The Importance of Guanxi when doing business in China

Insights on China in the twenty-first century. (4/7)

During my recent trip to China, as part of my MBA studies, we (a t4am of four fellow students, and a translator) partnered with a privately owned enterprise in Shanghai, that was involved in manufacturing construction tools and equipment. Through this I experienced first-hand the true importance of trusting relationships, or as the Chinese call it ‘Guanxi’.

Strong, successful long-term business relationships in China are anchored by strong personal brands.

Before we arrived in China, we had great difficulty connecting with the partner organisation via several modes of communication (emails, WeChat, Phone), so getting a deep understanding of the company and the challenges they wished for us to address was near impossible. As such the team made it our first priority to focus solely on building personal relationships once we arrived at their Headquarters in Shanghai. In this case Guanxi was particularly important as the company is a privately owned, family business (as opposed by a State Owned Enterprise, which have somewhat different rules of engagement).

Our contact was slow to warm to us initially, his role in the company was under scrutiny due to the challenges he was facing in breaking into the Australian market. He was sceptical about how we would approach the project, and not very forthcoming on any particular stances. We spent the morning telling him about our own stories — our backgrounds, history, families, where we lived in Sydney and what we liked so far about China. The ice started to melt. Over lunch we spoke at great length about his daughters experience with school in Australia, the musical instruments we all learned as children and several other personal anecdotes. It seemed like we were talking endlessly about anything other than the task at hand.

It was following these exchanges that our contact really began to open up to us about the challenges he was facing — his presentation changed from a generic sales pitch to beginning to hone in on what the various problems could be, no holds barred. We still had no clarity on what the real project was and what problem we were required to solve, but by the end of the first day, but we had made progress.

We experienced similar scenarios when meeting with other representatives of company, culminating in our final afternoon at Headquarters meeting with the Chairman. By this stage he presumably had heard stories of our group and had taken a liking to us. He gave us extraordinary advice on his own moral philosophy, encouraging us all to cultivate what we truly value and believe in. He had spent a lifetime cultivating his reputation, trusting relationships and loyalty. It was these things he valued above all others.

That evening he treated us to an extraordinary feast of Peking Duck, followed by a tour of his home where we drank green tea and met his wife. I feel confident that we formed a strong and trusting relationship with the representatives in the company— despite few of them actually speaking English!

When many westerners commence business dealing with Chinese organisations, the cultural gaps seem unbridgeable causing frustration on both sides. At countless times in my own professional practice I have heard stories of frustration with teams working with clients in China — they withhold information, aren’t clear on their objectives, they obfuscate around issues or they do not communicate clearly and often. This to me points at a lack of understanding on the Australian team’s part of the importance of Guanxi.

Guanxi loosely translates as personal connections, relationships or social networks. It implies trust and mutual obligations between parties, and it operates on personal, familial, social, business and political levels. Having good, bad or no guanxi impacts one’s influence and ability to get things done.

China’s history has been marked by intense political upheaval, natural disasters, economic hardship and decentralized rule. Traditional Chinese society was predominantly rural and built around the family. Confucianism, the dominant cultural belief, emphasized the interdependence of social connections. Business and societal relationships relied more heavily on networks of trust and mutual obligations than on strong, codified laws.

In our situation we worked to ensure our guanxi was good. This in turn created a social bond enabling us to get along well and create a relationship where we were likely or expected to help each other. We did this through demonstrating shared beliefs and experiences, and by being open, honest and demonstrating trustworthiness. When teams or individuals fail to develop guanxi, or develops bad guanxi, this almost always results in trouble accessing decision makers, obtaining important insights, making a sale, or gaining approval.