This study focuses on the role of guanxi in distribution channel management in China from the perspectives of both foreign and domestic Chinese firms. Based on a literature review and in-depth interviews with suppliers and retailers, the article provides managers with a theoretical framework for acquiring, institutionalizing and utilizing guanxi in a distribution channel system as a strategic resource to achieve long-term competitive advantages. The framework explicates three stages of strategic guanxi orientation (SGO), highlights the critical role of institutional environmental uncertainties in shaping a firm's SGO, and explores both the benefits and costs associated with adopting SGO in channel management. In addition, the study provides executives of foreign firms in China with practical guidelines on how to improve channel performance in an emerging and competitive market.