Connect Learn Finance

MANAGEMENT

China: what do you know about guanxi?

Perhaps the most well known element of Chinese culture in the Western world is guanxi, loosely - and incompletely - translated as “personal connections.” Literature in recent decades has emphasized guanxi’s strategic importance when doing business in China but some analysts are beginning to suggest that this importance will wane as China continues to undergo liberalizing economic reforms.

Share this article

Published by ConnectAmericas

HIGHLIGHTS

  • Its cultural origin is more than two thousand years old
  • Is a silent contract characterized by the long-term reciprocal giving of personal favors
  • Favors can often be a gesture as simple as taking one out for a nice meal

While there is no single definition of the term, a recent article in Business Line aptly defines guanxi as the “China's system of personal relationships reinforced by mutual favors which plays a vital role in conducting business and navigating the government bureaucracy.” When it comes to doing business, this usually boils down to having good relations with a person of influence in an organization or government function.

Global talent manager and Forbes contributor Sylvia Vorhauser-Smith places its cultural origin over two millennium back, in the teachings of philosopher and politician Confucius, whose doctrine has guided much of Chinese civilization. Emphasizing relational interdependency as a fundamental social construct, Confucian philosophy values attributes such as loyalty, morality, order, obedience, sincerity and compassion; placing family, community, and societal needs above those of the individual. It is in this framework that guanxi has evolved to become an essential part of the Chinese social fabric and business world.

Chinese partners are more likely to require trust on a personal level before engaging in business talks

Guanxi is very much a silent contract characterized by the long-term reciprocal giving of personal favors. Favors can often be a gesture as simple as taking one out for a nice meal or more perhaps something extravagant like treating someone and their family to a popular new show or sporting event in exchange for access to senior leadership in a strategic partnership.

Spanish e-commerce consultant Luis S. Galan writes that some companies even distribute hong­baos (red envelopes) with monetary gifts in the Chinese New Year and other occasions, which they formally track in accounting records. This highly personal, rather than corporate or institutional nature, means it can be hard to sustain on corporate level as it is contingent upon the presence of a person who may leave, taking their strategic influence with them. Such networks are relied upon in the both the private and public sector to secure important needs licenses, approvals, and access to information and resources. 

The story of Angela Chang, co-founder of leading Chinese digital media technology company i-Vision, illustrates well the role of guanxi in Chinese business culture. A 2013 book highlighting women entrepreneurs in emerging economies profiles, Chang reflects that in comparison to Western norms where business can be conducted from an understanding that there are mutual advantages for all parties, Chinese partners are more likely to require trust on a personal level before engaging in business talks.

The success of i-Vision’s is largely attributable to Chang’s guanxi from a previous position at an investment bank, through a former client who happened to own one of the country’s most important national cable companies, also one of China’s largest state-owned enterprises (SOEs). Angela’s sound reputation from this previous yet unrelated relationship was enough to assure decision-makers that she and i-Vision were reliable business contacts, allowing the company to capitalize on the SOE’s plans to digitize content with government financing. Leveraging her relationship and reputation, Chang set up introductions and meetings throughout the SOE and ended up landing i-Vision its first client and business partner in the process. The venture gave the company the credibility and legitimacy it needed to transform into the venture offered i-Vision the credibility and legitimacy it needed to to carve out a prominent position among Chinese media technology solution providers.

How do you get it?

Vorhauser-Smith identifies some of the following as important for “overcoming the Great Wall of Gaunxi”: 

  • Learn Mandarin: a little goes a long way
  • Use bilingual business cards
  • Identify the most important stakeholders for your guanxi network
  • Meet people personally and be ready to open up about your personal interest and family life
  • Offer praise, recognition, and gifts
  • Have patience!

A 2012 study on the importance of guanxi in the experience of British joint ventures in China showed that some companies appointed a management team of Chinese origin to interface with government authorities and the local community. One participating executive stated that while there maybe no way for an individual to fast track the development of their own personal guanxi connections, a business that can afford to hire Chinese employees with the right networks in place may be able to do just that.

While Chinese managers often expect that foreign managers or their local representatives understand and abide by the unspoken rules of guanxi, this can sometimes be problematic given the risks associated with the reciprocal exchange of favors. A favor is a form of debt and its repayment may be inconvenient, unethical, and potentially even illegal. Therefore it is advisable that managers who hire local management keep a close eye on how strategic relationships are developing and intervene when necessary. 

Is guanxi becoming less important?

The authors of the aforementioned study argue that while guanxi is still of great strategic importance for doing business in China, its relevance will decrease as economic and structural conditions continue to evolve. They also posit that its strategic significance has been exaggerated and that the subject has been well absorbed in the West, pointing to the common use of local Chinese managers as proof.

Numerous studies are cited in which analysts predict China’s increasing legal reform and liberalization will serve to weaken the influence of guanxi. However, the authors acknowledge guanxi’s current preeminence as well as the potential limitations of their speculation. 

Share this article

BIBLIOGRAPHY

Business networking giants face China 'guanxi' battle. The Hindu Business Line. Feb 24, 2013.

Galán, Luis. ¿Qué es eso del guanxi? Con Tu Negocio. June 5, 2013.

Guillén, Mauro F. Women Entrepreneurs: Inspiring Stories From Emerging Economies and Developing Countries. Routledge. June 19, 2013.

Nan Lin, Karen S. Cook, Ronald S. Burt. Social Capital: Theory and Research. Aldine Transaction (2001): 279-280.

Vorhauser­Smith, Sylvia. Why Competence Alone Won't Cut It in China. Forbes. May 10, 2012.

Wilson, Jonathan; Brennan, Ross. Doing business in China: is the importance of guanxi diminishing? European Business Review 22.6 (2010): 652-665.

{{'LOADING_COMMENTS' | translate}}...
{{'NO_COMMENTS_YET' | translate}}
{{'TO_POST_A_COMMENT' | translate}}

Other users also viewed


Loading...
Sign In to ConnectAmericas
Forgot your password?
Don't have an account? Register here
Enter the e-mail you used when you registered
for ConnectAmericas to create
a new password