Guanxi is one of the most important concepts to understand if you want to do business successfully in China. Helena Beard, MD of Guanxi, gives her thoughts on her own experience of guanxi.
Guanxi (pronounced ‘gwan-shee’) describes the personal trust and strong relationship built up between two people which allows them to do great business together. It can often also be used to describe your network, both social and work related.
If you have good guanxi with someone, you have a moral obligation to each other. You will put the guanxi first, above all else. Above getting the best deal for yourself. Above squeezing the margins or achieving the maximum profit. Above looking professional or doing everything perfectly. The guanxi you have with your business contacts is your super power.
How do you build guanxi?
To build guanxi takes time and commitment, but most of all, it requires you to have the right attitude. You can’t rush guanxi or simply decide you’re going to go out and get it. You have to believe in it and invest your time and energy in it.
So what might this look like? Let’s start with an example of what guanxi isn’t. In the West, you might expect that if you take a business contact out for a lavish dinner, or get them tickets to the Wimbledon final, you could reasonably expect them, in return, to listen to your pitch or your business proposition. You wouldn’t necessarily expect them to hire you or invest in you, but you’d expect them to give you the time of day. Because you spent money on them, right?
In China, that approach is less guanxi and more simple bribery. It doesn’t hold real value. Indeed, it could be seen as verging on corrupt, depending on the level of spend and the viewpoint of the recipient and, as such, can fall into ‘bad guanxi’. Something you want to avoid. To achieve authentic guanxi with your business contact, your relationship will be built up over time, through a series of favours, perhaps small, thoughtful gifts, maybe inviting them for supper at your home, being generous in sharing your business contacts, offering up your time to talk and listen, or helping your contact achieve their own personal goals, such as improving their English or researching a good school for their child. There are no immediate paybacks, but there is a moral obligation implied.
How does guanxi make you feel?
At its strongest, guanxi makes you feel safe, held, and confident that someone else has your best interests at heart. Of course, there are levels before that. Some of your network will simply be available to call upon if you need assistance. Some of your network will never ask you for anything. But this is still your network and it is still powerful.
One of the most wonderful things about guanxi is, surprisingly perhaps, the freedom it gives to explore new ideas and be entrepreneurial. Because of guanxi, no idea needs to be out of your reach. Imagine, for example, that you are an architect with a dream of starting an online business selling, say, craft beers by subscription. You have no experience in e-commerce, you don’t know how a subscription model makes money, and you know nothing about beer. Where would you go? Your local Chamber of Commerce? A business course? Your local networking club? All of these come at a price and take time.
In China, your first port of call would be your network. You don’t know anyone with any of these skills, but you ask around. And your network will kick in. Someone will vaguely know someone who is married to someone who will help you. They will help you, not even necessarily because they think you will help them in the future (although, of course, you will if the opportunity arises), but because they are in your network and they may need help from the network themselves at some point. What goes around comes around. Perhaps guanxi is one of the reasons China is such an innovative and entrepreneurial nation.
What is the difference between guanxi and cronyism?
It’s a thin line in terms of output, but it’s a rather thicker line in terms of motivation. I would say that guanxi is more giving (with the hope of receiving in the future but without this being the motivation for the individual act). Cronyism is more self-interested and built on privilege. Cronyism helps individuals climb the ladder. Guanxi helps you climb many ladders together.
So guanxi is all I need to be successful in China?
No, of course not. No matter how good your relationships and your network, if your products or service quality is poor, or your pricing is out of line and your distribution strategy misaligned, you’ll still fail. But the important thing is that, with the right guanxi, you can rely on your Chinese business network to tell you where you’re going wrong and give you all the help you need to put it right.
To find out more about the cross-cultural challenges of doing business with China, read another of our articles here.