Guanxi and Its Role in Chinese Business

GUANXI AND ITS ROLE IN THE CHINESE BUSINESS ESTABLISHMENT AND WHAT THIS MEANS FOR NON-CHINESE BUSINESS PEOPLE IN CHINA

Guanxi

Guanxi is a Chinese term that literally means “relationships”. It stands for any type of relationship, whether it is a family relationship, or a relationship between friends. “Guanxi is the basic dynamic in personalized networks of influence, and is a central concept in Chinese society” (Wikipedia). The culture of guanxi is based on family, school, workplace, and social networks. Scholars have defined guanxi as a “special kind of personal relationship in which long-term mutual benefits are more important than short-term individual gain” (p. 191). No matter which way guanxi is defined, it is a huge part of the Chinese culture, and the way the Chinese people conduct business.

Guanxiwang

Guanxi is defined as a special personal relationship. Whereas, guanxiwang goes further than that; it refers to the network of exchange or transaction between two parties. As explained in the book, “Doing Business with China”,

“Guanxiwang obtains when one set of separate, personal and total relationships between two individuals, A and B, and another set of such relationship between B and C are interlinked through the common agent, B, acting as a witness and facilitator. As a result, the originally total and personal relationship transforms into a complex network of social exchanges with such inter-linkage extended into other sets through numerous common agents like A, B, and C” (p.191).

This figure illustrates guanxi and guanxiwang:

Guanxiwang can be divided into two main groups, social networks, and business networks. A social network is a category of social relationships built between immediate family members, extended family members, friends, classmates, fellow citizens and so on. A business network is a category of business organizations to create or develop a market that will maximize profit and minimize cost for all parties involved. In particular there are four types of business inter-firm networks, they are as follows:

1. Ownership networks, firms linked through common ownership

2. Investment networks, firms linked by capital and investment

3. Production networks, firms linked by production sequences

4. Distribution networks, firms linked by the distribution of commodities (p. 192)

Many business owners in China create their guanxiwang with different types of industries to give them more leverage over other consumer markets. By networking with potential partners in another industry or another consumer market, firms can support each other and share key knowledge and information.

Trust in China

The guanxiwang is created to build trust between businesses; it is a key element in network relationships. This trust, also known as “xin”, cannot be bought; it can only be earned, “trust is established on the positive feelings built by interacting with one another for a reasonable period of time” (p.193). Even though social networks and business networks are different it is said that one must have a good personal relationship in order to successfully carry out business in a Chinese community. It is also common for Chinese businesses to conduct business with trusted friends.

Chinese people are very hesitant to trust strangers, which they do not have relationships with. They only trust those who are in their guanxi. Therefore, if one wants to do business in China, they must work hard to develop a long-term relationship that will provide mutual rewards.

Non-Chinese Businesses

Developing relationships and building networks between businesses is critical to organizational success all over the world. Networking is the process of establishing a mutually beneficial relationship with other business people, potential clients, and customers. Firms can increase their competitive advantage through networking, by obtaining valuable resources from other network members. According to About.com:

“The best business networking groups operate as exchanges of business information, ideas, and support. The most important skill for effective business networking is listening; focusing on how you can help the person you are listening to rather than on how he or she can help you is the first step to establishing a mutually beneficial