Guanxi (pronounced GWON-shee) is a term synonymous with doing business in China, and anybody who wants to succeed in China needs to know how to employ guanxi to their advantage.
However, many Westerners new to China find it a difficult concept to grasp. Literally translated, guanxi is nothing mysterious that cannot be rendered in the English language; it means simply “relationships” or “personal connections.”
Guanxi is not entirely foreign in the Western business community. Many businesses in the West use personal relations to their advantage. The difference is the connotation, usage and scope of these relations. However in China, understanding how to use guanxi can make the difference between mild success and a great success.
Why do Koreans, Japanese and Taiwanese operate more smoothly in China? It isn’t because they’re Asian; they know how to gain guanxi and employ it, because it operates similarly in Japan and Korea, and to a much stronger degree in China.
Guanxi implies power. A popular Chinese expression is “If you have guanxi, you can do anything.” Many a Chinese citizen’s worth in business is measured not by any talent, but more by whom that person knows. A person who knows people is valuable because they can always get their foot in the door and secure access to the means of resolving problems and deals.
Chinese, whether it be in the government or business, have an intense mistrust of “outsiders” – swindlers are everywhere in China! Consequently, the only person one trusts are those within one’s guanxi circle.
Business deals are generally made based on these guanxi connections, because they are the only ones they believe they can trust. Trust is a valuable commodity: it is more valued than talent. Although to some this might reek of nepotism, the scope of guanxi can be quite large and extend away from an individual by several people.
The main people in the guanxi circle are the family and extended family. These people are given priority above all things, and this is sometimes true in the West. The difference is that a son, in the West, who obtains his job because of his father is looked down upon, whereas in China many people would admire him. Who your family is can make a huge difference. If your father was a criminal, you are usually disqualified for any job, and if your father is a bureau chief in the government, you are qualified for anything because you have guanxi.
The next group of people would be friends and classmates. Classmates are extremely important in China. Chinese maintain relations their entire life with classmates from elementary school, middle school, high school and university. Sometimes, they may not even remember each other, but if one says they were classmates, they are automatically connected. Unlike in the West where relations with classmates is often analogous to being strangers, classmates in China are second to family and mutually assist each other over a lifetime.
The next group is the hometown or dialect groups. This is not significant any longer for major metropolitan areas in China, but in medium-sized cities and in southern China the most important question one wants to know is “where are you from?” In the West, generally there is not too much special preference for home-towners, but in China there is a strong preference.
Anyone from these groups are given strong support in business.
To observe business dealings in China is to find a web of guanxi mixed into the whole deal.
The next issue is how to employ guanxi.
Let us use a hypothetical situation: Mr. Li wants to sell banking software to banks in China. Instead of making sales calls or talking directly to every bank CEO in China, he will search among his existing guanxi for a connection with someone of influence. Perhaps Mr. Li doesn’t have direct guanxi with anyone significant, but he does have a friend Mr. Wang whose former classmate, Mr. Zhang B, is a cousin of the Vice-Minister of Commerce, Mr. Zhang A. Mr. Li would have Mr. Wang call Mr. Zhang B to arrange a meeting with Mr. Zhang A. The invitation would be polite coded terms such as “invite you to dinner” means one is looking to build his guanxi with you and “I would like to hear your expert opinion” means one is looking for help. Mr. Zhang A will clearly understand these encoded terms.
Even if Mr. Zhang A were uncomfortable with meeting Mr. Li, he would dare not reject the invitation because he would cause his cousin, Mr. Zhang B, “to lose face” in front of his former classmate. This is important due to two issues: firstly, helping friends is seen as an ethical imperative and performing a favor on behalf of a friend ensures later one can do the same. Secondly, for a person in the guanxi circle of high status, he is ethically obligated to support those below him; furthermore, he often is assured that position by the support of those below him. Therefore, when a friend or relative comes knocking, one must answer, but in the future they can do the same, and expect full support and loyalty.
Guanxi is thusly based on an endless loop of favors.
Mr. Li may have successfully had the meeting with Mr. Zhang A, but his connection with Mr. Zhang B might not be trustworthy enough to close a deal. Sometimes guanxi is only enough to get one’s foot in the door, especially if it is as convoluted as the aforementioned example. In such a case, Mr. Li’s goal would be to build his guanxi with Zhang A. If Mr. Li is a smart man, he will research Zhang A’s interests and likes. On first meeting him, the rule of the game is simple: make Zhang A happy and do not discuss business. The entire meeting goal should be to “make friends” and everything is put in friendly terms (although both sides are cognizant of the other’s intents).
Mr. Li will likely present a thoughtful or highly-luxurious gift such as high quality golf-clubs or a rare bottle of rice-wine depending on the individual’s interest. This will put Zhang A in a difficult position: he cannot reject the gift, but the meaning of the gift is “I just did something nice for you now you should do something nice for me”. In this way, it can be seen that this type of meeting is couched within terms of friendship, and discussions are more centered on interests than business.
From Mr. Zhang A’s perspective, he couldn’t care less which company provides his banking software. In his eyes they are basically the same. “If it looks the same, it is the same”. And although one system might be a much better buy, the guanxi he gained from another company might be more valuable than any financial and efficiency savings. Therefore, Mr. Zhang A is more likely to chose the person who has a better or closer relationship to him. If Mr. Zhang A uses his power, he can force all banks in China to purchase Mr. Li’s banking software; this kind of deal makes Mr. Li indebted to Mr. Zhang A for a major favor outside of business. Therefore, a year later Mr. Zhang A may call on Mr. Li to do banking security software for free or to help him do a business deal.
These practices are somewhat similar to what happens in the West, but with some significant differences. Chinese often perform favors in the natural expectation that a favor will be returned. If a favor isn’t returned, there is a strong sense of shame and “loss of face.”
Losing face is a major factor in guanxi because it is the consequence of not performing one’s obligations in this, what seems to some outsiders, a farce of a relationship. Losing face is the biggest dishonor one can suffer.
Preserving face leads to people going to extremes – for example, maintaining a marriage when one’s spouse is blatantly not providing fidelity (which is as common in China as it is in Western societies), because divorce is usually a major loss of face within Chinese society. Consequently, Mr. Zhang A would never call Mr. Li out on his insincere gestures of friendship, because not only would he cause Mr. Li to lose face, he would also lose face because he was rejecting these prima facie gestures of friendship.
Rejection can occur, however, but a rejection is rarely declared directly, but it is increasingly common due to changes in Chinese culture. Generally, for example, if a favor is requested, a negative response will be “I’ll definitely consider it” or “I’ll see what I can do.” These are all sentences which state they will make an attempt, but they neither promise nor deny the favor. At other times, a rejection will come in the form of being ignored or through deferring a decision. “I can’t make such a decision, unfortunately, but I’ll bring it up with my boss.” These are clearly and simply translated into normal Chinese as, basically, “no.”
Now the final question is, as a Western business person dealing with Chinese, how do you employ guanxi to your advantage? In my experience at Illuminant Partners, I have had to use guanxi to perform many tasks from getting meetings with high-ranking BOCOG officials to interviews with important media outlets. In the West this may be seen as an inability on my part to perform my job, whereas in China if you cannot use your guanxi you have no ability.
My fellow Illuminant partners have the same challenges and opportunities every single day at work. We all strive to understand the complex web of relationships at work in China, and to use them for our clients’ advantage.
Remember the following things:
Everyone in China is a potential resource
Everyone you meet has the potential one day of becoming a useful business asset. Get to know what they know, so you can employ them later.
If you are going to be doing business in China – and I don’t care how old you are – learn to speak Chinese. You automatically are given a huge amount of credit, trust and respect even when you speak the most basic Chinese. If you don’t speak Chinese, you’re almost always dismissed as a foreigner who doesn’t know the first thing about China.
Treat people to dinner often. Inviting someone to dinner and paying for it is a couched term for “I want to build up my guanxi with you so you can do me a favor later.” This ingratiates someone in your favor to be called upon later.
Do not directly discus business until you are familiar
Money is dirty in China although everyone loves it. Discussing money and business is considered uncivilized and unbecoming. Talk about fun things.
Drinking is essential
Drinking, just as in the West, is an essential tool. However, if you’re going to be doing business with older Chinese (in their 40s or older), you better be prepared to drink baijiu. The older generation grew up on baijiu, and despite the fact that is may sometimes taste like nail polish or industrial chemicals, drinking baijiu has symbolic cultural meaning as the drink that “brothers-in-arms” drink. So bottoms up!
Don’t be afraid to pool your friends resources
If you don’t know anyone who can help you, ask your friends who they know. It’s not impolite in China as it might be in the U.S.
Never say “no!”
Never say never. It is the worse thing you can say, because it causes people to lose face. Always say phrases that are non-committal or avoid it. If someone ask for a favor that cannot be done, then answer “I’ll seriously think about it” or avoid it altogether by saying, “Let’s not talk about business now. Let’s have fun.”
Never allow anyone to lose face in front of others
Go out of your way to prevent any loss of face. Never point out another’s faults and do not directly contradict them. To do so, not only will cause him to lose face, but might make him an enemy, and worse, if you do this consistently, you will lose face because you will be considered arrogant and uncompassionate.
Never talk about problems
In the West we talk about problems, but in China you imply problems. One of the biggest mistakes Westerns make is that they directly talk about problems, which when coming from the mouth of a foreigner, it is construed as a criticism of Chinese, which makes all Chinese lose face. Instead, talk about the positive side of things first. Afterwards you can add “There is, however, one miniscule problem that I’m sure you’ll rectify… We can help you with this problem.” Everyone will understand you, and you will come off as being a generally positive person.
In conclusion, the use of guanxi is essential to your business and communications success in China, and aught be viewed as a distinct cultural differentiator to Western modes of business and relationships.
Article by Illuminant Partners account manager Christopher Heselton