06 Jan Networking with Chinese Characteristics: Guanxi
The cultural and social necessity of doing business in China
The Chinese term “guanxi” has a reputation that precedes itself. The West has a colorful range of names for it: bribery, dirty work, kissing ass, buying the connections, bending the rules, taking a shortcut, the Chinese way of conduct and etc. In some aspects, these are all true of guanxi. This is when you gasp, shake your head in disapproval and decide it is a terrible idea to do business in China. However, once you gain more knowledge on guanxi, your opinion will change.
This blog post will explain the origins of guanxi, clarify its misconceptions and teach you how to develop and maintain guanxi in China.
The direct translation of guanxi is relationships, which in the west means a professional network of contacts, but in China means a network of mutually beneficial personal and business relationships. For the last century, China has witnessed a timeline of political turbulence: the ending of a dynasty and transition from a feudal system to a republic, the corruption of the republic, the Sino-Chinese war, the overthrowing of the republic and the establishment of a communist government, the cultural revolution, Deng Xiao Ping’s new “Opening Up” policies and the rapidly developing economy of today. Given the history, it is difficult to expect China to have developed an established, consistent and rigorous set of rules and regulations in national law. Even with the national laws, enforcement is carried out not even close to the extent of effectiveness. Therefore, Chinese people resorted to other means of guaranteeing trust amongst themselves both in business and in personal affairs. This alternative method of conduct is guanxi, achieving business or personal goals by doing each other favors, in other words: you scratch my back, I scratch yours. Throughout the generations, guanxi has become deeply ingrained into Chinese culture and society.
The most common misconception in the west about guanxi is that it is not the “proper” or “right” way of doing business. However, guanxi need not have a negative connotation; it is simply the culturally acceptable way of doing business in China. guanxi creates a network which opens doors and helps you find new opportunities. The prominent concept of reputation and “maintaining face” plays a significant role in helping out those within the network. It is crucial for someone to help out, “take care of” and not take advantage of a guanxi connection, because cheating them would be considered to destroy one’s reputation and losing “face” within the network (See our article on face).
In turn, one demonstrates his or her capability and gains respect and credit when a favor is completed. guanxi is developed via formal business meetings and moreover, tea sessions and dinners. Through the informal interactions, the parties bond on a deeper and more personal level and most importantly, trust is established. In western countries, deals can be closed via the phone, conferences and emails. In China, western business interaction standards are far from sufficient for the same purposes. Furthermore, in many situations, guanxi is even considered to hold more weight than contractual terms. Many business ventures and partnerships are carried out before signing a contract.
As a company, entrepreneur, or employee who is accustomed to western rules of business conduct, how do you develop and maintain guanxi in China?
– It is always better if you have a full-time, long-term presence in China. The majority of Chinese people are inclined to be risk averse, especially towards unfamiliar entities such as foreign enterprises. Long-term presence demonstrates stability and sincerity in collaboration.
– Show a strong sense of dependability, responsibility, trustworthiness and respect. This can be achieved professionally by always completing tasks before or on deadlines, producing high quality deliverables and consistently being prepared. More importantly, you can demonstrate good faith by taking business partners out to dinner and tea. Sending gifts for various Chinese festivals and special occasions such as weddings, funerals and congratulating new births is also a gesture to maintain guanxi.
– Establishing guanxi with the government is crucial because they will be very powerful in providing you with help if you run into trouble. It is suggested that you hire ex-employees from the government for this tasks so that his or her government contacts can be leveraged. You could hire a Chinese employee, who is more culturally comfortable to develop and maintain guanxi in general, but it is strongly suggested that you participate and not depend on a liaison.
Maxxelli Consulting advises on all aspects of doing business in China, including cultural issues. Furthermore, during our presence in China for more than 7 years we built a huge network with both government and private parties, granting us the exxpertise and knowledge to ensure the successful execution of FDI projects.