The Art of Guanxi
Guanxi – literally ‘connections’ – is sometimes claimed to be the magic formula for business success in China. Without the right guanxi even a great product, sound investment proposal or lucrative business deal might fail. Guanxi seems akin to the adage ‘it’s who you know…not what you know’. For the Chinese the art of making connections or la la guanxi is a highly valued skill and key part of daily business life.
But to outsiders with little or no experience of the China market, the whole concept can be mystifying and off-putting. Exactly what is guanxi? Is it really that important in today’s China? And if it is – how can you access it?
Understanding Guanxi
Guanxi can be described as either effective guanxi or instrumental guanxi, says Dr Shan Ma of Queensland University of Technology’s Graduate School of Business
Effective guanxi is the traditional and idealized web of reciprocal, binding ties and obligations between individuals. Used in this narrow sense guanxi is relatively uncommon. An example might be the connection between classmates at university which can bind individuals together for a lifetime. Instrumental guanxi, however, is the commonly used and understood form, where you expect people to behave and act positively in your favour because of a close relationship or connection to you. This notion of guanxi has some elements in common with Australian ideas of building personal networks in business or government. But in China the art of guanxi extends much further.
Because Chinese culture is essentially more people focused than issue focused, Dr Ma. argues that guanxi is a ‘ubiquitous’ feature of doing business in China. People will typically think guanxi first and the most important question about a prospective business undertaking may not be about skills, abilities or business issues but rather ‘Do you have guanxi here?’ The cultivation of guanxi creates the mutual trust, understanding and confidence needed to sustain ongoing business relationships.
Dr Ma identified two reasons why guanxi is so pervasive and important in China.
The first factor is institutional. For decades China was an economy of shortage, with very high levels of government control. There were few – if any – institutional control mechanisms and enforceable business contracts or laws and rules governing business and investment behaviour were absent. In such an environment Dr Ma says it was critical to develop and use guanxi to guarantee the other party would honour the agreement or assist to solve any problems. Many analysts have pointed to similar patterns of behaviour in business in the former Eastern bloc countries and the Soviet Union. The logical implication being that market reforms and the development of a legal system will eventually eliminate the need for guanxi.
The second factor is cultural. Unlike the ‘universalistic’ basis of western culture, Chinese culture is group focused and people are treated according to their relationships. Insiders – members of the group – are thus treated differently to outsiders, says Dr Ma. ‘Guanxi can give you insider status – or at least bring you closer to the inside,’ he adds.
Many commentators now argue that market reforms, the rise of private business and the opening of the Chinese economy to the world have significantly reduced the importance of guanxi in contemporary China.
So is Guanxi Less Important than it Used to Be?
According to QUT’s Dr Ma the answer is ‘yes and no’. Dr Ma, who takes groups of senior Australian managers to Chinaevery year, says despite major reforms in China guanxi remains an important, albeit modified part of day-to-day business. The key is to understand how China’s economy and business world is changing.
A recent survey by Beijing University’s Guanghua School of Management found guanxi was still an important part of business in China. But it operates in different ways across China. For example, traditional notions of using guanxi with key government officials and enterprises are more important in inland areas than along the more developed coastal areas. ‘But even in the coastal areas, guanxi is still very important. Today it is shifting from guanxi targeted purely at government more to customers, from vertical to horizontal,’ says Dr Ma.
Whether or not guanxi is a unique aspect of Chinese culture, indelibly imprinted on all behaviour, or simply the legacy of imperfect market and government mechanisms, it is a feature of contemporary life. Government and state enterprises are still key players in western China. Here private business and foreign investment have made only a slight impact. In these areas the implementation of investment rules, laws and business contracts can be unpredictable. Some industries remain heavily regulated and strategically controlled by the government. Gaining access to decision makers and winning approvals in these sectors will inevitably require the effective use of guanxi.
Developing your own Guanxi
Newcomers to the sprawling Chinese market can be overwhelmed by its size, complexity and the high cost of gaining a foothold. And if guanxi is so important – how can it be developed?
QUT’s Dr Ma makes some suggestions:
Use The Government Crest
Make use of Australian Government agencies in China – Federal, State and Territory. Dr Ma identifies the Australian Trade Commission (Austrade) as a key example. Ma says that when meeting new business partners or government officials in China, using the Australian Government’s status and network can be a good way to establish credibility with prospective partners and can help open doors.
A second key group is established professional services firms who have acquired excellent networks and industry contacts over a number of years in the market. These include lawyers, accountants, and business consultants
Use Middle Men
For decades agents and brokers have been used successfully by Australian exporters to tap the Chinamarket. Hong Kong has been a rich source of these contacts, especially for southern Chinese markets
Buy Your Own Guanxi
Employing quality local staff with good networks is another way to ‘fast track’ building guanxi in the market. There are some caveats. Competition for good management is fierce, and staff turnover is a problem. If you rely totally on one or two key local employees your business is vulnerable. Dr Ma says it is critical to hire someone whose networks are relevant to your business, who is up to date and suits the local market – if you were targeting new business in Shanghai, make sure the person actually has a local track record
Cultivate Your Own Guanxi
But there is no substitute to having your own connections. ‘In the long run you need to establish your personal guanxi in your own area of business,’ counsels Dr Ma. And this will take time and effort. A single business dinner, exchange of name cards and business brochures is not the basis of developing guanxi. ‘Spending time together, sharing experiences, exchanging personal information – getting involved on a more personal level is a good start,’ advises Dr Ma. He says Australians doing business at home would usually expect to keep business matters and their personal lives separate. In China the two areas commonly overlap.
Some Words of Warning
A note of caution; although guanxi is important, you must also bring a good business strategy and the right product or service to the table. Dr Ma says although guanxi might give you a competitive edge, it will not win a deal on its own ‘You need your business strength PLUS guanxi.’ Market watchers also warn that the magical allure of guanxi should never obviate the need for effective due diligence and sensible business practice. Finally guanxi should not be seen as simply a euphemism for corruption or unethical dealings. Dr Ma says using guanxi should not involve expectations or implications of taking illegal or risky steps to win a deal. |
