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Business Guide

• Guanxi

'Guanxi' (pronounced "gwan-shee" and Chinese characters "关系" ) is one of the most important elements of doing business in China. The direct translation to English means "connections" and "relationships". However, the concept as it is used and applied in Chinese culture is much richer and encompassing. The term describes the basic dynamic in personalized networks of influence, and is a central idea in the Chinese society with long historical and cultural roots. It is understood and utilized by virtually every Chinese person in greater or lesser measure.

At its most basic, guanxi describes the relationship of one person to another, or one party to another. However, more importantly the term also expresses an obligation of one party to another, built over time by the reciprocation of social exchanges and favours. If one has "guanxi" with another, one will be quick to do a favor, act on another’s behalf and depending on the depth of the relationship, do anything necessary for the other party. By establishing this type of relationship with someone, the other party is implicitly agreeing also to be available to reciprocate when the need arises. In such a way "guanxi" can be considered as a type of currency that can be saved and spent between the two parties. Like money, it is a resource that can also be also be exhausted, so one must be sensitive not to overextend the "guanxi" that has been established.

The reciprocal nature of "guanxi" and its implied obligations is the main reason why Chinese are reticent to engage in deeper relationships with people they do not know. To begin such a relationship may put you in a compromising position from which it is difficult to withdraw. Additionally, to establish "guanxi" with someone who later proves unworthy will also tarnish that party’s reputation, so the Chinese would rather not begin a relationship with someone they do not know. Finally, in establishing "guanxi", that person or party may want to know up front what they hope to gain from the relationship, to insure they are not contributing effort or services without gaining something in return.

For foreigners, no matter how much experience you have in western business management, the right “Guanxi” in China will make all the difference in ensuring success. The inevitable risks, barriers, and set-ups you’ll encounter in China will be minimized when you have the right “Guanxi” network working for you. It takes time and experience in order to be able to observe and identify who will be most beneficial to you. Developing and nurturing “Guanxi” requires time and resources. Your immediate Chinese network can indirectly link you to new acquaintances and information resources.

The Chinese and Western cultures conduct business differently, even if, on the surface, transactions seem to be the same. With a strong "guanxi", you can be trusted and even favored. This relationship extends between companies and also between individuals at a personal level on an ongoing basis.

Establishing “guanxi” with high rank officials is also helpful. Although Chinese companies are increasing having to survive without government subsidiaries, many foreign companies still need strong relations with government officials. For example, the process of obtaining a new license to market your products in a new region of China is greatly accelerated and much less expensive with the right connections.

The time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often much more valuable, especially in the long run, and when you’re in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). While this practice may seem intrusive, as you spend more time learning the Chinese culture, it will become easier to understand and take part in this practice that is so central to successful Chinese commercial activity.

 

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