While in recent years much research attention has been directed towards China and its various industries, the Chinese diamond industry has been largely neglected. China is the world’s second-largest diamond processing center after India, and the second-largest consumer market for polished diamonds following the United States. It is also predicted to surpass both countries in the near future. We identify a paradox in the Chinese diamond industry, namely, that while Chinese businesses often follow a relational governance model, China’s diamond industry tends to employ rational mechanisms of governance and exchange. We discuss the main challenges for business ethics in China, with a focus on the paradox in the Chinese diamond industry as a case study using the GRX (Ganqing, Renqing and Xinren) scale. We used interview protocols and a two stage research process to examine the influence of the GRX constructs on relationship satisfaction and performance. Due to the complexity of gathering data on a relatively secretive industry, we complemented the fieldwork by collecting further evidential artifacts from journals, books, magazines and government officials. We ultimately identify five interrelated themes that help explain why exchange in the Chinese diamond industry is frequently more transactional than relational. Furthermore, we show how weaknesses in China’s governance systems have allowed fraud and corruption to permeate this industry and explain why business ethics appear poorly developed. The current study offers a new look at this under researched industry. Particularly, the manuscript illustrates a model of trust building based on relational exchange and explains the paradox through the business model presented. The research also helps to provide some rationale for the pervasiveness of corruption and identifies issues affecting the maturation of business ethics in the Chinese diamond industry and in some sense, China’s industries in general.

With the impact of globalization, businesses nowadays are searching for new ways to compete more effectively in today’s business marketplace. Companies that have already performed successfully in the external market but cannot perform well with their internal market may find themselves at a disadvantage in the long term (Ralston et al., 2006). Whilst businesses often spend significant amounts on their campaigns to attract external customers, they may also need to consider the internal market place and specifically their internal customers’ needs, i.e. employees, as they often have a significant impact on external market performance and profitability (Lings and Greenley, 2009). In light of fairly extensive literature on the employee management, the idea of viewing employees as internal customers was initiated from the concept of internal marketing and there are an increasing number of studies attempting to develop the concept of internal market orientation (IMO) to further facilitate the internal market exchange feasibility.Whilst employment relationship research has been served as a useful proxy for employee attitude and behavior (Choi & Peng, 2015), the notion that IMO could serve as a predictor of firm performance success has not yet been fully examined in the extant literature. Investigating such relationships combines the adoption of marketing perspectives with strategic human resource management across the organization per se. As such, drawing on data collected from 825 respondents across three different managerial levels in 275 organizations, this study contributes to the pertinent literature by developing a framework to measure the impact of IMO on organizational performance from the internal and external perspective as well as at the individual and the departmental level. Specifically, our findings reveal that IMO, consisting of internal information generation, internal information communication and responsiveness positively enhances employee retention, employee commitment, interdepartmental connectedness and significantly reduces interdepartmental conflict. In turn, given the exception of employee retention, these serve to significantly influence organizational performance. Our study provides several implications for scholars and management, as well as outlining some useful directions for future research.