CHINA: Cultural Insights for Business Success – Part 3: Guanxi

Guanxi, in very general terms, refers to the “personal network of relationships” between people. Most importantly in the above phrase is the word “personal.”

Introduction

Guanxi definitely spills over very significantly into business life and benefits companies, but it is – at root – PERSONAL in nature. Guanxi is developed between people – not between corporations.

Guanxi exists all around us, but plays an important role to differing extents in different countries. In China, thousands of years ago, ancient sages (including Confucius) recognized the importance of guanxi. Guanxi may be thought of as “significant and formalized” behavior in Confucian cultures – far more so than in the West.

In China, guanxi is complex, and becomes an important constituent of business activities, including relationships between individuals, customers, governmental institutions, investors, partners, suppliers, and even employees.

Definitions of Guanxi

Guanxi can be thought of as “special relationships.” Confucians think that both parties in a relationship can reach, over time, a win-win result in the interaction of guanxi. “Renqing,” an important factor of guanxi, means  “human emotions,” “human sentiment” and “favor” and may be considered as follows in Chinese culture:

1. Renqing in Chinese means the emotions a person experiences in different circumstances. If one can understand a person’s emotions, and do what he or she likes and avoid what he or she dislikes, favor will be gained;

2.  Renqing can also be used as a resource to be presented to others. When others accept your gifts or help, they “owe you a favor.” Renqing, as a social resource, includes not only money, properties and services, but also care for emotions;

3. Renqing also means the social norms by which persons in society get along with each other, and the manner in which we deal with others on a reciprocal basis to maintain guanxi between us.

In terms of business, guanxi may be understood as an informal contractual relationship.

Guanxi is often misunderstood by Westerners as “trading favors.” But guanxi is in fact deeply rooted relationships characterized by unfailing loyalty and readiness (enthusiasm, indeed) to assist. It is critical to make the distinction between loyalty and favors – favors are best viewed as the representative currency of guanxi – not guanxi itself.

In China, where guanxi has been deeply rooted, business cooperation and other interactions are often guanxi-oriented based on equal benefits to be realized in either the present time or at some future time by the individuals involved.

We may see an example in that many Chinese enterprises are family-based enterprises, and that people naturally cooperate with friends or colleagues they know well. Many enterprises based on families, are highly influential in China’s market.

The famous Chinese “Wenzhou Pattern” (Wenzhou is a city in Zhejiang near Shanghai) is the best example of cooperation based on guanxi. “Wenzhou Pattern” is used to describe the enterprises that Wenzhen families, relatives and friends jointly invest in. Wenzhouren (people from Wenzhou) are widely known in China as astute investors and people who “stick together” to help one another, deriving great intelligence, wisdom, information, and insight through their collective and cooperative efforts. Astute investors tread cautiously indeed when contemplating competition with Wenzhouren!

Importance of Guanxi and How to Form Guanxi

To form Guanxi is to gain trust in and trust from others, and is the basis for constructive interaction. For individuals, having good guanxi not only helps one learn advantages, culture and social norms from others, but also helps one to adapt to the society better.

To emphasize the importance of guanxi in China consider the following statistics collected in a research project on guanxi conducted by a famous university in China:

  • More than 85% of persons with good guanxi can succeed and feel happy;
  • 85% of factors leading to success depend on guanxi while 15% originates from knowledge, technique, experience and so on;
  • In 4000 employees unemployed in a region, 90% have poor guanxi, and only 10% are disqualified on technical or other skills basis;
  • Graduates with good guanxi earn 15% higher salaries than excellent students, and 33% more than average students.

The fact that such a study was commissioned in the first place should be telling enough of the important role guanxi plays in Chinese society.

People in China often say that first-class persons are good at collecting guanxi; second-class persons like to accumulate properties; while the third-class ones attach great importance to saving money. Here, collecting guanxi means making a lot of friends, and when in need, having friends to help. Guanxi is value-added.  Some also say that you may know your value by averaging the revenue of three of your good friends, from which we can see that guanxi has similar effect to money.

Guanxi focuses on the interpersonal relationship network formed during social interaction, such as the relationships formed in work and study, and good guanxi also needs your efforts. For enterprises, guanxi is the origin of business opportunities and is the carrier for transferring value. It plays an important role in the survival and development of an enterprise.

Guanxi is potential fortune in China. Without strong guanxi in China, one can do little well or at least can do little optimally. A person with wide guanxi is considered a very influential person with a strong background (referring now to “mianzi”, covered in the next section Part 4 – Mianzi). Without referral or acquaintances, one will have great trouble in meeting senior management or principals. The more guanxi one has, the more “energy stores” he or she will have in reserve. With good guanxi one may beautifully solve some problem just via a telephone call that others cannot solve. Conversely one may not be able to solve a problem regardless of the direct effort put in, while others with good guanxi may succeed easily with hardly more than a greeting.

What is the reason for this?  Guanxi is the only magic tool. A person having wide guanxi is considered to have great guanxi “resources”. These guanxi resources may help one to learn useful information more quickly, and are transformed into promotion opportunities or other good fortune; at critical times, guanxi resources even may help one escape from dire risks.

The ability to establish guanxi may be measured by whether one is good at dealing with those one dislikes and can do well in an environment one doesn’t like.

The following elements are very important for establishing good guanxi.

Firstly, Keeping Our Word

Keeping our word means being honest and acting always in good faith as well as being responsible and trustworthy, which is the principle of conducting ourselves and shows our “personality charm” – all people want to deal with those keeping their word.

Secondly, Establishing Our Value and Transferring Value to Others

The “value” herein means our “use value” more properly. Before checking our guanxi, we should ask ourselves calmly whether we are useful for others. If others cannot use us, it means we have no value at all. The more we are useful, the more easily we can establish guanxi.

Few can establish genuine guanxi with those who have significantly different social status. Accordingly, even if we are lucky enough to link with a higher-level executive through a weak connection, the executive may not be interested in us at all. One should correctly position oneself to make friends based on one’s value rather than try to make friends with all. Our value-based positioning depends on our ability and target at each stage.

After we have established our value, we may see that our friends around also have their own value. Why not link them to transfer more value? If we are just one terminal to receive or send information, we may generate limited value from our guanxi network; but if we become a hub for exchanging information and value, our friends are happy to interact with us, and we may bring about more opportunities all around, thus consolidating and expanding our guanxi.

Thirdly, Readiness to Share with Others

Those ready to share with others – whether information, money or job opportunities – tend to generate more opportunities.

Fourthly, Increasing Our Exposure Channels

We can increase our exposure through attending training classes or workshops, joining association and clubs, dinner engagements, and so on.

Discussion will usually be of a more personal nature, leaving business issues for the office and using the time to establish personal relationships that may then be leveraged at a future time for business objectives.

Fifthly, Dos and Don’ts for Establishing Guanxi

During everyday social interaction, we shall avoid any form of haughtiness. White-collar or gold-collar executives from overseas-funded enterprises often have such attitudes, and are proud to show their business cards as a director or president of a top 500 companies, and take on the attitude that “my title is higher, you should respect me,” which is harmful for your guanxi establishment. Indeed Chinese maintain a quite humble attitude regarding their position or status and to do otherwise is considered a very significant loss of face.

We should seek to extend offers of assistance as a show of loyalty and not seek to only use our guanxi when in need, which is considered taboo.

The following principles are important while guanxi is being established:

Genuine Interest

At the first meeting, we shall show our interest in others, listen to others carefully to obtain more information so as to impress others better.

Reciprocity

A person who just wants to receive benefits from others and refuses to give is a selfish one, and will not develop good friendships. We shall deal with others on a reciprocal basis. As the popular Chinese saying says “You will have fragrance left in your hands after you present roses to others.” We shall help others on a voluntary basis and shall not refuse offers from others as this denies them guanxi-building opportunity. We can approach each other more closely by helping each other.

Mutual Reliance

Mutual reliance also includes mutual trust. Chinese character “人”(meaning “human beings”) consists of one left-falling stroke and one right-falling stroke that support each other, meaning that human beings shall rely on and support each other. We shall establish our reliable image keeping our word, and give prominence to our professional image as a source of value for others.

Sharing

Sharing is the best way to build a good guanxi network. The more one shares, the more one will have. Others will appreciate you for the things you share, and you will be considered honest and hearty if you are ready to share. All people like to make friends with honest and hearty persons.

Conclusion

In conclusion, guanxi is a personal network. We need to put our efforts into establishing and maintaining guanxi as the accumulation of our fortune firstly depends on our abilities, then on our capital, and above all on integration of our resources and guanxi.

For foreigners, having a good guanxi network in China at least can bring the following advantages:

1. Accessing information easily as very little information can be accessed via public sources. However, with a good guanxi network, one can have better business opportunities, such as knowledge and insight into frequently changing policies;

2. Obtaining resources easily, such as tangible assets, including land, labor, raw materials and so on, and intangible assets such as import license, government’s permit and so on;

3. Bringing more profits, reputation and status. For instance, foreigners may encourage their employees to develop their guanxi network to obtain more business opportunities, as well as win good reputations.

Think of your guanxi network as a distributed bank account with many sub-accounts being held by many different individuals. Choose those individuals carefully and seek all opportunities to make “deposits.” Guanxi-building should be on the daily checklist of every executive. Select staff in part on the basis of their guanxi network, along with their skill and proclivity for guanxi-building. Make guanxi-building a priority of all staff members, and support and encourage them in their efforts – their guanxi network is, after all, part of your guanxi network.

Read the Series: CHINA: Cultural Insights for Business Success

Part 1: Introduction

Part 2: Confucian History and Elements

Part 3: Guanxi

Part 4: Mianzi

Part 5: On the Ground

Part 6: Management Staffing

Tracy Crawford
CEO | Rain8 Group LLC
Managing Partner | CHC Couture Hospitality Concept
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