Beyond Guanxi – the other side of the coin in Chinese business

Beyond Guanxi – the other side of the coin in Chinese business

Fri, 20/04/2018 - 14:15
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Navigating complex Chinese business networks requires careful consideration of culture and etiquette. Photo: Denyz Novozhai

How should we do business and network with international partners? Should we just do business as usual, or should we learn to adapt and find mutually acceptable business etiquettes?

Today, cultural literacy in international business has become more important than ever. Businesses and individuals who are well literate on key cultural aspects in business and society appear to have a higher adaptability level to networks and to succeed.

China is Australia’s largest trading partner. Some Australian businesses are familiar with the three most common cultural aspects in Chinese society and business: guanxi (relationship), renqing (personal favours), and mianzi (respect/face value).

Guanxi has been an integral part of Chinese business over the past few centuries. It literally binds millions of Chinese firms into a social and business web.

In China’s new, fast-paced business environment, guanxi has continued to be vital in influencing Chinese political landscapes, social behaviour and business practices – maybe more so than ever.

Within the Chinese society, without a pre-existing guanxi base, it is more difficult to establish a good business relationship.

If a shared guanxi base cannot be established with a potential business partner, an organisation may have to rely on intermediaries who have, in common, guanxi bases with both the organisation and the desired business partner. Personal recommendations are also important.

There are three important principles underlying guanxi’s cultivation, utilisation, and maintenance.

Firstly, guanxi is transferable. As an example, if A has a guanxi with B and B is a friend of C, then B can introduce or recommend A to C and/or vice versa. Transferability also means that a guanxi is different than a friendship.

Secondly, guanxi is reciprocal. A business or person who does not follow a rule of reciprocity by refusing to return favour for favour will lose face (mianzi) and will be seen as untrustworthy.

The guanxi exchanges usually favour the weaker partner.

Finally, guanxi is personal. Guanxi between organisations is often initially established by personal relationships that have been built up over time.

When a person or employee who brought a guanxi connection leaves, the organisation often also loses the guanxi.

However, there is another cultural feature of Chinese business that is quite often overlooked: guancha (observation). 

If guanxi is the delicate fibres woven into every Chinese individual’s social life then guancha contains the threads that hold these fibres together.

Guanxi opens up the doors for the organisation to gain a foothold within the respective industry, which is usually followed by the cultivation of personal favours.

Once guanxi has been established, an initial meeting between the organisation and a potential business partner could follow.

At this stage, the meeting is often crucial as the potential business partner could bring along associates, who could be unknown to the organisation.

In a potential partnership between Western and Chinese businesses, the Western organisation might not be able to identify the dynamics at play during the meeting.

While Western organisations are generally more direct in their approach, in such circumstances, the Chinese business could covertly be trying to determine if the particular Western organisation is worth partnering.

One of the main factors that the Chinese counterparts will be looking at is trust. Hence to manoeuvre correctly, the Western organisations will need to learn to guancha (observe) the (formal and informal) dynamics in the meeting room.

Firstly, it is important to seek out which persons in the Chinese team are the actual decision maker and the influencer.

This might sometimes be obvious during the meeting, but it is often quite difficult to pin down.

Secondly, what is discussed, talked about and mentioned during the meeting can have a ramification for the business down the road.

Not only it is important to know who the decision maker and the influencer are, but it also is important to know when to say certain things and when not to.

Saying too much might have an adverse impact on the prospective business relationship.

Instead of moving forward in the business negotiations, a Western organisation might suddenly find that the Chinese potential business partner breaks all form of communications.

Looks like now is the time to comprehend the relationship between guanxi and guancha more attentively, given the increase in trades between China and the rest of the world, which has recently been more intensified due to the Belt and Road Initiative.

 

Danny Ng

Lecturer

School of Business and Law

Edith Cowan University

 

Associate Professor Hadrian G. Djajadikerta

Associate Dean Research

School of Business and Law

Edith Cowan University