The Guanxi Factor

The most important rule on doing business in China is the guanxi factor or relationship (in translation). How do you cultivate guanxi with the business community in China? Our resident contributor, Kenneth Wong, offers his perspective on guanxi based on his experience working in Shanghai, China.

By Kenneth Wong, SHEN

In China, it is said that anything of consequence in business is done through “guanxi” 关系. With the appropriate “guanxi” (πÿœµ)., it creates a smooth path in wake of potentially cumbersome administrative procedures. In business dealings with the Chinese, knowing the ‘right person’ is of paramount importance. An uninformed foreign entrepreneur who arrives in China with a grand plan to make two/triple-fold profits in the first year would probably concede defeat and say a few months later “ Its taking twice as long to do anything. It costs twice as much. And from what we can tell, we will only make half as much profit, if at all”. Welcome to business in China.

“Guanxi” (πÿœµ).refers to the conduct of relationships, the art of “ you scratch my back, I scratch yours” socio-business culture in China. For example, if the signing of a contract has stalled in spite of the polite words of assurance and head nodding, it can be assumed that the proper relationship has not been developed; that one has not had the appropriate “guanxi”. This presents a big headache to the potential entrepreneur as a stalled initiative can mean months or even years or delay.

How does one get the appropriate guanxi? As I observe the influential people around myself over the past few months, I gather the following:

1. Being able to communicate across language barriers: If you don’t know the chinese language, at least make youself understood or get a friend who knows the language to go speak together with you. People could understand you speaking in English, but be prepared to pay a hefty price for that.
2. Gift exchange: Should you buy gifts for the appropriate official? Please note there is a fine line between guanxi and what some might consider corruption. This needs to be stressed because often, it is the small details that have a big impact on the success of building relationships. As mentioned by Michael Conolly, an expat in Shanghai, ‘ Learning to understand cultural expectations is not something that can be done overnight or by simply reading a book. Specific actions that allow one to develop guanxi in Chinese culture might seem to the Western mind improper but the basic premise is the same : Working with people who can be trusted is crucial to success.

Xin Bao Ping left his government position to start his private business in the mid-nineties. He now runs a successful financial consulting company and is author of “The Making of a Boss”, a book on business startups in China. In his discussion of some of the momentuous changes that have taken place in China in the last decade as well as the opportunities that have presented themselves, Xin stresses that guanxi is the most important factor in determining the success or failure of a new business. He further elaborates “This is not unique to the Chinese mainland, but is common to all Chinese societies.” A point to ponder: Is it likewise true in Singapore, with us being a predominant Chinese society?

In the current environment, the planned economy is giving way to a market economy while the regulatory infrastructure has yet to be fully developed. Says Xin “The old order is in disuse while the new order is being created, guanxi is there to keep order and allow things to get done.” Many entrepreneurs turn a blind eye to the gray area that exists between guanxi and corruption. Xin adds, “We need to face reality.”

The bottomline is, as entrepreneurs, we want to get things done. And done fast. In a recent interview of a small business owner from the US, it was asked,“What is the single most important thing a person needs in order to do business in China?” The answer was “Without a doubt, working with people you can trust.”

Kenneth is currently the President of SHEN, the Shanghai House of Entrepreneurs NUS and the Director of the Youth Chapter in the Shanghai Singapore Business Association. He is doing his internship as a corporate services consultant at Willsonn Partners, a fast growing CPA firm in China. He can be contacted at Kenneth@shentrepreneur.com or Kenneth.wong@willsonn.com or via Shanghai Mobile 86-21-13402065607

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