Guanxi

Guanxi is a Chinese word for which the closest English synonyms are connections and relationships, although neither of these words best encapsulates the broader cultural implications that guanxi represents. It refers to the dynamic and complex nature of friendships, trust, interpersonal relationships, and the construction of closed family relations, or a joined network, which are all deeply rooted in Chinese society.

One aspect of guanxi networks that can hinder foreign companies is the requirement for personal introductions.

Some have described it as “friendships with an exchange or continual exchange of favors,” while others have referred to it as “the social interactions within the network place and its members in the equivalent of an infinitely repeated game with a set of people they know.” It offers special relationships between people who need something and those that have the ability to give something. In summary, guanxi can be regarded as friendship with implications of continued exchange of favors.

Even though the use of guanxi networks skyrocketed after the 1979 reforms in China, and the concept started appearing in business publications in the West in the 1980s, the term has deeper roots. It involves a relationship between two individuals or organizations containing implicit agreements that are neither officially acknowledged nor written down. It is based on the fact that there is a high degree of trust and reciprocity involved, i.e., if one offers a favor today, it is with the belief that it will be returned in the near future, whenever the individual needs it.

Guanxi has been identified as one of the most critical factors in doing business in China, regarded [Page 799]as a source of sustainable competitive advantage, acclaimed as aligned to the concept of relationship marketing, and extolled as the future direction of business practices in the 21st century.

The right guanxi is shown to be a vital factor in business negotiations, bringing a wide range of benefits, including securing rare resources, bypassing the bureaucratic maze, obtaining information and privilege, selling otherwise unsellable goods, and providing insurance against uncertainty and risk when problems arose.

Tim Ambler describes how guanxi systematically unfolds in a business setting. He notes that

Guanxi has been shown to have negative consequences as well. Some have viewed this phenomenon simply an emotional desire for the pursuit of self-interest. When such a network violates bureaucratic norms, it can lead to an “under-the-table” form of corruptive behavior. This can lead to, among other things, an “old boys' network,” uneven income distribution, briberies, kickbacks and imperfect legal systems. When it takes precedence over civic duties, it has been shown to lead to nepotism and cronyism. Many experts also predict that guanxi's role in business is likely to diminish eventually as China moves to a more open market system in this century.

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