European countries. “Guanxi” is a source of knowledge of the business activity and the conditions of the local market and provides a safety network that favours the assumption of entrepreneurial risks. It compensates for the absence of social connections with the native population, which is especially severe in the case of first-generation immigrants. On the other hand, the immigrants’ time in Spain (time_Spain), the presence of other business owners in their families (entr_fam), and the undertaking of formal business planning and control activities (planning) are observed to be statistically significant in Model 3, which includes the control variables, but excludes “guanxi”. The signs for their respective parameters are positive. Nevertheless, in Model 4, when the “guanxi” variable is also included, the signs of the coefficient for those variables remain positive but the statistical significance of the effects vanish with the exception of the proactiveness variable (planning). Although Hypothesis H2 is not fully confirmed with those results, it seems to be that the propensity to risk-taking might be greater in the case of the immigrant entrepreneurs who have been in Spain for a longer time. This may be due to a greater knowledge of the local environment and an increase in the perception of control which can be associated with this time factor. The longer Chinese immigrants live in Spain, the better they can assess risks because they have more information and better understanding of the Spanish market. Furthermore, the results partially support Hypothesis H3. The risk-taking propensity of Chinese immigrant-owned businesses is higher in the case of those immigrants with other business owners in their families. These entrepreneurs may have more information to evaluate risks and a stronger perception of control regarding their business activity. 19 Moreover, in these cases, risk-taking can be perceived as a more natural issue due to the family business environment. However, the results fully confirm Hypothesis H4, since the planning variable is the only variable that remains statistically significant in Models 3 and 4. The risk-taking propensity of Chinese immigrants’ businesses is greater in the case of the Chinese entrepreneurs who carried out business planning and control activities in their companies on a regular basis. Planning and control tasks assist in the entrepreneurial decision process of entrepreneurs and increase their perception of control and confidence in success. The business owners who have more confidence in their decisions are therefore less risk adverse (Ghosh and Ray 1997). CONCLUSION This study has sought to empirically assess the impact of “guanxi”, a particular type of social capital characteristic of Chinese society, on the risk-taking propensity of the Chinese immigrants’ businesses. Chinese immigrants often represent an “enclave” social group within their host societies. Thus, “guanxi” acts as a “bonding” form of social capital which could be crucial in the Chinese immigrants’ migration and entrepreneurial adventures. To date, few studies have explored the impact of “guanxi” on entrepreneurial activity and, to the best of our knowledge, this study is the first to address the effects of “guanxi” on organizational risk-taking. In this way, the paper contributes to the literature by providing a mechanism through which “guanxi” has an effect on firm performance in immigrants’ businesses. The results reveal that “guanxi” plays a highly significant role in stimulating risk-taking in Chinese immigrants’ businesses in Andalusia (Spain), after controlling for other relevant factors. This effect might be explained by two main reasons. On the one hand, entrepreneurs need a lot of information to evaluate risks and “guanxi” can provide a dense network of social ties that facilitates access to this information. Furthermore, entrepreneurs need other resources (funding, human resources, etc.) in their business activity, and “guanxi” can also constitute an important means to attain these assets. The availability of relevant information and other resources can therefore encourage immigrant entrepreneurs to undertake more risky initiatives in their businesses. On the other hand, “guanxi” can act as a mechanism to facilitate risk sharing and risk distribution 20 within social groups. In this way, Chinese immigrants with better “guanxi” could feel that they are more protected against a negative evolution of their businesses. The results of this paper also show that those Chinese immigrant entrepreneurs who have other business owners in their families are more liable to take risks. These types of families represent a microenvironment with stronger entrepreneurial values, and their members could be characterized by a higher propensity to take risks in their business ventures. Furthermore, the risk-taking propensity of immigrant-owned businesses increases over the years in Spain after the immigration process has been completed. A longer stay in the destination area can facilitate access to information and other resources, thereby increasing the immigrant’s perception of control and self-confidence. Finally, the undertaking of business planning and control activities has also been observed to substantially favour the organizational risk-taking propensity. One limitation of this research is the fact that the risk-taking variable is captured by one single question. A construct with a number of items could have provided a more accurate measurement of this dimension of corporate entrepreneurial orientation. Moreover, the availability of a larger dataset would have improved the robustness of the results. It is important to take into account that this paper has a focus on first-generation immigrants. These immigrants have a reduced level of integration into the local society, given the short time that they have been living in Spain and their low level of Spanish language. The linguistic and social isolation would induce the Chinese immigrant entrepreneurs to make more use of the social capital within their ethnic group. The existence of a network of contacts with other Chinese immigrants in the destination area constitutes a prior condition for their immigrant process towards Spain. Further research could compare the effects of “guanxi”, as a form of “bonding” social capital, and the social connections with locals in the host areas, as a form of “bridging” social capital. The latter assumes a critical role in subsequent phases of business development and for the following generations of business owners in these family businesses. “Guanxi” is a key factor for the creation and initial development of Chinese immigrants’ businesses, but it is the social relationships with locals that may assure the sustainability and full assimilation of immigrants’ businesses over time. In this respect, immigrants’ businesses face the risk of becoming “over-embedded” in their own ethnic 21 group, which could cause a “lock-in” effect and keep them captured in the “ethnic niche” phase of the development of immigrants’ businesses. This paper focuses on just one facet of the “mixed embeddedness” of immigrant entrepreneurs, that of the ethnic social capital, and justifies its critical role in the first stages of the migrant entrepreneurship. However, the development of immigrants’ businesses becomes less dependent on the ethnic resources over time, and advances towards their local embeddedness instead. This different role of social capital in other stages of the development of an immigrant’s business can have implications on public policies oriented towards fostering migrant entrepreneurship. Furthermore, public initiatives supporting the business training of immigrant entrepreneurs could lead to a more professional management of their businesses. Stimulating business education for immigrant entrepreneurs might raise the growth potential of their business projects by means of favouring proactive and professional management. In future research, it would also be interesting to analyse whether guanxi, by means of stimulating organizational risk-taking among other mechanisms, could play a relevant role in the ascent of Chinese immigrants’ businesses on the ladder of economic value, which has recently been observed in Spain. Certain Chinese businesses are moving away from traditional low-value-added activities, such as retail businesses and restaurants, towards owning fashion chains, import-export businesses, media groups, and law firms (Burt 2014). This evolution, which has also been observed in other countries (Chan 1992), could lead to the “economic assimilation” (Ward 1984) of Chinese businesses. This is far from being the case yet, but in order to advance in this direction, Chinese businesses will have to undertake expansion and diversification projects, which will necessarily imply the assumption of new entrepreneurial risks. 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