Guanxi: A blessing and a curse

At the IRP, we’re working hard to find the best way to do business in China, but doing business with foreign cultures requires a different mindset than back home. Many businessmen and women will acknowledge the importance of the personal touch to a business relationship. Establishing personal connections with your (future) partners is very important in order to build trustworthy and meaningful relationships.

This is something we are currently experiencing as the IRP as well. Meetings and negotiations with potential clients only seem to succeed when two people genuinely get along.

The divergence of personal and professional aspects of a business relationship is universal, yet the extent to which it occurs is quite culturally dependent. And since we are an International Research Project, one of our main pillars is conducting a cultural analysis of the country we are going to do research in.

What exactly is guanxi?

This year’s IRP destination is China. And in the country of the Red Dragon, building trust with your partners all revolves around one thing: guanxi. In Asia, knowing your counterpart on a deep, personal level is a vital part of doing business. Guanxi, meaning relationship in the Chinese language, goes beyond networking and business relationships.

Scientifically speaking, “Guanxixue — the “art of guanxi” — revolves around the exchange of gifts, favors, and banquets; the cultivation of personal relationships and networks of mutual dependence; and the creation of obligation and indebtedness. What informs these practices and their native descriptions is the primacy and binding power of personal relationships and their importance in meeting the needs and desires of everyday life” (Yang, 1994).

It is a deep human relationship that is cultivated, earned and is non-transferable. Hence, for your business to truly flourish in China, you have to adapt to that business lifestyle. What does this mean for you exactly? Two aspects of guanxi are particularly important to understand:

1. It is all about returning favors

This means that you have to deepen this relationship by building guanxi, in other words: by returning favors. If a ‘friend’ does you a favor, you are obligated to return that favor. The deeper the guanxi, the bigger favors they will do for you, often without even asking. If you meet this favor in return or exceed it, you build face with that person. This means that they take conscious note of your reliability in returning favors.

As a result, your reputation improves. The deeper the relationship, the greater the favors and the greater time you will be allowed to repay it. People who fail to repay favors are considered stingy and rude. This way of relationship building obviously takes more time than the western style of doing business.

2. Guanxi is relative

Although guanxi is an important business ingredient, the extent to which this applies depends on who you are talking to. For some Chinese people, being associated with foreigners is extremely important in order for them to gain face. Other, more conservative Chinese, will think the opposite. They scoff at the people walking around with foreigners, showing them such undeserved hospitality.

Also, the type of industry and nature of the business is important to consider. Heavily regulated industries or those that are strategic to China’s national interest, like banking, health care or security, are more subject to non-market forces. Good guanxi with authorities or state-owned companies may be critical to successfully doing business. On the other hand, a small consumer technology firm in Shanghai or Shenzhen, for example, run by a 25-year old educated in Europe, cares much more about the bottom line than guanxi.

Don’t overdo it

As with most things in life, balance is key. This also applies when it comes to guanxi. It may provide you with a way into meaningful business relations. It might generate goodwill to help close a deal, and it can provide you with important insights. However, focus too much on the reciprocity of your business relations and you might end up with nothing at all. Guanxi is a strong cultural phenomenon that can help you and your business grow, but it should not be the only leg to stand on.

This article was written by Consultant Laurens Noodelijk of the MAA – International Research Project.