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Guanxi in Chinese means connections. Anyone in business in China may tell you his or her own experience with the importance of Guanxi for success. Last December, I went to China to sign a book contract with a publisher. The name of the book is "How to Finance Your Business Dreams". I asked a friend of mine, an executive vice president of a financial institute in China, to review the book for me. After glancing at the table of contents, he joked: "Are you sure you need to write a big book like this to tell people how to finance their business dreams? I bet mine is much simpler and works better -- Find a Guanxi, period."
What is Guanxi? What is the impact of the Guanxi to a foreign corporation operating in China? How does it work and what are the pitfalls to avoid? For thousands of years in Chinese history, muchstudying has been made by scholars and politicians toward a so called theory of Guanxi, and hundreds of books have been written on this subject. It could take a lifetime to become a master of Guanxi, if you are lucky!
To understand this subject, we have to know that Chinese culture is based on an ancient agriculture society where favors go back and forth among neighbors, friends and relatives -- you lend me a hand in the spring, and I then work for you in the fall. All through life, people knit a virtual net of various types of Guanxi by marriages, school alumni associations, townsman's clubs, and so on. In China. Guanxi may last very long; sometimes you may be able to collect rewards for what your grandfather did for others. Guanxi can be inherited just like any other asset.
Americans are also networking, and trying hard to establish connections. However, Guanxi is different in these two cultures. I once traveled with a client of mine to China to evaluate a joint-venture opportunity. We were treated very well by our Chinese counterpart. After a couple of days, my client get worried. He said: "We did not get anything accomplished except gain weight after all those banquets." Here I would like to point out a subtle difference of cultures. For Chinese, hosting a banquet for guests is not only the best way for the hosts to show their hospitality and respect to their guests, but it also is a way to establish mutual trust, or Guanxi. In addition, for business people, a dining table is not a place for topics like weather or sports. Important business issues are often talked about and decided over a dining table. One must work harder to digest both the food and the conversation.
For 45 years, China has been a socialist country. In such a society, business decisions aren't necessarily based on profitability or other capitalist criteria. My American clients often ask me what the official rules are to do this or that in China, and I tell them the official rules. They follow these rules and it doesn't always work out for them. People then get confused by the practice and discouraged by the complication of the business environment in China.
It helps to realize there are front doors and back doors in China. The front doors are open for people who follow the rules. In most cases, this process is bureaucratic, slow, and confusing. Often, government officials aren't motivated to get their jobs done. In addition, partly due to the rapidly changing political and economic situation in China in the last decade, the government changes rules too frequently for an outsider to follow.
Normally, official rules and procedures in China are rough sketches and leave too much leeway for the officers in charge. Depending on when, with whom and where you are talking to people, you might get different answers. This is where back-door practitioners come in. The back doors are open for people with the right Guanxi. It works like this: Find a Guanxi who has access to the decision makers, make a deal with the decision maker privately, and then go through any official procedures to close the deal.
In certain cases, Guanxi is the only way for access to key resources or influential decision makers. What my friend said about finding a Guanxi to finance your business dreams is exaggerated, but it is a useful clue. For example, the interest rate of bank loans in China is set by the People's Bank Of China, and for past few years interest rates have been lower than the inflation rate. In this case, debt financing is a winning game. The front doors then are virtually closed to people who follow the official rules applying for a loan. Finding a Guanxi and going through the back door is more efficient. |
