Guanxi

Leveraging Guanxi for Business – Approaching the mindset behind Guanxi | Daxue Consulting

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Guanxi is one of the most commonly discussed topics in Chinese society. It refers to one’s set of social relationships, ties, or networks that can be leveraged for personal or professional purposes. Commonly misunderstood for bribery or corruption, Guanxi is a topic often oversimplified or stereotyped by Western understanding, especially in the context of business. In reality, guanxi is a complicated, multifaceted idea describing the complex set of social ties stemming from deep cultural values and social engagements in Chinese society.

Concepts such as individualism vs. collectivism, “face” or mianzi, and cultivation of good guanxi are all critical things for foreigners entering China to reflect upon. From the Western perspective, it is important to understand how Guanxi is a core virtue of Chinese social relations, yet universal for all humans in organized society worldwide.

There is no “step-by-step guide” for guanxi, but it is vital to approach its complexities with the right mindset. This requires proper discussion of its historical, cultural, and social context, for which we will delve into.

Chinese society is organized around guanxi circles

Guanxi consists of two characters. Guan(关) means a gate or hurdle of sorts, and xi(系) refers to a tie, relationship, or connection. While the combination of the characters means a relationship in a casual sense, we can see from the etymology that it literally translates to “pass through a hurdle and get connected.”

But guanxi is not just a tool used when there is some hurdle to jump through.

Chinese society is organized around concentric guanxi circles, extending from the family core to relatives, friends, and so on. As a collectivist society, China, and many other eastern societies, greatly value the circles in which they belong to.

Thus the concept of guanxi is not just an occasional utility, but a foundation at the heart of almost every realm of personal and professional life, from politics and business and from officialdom to street life.

Guanxi is like a network of neurons, the inter-tangling of roots and branches of a tree, the connectivity of veins that runs through our bodies.

Concepts of Guanxi are universal

The valuing of relationships is by no means exclusive to Chinese society. The enhanced focus on social connections does not mean throwing merit and personal achievements out the door.

Rooted in traditional Confucian values of integrity and righteousness, with a history of intense examination systems, the Chinese are no strangers to rule-abiding hard work. Yet, we cannot deny that interpersonal relationships are integral to every human society; you are an essential component of someone else’s network of bonds just as others are to your network. In every society, we treat those in our social circles differently than we do strangers.

The Chinese guanxi concept is founded upon this idea of inherent reciprocity – beneficial acts are not one way – helping out someone you know implies that the act should be returned, what goes around will come around as it is the principle of your guanxi circles to provide you a boost for social challenges. While we can see when Guanxi can be taken advantage of – such as infamous government corruption cases and special leniency towards children of the rich and powerful – leverage of powerful relationships can be seen in every society. For instance, the son of French president Sarkozy has a higher chance of getting elected, similarly, for former president George W. Bush, being the son of former president George H. W. Bush surely helped set him up for a presidential position.

Daxue Project Manager Wenqing reminds us: “I think it’s a very common misunderstanding among westerners that guanxi is something unique to Chinese only, but it exists in other different cultures as well, e.g., connections in North America are commonly accepted as a hidden way to acquire privileges in many aspects.

In China, due to the strong values of interdependence culturally and historically present in Chinese society, Guanxi tends to be more prominent.

Matthieu David, CEO of Daxue Consulting offers, “Guanxi relates to the trust, structure of society, and history in China – in what way are connections different?”

Understanding Individualism vs. Collectivism

To understand this difference, it helps to discuss the dichotomy between individualism and collectivism. Western societies are individualistic, with high emphasis on individual achievement, nonconformity, and personal vision. Business tends to be viewed strictly as an area that should be rid of friendships, which is considered an unfair bias. Whereas in a collectivist society such as China, trust plays an important role, and friendships are thus seen as an important component in business. China was traditionally a rice farming society, labor involving high levels of cooperation and interdependence. Therefore, unified purpose, centralization, and goal-directedness are core mindsets of guanxi that stem from the organization of eastern societies.

From this perspective, it’s easier to understand why business and personal relationships are intertwined in China. Guanxi often views business as a personal matter. This is where you may see gift giving take place in business to foster good relationships between business partners. It is a goal-oriented transaction where both parties must mutually benefit. Personal trust and positive feelings towards the other party are all factors that minimize risk, promote cohesion, and facilitate mutual understanding.   

In an article on Guanxi in the Journal of International Marketing, a Chinese sales manager states: “If we don’t know you, how can we trust you! Once you’re on the doorsteps, then we started to know you, then we open the door to talk business with you.”

Thibaud Andre, research director of Daxue Consulting puts, “Concepts of Guanxi exists anywhere in the world, but Guanxi is a concept worth talking about in China because it is the structure of Chinese markets to give more leverage to people nurturing their network, not because it is especially China-specific to try to nurture your network for business reasons.”

For example, even in a simple sales transaction, when a salesperson takes time to interact with customers, trust can be produced because a buyer can observe the salesperson’s behavior and assess their personality. Thus, interactions enable a buyer to foresee the salesperson’s future behavior with more confidence, which fosters trust.

We can see that personal affection plays a role in sales transactions in our daily lives. Thus, guanxi is often practiced, and it is clear that it is founded on a basic principle, even for societies that do not emphasize as much as the Chinese.

Guanxi-oriented management style

In addition to the rice-farming organization of eastern societies, the Journal of International Marketing also discusses how modern Chinese firms arose in legal contexts in which property rights and contract law were unreliable. Therefore, the cultivation of long-term, reliable guanxi and the adoption of a guanxi-oriented management style (guanxi management) builds the trust that is necessary to conduct business transactions and are essential for survival.

Guanxi extends to external business relationships. In the past three to four decades, Chinese firms in Hong Kong were largely based on uncles and cousins who lived overseas. Today, business contacts are friends, and much of business is based on personal contacts – whether that contact was originally a part of that person’s circle, or later came to be cultivated to be a part of it. Business relationships can even be largely informal since great importance is placed on personal trust.

Giving “face” – a component of guanxi

A face is an important social component in Chinese society that is strongly related to guanxi. Face or mianzi(面子)refers to a person’s claimed sense of positive image in relation to others.

Chinese society is strongly conscious of social context. This means the people are well aware of the consequences of their actions, their choices, and behaviors in relation to others.

Thus, the desire to “preserve face” describes a person’s proper relationship with his/her social environment – to preserve their image that way they will continue to be regarded as someone appropriate to conduct business with, and worthy of remaining in others’ respective guanxi circles.

Guanxi is built through long-term cultivation

Evidently, to create such strong and personal relationships is not a quick process. Such cultivation takes time and is an evolution of a series of personal exchanges and bilateral communication. The mutual benefit and reciprocity may be cultivated through favors or gifts. This material exchange is also often misunderstood because while material gifts may be exchanged, it is for the purpose of nurturing and fostering this complex implicit relationship.

This misconception is related to another East-West divide. Western societies may perceive gifts and “favors” in a negative manner, especially with regard to business. On the other hand, Chinese may view gifting to be largely interconnected with building the trust and positive personal relationship that is inherently a part of a business.

Growing Guanxi in China- Dining and Gifting

Dining in Chinese culture is a great place where business and personal relationships are built. While this seems obvious, eating is a vital aspect in Chinese society with a long cultural history of rites and social significance.

Good guanxi can be cultivated at the dining table in many ways aside from just conversation – how guests are greeted, seating arrangements, ordering courtesies, and payment – all are ways that one can show their respect throughout the course of a meal. It may help to view dining as the crossroads of guanxi – where business can be conducted, and friendships can grow.

Ed Fuller, an internationally recognized hospitality industry leader, shares in his Forbes article,“[In China] dining provides the stage where you can get to know associates, colleagues and potential partners while celebrating a holiday, a wedding or other event.  After all, as the local thinking goes, if you can’t find common ground in a setting like a festive dinner, how can you expect to have a deeper relationship when serious issues are involved.”

Gift giving is another controversial area of Guanxi in China, often seen as bribery. Rather than buying relationships, gift giving should be thought of as a way to build and foster relationships. More importantly, it is a way of preserving the guanxi ties that you already have to show your respect and value for them and to demonstrate your appreciation. 

COO Yuwan shares her insights: “Gifting in good and healthy guanxi also includes friendship elements, it can mean during festivals or holidays you could exchange your gifts, or when you’re traveling, you can bring something back as souvenirs for them to keep the relationship.”

Guanxi management: How should foreign businesses approach Guanxi in the Chinese market?

Building trust is essential and feelings of your Chinese counterparts toward you might play a more significant role in their decision, especially for the Western business partner. That being said, Guanxi should not be overplayed (showering the other with gifts, expensive meals, etc.).

Chinese partners are still extremely pragmatic. For example, in a joint venture, while Guanxi is vital to assure mutual understanding, it must ultimately show leverage balance – i.e. “how much do I need you, how much do you need me?” This balancing of leverage should be protected by the Western counterpart to ensure a healthy, respectful business relationship, more than solely trying to make the other party “feel good.”

A piece of advice from COO Yuwan when conducting Guanxi in China, “Doing business in China is not just about Guanxi but is about your ability and your resource. If you don’t have relevant abilities and resources and only have some connections, actually it is not real Guanxi. It is not about a name, but it’s about the history and overall context.”

Guanxi may be difficult to navigate for those unfamiliar with Eastern societies, yet as mentioned earlier, concepts of Guanxi are found in every corner of the globe. As humans, we all pose an inherent bias to help those socially connected to us. Just like how we chose to be friends with people that we like, business is preferred to be conducted with those that are trusted and familiar.

Foreign businesses should keep in mind that Guanxi will need to be fostered, and it might take time to do so. But rather than viewing it as a concept related to cheating and bribery, or thinking that it is the only factor in a business exchange, it’s vital to see guanxi as a core virtue of social relations in China, and a deeply human idea of valuing those in your respective circles just as they value you.

The influence of COVID-19 on business relationships

As personal trust and mutual understanding form the foundation of solid guanxi, in-person meetings and gatherings are important in contributing to this. However, the COVID-19 outbreak has certainly been an impediment to maintaining guanxi. One example could be dining, which is crucial to cultivating both business and personal relationships. The closure of restaurants due to the COVID-19 outbreak has certainly made an impact on this Chinese tradition. Even with certain restaurants open, social distancing measures have been implemented that prevent large gatherings. Dining gatherings are often incomplete without gifting, which seems to have a larger significance when it is done in-person. Shifting offline activities for maintaining relationships online has been a major change, and some may even choose to purchase gifts online and get it delivered to the receiver. Although in-person gatherings have been lessened, the networks of people and business can also be fostered by sending a personalized message to check in on them during this world pandemic.  

Author: Julia Qi


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