Americans Negotiating in China: Guanxi relationships and foreigners – doorbell or skeleton key?

Part 1: Is guanxi a real thing? What is it?

When it comes to the value of guanxi in China, the international community is split between the true believers and the heretics. Believers share the Chinese conviction that guanxi is the single most important predictor of success in China, and that if you have the right connections then everything else is just a detail. Heretics think that while guanxi may indeed be quite useful for locals, it just doesn’t work well for non-Chinese.   Lately the skeptics have been rising in terms of both numbers and volume – warning that it doesn’t help all that much, and may cause problems.

What’s really going on here?
Let’s start with a quick definition. ‘Guanxi’ literally translates as ‘connection’ though it is often used to mean ‘relationship’ and ‘network’. When Mainlanders use the phrase among themselves, they are referring to a fluid network of cordial business obligations and debts – sort of an institutionalized version of ‘you scratch my back, I’ll scratch yours’. A person with a wide range of well-placed relationships, all of whom acknowledge their indebtedness and willingness to reciprocate, is clearly in a very advantageous position. Conversely, a person who lacks connections and is not in a position to do favors for new counter-parties is in a relatively weak situation. The worst position of all is one who owes valuable favors to a wide range of highly placed connections.

When Chinese associates talk to Westerners about guanxi, it takes on a slightly different meaning. Here the emphasis is on the ability to influence members of his network – to ‘make things happen’ and expedite profitable transactions or bureaucratic approvals. A common Chinese business aphorism – “Everything is possible but nothing is simple” – underscores the importance of guanxi in the Mainland. For a long time, guanxi was synonymous with “local knowledge” – but carried a strong implication of corruption and under-the-table inducements.

When the China economy was first opening to the world (up until the mid 2000’s), commercial laws were still haphazard, contradictory and opaque. In such a chaotic environment, a local ‘fixer’ was often required to prod bureaucrats and state managers to make a decision – and a certain amount of persuasion helped to ensure that the decision was a favorable one. There was a time when no one – Westerner, Asian, Overseas Chinese or Mainlander – disputed the need for guanxi. The only issue was locating someone who really had the connections to facilitate basic business transactions. China’s central government, however, was busily constructing what it hoped would be a strong legal system and a (relatively) transparent regulatory framework – and objected to the close connection between guanxi and corruption, bribery & misuse of state assets.

That is why Westerners in China often find themselves caught between two opposing views on the guanxi issue. On the one hand, locals still maintain it is the only way to get things done in Mainland China – and that without it foreigners will never overcome their status as rich but clueless outsiders. However, a growing community of experienced, knowledgeable international experts maintains that guanxi is an ineffective, expensive and ultimately counter-productive throwback to the ‘bad old days’ of a lawless, chaotic China where personal influence trumped laws and regulations.

So which view represents the reality in China? Is guanxi a real force that all business-people in China need to have, or is it a shortcut to scammers, cheats and regulatory hot water?

The Truth About Guanxi
Guanxi is extremely useful and powerful – as an information network. A broad, active web of plugged-in connections can alert you to people who are willing and able to help – but who have no idea how to find you and no other way of being found by you. A good guanxi network is like a combination road map and address book – that will enable help you engage exactly the right resource or decision maker. As a research tool, a good guanxi network is extremely effective and powerful.

As a skeleton key that will magically unlock doors, it is problematic. Yes, guanxi can open doors, but there are three problems: 1 – it won’t necessarily open the door you need unlocked. 2- When all you have is a key, all problems look like locked doors. You may end up rewriting your business plan because your guanxi connection leads you to a single type of resource or decision maker. And 3 – that door may lock behind you. Westerners who encounter problems in China are rarely suffering losses at the hands of complete strangers. The people gutting you of your investment, assets and IP are the very same ones who lured you in with promises of powerful connections and influential friends.

In short, guanxi can play a role in your Chinese negotiating, but you will have to monitor and decide what that role will be. Guanxi networks are great as information and networking resources. However, if you plan on using connections to open doors – or knock down walls – then you are going to encounter some major difficulties down the line. When you use guanxi as a shortcut in China commerce, the destination is usually business failure.

Part II: Guanxi for Foreigners: 10 Caveats

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Now on Kindle: Guanxi for the Busy American. A BRIEF explanation of guanxi and relationship-building, written specifically for the overscheduled American professional. Guanxi for the Busy American

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