“Guanxi” literally means "relationships",
stands for any type of relationship. In the Chinese business world, however, it
is also understood as the network of relationships among various parties that
cooperate together and support one another. Therefore, it is an important
concept to understand if one is to function effectively in Chinese society.
The importance of "Guanxi"
Regardless of business experiences in ones home
country, in China it is the right "Guanxi" that makes all the
difference in ensuring that business will be successful. By getting the right
"Guanxi", the organization minimizes the risks, frustrations, and
disappointments when doing business in China. Often it is acquiring the right
"Guanxi" with the relevant authorities that will determine the
competitive standing of an organization in the long run in China. And moreover,
the inevitable risks, barriers, and set-ups you’ll encounter in China will be
minimized when you have the right “Guanxi” network working for you. That is why
the correct "Guanxi" is so vital to any successful business strategy
in China.
Although developing and nurturing the
"Guanxi" in China is very demanding on time and resources, the time
and money necessary to establish a strong network is well worth the investment.
What your business could get in return from the favors for your partners are
often more much more valuable, especially in the long run, and when you’re in
need. Even domestic businesses in China establish wide networks with their
suppliers, retailers, banks, and local government officials. It is very common
for individuals of an organization to visit the residence of their acquaintances
from other organizations, bringing gifts (such as wine, cigarettes, etc.).
While this practice may seem intrusive, as you spend more time learning the
Chinese culture, it will become easier to understand and take part in this
practice that is so central to successful Chinese commercial activity.
How business is conducted
The Chinese culture is distinguished from the Western
culture in many ways, including how business is conducted. For example, the
Chinese prefer to deal with people they know and trust. On the surface, this
does not seem to be much different from doing business in the Western world.
But in reality, the heavy reliance on relationship means that western companies
have to make themselves known to the Chinese before any business can take
place. Furthermore, this relationship is not simply between companies but also
between individuals at a personal level. The relationship is not just before
sales take place but it is an ongoing process. The company has to maintain the
relationship if it wants to do more business with the Chinese.
How relationship is established
First of all, it does not have to be based on money.
Treating someone with decency while others treat him/her unfairly could result
in a good relationship. Second, it starts with and builds on the
trustworthiness of the individual or the company. If a company promised certain
things and delivered as promised, the company is showing trustworthiness and
the Chinese would be more inclined to deal with them again. Third, being
dependable and reliable definitely strengthens the relationship. It is like
being friends, and friends can count on each other in good and tough times. A
good example is related to the 1989 political instability in China. Companies
that stayed found their relationship with the Chinese strengthened as they were
viewed by the Chinese as friends who did not abandon the Chinese when they
needed friends. Fourth, frequent contacts with each other foster understanding
and emotional bonds and the Chinese often feel obligated to do business with
their friends first.
"Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. Political and administrative interference in business have declined. More and more companies have found themselves on their own surviving without government subsidiaries. If they are not getting any help from the government they are more reluctant to be influenced by government officials. So government "Guanxi" may have less influence with these companies.
"Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. Political and administrative interference in business have declined. More and more companies have found themselves on their own surviving without government subsidiaries. If they are not getting any help from the government they are more reluctant to be influenced by government officials. So government "Guanxi" may have less influence with these companies.
Since "Guanxi" and relationship could
function as an information network, companies with wide "Guanxi" and
relationship networks often have much higher performance than companies with
little or no relationship with the Chinese.
Final Words on "Guanxi"
Keep in mind that "Guanxi" can take on many
forms. It does not have to be based on money. It is completely legal in their
culture and not regarded as bribery in any way. So, there is no need to feel
uncomfortable about it. Trustworthiness of both the company and individual is
an important component. Following through on promises is a good indication of
this. Treating someone with courtesy while others treat him or her unfairly is
another aspect. Frequent contact fosters friendship as well. Chinese feel
obligated to do business with their friends first. There are risks with this
system, as well. When something goes wrong, the relationships are challenged,
and friendships quickly disappear. "Guanxi" can also be very
one-sided. When "Guanxi" is involved, there is a risk of obtaining an
invoice of twice the amount that you bargained for.
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