Rauch (2002) has a study on culture issue in international trade. This study identifies the importance of social network (ethnic Chinese network in this study) in international trading. Trading with people from same background will help to remove informal barriers, such as insufficient information, weak legal institution, and many others. According to Hofstede’s cultural dimension, business people may notice cultural dimensions during trading, which shows that people may feel threatened by uncertain situations. Hence, these people will try to create beliefs, in order to avoid these kind situations (Luthans & Doh, 2012).
Rauch’s study addresses two things. First of all, how co-ethnic network could be helpful to remove informal barriers in international trade. Second, Chinese market might be the largest and most international dispersed interlinked market in the world. How important co-ethnic network is when trading in this market and social networks?
Some previous work has been done on studying the impact of ethnic Chinese networks on bilateral trade. Greif (1989) has significant contribution to this topic. Built up on previous work, Rauch uses improved version of Greif’s framework to do his study.
Eventually, Rauch has a conclusion that ethnic Chinese network has significant positive impact on bilateral trade. This result is under the conditions:
- Differentiated than homogeneous products
- Between 1980 and 1990
- Network strength is measured by the case that when choose a businessman from each side, both of them are Chinese.
Though the conclusion is from 25 years ago, it might be also true nowadays. There is a news report from New Zealand Herald in 2015, it discusses that New Zealand economic will benefit from learning a secondary language, particular Chinese, as China is one of New Zealand’s most important business partners (NZ Herald, 2015). This news, to some extent, proves that people would like to spend time with those who speak the same language, and so do businessman.
Luthans, F. & Doh, J.P. (2012) International Management-Culture, Strategy and Behaviour (8th Edition), New York: McGraw Hill Irwin.
NZ Herald. (2015). Editorial: We all benefit if students learn second language. Retrieved from: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11440648.
Rauch, J. E. (2002). Ethnic Chinese Networks in International Trade. The Review of Economics and Statistics, 84(1), 116-130.