Doing business overseas? You better have good Guanxi

The art of Guanxi in China can make or break your entrance into the business arena. It is a practical method of introduction and reputation-building that either opens doors if successful or nails them shut if it all goes wrong!

So what is Guanxi? Guanxi is a method of conducting business in a way that fits perfectly with Bourdieu’s concept of social, economic, symbolic, and cultural capital insofar as who you know, what you have, how you display it, and how you interpret other’s around you. Business transactions are not just governed by legislation, but by definite rules that are easy to understand… as long as you have someone to explain them to you! Also, business relationships are based upon trust, and having a Guanxi partner means that you’ve got a foot in the door. Without it, the door would remain firmly shut. However, once you’ve earned the trust of another, they are bound by duty to show you the way; as long as you’re prepared to honour any request they may make of you in the future.

In a Western business model, there are comparisons that we can draw upon, but nothing as structured and complex as Guanxi. It is structured in the sense that it is well defined, and those in the know are well versed in their roles and duties. Unfortunately, its complexities arise from the fact that it’s an unwritten rule of engagement; whether you know the rules or not, you still need help into each arena.

Imagine starting a business in a new location. Would it be easy? To a Westerner, having a helping hand is useful but we could go it alone. In China, starting a business in a new province would be near impossible without having a residence card for that location, or someone in possession of one to act as a gatekeeper. Even when you’ve gained the trust of an individual, you’re constantly at the mercy of your friend’s reputation. If they lose ‘face’, you can lose out too, especially if your Guanxi relationship is still in incubation, like a very expensive domino effect.

A very good example of how powerful Guanxi can be in full operation is the one of McDonald’s vs China. In the early 1990’s, McDonald’s opened their largest outlet yet in Beijing, renting government land in a prime location that covered 28,000 sq.ft. A local businessman in possession of a great Guanxi reputation made a request to the government; he would put the area to better use by building a shopping plaza. His reputation was that impressive that he was granted rights to the land plus permits to develop it, regardless of the contract that was in place for the fast food chain to operate there. No matter how many local people they employed, no matter how much revenue they attracted, the profits of McDonald’s would leave Chinese shores and head to the U.S. whereas the local businessman offered opportunities for local people, with profits re-entering the Chinese economy. Legal backing was no match for Guanxi networking!

So how can we use these cultural differences to our advantage? Well, by simply observing the rituals and nuances that each nation, even region possesses, if remembered and applied, links and networks can prosper rather than flounder at the first hurdle. Knowing your potential partner and understanding what they are gaining from the partnership can earn you extra points that make you stand out in a crowd.

However, as the global community of business becomes smaller as communication links improve and the digital era reduces commuting time; less face to face discussions are happening. Knowing a little bit more than your client’s email and Skype address can lead to a more familiar and productive working relationship.

So next time you’re dealing with an overseas client, especially from a different continent, search for cultural points that you can learn. You never know, applying new cultural qualities to your own productivity might just add an extra dimension that your competitor is lacking in.


Written by Heather McNamara, Client Services