China has blossomed from going from one of the poorest economies to a financial leader. The private consumption in China has grown 8,3% annually the last two decades. The dining out expenditures have grown 10,2%, and is an exciting market for foreign entrepreneurs to establish themselves in.

Previous research has suggested that foreign Micro, Small and Medium Enterprises should join forces with a Chinese counterpart in order to get access to market experience and network contacts, in order to succeed in the Chinese market (Wilson and Brennan, 2003). Deng (2001) claims that the most popular investment vehicle Wholly Foreign Owned Enterprise increases in popularity among all company sizes.

This dissertation aims to investigate to which extent MSME foreign entrepreneurs use networking and guanxi, depending on ownership registration. A qualitative research method was used with an abductive approach and an interpretivist research philosophy to explore this phenomenon.

The results of this thesis show that foreign entrepreneurs can start up successfully both as WFOEs and JVs. WFOEs and JVs share many of the same contacts, but networking activities and usage of guanxi has some influencing factors. The Registration Status of company influence strategic networking decisions, the perception and expectation of the nature and benefits of guanxi and perceived necessity of gift giving also affected the networking activities.  JV owners perceive guanxi contacts to be necessary to succeed in China and finds cultivation and utilization of it to be beneficial.  Entrepreneurs who establish Wholly Foreign Owned Enterprises both use and have a more “Western” approach to social networking, and almost exclusively don’t have guanxi contacts.

The Investment Vehicle Network Scheme shows that JVs have more complex networks than WFOE, since they receive Chinese guanxi and networking contacts through their partners. The Guanxi Network Ownership Model shows the network intensity during the startup phases of the companies. The research also indicates that guanxi smoothens out the start-up process for the entrepreneurs who enter JVs.