Guanxi Impacts on Business and Business Relationships

Introduction

Doing business in foreign nations requires the concerned party to engage in negotiations with various other parties. Such parties have different cultural and ethical approaches to negotiations compared to those who are prevalent in a company’s nation of origin. For China, guanxi comprises one of the most important cultural business norms that are central to Chinese society. Based on the position that guanxi demonstrates an important business relationship that is peculiar to Chinese society, this paper discusses the effects of guanxi on business and business relationships in China about the case of conducting business in Australia. It also discusses considerations that are necessary for foreign business people concerning guanxi when negotiating with the Chinese people.

The Meaning of Guanxi

Organizations wishing to do business in China need to understand several Chinese approaches to business cultural norms and concepts with regard to business relationships such as renqing, Guanxi, Xinyong, and Miazi. These concepts mean “reciprocity, personalized connection, trust, and face respectively” (Wilson & Brennan 2010, p.653). In the negotiation table, they help in determining whether an organization will strike a business deal with a Chinese-based organization and/or the government.

Among the four concepts, Guanxi qualifies as the most research cultural norm for doing business with the Chinese people among the western-based companies seeking to yield success in the Chinese business market environment. The concept describes various connections and networks, which people call upon whenever they want to have particular things done by others who can exert a direct influence. This implies that Guanxi refers to personalized connections or relationships in which an individual can prevail upon another in search of favor, or even be prevailed upon when another person seeks goodwill and/or service (Rivers 2009, p.478).

Impact of Guanxi on Business and Business Relationships in China relative to doing Business in Australia

In the western and Chinese cultures, the concept of social networking is essential in the success of any business negotiation. However, in the two cultures, business relationships do not develop through similar mechanisms. From the paradigms of Australian negotiation approaches, even though the major business focus inclines on Asia, Australian negotiation approaches and values are more similar to Canadian, American, and/or British approaches relative to the approaches and practices adopted by the Asians.

This implies that doing business in China requires an organization to adopt approaches for business negotiations that are consistent with the Chinese business culture based on the norm of Guanxi. Nevertheless, this does not imply that relationships and networks are not important in Australia. Rather, the form of relationships and their impacts of striking business deals on the two nations are different.

Personal relationships with influential people in negotiation processes are important in China. Wilson and Brennan (2010) support this assertion by claiming, “in terms of doing business in China, it means having, as part of guanxi network, an influential person in an organization or more often in a government position” (p.652). Since guanxi is founded on the need for reciprocation for a favor, unlike in Australia, an organization has higher chances of striking a business deal.

However, this claim only holds when such an organization has established good relationships with persons in other organizations that it is negotiating with on the condition that the person to whom a business favor is sought trusts such organizations to offer a favor should such a need arise in the future. The underlying claim here is that the concept of guanxi has the impact of making people in China sacrifice the needs of an organization in favor of friendships unlike in Australia where the need for organizational success and prosperity supersedes personal friendships.

In a study conducted by Rivers (2008), Chinese participants were requested to provide information on the manner in which they viewed their personal friendships in comparison with their mandates to enhance the attainment of organizational goals relative to their objectives and motivations. Rivers (2008) confirms, “Participants emphasized that their first obligation was to their friends rather than the company and said they would have to manage the impact of their business actions on their personal relationship” (p.8).

This highlights the importance of guanxi in business relationships involving the Chinese people. In this context, Melendez (2007) and Hu (2009) bring out the aspect of ‘face’ as it is applied in the Chinese culture as a source of prestige that in turn comes in handy in the Chinese businesses. Melendez says, “People with good face are generally dependable, reliable, and safe to do business with” (Melendez 2007, Para. 4).

In the Australian context, even if personal friendships or aspects such as facial appearance are important, they are not prerogatives for doing business. Opposed to using and the importance of guanxi in China, the concept of mateship is important in Australian business relationships.

A mate is a term for endearment between various friends although it may also be extended into relationships involving business negotiations in Australia. However, the impact of guanxi on business and business relationships differs from the same impact on mateship. In Australia, business between two parties may proceed without hitches even when the parties have not ever had any personal relationships. The parties establish relationships as the business advances.

From the above discussions, the impacts of guanxi on achieving a win-win negotiation rests on the ability of a foreign party to build a culture of developing friendly relationships with the negotiating individual from the Chinese negotiations team. This implies that when an organization replaces an individual in the organization that has established a friendship network with the Chinese people, it becomes difficult to find an immediate replacement without jeopardizing the negotiation process. To this extent, the effect of guanxi is that no person can precisely pick from the negotiation point at which the dismissed person left.

A person fitting exactly in the vacuum will have to establish friendships with the negotiating team first. The case for Australia opposes the reality of negotiations involving the Chinese parties. In Australia, if a company introduces new people into working business relationships, such people are embraced easily to constitute parts of the business partnership. However, similar to guanxi approaches, dependability, trust, and integrity are essential aspects for building long-term business relationships.

The negotiation attitude and styles characterizing the Australian negotiation approaches are similar to those that are inherent in guanxi. Australians engage in friendly debates with the principal objective of arriving at a common agreeable solution of mutual benefits to the negotiating parties. Compared to the Chinese approach to negotiations, as prescribed by guanxi, Australians believe in win-win negation results. Hence, similar to one of the impacts of guanxi on business and business relationships, Australians anticipate reciprocation of trust together with respect for business relationships’ contractual terms.

In China, “guanxi interaction is the exchange of rewards and benefits for focal actors” (Chen, Chen & Huang 2013, p.176). These similarities reveal perhaps why it is easier for Australia to strike business relationships with Asia, in particular China, in relation to other western nations in terms of their likelihood of establishing business relationships with China.

Consideration of Foreign Business People concerning Guanxi when negotiating with the Chinese Parties

Foreign people negotiating with Chinese people for a business need to consider various approaches of Chinese parties in negotiations. One of the important approaches to negations adopted by these parties that are ingrained within the paradigms of guanxi is the Confucian aversion in the approaches to orientation and/or law guiding the establishment of interpersonal relationships. In this context, Ghauri and Fang (2000) observe, “Chinese believe in people more than contracts” (p.322).

However, it is important for foreign people negotiating with the Chinese to understand that even if Chinese people believe in other people, with respect to guanxi, they only pay key attention to persons with whom they have established relationships and personal networks. Ghauri and Fang (2000) advise foreign firms seeking to strike business deals with Chinese parties that they “need to take a people-oriented approach and try to establish high-level trust with Chinese partners” (p.322). The success of Ericsson in the Chinese market perhaps well reveals the effectiveness of this advice.

Foreign business people also need to understand the influence of Chinese stratagems in shaping guanxi. The stratagems, ji, describe long-lasting traditions for Chinese people, which shape the strategies adopted in Chinese business behaviors. The Chinese business stratagems borrow from the military strategies developed by Sun Tzu. They involve schemes that are principally adopted to enable the Chinese to handle different situations in the quest to acquire material or psychological advantage compared to an adversary.

This claim confirms why Chinese people engage in negotiations with a win-win or win-lose mentality where they must not be the losing party. Ghauri and Fang identify “deception, conquering by strategy, creating a situation, focus, espionage, benchmarking, shared vision, extraordinary troops, flanking, prudence, flexibility, and leadership” (2000, p.310) as some of the Chinese stratagems adopted in the military interventions and defense. Similar stratagems are also adopted in business negotiations where such need arises. The main concern of foreign people seeking to do business with Chinese people should then be on how to lessen the stratagems. Guanxi is the answer to this challenge.

Based on types of relationships and connections existing between Chinese and potential business partners, Chinese people adopt different negotiating approaches. Where there are trusted relationships, they believe they have an obligation to “help their friend if the negation left the friend in an unsatisfactory position” (Rivers 2009, p.479). This implies that winning a negotiation case with Chinese people initiates the establishment of mutual trustful friendships with members of the negotiating team. Wilson and Brennan (2010) claim that Chinese people spend considerably a large amount of time attempting to establish guanxi support.

According to the authors, guanxi assumes the forms of “web of personal connections, relationships, and obligations that business people can use to obtain resources and advantages, and the exchange of favors or the purchase of influence” (Wilson & Brennan 2010, p.654). This calls for outsiders wishing to do commerce in China to create sustainable guanxi by focusing on individual relations. This would entail putting effort to develop individual links and contacts with the certain prominent person (s) within an administration where one seeks to establish commercial dealings or even institute interactions with government high-ranking personalities.

Business negotiations involve the exchange of goods and services at a price. Hence, it is important for foreign business people to understand the Chinese approaches to price negotiations within the context of guanxi. Price is difficult, but an important factor during the process of making business deals and negotiations. Negotiating a price with Chinese people is more difficult than it is with western nations and Australia. Based on the cultural norm of the Chinese business behavior under the inspiration of guanxi, Chinese people pay critical attention to sincerity and trust. Ghauri and Fang (2000) state that any drastic reduction of price by a foreign organization seeking to strike a business deal with the Chinese people attracts suspicion (p.321).

Hence, foreign business people need to understand that such a move will reduce their credibility in the face of the Chinese negotiator. This undermines Xinyon as an important aspect of guanxi. Dismissal of a request to offer a price discount also amounts to an insult to guanxi, which can be reciprocated by calling into action an appropriate Chinese stratagem as soon as a foreign organization endeavors to do any business with the Chinese people.

Conclusion

Success in striking a business deal with Chinese people through negotiations depends on the capacity of the foreign negotiating party to build friendships and relationships with the Chinese negotiating parties. This underlines the importance of guanxi during business negotiations involving Chinese parties. Guanxi advocates for settling for a business deal and relationship in favor of a person or an organization, which has a friendship or relationship network with the influential person(s) within a Chinese-based organization that is negotiating for a business deal with the organization. Although such networks are important in Australia, doing business with Australians does not primarily require the establishment of friendships with influential parties in negotiating teams.

References

Chen, C, Chen, X & Huang, S. 2013. ‘Chinese Guanxi: An Integrative Review and New Directions for Future Research’, Management and Organisation Review, vol. 9 no.1, pp. 167-207.

Ghauri, P & Fang, T. 2000. ‘Negotiating with Chinese: A Social-Cultural Analysis’, Journal of World Business, vol. 36 no. 3, pp. 303-325.

Hu, H. 2009. The Chinese Concepts of Face. Web.

Melendez, J. 2007. The Concept of face in Chinese Culture. Web.

Rivers, C. 2008. Negotiating with Chinese: Their Views on Tactics and Relationships, Paper submitted to the 21^st Annual Conference of the International Association for Conflict Management, University of Chicago, Chicago, USA.

Rivers, C. 2009. ‘Negotiating with the Chinese: EANTs and All’, Thunderbird International Businesses Review, vol. 51 no. 5, pp. 473-489.

Wilson, J & Brennan, R. 2010. ‘Doing Business in China: Is the Importance of Guanxi Diminishing?’, European Business Review , vol. 22 no. 6, pp. 652-665.