Guanxi: asset or liability?

Many traditional manufacturers face rising costs such as spiralling wages, higher energy expenses, and other cost-drivers. Consequently, they all hold office as obstacles to a good functioning business. As a result, to alleviate this issue, which has cost many their careers, one option presents itself to them: doing business in China. This is why, for decades now, we have been witnessing a big phenomenon of outsourcing towards China, since they are facing an intensified emulation coming from globalisation.In order to be more competitive, businesses had to put in place numerous strategies and one of them has grown as an indispensable theme in organisation and management structures in today’s economies: guanxi (social networking).

A social networking tool that permeated every corner of Chinese society is guanxi. Guanxi is a Chinese word that can be translated into “networks” or “connections”, but neither of those terms sufficiently reflects the wide cultural implications that it describes. Despite the positive aspect that guanxi brings to the Chinese business environment, it nonetheless has some ethical issues that will be addressed later on.

THE CONCEPT OF GUANXI

The concept of guanxi developed naturally out of Confucianism, with its emphasis on creating hierarchically appropriate associations among society members. This means it sees an individual as part of a community and a set of family hierarchical and friendly relationships. In particular, there is a focus on tacit mutual commitments, reciprocity and trust, which are the grounds of guanxi and guanxi networks. That is why it is often defined as the fundamental dynamic in personalised social networks of power and therefore is a crucial system of belief in Chinese culture. Nonetheless being a core idea of China’s culture, it has its influence in business, mainly in Mainland China and corporations owned by overseas Chinese present in Southeast Asia.

To begin with, at its most basic, guanxi describes a personal connection between two people in which one is able to prevail upon another to perform a favor or service, or be prevailed upon.  It refers to the benefits gained from social connections and it can go from, for example: extended family, school friends to workmates, members of common clubs or organisations.  It is standard for Chinese people to cultivate an intricate web of guanxi relationships, which may expand in a huge number of directions, and includes lifelong relationships. It is not necessary to stay in contact with all the members of your network since it is based on reciprocal obligations that can be called favors or services. It is the key to maintain one’s guanxi web, but failing to reciprocate is considered an unforgivable offense. Guanxi can perpetuate a never-ending cycle of favors. 

Moreover, to better understand guanxi, this term is not used to describe interpersonal relationships within a family, but an individual may view and interact with others in a way that is similar to their viewing of and interactions with family members. For example, a relationship between two friends can be likened by each friend to being a pseudo elder sibling-younger sibling relationship, the friend who sees himself as the ‘’younger sibling’’ will show more deference to the friend who is the ‘’older sibling’’. Respect, loyalty, dedication, reciprocity and trust are the founding elements of guanxi, but also the fact that it mirrors the concept of filial piety, which is used to ground familial relations.

BUSINESS AND GUANXI

Guanxi, first being understood on a personal scale as we elaborate previously, is the foundation of our understanding of guanxi into a corporate structure. In China, in a business context, guanxi occurs through individual interactions first being applied on a corporate level e.g: a friend’s father’s youngest brother is friends with the human resource manager of a well-known bank, a connection is created therefore one can ask for information and it feels safer because it is reliable information. Thus, it is logical to seek a sense of connection with business associates because they have interpersonal ties, which helps to facilitate the relationship between the two businesses involved in this interaction. In addition, guanxi also acts as an essential informal governance mechanism, helping leverage Chinese organisations on social or economic platforms. Some structures of local governments and government policies may make business interactions less efficient. This is where guanxi plays a role, it can serve as a way for businesses to avoid such institutions by having their members cultivate their interpersonal ties. Hence guanxi is important in two domains: social ties with managers, suppliers, buyers, competitors and other business intermediaries; and social ties with government officials at various national government-regulated agencies.

Furthermore, given its expensive influential power in the shaping of business operations, one of the main perks of guanxi is that it can be a crucial source of social capital and a strategic tool for business success. Thanks to a good knowledge of guanxi, companies obtain secret information, increase their knowledge about precise government regulations, and receive privileged access to stocks and resources. Knowing this, Western countries and others that trade regularly with China should improve their cultural competency in regards to practices like guanxi. In doing so, such countries can avoid financial fallout caused by a lack of awareness regarding the way practices like guanxi operate. 

However, it can also form the basis of patron-client relations (patronage). As a result, it creates challenges for businesses whose members are obligated to repay favors to members of other businesses when they cannot sufficiently do so. In following these obligations, businesses may also be forced to act in ways detrimental to their future, and start to over-rely on each other. Adding to that, if the ties fail between two businesses within an overall network built through guanxi, the other ties comprising the overall network have a chance of failing as well. It may also violate bureaucratic norms, leading to corporate corruption.

ETHICAL ISSUES OF GUANXI

While guanxi can bring benefits to people directly within the guanxi network, it has also the potential to bring harm to individuals, societies and nations when misused or abused. For example, mutual reciprocal obligation is a major component of guanxi. However, the specific date, time and method are often unspecified. Thus, guanxi can be ethically questionable when one party takes advantage of others’ personal favors, without seeking to reciprocate. It is common for business-government relations, for instance: in 2013, a Chinese Communist Party official criticised government officials for using public funds of over 10,000 yuan for banquets. This totals to approximately 48 billion dollars worth of banquets per year. Therefore, it allows for interpersonal obligations to take precedence over civic duties. Despite guanxi being an efficient information transmission channel to help guanxi members identify potential and trustworthy partners, it also offers a safe and secret platform for illegal transactions. Guanxi norms help buyers and sellers of corrupt benefits justify and rationalise their acts. Likewise, this question is especially critical in cross-cultural business partnerships, when Western firms and auditors are operating within Confucian cultures. Western-based management must exercise caution in determining whether or not their Chinese colleagues and business partners are in fact practising guanxi. Caution and extra guidance should be taken to ensure that conflict does not occur as a result of misunderstood cultural agreements. 

Even though people are aware of this matter, awareness does not translate into the ability to change. Guanxi is right at the core of Chinese culture; it is central to high-context culture. The very foundations of Chinese culture would have to change for people to stop bamboozling the issue of guanxi.

To sum up, guanxi is a double-edged sword. When properly practised, it can bring great benefits to individuals and organisations within its networks and be a valuable business asset. However, if abused or misused, guanxi can bring harmful outcomes to individuals and organisations involved, moreover, to a whole society. In addition, it can also be an enormous liability because there is an obligation to return favors to the people in the guanxi circle.

This Post Has One Comment

  1. Purnima

    Outstanding article, carry on….chachi and Chacha

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