Adaptation to Living in China - the meaning of Guanxi in Chinese Culture.

As mentioned before, it is very difficult, maybe even impossible, to study guanxi as a separate phenomenon. Guanxi is a part of the Chinese society, religion and history and this is why such a thing as the history of guanxi is pretty much non-existing. To find the roots of guanxi you are to study the history of the entire Chinese society. One way to do this, which is used in this essay, is to examine the Chinese religions and see how they have contributed to the shaping of the society and the culture. Of course there are also other factors that have contributed to the shaping of the society and the culture, but their connections to guanxi are perhaps not as obvious, as for example in the case of Confucianism, and that is why they are excluded in this essay. As showed, the family is of great importance in the Chinese society and that is also the reason why personal relations are so important. In other words, guanxi is something that started in the family and nowadays has grown to include, at least in most cases, also business with foreign people.

3. What is guanxi?

Although it is difficult to study guanxi as a separate phenomenon, we can find the main features of it to answer the question “what is guanxi?” we were asked for by our managers.

3.1. Definition and Basic Concepts of Guanxi

If we look at different definitions of guanxi, we will find the following words: “closed system” which is the literal translation of guanxi, “network of contacts”, “interpersonal relationship”. So we can notice two key concepts in guanxi: it consists of relationships and includes the notion of inclusion / exclusion relative to any in-group. In fact, any person you know and trust belongs to “your” guanxi: this is explained from an individualistic point of view: because the Chinese do not see themselves as “having” a guanxi, but rather as “being” one of the guanxi networks. More generally speaking guanxi is a social in-group, a sort of extended family: you trust people who belong to it and you can rely on them at any time. Guanxi also denotes the process of social interactions within this family: let us take two individuals A and B. “A asks B for assistance (favor) in finding a solution to a problem. B may have the solution at hand, or more often, has to seek further assistance from other connections, i.e. starts another process”.

3.2. Guanxi as a Social Organization: Group versus Individuals

This family is “rooted in personal relations…(and) there is a great reluctance to make new friends in the work place”. Your friends belong to this family and so they are supposed to help you in your business life and if your friend does not help, the friendship disappears instantly. In that sense, the group (its cohesion) is superior to the individual. Guanxi takes both time and resources, and sometimes you might receive anything because guanxi deals with people’s choice for helping you, people overestimate the importance of their guanxi networks.

“Who you know is more important that what you know”(Yeung and Ting, 1996) 

So that from a Western point of view, the way guanxi functions might be negatively seen to be “piston” as it is said in France (that is, using your personal relations in your business life). This concept of “piston” and that more widely of corruption does not even exist in China.

3.3. Guanxi in the Cultural Context

Let us see then why the cohesion of this family is such a preoccupation:  guanxi in fact appears to be a “reaction towards isolation (hierarchy…formalism in the relation to the authority)”, and against “the limitation of personal power (no delegation…obedience)”. Without guanxi, one can hardly communicate and act because of the very limited area accorded to an individual in China. On the contrary thanks to the guanxi, “an exchanging of favors (are) expected to be done regularly and voluntarily”. Being part of an in-group is the only way to act and this is why maintaining the cohesion is so essential in the guanxi.

3.4. How Does it Function: the Rules within Guanxi

The cohesion of the guanxi is based on the notion of “face”. In fact, people evaluate continuously your behavior, judging if you fit to the rules influenced by Confucianism and Taoism. The exclusion is immediate as soon as you break these rules. And on the other hand, if you are particularly respectful (one of the strongest imperative in guanxi), the others admire you even more, so that your face is reinforced: this recognition from the others forces you to feel even more redeemable to the group.

3.5. How Guanxi Shapes a Very Typical Chinese Way of Doing Business

In business life, guanxi “aims at guaranteeing the fidelity of the clients, and encouraging professional contacts (…) between sellers and buyers, furnishers and producers”. And whereas in Western Countries a good relationship is the final step of a transaction, it is the necessary condition to begin business in China. As a consequence, doing business with Chinese people takes time because people need to know you before they trust you. As said in China, “Do only talk about serious things after the third cup of tea”. But once you get guanxi, your suppliers, retailers, banks, and even local government officials can become reliable colleagues. And this “determines the competitive standing of an organization in the long run” in China.

4. How to get Guanxi

In this part we will discuss guanxi by presenting some aspects that will be important for a manager going to China as an expatriate. To make some comparisons we will discuss the subject from the point of view of an American company. A manager from an American company will meet great differences both in the social culture and the business culture when going as an expatriate to China. In this report we cannot go through all the cultural differences that should be taken into consideration, but we will try to mention some important points in a business context and considering guanxi. It is therefore very important that the expatriate himself takes the time and effort to study Chinese culture and find out about Chinese etiquette before traveling there.

4.1. Doing business in China as a Western Expatriate

The Chinese culture is different from the American culture in several ways, including how business is conducted. One important fact is, as mentioned earlier, that the Chinese prefer to deal with people they already know and trust. This is of course the case also in many other countries, but in China relationship is especially important. Western companies therefore need to make themselves known to the Chinese before any business can take place. In addition the relationship established should not only be between two companies, but should also reach a more personal level as a relationship between two individuals. The relationship should also be seen as an ongoing process instead of just a trick to obtain a certain deal. A well-maintained relationship can be seen as a guarantee for future business when dealing with the Chinese.

When meeting with Chinese people in a business context it is important to have knowledge about etiquettes in greetings, introductions, exchanging business cards, how to use titles, gift giving and so forth. These may seem like very simple things but in order to make a good impression and consequently build up a relationship leading to guanxi, it is important to do these things right. To give an example on differences we can mention the business card etiquette. Rituals in exchanging business cards are usually not observed very closely among American business people. In China on the contrary it is important to present your business card in the right way and always to do it using both hands. In addition you should always receive a business card with both hands and never put the card into your pocket or wallet immediately since it is considered rude. It is also recommended that foreigners print their business cards in English on one side and Chinese on the other.

4.2. How to Build up Guanxi

Understanding guanxi and its dynamics is essential when learning to know the social as well as the business behavior of Chinese people. Since guanxi is a very essential part of Chinese business culture, failing to develop a proper kind of guanxi will almost inevitably lead to a failure in the business relationship. Again we would like to emphasize that it is possible for foreigners to develop guanxi and obtain the benefits as long as they are patient and observe the rules. One basic advice for persons dealing with the Chinese is to always be frank: Never make promises you cannot keep. Do not forget that each favor has to be returned and each promise has to be honored.

Since business in China is very much based on using relationships, doing favors to each other and respecting the face of your partner, the American businessperson coming to China needs to adapt to this way of doing business. The Chinese will do business mostly based on trustful relationships instead of with “who ever give the best deal”. Therefore it is essential to get involved in a guanxi network if you want to succeed with your business. As we have mentioned, developing guanxi requires a lot of time, money, effort and especially knowledge of the local culture. Consequently getting into the Chinese market is meaningless unless it is done with serious involvement and a long time plan.

In China relationships are built and sustained by exchanging favors and gifts in order to work toward attaining goals that are beneficial for both partners. In practice, an individual of an organization often visits his associate in another organization bringing him gifts like wine, cigarettes or the like. “For foreigners, the cultural logic and social practices of gift giving present one of the most difficult lessons in learning how to “do business right” in China”.  So this may seem very pushy to an American businessman, but after learning to know the Chinese culture, it will become easier to understand and take part in this practice that is very essential to successful Chinese commercial activity. 

When an international company wants to do business in China a good start is to pay close attention to its immediate Chinese network and try to establish good guanxi with them. If these relationships are taken good care of they can indirectly link the company to new acquaintances and information resources, which will further help to develop other right guanxi for the company. Like this the network will grow bigger all the time and create an important basis for the company’s business.

5. The Necessity of Guanxi

We will here develop the discussion of guanxi by presenting some benefits of having guanxi when doing business in China. We will also take a look into the future by giving some examples of how the meaning of guanxi in business might be changing.

5.1. The Benefits of Guanxi

The concept of guanxi is described in many literature papers as the key factor of success in the business field in China, and “seen as a potential solution for most problems of entering and operating in China”. Thus, the term of ‘business guanxi’ applies only for the business field. Contrary to helper or family guanxi, it deals with Business-to-Business (B2B) and Business-to Government (B2G) / qianquan jiaoyi . Guanxi is mainly a negotiating behaviour that is useful to open “the right doors” and allows penetrating the closed Chinese system of bureaucracy. Thus, business guanxi really developed with the accession of the Public Republic of China (PCR) where personal connections have been since that time the only ways to get things done .

Moreover guanxi can be seen as the Western notion of Customer Relationship Management (CRM), because it implies long term relationships that rely on trust and reciprocity. In addition, the best and quickest results in a business negotiation arise when there is a strong guanxi combined with a high-skilled manager. Because the manager will have more abilities than other people (language skills, good knowledge on negotiations, etc.) he will be able to create good personal connections and consequently a good guanxi. Finally, others aspects have been raised according to different authors, such as: “Respect of the smooth running of routine business operations, in securing information about government policies and in securing administrative approvals” .

5.2. Problems Linked with Guanxi

Guanxi is a necessary notion but for a Westerner it includes some “negative” ethical aspects.

One of the main problems when talking of guanxi, and especially with B2G, is corruption.

Money ← Guanxi → Power → Corruption

Surely, China is not the only country corrupted in the world but it still is one of the most corrupted countries . «The only difference between Guanxi and corruption is that with Guanxi you don’t use pure cash”.

One other problem is that when dealing with B2G relations you have to put ethical issues off such as concerns about Human Rights (Tibet, death penalty,…).

Moreover, people who hold monopoly power use their position in order to acquire money and other favours. Thus, the notion of a rent-seeking defines a person who only seeks to fulfil his/her own needs without showing concern for other party , and corresponds to the western word opportunist.

As already mentioned, the face is one important aspect when dealing with guanxi is the difficulty of decision-making due to feelings for others, defined as the Ren-Qing dilemma.

Here are some moral elements to help expatriates for understanding ethical management in China:

1) Search the backgrounds of local executives 2) the firm is not controlled by only one person 3) regular and detailed auditing systems 4) Know the politics of your partners…  

5.3. Future Development

Important changes may erode in the future the basis of guanxi and by so its importance in doing business in China. Here are some of the changes:

• The economic liberalization in China

Since more and more areas will be subject to market mechanisms there will be less connections in the B2G area. Moreover, some local companies do not adapt fast enough to changes and guanxi appears to be both outdated and inadequate. Finally, information technology can provide information that was only done before through guanxi network.

• Changes in the Civil Service

The new system will provide “a stricter separation of political and administrative power, and therefore reduces the possibility of discretionary decisions”

• The rule of Law

China is developing a Western-style system of commercial law and independent judiciary (the rule of law) mostly under the pressure of Western countries and institutions (e.g. WTO).

• The new Chinese managers

A new type of managers adopting a Western style of management (e.g. MBA’s) is “more prone to rely on hard data than on social relationships”.

6. Conclusion

Guanxi has a long history and it is difficult to discuss it as a separate phenomenon; it is a part of Chinese society. So we have tried to point out the main characteristics of it and see how it shapes the Chinese way of doing business. As for a Westerner, it is important to study the culture and the etiquette. The right kind of behavior and a lot of time and patience will lead to you being part of the guanxi networks. On the other hand, the Chinese society is getting more open and so they are learning to understand the Western way of doing business.

But a country cannot overlook 5,000 years of cultural history and so we will conclude that an expatriate going to China has to respect and understand the Chinese values in order not to offend his business partners. Especially he has to find out about Guanxi.

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