Much is made in some business circles about the importance of guanxi -- usually translated as relationships or connections -- in China business. However, while there was certainly a time when a company's success depended almost solely on the quality and quantity of its guanxi, Shawn He Yuxun of MeetChinaBiz maintains those days have passed for industries that have been marketized. He traces the recent history of guanxi and cautions that only those who stand to benefit from a mystified China tout this as an indispensable component for doing business there.
By Shawn He Yuxun
You might have heard of the Chinese word guanxi (pronounced guan-shee, literally meaning "relationship" or "connection") frequently hyped by many China consultants or "old China hands."
But don't relationships and connections play a role in business everywhere? Isn't this what "networking" is about? Is guanxi different? If so, how? And to what degree is it a "guarantee" for success in China? Is it a pervasive part of the business culture in China or merely "chic" among China consultants?
From the 1950s until the 1980s, every aspect of China's economic activity was planned, controlled and operated by the government. There was no private ownership of any property or asset, and, consequently, no profit motive for individuals or enterprises. The government would allocate everyone a pre-defined slice of the "big pie." (Incidentally the term for this in China -- where rice rules the dining table -- was da guo fan, or "rice in a big (communal) wok"). If any party wanted more than what was allocated to him/her, it meant circumventing that system and getting someone in that "allocation chain" to provide a special favor.
People were obliged to sacrifice their individual interests for those of society. Since any act of favoritism was a serious offense both legally and ideologically, those with influence would only risk their reputation, career or livelihood (or more) for those with whom they had extremely strong ties, or guanxi. Very strong guanxi were referred to as ying (hard) or tie (iron-like).
A system was effectively created in which anyone could leverage whatever resource or asset within their control to barter with someone else for a return favor in the future. To minimize the risk of "default" on these debts, this "barter" system only functioned within one's "iron guanxi" network. (I will use Guanxi with a capital G to distinguish this "currency" of mutual obligation from ordinary interpersonal relationships, or guanxi.)
When people sought such Guanxi in a hurry, they would say I need to "pull some relationships", or in Chinese, la Guanxi, pronounced la-guan-shee. (Interestingly, the English expression "pull strings" means something very similar.) Because you could never practically develop Guanxi in a short time -- it was an exceptional type of relationship that only existed among close relatives, friends and associates.
For obvious reasons, at the time la Guanxi was always coupled (and almost synonymous) with zou houmen, which literally means "enter through the backdoor."
Guanxi in today's China business culture
In the West, having connections, while very important, is usually not a sufficient condition on its own, nor even necessary in some circumstances, to accomplish a business objective. Sound business fundamentals would be prerequisite to doing a deal. A good preexisiting relationship only serves to facilitate a transaction that makes good business sense in the first place.
When China first embarked on economic reforms in the late 1970's, since there was no existing market-driven system to guide the economic flow, and since most transactional entities were state-owned, business was predominantly initiated through the Guanxi system. That was the only proven channel for one economic entity, be it an individual or a company, to interact with another that had not been a contact under the old system of government mandate.
Throughout the 1980s and into the 1990s, having Guanxi alone proved to be a sufficient, and in many cases indispensable, condition for getting business done, regardless of the fundamentals. With Guanxi, a completely unqualified person could land a very important job. Or, a company with no track record whatsoever could be awarded massive contracts. You get the picture...
As the economy has become increasingly marketized, privatized and competitive, the value and effectiveness of the Guanxi system has greatly deteriorated. In industries that have been substantially deregulated or privatized, or where there is vigorous competition, business is business, and Guanxi has been neutralized or marginalized. The role of relationships or connections now resemble that which we find elsewhere.
During an AeA event co-sponsored by MeetChinaBiz in July 2007, Greg Shea, president of United States Information Technology Office (USITO), a Beijing-based US advocacy group for the information and communication technology industry, described the state of Guanxi in those sectors: "Don't let those consultants scare you into thinking you'd still need Guanxi to play in that market nowadays. It is [nonsense, nonsense, nonsense]."
That same advice holds true for importing most any consumer product from China.
MeetChinaBiz (www.meetchinabiz.org) is both a business network and a platform to inform, educate and enable small and midsize companies to turn China into an opportunity. Since 2002 it has organized a dozen trade visits to China and numerous executive roundtables and matchmaking fairs in a dozen US cities across the East Coast and Midwest, directly benefiting thousands of companies in their cross-border sourcing, selling and investment endeavors.
