Unlocking the mystery of Guanxi: doing business in China

When people first start contemplating doing business in China, there are many challenges that are discussed, and a variety of opinions that will gush forth about everything from giving gifts, using chopsticks and attempting a few phrases in Chinese.

Along the way, it won’t be too long before another mystifying concept is encountered: Guanxi.

This Chinese word - and what it supposedly really means, particularly in a business context - is a topic that frequently causes great discussion and, at times, heated debate.

I won’t attempt to provide an all-inclusive and exhaustive definition of Guanxi from a dry academic or etymological perspective, but rather, in hopefully more simple and pragmatic terms, I offer some guidance on why the word and its meaning should not cause any particular alarm or worry, and conversely should be eagerly embraced as a natural part of doing business in China.

I am often asked about the single most important piece of advice for New Zealand companies wishing to be successful in China, compared with other markets. Well, first you must be able to enter preliminary business discussions with a proven and well-practised ability to tell a credible story of who you are, and why listening to you is going to be of value (even if they don’t buy from you). Only when you cover this can you move on to a discussion about your products. Being regarded as a ‘trusted partner’ is far more important than just about anything else in China. And part of this is that potential hand grenade of a word, Guanxi.

In most western countries, a sales call is simply a sales call, and it is expected that after a very few brief pleasantries the discussion swiftly moves into the real reason for the meeting (as one notable business lecturer calls it, the ‘3D’ sales meeting - Demo, Dinner and Discount). But the well-trodden classic sales call won’t get you very far in China.

This is because in China the topic of ‘who’ is more important than the topic of ‘what’, at least during initial business discussions. So the sequence should be: first cover who, then move on to why, then lastly cover the what. The reason for this is closely connected to Guanxi.

So what exactly is Guanxi? Like many non-English words, there is no exact translation. But this does not prohibit us from appreciating its deeper meaning, in the same way we do with other commonly used non-English words such as mana, macho or harem, for example.

In an effort to simplify things, some say that Guanxi translates into ‘connections’ or ‘relationships’. Others inappropriately use Guanxi as some kind of euphemism to replace an unethical and perhaps illegal business relationship, or even worse, to describe an ability for someone to ‘influence’ a business deal to go a certain way in an underhanded way, eg, “Hey, I know this guy, he has great Guanxi and if he can’t fix your problem no one can.”

I personally believe all these miss the mark. The concise explanation I prefer is in The End of Cheap China by Shaun Rein, which describes Guanxi as a ‘circle of trust’. From a business perspective, this is the most accurate and useful definition I have come across. When I think of Guanxi, I visualise a medieval chain tunic with each ring in the chain one person’s Guanxi, or circle of trust. The circles of trust interconnect and overlap, and work to protect the whole, and rather than a solid inflexible piece of armour, the chain is fluid and functional.

China remains an emerging market, with an emerging commercial legal system, so the importance of personal trust and subsequent referral-driven business is higher here than in markets where common law and tort law are well established and purchases are made on an assumption that advertising is generally true. In China it is imperative to first gain trust to win business. And the larger the dollar amount involved the commensurately higher level of trust that must be accrued.

Guanxi is an asset, a kind of wealth, and the ability to exchange Guanxi with others can be likened to maintaining a healthy balance sheet. In order for someone to vouch for you, there has to be some corresponding benefit for them and a very low risk factor as well. There can be no reputational damage at stake. This brings us back to the importance of establishing both company and personal credibility long before launching into product- and feature-drenched presentations or pricing discussions. And when establishing credibility, it is vital to make a genuine attempt to tantalise the listener with reasons on how their stature (their Guanxi ‘balance sheet’) amongst peers will improve by getting to know you.

By viewing Guanxi primarily as the ability to call on credible and notable people in your network in China who can be vocal advocates and champions on your behalf, you will have transformed from one who fears a mystery concept into one who relishes the many benefits that come from investing in the considerable time it takes to cement durable relationships. In China, such a tangible investment is valued above most everything else.

This article was first published on www.theicehouse.co.nz. Reproduced with the kind permission of New Zealand Trade & Enterprise (NZTE).