Relationships & “Guanxi”

Relationships and Guanxi

One of the most common statements I hear from foreign business people intent on doing business in China is how good their ‘guanxi’ or local relationships are.

Nothing provides more angst and despair in these same business people when their business takes a flying leap of a cliff with no parachute., and they discover that in fact the guanxi they had was neither ‘their’ guanxi, nor reliable.

Guanxi is a system of relationships developed over 5,000 years of Chinese history – in the absence of a well structured legal system it is the way in which business deals can be done with a degree of safety and certainty. By creating strong and mutually beneficial relationships with people in positions of power and authority the businessman creates an informal legal and insurance system.

These relationships must be mutually beneficial to operate correctly. The person with the power may be required to put himself at risk of censure by becoming involved in various deals and therefore must be compensated for his risk and effort.

A businessman starts the process of negotiation with a suitable partner. As part of the Chinese way of doing business they will eat together – at this meal –usually the first one – the Chinese partner will generally bring along his heaviest cannon – his foremost ‘guanxi’ partner.

This meeting is where the two sides of a potential cooperation get to understand the relative strength of each other in a Chinese relationship way.

It is a deadly serious game – a sort of my gun is bigger than your gun – here is where the harness is put on your partner. If you go to this meeting with no-one Chinese representing your position, then the harness is neatly and firmly slipped over your neck.

Your partner’s guanxi is not your guanxi – it is his guanxi – and when you meet the Party Secretary, the Mayor or the Governor at this first meeting do not assume that he is there o your behalf. Your Chinese partner has lined this person up to be the overseer of his interests in business and mistaking the power of this person as belonging to your side of the partnership is wrong.

Before entering into a relationship with a Chinese businessman you need to have spent time developing your own guanxi relationships. These relationships cannot be developed overnight they require time and sincerity – time to break through the reticence of the person you are developing and sincerity in showing him that you understand how things work. The pt it bluntly how will your guanxi partner benefit from his relationship with you.

Do not mistake this statement to mean how we your guanxi partner benefit financially – although that is not an uncommon occurrence – guanxi partners help each other in many ways. For your guanxi relationship to prosper you need to find ways of helping him so that when you need his help he is prepared to reciprocate.

An example of this may be offering to teach his son or daughter English. It may be in the form of arranging education abroad for his family. A vacation. Supervision and help if his family is already abroad. Assistance with a visa. Something that you can offer that will show your sincerity.

Spending time with your guanxi partner is essential – you need to create a strong bond of friendship with him or her.  If your intended guanxi partner is a drinker then dinners and nights at the karaoke bar are appropriate – if he is not a drinker then family occasions, mah jiang nights and visits to the countryside in the weekend are appropriate

The Chinese saying ‘You get to know your friends on a long journey’ aptly describes the time it takes to create relationships. You must become a trusted ally of your guanxi – you become a true and sincere friend.

Spending several months in China before doing business is in my view absolutely essential – it is during this apparently non-productive time that your future business is made. Japanese companies are the most successful in China despite there being some political differences and history between the two countries. Japanese companies are successful because they have mastered the art of developing relationships in a purely Chinese manner. A Japanese company would not consider doing business unless they have sent at least two people for several months – perhaps as much as a year developing the correct relationships with the correct people before entering into the actual business negotiations.

Western companies rarely view this process as necessary and blunder into business deals without having the guanxi relationships in place beforehand.

In summary, these are the key factors in guanxi:

  1. You need your own independent relationships directly concerned in the industry area you intend to enter.
  2. Your guanxi partners must have authority and power over the company you wish to deal with.
  3. Guanxi relationships must be mutually beneficial.
  4. A guanxi relationship starts with a genuine friendship.
  5. Guanxi takes time to develop.

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