During a recent business presentation, I was asked about the significance of guanxi in China. Guanxi is loosely translated as “relationships” or “connections” and is perennially cited in China Business 101 classes as the key to doing business there; conversely, it is also described as a formalized system of corruption. So how important is guanxi and do you have to know how to “do it”?
Like many situations in China, the issue of guanxi is complex to non-Chinese, but not SO complex that it cannot be navigated by those with some perspective.
Start with three key points:
- Guanxi means establishing local relationships in order to build a business network and to get “plugged in” to local information channels. Seen in this light, guanxi is something foreigners must pursue for any chance of success in China. Spend time with local partners regularly – beyond just exchanging gifts at the first meeting. Do not delegate the relationship-building function solely to local staff or to an agent. Guanxi exists at the personal, not organizational level. If you are never there, you are not building guanxi.
- Guanxi means using connections as the preferred route to getting things done more quickly and expediently. With guanxi, existing rules or procedures may be circumvented based on one’s relationship with people having the power to affect the situation. While this may seem like a worthy shortcut to success, it will not lead to profitable, sustainable business. Continued success in this scenario depends on the individual relationship and carries off-the-books costs of mutual obligation and otherwise. This view of guanxi has parallels with corruption, conflict of interest, and misuse of corporate or state assets.
- The concept of guanxi and all its implications underpins thinking and decision-making within the Chinese system. Working in this framework means valuing someone based more on the relationship with him and his connections and level of power, than on that guy’s personal attributes or character. The view or relationships is utilitarian and using these relationships (relying on the friendship instead of due diligence or process, for example) is considered the best way to get things done. Keeping in mind the prevalence of guanxi, its varieties and potential impacts on stakeholders in China, is absolutely crucial for foreign businesspeople.
When working in China, understand the importance of building good relationships, of working within the system, and the impact that guanxi has in Chinese business. However, even more critical is maintaining clarity on building sustainable business and on one’s own standards, knowing how and where to draw the line as needed.
For more on guanxi and how to work with it, contact us at info@Blueheron8.com.