Is Guanxi on the Way Out of Chinese Negotiation? Part 2 of 2

Chinese negotiators see guanxi as a competitive advantage – and that’s not going to change.

Is guanxi on the way out?  No, but it will change – particularly as it relates to Western negotiators in China.

Last week we looked at the positive and negative aspects of guanxi from the perspective of Chinese negotiators.   The take-away is that while local Chinese may have their problems with the restrictive, unfair, and corrupt aspects of guanxi, it is a practice that is deeply imprinted on the Chinese businessman’s DNA and is unlikely to go away any time soon.  It matters to Chinese negotiators – so it matters to you.

Westerners are well familiar with headlines about “bad guanxi“, so we assume the importance of guanxi is waning – or at least perceived as a universal negative like corruption or taxation.  But is that a reasonable belief?

Is guanxi really on the way out?  Yes and No.  And No again.

Yes, guanxi is diminishing in importance for some types of negotiations.  The more Chinese business develops and internationalizes, the more opportunities there will be outside of traditional networks.  Among Chinese elites, it will be business as usual – so if you are looking to change the way a telecom does business or need a railroad to do something new, you’ll still require a hefty supply of Moutai, KTV favorites and red envelopes  .  But if you are looking to do standard business and bringing value to the table, you should probably focus on the positive aspects of guanxi – like relationship building and networking – that are analogous to business practices in other parts of the world.  China is becoming a more competitive place for both foreign and local companies.  As China’s economy changes – and certain industries & regions slow – local negotiators will become much more accommodating and aggressive.  That will help some foreign companies, but not everyone.  It depends on the value you offer and the negotiating skill you bring to bear.  Foreign companies with cash, technology and/or access to international markets are in demand, and your ability to throw back a shot of baijiu or observe traditional etiquette won’t matter that much.  If you don’t have much to offer, all the good manners in the world won’t help you.

No, guanxi is here to stay.  Chinese people like guanxi.  It’s integral to Chinese culture and just feels right.  The ability to build and maintain a network of connections is a valuable and respected skill, and Chinese businessmen are proud of their facility to develop strong ties with important contacts.  Honest Chinese businessmen want guanxi to change – not go away.  They would like to see bad guanxi go – including corruption, nepotism, inefficiency and opaque decision-making.  But as for the networking, relationship-building, and due diligence aspects of guanxi, they see absolutely no reason to alter the standard operating procedure.  It works just fine for them, and if you can’t manage it then that is just another competitive advantage that the Chinese negotiator enjoys on his own turf.

No again.  Before 2008 it really seemed that China Inc. was heading for international integration, a la HK, Singapore, or Taipei.  The entrepreneurial class was on the rise, the state sector seemed to be diminishing, and Chinese still looked Westward for their models of success and inspiration.  What a difference a financial crisis makes.  Post 2008, China is not only more confident in its own abilities and institutions, but also much more skeptical of the West’s. (Credit reports and transparent transactions didn’t seem to help the international business community much.) SOEs are back on top, and the private sector has been focusing on domestic business.  Manufacturers that rely on exports have been having problems with weak overseas demand and international inflation.  China has succeeded while the rest of the world stumbled, and Chinese business consider guanxi to be part of that success.

The takeaway for international negotiators in China:  Guanxi may not help foreigners much, but it can hurt you if you get it wrong.  Managing relationships and guanxi in China is part of the job, so it is your responsibility to be competent.

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

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