McDonald, a multi national company, whose sales was surprising all expectation within two years of establishment in a heart of Chinese Capital Beijing was ordered to leave the location by the Chinese government in favor of a Chinese Construction Company. McDonald, who had 18 years of lease left for the location, filed the case against the government decision , however it lost the case and had to leave the location.
Many people believed that McDonald lost the case because it didn’t have influencing power that was needed to win the legal battle in Chinese environment. The Chinese construction company had that power or relationship popularly known as Guanxi that has the ability to even influence the decision of the court, that is something unthinkable in western world.
Doing business in China requires Guanxi as the Chinese culture is deeply rooted with confucial philosophy of valuing social hierarchy and reciprocal obligations. The Chinese communist ruling the country for more than half a century had done nothing significant to change this.
Guanxi of late has become a commodity for sale especially to the foreigners. If one is able to influence the son or daughter of high-ranking officials, then the chance of influencing the Chinese bureaucracy is high. As the western companies have come to understand guanxi, they have also started to build guanxi Many companies have started hiring son or daughter of high ranking officials in order to win contracts, bid etc.
Many consider the hiring of the son or daughter of high ranking officials as a good business practice in Chinese context, however other view that as unethical practice and is equivalent to the bribing someone.
Legal Environment of China for Doing Business
After reading the case, it is evident that there exists a legal system in China but it is influenced by the power or relationship. Anyone with power or the ability to influence the bureaucracy will have distinct advantage over the...