By Anthony Goh and Matthew Sullivan
One Chinese word you will hear constantly about doing business in China is guanxi. Although guanxi is inconsistently translated into English, it roughly means relationship. Although it is often discussed, perhaps no business concept is more misunderstood when doing business in China. Below of we offer some thoughts on what guanxi is and isn’t, why it’s important, and how to develop and maintain it.
What Guanxi is
Fundamentally guanxi is about building a network of mutually beneficial relationships which can be used for personal and business purposes. In this sense, guanxi is not so much different than the importance of having a strong network when doing business in any country. However, in China, guanxi plays a far more important role than it does in the West. While in the other parts of the world, you may be able broker a deal just through formal business meetings; in China it is necessary to spend time getting to know your Chinese counterparts outside the boardroom during tea sessions and dinner banquets. In addition to the time commitment, the depth of relationships developed through guanxi can be much deeper than business relationships in the west. For example, it is not uncommon for people who have strong guanxi to lend money to one another or to form a group to pursue business opportunities together.
What Guanxi is not
While guanxi is an important part of doing business in China it is not the be-all and end-all of it. Having strong relationships alone will not ensure that you will be able to achieve your business goals in China. Your company will still need to have a strong overall business operation in order to be successful. You should also treat with scepticism those who claim that guanxi alone can enable your company to succeed in China. While these connections can help you open doors and find new opportunities, your company will still need all of the other components of your business to be strong if you want to grow in China.
Why Guanxi is Important in China and for Your Business
Guanxi‘s importance in China has developed as a result of the cultural implications of the rule of law and the concept of face. For millennia, China has lacked a strong rule of law. Because the law has not often been able to provide the legal protections which it does in the west, Chinese people needed to develop another means of ensuring trust amongst themselves in personal and business matters. Maintaining face, or reputation, among people within one’s own network is also an important characteristic of Chinese culture. Because of the importance of maintaining face, Chinese people will usually not take advantage of a person with whom they have guanxi. This is true because if they develop guanxi with them and they were to take advantage of them, all of the people in their network would know what they had done and they would lose face with this network. By losing face they would also lose the respect of others in the group and potentially lose their connection with their network. Therefore guanxi has become a means of building trust that law cannot always provide for Chinese people in personal and business matters.
For these reasons, a Chinese company will feel far more comfortable doing business with a company which they have strong guanxi because they believe it will make it far easier for them to trust their business counterpart. It is equally important for foreign companies to develop strong guanxi with Chinese companies and government organisations. This guanxi will help your company in case you run into problems doing business in China. In addition, Chinese companies will feel more comfortable doing business with you if they have strong guanxi with your either because you have built a strong relationship with them or you were introduced to them by someone in their network.
How to Develop and Maintain Guanxi
While developing guanxi is important to doing business in China it is not necessarily easy to develop, especially for a foreign company. Having a full-time, long-term presence in China is essential to developing and maintaining guanxi. In addition, to effectively develop guanxi your company it will be helpful to have a native-born Chinese person to be responsible for developing these relationships. A native Chinese person will be familiar and comfortable with the cultural niceties of developing guanxi in China. Your local Chinese staff or representative should meet regularly, in both formal and informal settings, with potential and current customers and relevant government agencies to develop strong relationships on behalf of your company. If government relations are important to your business your company may also want to consider hiring someone experienced working with the Chinese government on a full or part-time basis to leverage their contacts and experience with the government on your company’s behalf.
Mr. Goh is President and Mr. Sullivan is Director of Business Development and Communications at US-Pacific Rim International, Inc. (www.us-pacific-rim.net). If you have questions, comments, or would like to learn more about USPRI you can contact Mr. Sullivan at [email protected]
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