Favoritism or Guanxi?
In China, many US companies have complained about the favoritism, cronyism or otherwise preferential system they encounter doing business in China. A recent BBC article highlights the complaint: “Inconsistent interpretation of regulations, bureaucracy, and a lack of transparency all make it hard to do business here.”
According to the American Chamber of Commerce in Shanghai, the main grievances are:
1) Intellectual Property theft
2) Regulators prefer local companies
3) Regulations not transparent
4) Government contracts awarded to Chinese rivals
However, to the Chinese, is this interpreted as favoritism?
A particularist approach would best describe the inconsistent applicability of rules to businesspeople in China. In other words, actions and behaviors are based on particular cases, and oftentimes the depth of a relationship, based on longstanding trust and reciprocation, may trump the prospect of starting a new relationship, for example, with a US company. A conflict with the more universal approach in the West may best explain the complaints we see about favoritism. What is behind this particularism? Guanxi.
CultureWizard’s Country Profiles tells us that guanxi is one of the most powerful forces in Chinese culture. Although the direct translation of guanxi is “relationships,” the concept is much richer and more encompassing, incorporating the idea of a complex network of individuals and families with whom one is networked.
Guanxi expresses the relationship of one person to another. The term also includes the sense of commitment and obligation, built over time by the reciprocation of social exchanges and favors. People who have guanxi with another are quick to act on that person’s behalf, do favors for each other, and, depending on the depth of the relationship, support each other by doing anything necessary for the other party and reciprocating when the need arises.
Guanxi is built and deepened over time and carries with it a profound sense of responsibility. On one level, it addresses the need to reciprocate and, on a deeper level, the need to anticipate the other’s needs.
Understanding the role of guanxi in business is essential for building fruitful relationships. However, the specific questions of how, when, where, and with whom to build guanxi can vary greatly from location to location, and industry to industry. Government employees require different treatment than business people. There are also variances based on age, personality, and education, to name a few. In short, there are no formulas, and there are no guarantees. While many foreign companies are hedging their bets on future growth of the Chinese economy, wouldn’t it behoove them to build this kind of knowledge to avoid losing opportunities due to a lack of cultural competence?
In a way, the Western business community is looking for the Chinese to adopt a system foreign to Chinese culture, negating certain aspects deeply embedded in the way Chinese approach business.
Considering the role of guanxi, do you see a connection to the aforementioned grievances? While protectionism may play also part, how does an awareness of culture (and the Chinese perspective) change your thoughts?
Sean
How much is the importance of “guanxi” specific to Chinese culture vs to (1) China’s level of development and (2) its current system of government?
On the former, haven’t there been other countries (far from China) that have placed similar emphasis on familial and other long-standing ties at earlier levels of their development that have since embraced a more Anglo-American approach? (In fact, even business in the United States used to function more on the basis of established relationships (community, religious, ethnic, familial) than it does now.)
On the latter point, doesn’t it make sense that, in a country where the rule of law is still rather weak, decision-makers would fall back on other tools that can help protect their interests, such as long-standing relationships?
I believe it’s part of human nature to fall back on people that they trust. This is why the early cave man live together instead of hunting by themselves. It enhances the chance of survival by having someone who you trust to cover your back.