Guanxi and Chinese Business
When researching the intricacies of conducting business in Asia no one will miss the word “guanxi”. In fact, respect for guanxi is one of the first things that a foreigner learns about "how to do business in China” (Lee, 2006). Furthermore, guanxi is believed to be so important in Chinese society, it has been suggested that most Chinese individuals and organizations rely upon it to a certain degree (Shan, 2005). The concept of guanxi is enormously rich, complex, and dynamic and the growing acceptance and popularity of guanxi in the West has made it all the more important to understand the construct in its entirety (Chen, 2004 and Redding and Wong, 1986). In this essay I will therefore analyze exactly what guanxi is, and argue that while building social networks is always a cultural and business consideration in any Asian country, essentially guanxi is exclusively Chinese. I will also examine the importance of guanxi in conducting business transactions in China, and explain how in some circumstances the importance of guanxi for foreign businesses operating in China has been overstated. However, before analyzing the importance of guanxi, it is vital to firstly understand exactly what guanxi is. This is not an easy task, as Tsui and Farh (1997: 59) remark “the literature (both Chinese and English) shows no consensus in translation of the term guanxi”. Although guanxi is able to be interpreted at different levels and from different perspectives (Tsui and Farh, 1997 and Yang, 1994), it is commonly referred to as an indigenous Chinese construct (Hwang, 1987; Yeung & Tung, 1996 and Tsui and Farh, 1997). Redding and Wong (1986) define guanxi as a Chinese word for the intricate and pervasive networks of social relationships. Tsui and Farh (1997: 60) expand on this by defining guanxi as “the existence of particular ties between two or more individuals”. Chen (2004: 306) further elaborates by stating that this personal connection between two individuals implies an implicit contract between them to follow the “social norm of guanxi such as maintaining a long-term relationship, mutual commitment, loyalty, and obligation”. This obligation extends to “drawing on connections in order to secure favors in personal relations” (Luo, 1997: 52). Despite the various definitions relating to guanxi, there appears to be a common consensus that guanxi is a concept related to social networking with its own cultural base and meaning in Chinese culture. In order for guanxi to be established between two or more people there needs to be a cultural base “and many candidates for guanxi bases are unique to the Chinese culture” (Chen, 2004: 308). Therefore, while social networking is important when conducting business in any country throughout the world, the type of networking referred to as guanxi appears to be exclusively Chinese as it can not be separated from the intricacies of Chinese culture.Consequently when doing business in China, it is important for foreign businesses to coordinate with the Chinese government by establishing good guanxi with government bodies who deal with foreign trade (Lee, 2006). Many scholars have championed the importance of establishing good guanxi to the fact that it is considered a substitute to formal institutions (Yeung and Tung 1996 and Backman, 2001). This is as a result of China having one of the most ill-equipped legal systems in the world which both fails to recognize the rule of law and has little transparency or accountability when implementing its own rules and regulations (Backman, 2001). Backman (2001) continues by stating that in a business environment where one can not trust the legal system, businesses are forced to cultivate guanxi relationships in order to conduct business with those that can be trusted. Such relationships are also needed in order to negotiate the maze-like Chinese bureaucracy and also gain government approval for business projects that otherwise would not go...
Please join StudyMode to read the full document