A "Guanxi" Business Culture

By Leigh-Ann Kennedy©

While traveling in China last June, I became interested in the business culture in China. I discovered while there that the Chinese use a unique system called “guanxi” to exchange goods and services. It is as if they bestow generous gifts and favors upon friends, family and associates without being asked to do so. I saw this first hand when I went to buy pearls at the old town market in Shanghai with my friend Sunny, a native Chinese woman who migrated to Shanghai from a small, rural village.

Rather than browsing the stands, Sunny took me to a particular jewelry stand run by a woman from her home village. Our short shopping trip soon provided insight into the broader Chinese business culture. First, her friend gave me an incredible deal on a couple of sets of pearls. Then, Sunny picked out a pair of black pearls for herself, and though she persisted on trying to pay for them, her friend would hear nothing of it. Her friend refused to let Sunny pay for pearls, saying they were a gift. Was this simply a gesture of good will? Not entirely.

Sunny later told me that if she had not accepted this gift, it would have been a grave insult to her friend since they were from the same village. Furthermore, as Sunny explained, the vendor often refused to take Sunny’s money for pearls because Sunny provided a dear service for her. When Sunny travels to the United States, she always brings back vitamins for her friend. Vitamins are hard to find in China.

This seemingly simple exchange is what the Chinese call “guanxi,” and it is actually a complex system of personal relationships and moral obligations. As Fred Burton and Scott Stewart suggest in their article about the practice, most Chinese view guanxi networks as not only a natural means for doing business, but also pragmatic necessities. (Burton & Steward, 2008, p 1).

Defining Guanxi
The concept of Guanxi has been around in the Chinese culture for ages. “Guanxi” literally means “relationships” or “connections.” In the business arena, guanxi carries with it a certain level of accrediation. Having the “right” guanxi can give you access to things you need and helps you make business deals. Simply put, business is more about who you know than what you know. You need guanxi to get ahead—no matter what your knowledge and potential are.  If you are not part of the “right” guanxi, you might as well be non-existent because you will never be able to get in the front door without it.

A lot of emphasis is placed on having the right types of relationships, and they take a long time to build. According to a Fathom online learning resource:

“The strongest forms of guanxi develop between classmates, blood relatives, and people form the same city or province when they are living in other parts of China.”

Simply meeting Chinese business associates for drinks and dinner is not enough to be accepted into their guanxi. The proces is much more lengthy and in-depth. It requires getting to know someone’s family, spending time together outside of work, or playing sports together. It is a laborious, time-consuming activity. This helps explain why fixating on the bottom line simply does not work in China.

For the Chinese, guanxi basically defines one’s place in the social structure of society. If you are born into the right family, you will be provided with security and advantages that those not born into a good network will never have. In a sense, you can be doomed by fate even before your old enough to speak. Business Week’s Frederik Balfour describes it this way:

“Guanxi goes back thousands of years and is based on traditional values of loyalty, accountailbility, and obligation-the notion that if somebody does you a favor, you will be expected to repay it one day”

Guanxi also expresses the obligation of one party to another, built over time by the reciporation of social exchanges and favors. Guanxi can lead to corrupt and unethical practices if people put themsevles and their relationships above the law. 

But what would cause someone with good guanxi to use it above all in doing business regardless if laws were broken and their ethics were compromised?  According to Burton and Steward:

“Chinese business ethics are built on the basis of guanxi, which places relationships above other considerations, inculding an employer’s code of conduct and even the law.”

They add that:

“Western company standards, and the codes of conduct in which these standards are codified, hold the interests of the company first. When a person becomes an employee of a company, he accepts an ethical obligation to put the company’s interests first.”

According to Fathom: “Foreigners can and do resort to gifts and other favors to create a sense of obligation for the receiving party, but even under the best of circumstances they can never completely form strong guanxi.”

This is not to say that all Chinese who have good guanxi grant unethical favors to friends. On the contrary, Chinese often candidly express disapproval of someone who uses their guanxi in insincere or selfish ways. As the Fathom site explains, Chinese use words like “oily” to describe people who exploit their guanxi for personal gain. Yet, they also “will often acknowledge those skills, admiring the ingenuity of the means at the same time that they criticize the selfishness of the ends.”

“Guanxi Audits”
Chinese managers are way ahead of their Western counterparts in terms of understanding relationships in organizations. They do a process called a “guanxi audit” that is very similar to social network analysis, which U.S. business managers now use to measure relationship “flows between people, groups, organizations, computers, URLs, and other connected information/knowledge entities.” (Krebs, 2008).

It’s the dissection essentially of organizational chart to reveal who is really talking to who, and how strong or weak these relationships are. Just because someone holds a certain position doesn’t necessarily mean that they doing all of work associated with that title, nor does it mean that the man at the bottom of the org chart aren’t doing anything, in fact these worker bees are the heart of most oragnizations continually engaging other to accomplish their tasks more so than the higher ups.

Since guanxi networks are crucial to a company’s success, senior managers often audit their employees’ relationships with outside stakeholders, such as customers, suppliers and government officials. A guanxi audit enables managers to analyze the progress the company makes in building its guanxi networks. They consolidate the results and identify opportunities to exploit the overall guanxi network. For instance, if they find that one department has a guanxi network that would benefit another department, they would take steps to extend the guanxi network across the company. (Source: An, 2007)

So it seems clear that having good personal and business contacts in China matters, even more so than they do in Western societies, where policies, rules and contracts count more than relationships.

Sources:

• An, Fili. “Guanxi and Social Capital: Importance and Implications in Business and the Internet.” www.filination.com/blog. April 22, 2007.
  Balfour, Frederik. “You Say Guanxi, I Say Schmoozing.” Business Week, November 19, 2007.
• Burton, Fred & Scott Stewart. “China: Guanxi and Corporate Security.” Stratfor. January 16, 2006.
• “Chinese Business Culture for Business Travelers.” Fathom, 2009. The University of Michigan. Sessons 3-5.
• Hammond, Scott & Lowell M. Glenn. “The Ancient Pratice of Chinese Social Networking: Guanxi and Social Network Theory.” E:CO Special Double Issue Vol.6 Nos. 1-2 2004 pp.24-31.
• Hampden-Turner, C. and Trompenaars, F. (2000). Building Crosscultural Competence, Chichester, UK: John Wiley & Sons.
  Krebs, Vladis. “Social Network Analysis, A Brief Introduction.” Orgnet.com. 2008.
• Lovett, Steve, Lee C. Simmons and Rahi Kail. “Guanxi verses the market: ethnics and efficiency.” Journal of International Business Studies, Vol. 30, 1999.
• Luo, Yadong. “Guanxi: Principles, Philiophosies, and Implications.” Human Systems Management, Vol. 16, No. 1, 1997.
• Stanford, Xenia. “Organizational Mapping: Knowing the Pittfalls.” Entovation International News. March 2002.
• Trombly, Maria. “Saving face in China: Good IT can bridge the cultural gap.” Computerworld Management. May 1, 2006, p 1-4.