Monday, April 9, 2012

Guanxi and Business in Mainland China

Above: Only 1087 Terracotta Soldiers have been found. Let me introduce Terracotta Soldier No.1088.

Guanxi and Business in Mainland China

Chinese are known for their hunger for education. In mainland China expensive MBA and eMBA programs have become a top fashion. Learning Porter and other gurus, and finance, then workshops. Certificate and title.

Often the main reason to join those programs is not learning the western business issues. It is the hope of making extensions to personal Guanxi net. Participants know, that in Chinese business the product (or service) is only 50%, the other 50% is Guanxi, relations.

MBA and eMBA programs in China talk about Guanxi, instructors have certainly thought about it. But instructors from Singapore, Hong Kong, U.S. or even from mainland China can't teach it as they have no personal experience about making deals in mainland China and Guanxi's role in it. Teaching Guanxi, probably nobody can, skills grow by experimental learning.

It's not a new invention. Thousands of years ago Confucius talked about "reciprocity", Yi, the root of Guanxi. In the past Guanxi used to be the basic construction element of social structure in China. The origin of Guanxi is exchanging favors which includes many kinds of help, from housing to jobs. Old times Guanxi was slow but not static, it was a lifelong process. Today, Guanxi is more than the links, personal networking or connections, or Linkedin, Facebook or other communities, or lobbying, or consulting.

Today's Guanxi has become essential business enabler in Chinese market economy. It occupies the core of Chinese business culture. Products compete with features and prices, then Guanxi differentiates, and directs the selection.

On personal level good Guanxi gives access to information, influence and wealth.

Before market economy era, business in China was different. It was possible to sell high margin products which were not necessarily matching to customer's need, just if Guanxi was done right (100% Guanxi).

After a decade of transition towards market economy, learnings have made Chinese buyers less humble, and knowledgeable of what they want. Matching products are now needed. Evolution of Guanxi is continuous. And for foreigners, it's deepness, method and practice will remain sort of mystery.

Chinese mainland companies climb the value-add and have created hyper-competition with their narrow profit margins. Greed has become part of the new picture.

For success, to transact in mainland China, the product needs to be right, the price needs to be competitive, and Guanxi must have been carefully built, agreed, and in place. Each of these element must be taken care of. Not a small task.

Many believe China is getting closer to Western business ways based on sales process and buying process, but Guanxi makes, and will remain, the difference.

It is kind of art, or science. It's about trust. It's personal asset, private, but it's still a network. It can be old and permanent or new and situational. It's about favors given and to be paid back, based on emotional linkage. It's about mutual interest and win-win. When stakes are high, it provides excitement. It's sophisticated, and it's hard to describe as detail series of activities.

Guanxi is not bribing, but it for sure can initiate it and be inter-related, especially if the favor is paid back in cash. Cases can be very complicated. Guanxi professionals are called, by Chinese, 'snipers', as they can reach the target and enable wanted result. They are mainland Chinese with continuous touch and understanding. They often are highest level professionals with wide range of abilities.

Guanxi may require money resources. Guanxi may involve private meetings with no memos. It can be in a very ambiguous format. Sometimes the needs and favors are not communicated openly. Personal ability is needed to read each others mind correctly and quickly, in a situation. Some are more able than the others.

Guanxi leads to gentlemens' agreement, which is stronger than signed documents as an agreement. In business, Guanxi is related to selling and buying, but internally it can be part in organizational promotions, and when roles and tasks are assigned. At highest level Guanxi can even take use of media and sets rules which enable reaching the goals.

1. Long term connections based on
- Childhood friendship
- Family ties, kinship
- Social connections: classmates, grandfather’s friend, friend’s friend

2. Short term relationships based on exchange of short term benefits. Guanxi can be built and it can die right after the benefits become realized. In this case there is no personal appreciation towards each other in the relation. Persons involved see that the advantage is used-up, and there is no need to keep relation further.

3. Evolving new relationship. People are changing, their positions are changing. Nobody has 100% fixed Guanxi. Continuous build-up and maintaining efforts are needed. High-level business trainings like eMBA and MBA programs, are vital in providing opportunities for participants to have new ties, thus extending personal Guanxi network.

Purpose of Guanxi is to seek convenience and access to business opportunities. Guanxi itself is in the focus, the transaction is result of good Guanxi. Once the favor is offered and accepted, the other party is normally expected to pay back. People who receive favors have to be careful before accepting them. They need to estimate if they will be able to pay back. In here, Chinese innovation is strongest.

Guanxi is targeted towards/with the persons who have the influencing and decision making power. Usually Chinese negotiations take long because of Guanxi.

Relations are always important in the business. In the West, laws, rules, regulations and systems are different, but version of Guanxi can be found. Influence the influencers, Right message to the right people, by professional consultants.

In the West, influencing influencers is an open way of working. In China, working on Guanxi is private and confidential. Western theory is not the same as in Chinese Guanxi as there is no obligation of favor payback and there is no element of innovation.

Foreigners have only little hope of participating Guanxi in China. Even a foreigner with very good Chinese language skill, will not be able to understand and interpret hidden nuances of that part of Chinese communication. Foreigners may speak Mandarin but they don’t have the ability to read Chinese mind in a way natives do.

A foreigner, who can understand Chinese culture and knows about Guanxi, a LaoWai, may become a problem by raising questions if not understanding the context.

LaoWai may be seen as a risk by Chinese colleagues, if some things which are meant to be hidden and confidential, become recognized but not accepted.

Foreigners can't and are not expected to handle Guanxi in person, it's too pure Chinese art. For foreigners it's enough to know about it, but let mainlander Chinese master it. Foreigners can better contribute in other roles.

1. For deal-making foreigners have two roles in China: technical information provider, and to participant in public events and open meetings. Often foreigner's role is no more than just “decoration”, overall limited to ritual.

2. For business development in China foreigners with their knowledge and decisions have the key role. Such activities and judgments are crucial. They should learn to be careful, not to become 'used'. Then their main tasks should be to safeguard the bottom line and to provide technically acceptable solutions.

3. Western way of management in Chinese branches and fluent communication with the headquarters needs foreigners.

Sales in China needs Chinese personnel, industry knowledge, and Chinese way to deal with partners, prospects and customers. Western CRM systems to map sales details are not wanted as Guanxi is too personal to open up in any situation. Skillful and wide scale Guanxi is a company benefit in doing business in China.


For multinational corporations in China, Guanxi is a daily must. Their business influence helps them having access to higher level Guanxi. Corporates invest on PR units (sometimes called Corporate Relations) with professional relations managers to take care their established social assets, Guanxi.

MNCs might establish Chinese research units as part of developing social relations. MNCs should understand that Guanxi can't help in product innovation. Published 'gift policy' is often just decoration to those who are not aware about Guanxi issues.

For SMEs Guanxi is more based on limited personal connections. Effective Guanxi builder becomes the key force for the company business. Motivation is important. There are many cases about.. when the Guanxi person leaves, soon only empty SME office is left.

When planning business entry into China, companies need to consider Guanxi when recruiting personnel and selecting partners.

To estimate Chinese persons's potential ability to Guanxi contribution, these are some important factors: family, grow up environment, education, personality, ability to make friends, trustworthiness, social flexibility, ability to deal with different kinds of people, smart with fast brains, persistent, and humble when needed. Those persons know their value. How to find and motivate such a person to work for you in mainland China?

WTO can help to regulate Chinese business environment but it will not change Chinese way of domestic business. China will be modernized with Western technology, but it will not abandon Guanxi in its social context. In China the product (service) is still only 50% and Guanxi the other 50%.

Rule-of-law societies don't prepare well for Chinese Guanxi. There is no training for Guanxi except living and doing sales transactions with Chinese in mainland China. No MBA or eMBA program can help to prepare for complex Guanxi situations that might be ahead. Learning Guanxi is always a personal process, a real life process of building face galleries, tapping into private information, learning about wants and needs and readiness.

In today's China, Culture Revolution still has a strong role in business. Those who survived, went through a pressure-cooker and came out even harder. Today many of them holds a leader/decider/advicer position in enterprises. Wrong steps are not allowed. Ability for high-level Guanxi will be a measurement of your company.

Like everywhere, ability to estimate business situations is not coming easy. Guanxi is the key but not the only factor. To success, many issues needs to be understood and 'click': hierarchy, sensitivity, MoQi, indirect communication, sharing, meeting process, mentality, image building, management, quality and standards, industry experts, society relations, and competition.

Chinese Guanxi is not "a thing of past", it is alive, dynamic and dominating. We will see Guanxi evolution in business in China. Guanxi is Chinese art/science and core of the culture at its finest and deepest. Guanxi is the key enabler for business in China.

Will Guanxi become cornerstone for Chinese business development and sales abroad, in U.S. and EU? Most probably yes. Will Guanxi be able to provide breakthrough into western customer base, to break loyalties between old business partners? To be seen, probably yes.

-- BeijingMan


Terracotta Army in Xian
PICTURE STORY - Searching for Clay Soldiers

Over 500M people have already seen Terracottas before I did my trip to Xian in Shaanxi Province. My trip was just few days. Xian has 8M people, it's capital of Shaanxi Province, 36M people.

XianYang International Airport was far (40km) from city. Weather was dusty and city felt crowded. Private sightseeing was easy and not overpriced. Xian's city wall looked good. Trip photos below.

Above-1: Xian. Main street seen from hotel.

Above-2: Xian. Main street.

Above-3: Xian. Main street.

Above-4: Xian. Main street.

Above-5: Xian. Main street.

Above-6: Xian. Main street. A wedding model.

Above-7: Xian. Main street.

Above-8: Xian. Main street.

Above-9: Xian. Sweet eatings, sweet earnings.

Above-10: Xian. Still counting.

Above-11: Xian. Slippers.

Above-12: Xian. Goose heads?

Above-13: Xian. City center.

Above-14: Xian. City center.

Above-15: Xian. What's hot?!

Above-16: Xian. A fashion show.

Above-17: Xian. Big Wild Goose Pagoda was originally built in 652. This is officially rated as AAAA (four*A) tourist attraction.

Above-18: Xian. At Big Wild Goose Pagoda.

Above-19: Xian. At Big Wild Goose Pagoda.

Above-20: Xian. At Big Wild Goose Pagoda. Not enough lift.

Above-21: Xian. At Big Wild Goose Pagoda. Weather was a bit too dusty for my eyes and throat.

Above-22: This is HuaQing Hot Springs, 30km from Xian. During Tang Dynasty (618-907) this was the place for romantic affairs of Emperor XuanZong and Ms Yang Guifei.

Above-23: HuaQing Hot Springs. Statue of Yang Guifei. Emperor XuanZong visited here for her over 30 times. Hmm.

Above-24: HuaQing Hot Springs. Lotus-shaped imperial pool & coins.

Above-25: HuaQing Hot Springs. Pool info, click to enlarge.

Above-26: HuaQing Hot Springs. Nine-Dragon Lake: the dragons.

Above-27: HuaQing Hot Springs.

Above-28: Xian and Terracotta Army. Actually, replicas.

Above-29: Xian and Terracotta Army. Working with the army.

Above-30: Xian and Terracotta Army.

Above-31: Xian and Terracotta Army. The owen.

Above-32: Xian and Terracotta Army. Outcome.

Above-33: Xian and Terracotta Army. Clay ladies are my favorite.

Above-34: Xian and Terracotta Army. Weather was a bit dusty.

Above-35: Xian and Terracotta Army. Clay soldiers are here. It is said that altogether 8000 clay soldiers was made during 12 years by 1000 men by the order of China's founder, first emperor YingZheng.

Above-36: Xian and Terracotta Army. Tourist group.

Above-37: Xian and Terracotta Army. Clay soldiers, made in 300 B.C. Manufacturing process was modern: first the parts, then assembly, and finally personalization.

Above-38: Xian and Terracotta Army. I bought a book "Awakened Qin's Terra-Cotta Army" and autograph on it by Mr. Yang, the farmer who found clay soldiers in 1974. Autograph came by additional price, Mr Yang didn't get a finder's fee.

Above-39: Xian and Terracotta Army. Pretty static and silent view, but proof of it all long ago.

Above-40: Xian and Terracotta Army.
- Add this to to-do list.

Above-41: Xian and Terracotta Army. It's bye-bye to Terracotta Army and Xian. Clay soldiers stand straight and clean and life goes on.

Xian and Terracotta Army
+ Xian City Wall
+ Terracotta Army has many tourists but no long queues
- Airport is far from city center

© BeijingMan 2016

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