A Few Notes on Guanxi

Logo guanxi
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In the Hutong
Thinking of samurai
2057 hrs.

A discussion on the LinkedIn China Business group about what foreign businesses need to succeed in China was going quite well until someone mentioned the importance of “guanxi.” After a somewhat involved to-and-fro about how important it was (or wasn’t, I jumped in with the following. I thought it was worth sharing, so I reproduce it here.

First, to translate “guaxi” as simply “relationships” is a dangerous oversimplification, particularly when proffered to someone unfamiliar with Chinese culture. First, guanxi are tiered, based on a Confucian hierarchy: familial relationships, long-term friends, classmates, and schoolmates are the nearest ranks, and to those no stranger – Chinese or foreign – will ever have access. At best we are relegated to outer rings like colleague, in-law, business partner, or acquaintance. There are exceptions, like Sidney Rittenberg, but he is the rara avis that proves the rule.

Second, guanxi are personal and non-transferable, they are not enterprise. There is no way to hire someone and have him hand over his guanxi to the company. You want the guanxi, you keep the employee. That’s why China’s princelings, the offspring of senior Party cadres, have sinecure. Consultants who hawk guanxi are simply renting their relationships, they know it, and from such realities are retainers made.

Third, guanxi involve mutual obligation. If you use someone in your company with guanxi to get assistance from an official, there is an implicit quid pro-quo, hence Richard’s concerns about the coziness of guanxi and corruption. Further, few westerners understand that there are complex social obligations involved in such relationships, your average Chinese executive would sooner burn his employer than his close connections.

Fourth, guanxi die. Or get sacked. Or retire. Or get transferred. Or quit and go into business. They are ethereal, fleeting, and in constant need of regeneration, repair, and re-creation. They are not forever.

Fifth is the hammer-nail problem: the people your employee or partner knows may not be the exact right people to get things done, but that’s who they know, so that’s who they use. When that happens, watch the oversold connection drop the ball, or get smacked. I have watched it happen, and it is not pretty.

Or they may just limit you. I know of a western media company with no special unique advantage in the market that is doing well in exactly one province: the place they have guanxi. They’re happy with how they’re doing in that one province, but they have been utterly unable to scale their business: they’ve been hemmed in by their relationships.

Finally, it is worthwhile noting that guanxi today are of declining importance for most businesses. The scope of industries in which it is necessary to cultivate exclusive ties at a high level is declining over time.

Business fundamentals first, second, and third. Special relationships only to the extent necessary.

This is not a comprehensive discussion of guanxi, and I’ve simplified it with the sole goal of underscoring how misunderstood the concept is in the west. But it gives you an idea of why misunderstandings around guanxi are so common as to make the whole issue a litmus test of an individual’s level of understanding of Chinese business.

One nota bene that must be emphasized. While guanxi is taking a back seat to market fundamentals in many industries, and policy changes are drawing away the value even the best connections in others, there are some businesses in which it is absolutely essential to hire, retain, or otherwise acquire high-level influence. On that list I would include banking, investment banking, and infrastructure.

But the point remains: it is as unwise to overemphasize guanxi as it is to under-emphasize it, and essential to know where that line is.

Richard Ford

Right here:

http://tinyurl.com/28te8aa

As a main instigator – I should reiterate. The issue is not whether guanxi is good or bad or needed or not. It is the fact that it has been abused as a catch phrase that any wanna be China expert throws out.

I had a second interview today for a large Aussie company exporting tech to China. A lot of topics and China idiosyncrasies came up with respect to business planning, operations, staffing, branding, IP, SWOT stuff and what not.

Guess which topic was never uttered past my lips?

And any advice I may be able to offer to others won’t be airy fairy pie in the sky corporate retreat style stuff – usually found in power point presentations from the hacks that are desperate to portray themselves as China ‘experts’.

Hopefully these posts to blogs and LinkIn will become indexed and there for all to see – so that the “Consultants” disappear back under the rocks from whence they came.

stuart

My wife is presenting a paper on guanxi to a conference in Macau in December. This summarises very well the common misconceptions about guanxi among non-Chinese business trying to get a foot in the door.

Reciprocity and trust are fundamental, and the importance of related concepts like mianzi and renqing cannot be understated (or readily understood, for that matter!). That said, the view among novice entrants to the China market that “we’ll be needing some guanxi” as some sort of strategic panacea is well wide of the mark.

David Wolf

Richard, you and I agree, the problem is that “Guanxi” is used as a catch phrase by everyone who wants to establish some sort of China expertise credential.

My point was that the reason this is such a litmus test for China consultants is because the casual way the term is used by the incompetent and the unscrupulous belies the complex issues that lie beneath.