guanxi in China

Business in China: an introduction into Guanxi

Guanxi, guanxi, guanxi. Anyone who has read about China’s business culture has inevitably come in contact with the concept of guanxi. Chinese have it, consultants in China can’t stop talking about it, and others are trying to figure out how to attain it. But, what is guanxi and who really uses it?

Guanxi: a close-knit network

It’s challenging to put guanxi into words. However, a standard definition refers to guanxi as interpersonal connections. Other descriptions include tight close-knit networks, and my personal favourite: gate or pass. But, let’s keep it simple and define it as a close network of people whom actively exchange (business) favors. You might look at it as a personal network you would have at home, but then of more significance and importance.

Having a network – regardless of where you live – is important and often crucial when trying to find new customers or a new career for example, but in China a good network carries even more weight. One important reason for the pervasiveness of the guanxi system in China is the lack of a strong institutional system. Hence, in a nation that traditionally depended little on laws, personal networks have been key to getting things done.

The importance of guanxi when doing business in China

Because guanxi plays an important role in doing business in China, it is of importance for organizations to handle their guanxi well. As a Chinese business man once said: “If you have guanxi, there is little you can’t accomplish, but if you don’t..you’ll be standing in front of closed doors, cueing in line and falling victim to long administrative procedures.”

The Chinese expression “duo yige guanxi, duo yi tiao lu” (~the more contacts, the more options) therefore says it all. Because the judicial system in China is still comparably weak, having the right guanxi can provide protection and leverage. However, be aware of people who over-use the phrase. Guanxi is important, but it is not all-decisive neither should your business be based on it. Having “good guanxi” should never be used as an excuse to not write up a contract or skipping a quality control check.

Guanxi is especially useful for smaller companies and private companies. The rule of thumb is, the bigger the organization, the less important guanxi becomes. This is due to big organizations naturally attracting guanxi to themselves. In other words, power and guanxi go hand in hand. A good example of a company that used guanxi to get into the Chinese market is Ikea, which even has its own ‘guanxi manager’ that helps to create and maintain a strong network with relevant government officials.

There are however also companies less successful in dealing with the Chinese; for instance, Microsoft was regarded as arrogant and not aware of the importance of guanxi, resulting in a bad relations with the Chinese government. This caused Microsoft to lose a big share of their business in China. They learned it the hard way and have fortunately since then built up strong relations with the government and as a result Windows is now also in China the main operating system on personal computers.

Will guanxi still be useful in the future?

Some argue that guanxi will diminish over time, due to both increasing competition in business and an increasingly stronger legal system. As the founding father of the republic of Singapore, Lee Kuan Yew, once stated: “Chinese use guanxi to make up for their lack of rules and transparency”. Using this vantage point, you could say that when laws will be more enforced, guanxi will matter less. And there is truth in that, as we can see guanxi is losing its importance because of the recent crackdown on corruption.

Nonetheless, it still plays an important role in Chinese society. Therefore, learning more about guanxi and how to use it is useful to anyone aspiring to do business in China. But keep in mind: your business’ success will not so much be dependent on your guanxi, but on your product, service, people and market, amongst others. The same principles apply to business in China as anywhere else in the world.

Duco van Breemen

Duco van Breemen

Duco is project & marketing manager at Launch Factory 88. He has lived in China since 2008 and has worked with both state-owned and private Chinese and foreign enterprises.
Duco van Breemen