The business dynamics of every country is unique, and China is no exception. If you are looking to set up a new business here, you will do well first to acquaint yourself with the business culture present here. Otherwise, you might feel like a lost fish in a pond, and your business will fail to take off.
One business concept unique to China is Guanxi, a word that you might have heard many times in your Mandarin classes in Singapore. Foreigners usually have difficulty understanding what it is and consequently fail to use it to their advantage.
An essential part of doing business in this country, Guanxi, is all about creating and maintaining mutually beneficial relationships. Businesses can’t progress if owners don’t invest time and energy in building and preserving this Chinese practice. That’s why it’s an excellent idea for foreign business people to learn Chinese in Singapore, as it would help them win the trust, credibility, and confidence of influential people and Chinese entrepreneurs more quickly.
Shared ahead are a few important things about Guanxi, namely what it is and how you can use it.
What is Guanxi?
Guanxi, in simplest terms, is a system of social networks that facilitate businesses and other dealings. Mutually beneficial relationships are an integral part of doing business in China.
Don’t confuse Guanxi with networking. Yes, at one level, this Chinese practice is similar to networking done in western firms, but its central role has a lot more than just networking. For instance, it is impossible to do business in China without it.
Moreover, in western countries brokering deals are done in the boardroom. However, in China, if you want a deal to go through, you will have to make efforts to know the person outside the boardroom as well.
In China, a lot of significance is given to individual connections. If you don’t establish this relationship first, your deal’s chances of success are as slim as your climbing Mt. Everest without oxygen.
The Importance of Guanxi
Guanxi has been an important part of Chinese businesses for centuries. It is a social network system that facilitates the dealings of businesses and promotes mutually beneficial relationships. Without this Chinese practice, it is virtually impossible to do business in China.
In China, personal relationships and business relationships are significant, and if you want a deal to go through, you need to establish a good relationship with the other party first. Guanxi provides the foundation for such relationships to be built. Its significance lies in the fact that it builds trust and credibility.
Moreover, Guanxi helps to grease the wheels of business. It can help to speed up the process of negotiations and make them smoother. Also, you will have a better chance of getting things done quickly and efficiently.
Last but not least, this Chinese practice can give you an edge over your competitors. If you have good relationships with the right people, you will be able to get information and resources that your competitors don’t have access to. This will give you a significant advantage in the market.
How to Build Guanxi
After one has understood Guanxi as a concept, the million-dollar question is how to build networks or personal connections in China. Well, here are four tips to help you.
- Focus on building trust on an individual basis, and don’t make the mistake of thinking that is associated with a big multinational, or a reputable non-profit organization automatically lends you credibility. The network process is at the individual level, and it is you, as a manager or leader, who must win the trust of influential people. Once you build trust with decision-makers, you’ll find doing business in China a more manageable and profitable enterprise.
- Ask someone who already has Guanxi with the person you want to meet to introduce you. First meetings should be in person and not over web chat, phone, or email.
- It takes time to develop Guanxi—and only fool rush in. Of course, you would want the decision quickly and would like to move from zero to ten on the scale of ten in a jiffy, but that’s now how things work in China. Building these personal relationships takes time, so you should start as early as possible.
- Guanxi is not a one-time act. Once you’ve established a relationship, continue to work on it to maintain it. You can depend on people with whom you have relationships when the headwinds are strong, and, remember, your partners expect nothing less from you.
Three Aspects of Guanxi in Chinese Culture
In China, Guanxi has three aspects. The first one is, it is a key component of business success, although it differs by industry and even geography. This means that investors must clearly understand this Chinese culture to form successful partnerships and achieve business success. The term is broadly used and has different meanings in different contexts.
In the West, well-paid professionals often break network deals in boardrooms. Deals are made based on financial considerations and legal contracts. However, things work differently in China. If you want a deal to go through, you will need to make efforts to know the person outside the boardroom as well.
In China, a lot of significance is given to one’s personal connection. Establishing personal relationships is essential for doing business and if you want to focus on attaining business success.
The second aspect is that Guanxi should be considered at different levels. This Chinese practice has three levels. The first level is between friends and family. This is the most basic level and usually does not involve any financial considerations. When it comes to business, this level is the weakest.
The second level is between people who know each other and have some sort of interactions, such as business partners, suppliers, and customers. They may not be friends, but they trust and respect each other.
This level is stronger than the first level, as both parties have something to gain from the relationship. The second level is based on trust and mutual benefit. A contract or agreement usually formalizes the relationship.
The third level is between people who do not know each other but are introduced by a mutual friend. This can include government officials or people from government agencies and the like. These types of relationships are often used in business deals. This level is the strongest, as a trusted third party has recommended both parties.
The third and last aspect is Guanxi can be good or bad. These business practices can be categorized into two types – positive and negative. Positive Guanxi refers to this level of building relationships based on trust and can be very powerful if it’s with the right person.
On the other hand, negative Guanxi is based on fear and can be harmful to both parties. It often involves threats, bribes, and extortion.
Most people in China have both positive and negative Guanxi. It is essential to know which type a person has before partnering with them. If you want to know more about this Chinese practice, it is best to speak with someone who has a lot of experience in China.
You will also learn more about Guanxi if you study the Chinese language, as it is heavily used in the Chinese business world and social circles. There are a lot of idioms and proverbs related to it that are difficult to translate into English.
However, by learning about Guanxi, you will better understand how business practices are done in China and how to build relationships with Chinese people or the Chinese society. This will also help improve your social status.
Conclusion
Guanxi is an important aspect of business in China. It is a complex concept involving trust, relationships, and mutual benefit. It should be considered at different levels and can be good or bad for both parties involved. Building relationships takes time and effort, but it is well worth it in the long run.
Thus, if you are doing business in China or looking to invest in China, it is vital to understand Guanxi. Establishing personal relationships and trust is essential if you want to have a direct impact when putting up businesses in China. This way you can achieve sales growth and market expansion. These practices can be a powerful tool if used correctly, but they can also be harmful if not used properly. Therefore, it is essential to use Guanxi wisely and with caution.
