Crossroads

At the intersection of technology, finance and the Pacific Rim.

Monday, May 29, 2006

I just returned from China yesterday and each time I go I learn something or maybe think about "different" more. Of course everyone knows about the importance of "Guanxi"--relationships. And what is its impact in the way you conduct business and in the texture of business? You hear continuously the stream of complaints about the difficulties that this concept places in the conduct of business--that it can take forever to build Guanxi, that it takes too long to do business there because of it. And of course, China is a big elephant, very difficult to make generalizations.

I view Guanxi as a humanizing element in business--a big positive overall when done correctly. It essentially places substantial brakes on business conduct that can lead to better behaviour. You cannot sell defective products or make uncommittable commitments without ramifications to yourself and more importantly your friend. So people end up speaking more carefully. It places a premium on your personal brand--that you demonstrate competence and trustworthiness. It brings business into what it is--as a part of life rather than an end in itself. Business is essentially transferred person to person rather than Company to Company. And transactions are not a means to an ROI itself, rather ROI is one component of the human relationship. I am sure I am idealizing to a certain extent, but the way in which you do business changes from buying and selling to generating continuously trust and demonstrating competence in your field.

Of course there are excesses, just as there are excesses in the US legal system, which guards well against misrepresentations and unfulfilled contracts. One can see business as a series of trades requiring the fulfillment of commitments and different skill components/products being traded for cash (i.e., arbitrage). The further you move from a strong legal system, the more important Guanxi becomes as a business enforcement mechanism. It is not the opening of the business channel (where most people think the importance lies) but rather the transfer of trust that is the key.

Finally about China and cheating. This happens not just to foreigners but also Chineses domestics as well and it is an issue. One GM of a major business group in China complained to me that they had been cheated a number of times on their contracts with locals. Yet strong Guanxi can help reduce this risk and get people thinking more in terms of win win relationships. To do otherwise is perceived as risky, not just by you but also by your Chinese counterpart. So to do business in China, pay attention to the people, not just to the business.

5 Comments:

Blogger LeftBack said...

Something like guanxi comes into being exactly because people have no recourse to objective rule of law to redress potential chicanery. There are many stories coming out of China about local farmers with legitimate grievances who have no recourse to justice because they lack the requisite guanxi to turn the ear of their local administrator (see:
http://news.bbc.co.uk/1/hi/programmes/from_our_own_correspondent/4298284.stm ).

In the absence an objective and reliable judicial system it behooves businessmen and politicians to rely on the trustworthiness of others before any deal is signed. Thus we have the elaborate and often cumbersome business rituals that exist in China solely to assess the trustworthiness of the other party. One of the main aspects of these rituals is the consumption of copious amounts of alcohol, especially ‘er gua toe’, a drink akin to soju (but stronger); for it is only when someone is drunk that we get a glimpse into his/her true nature, so the thinking goes.

During my time at the Canadian Embassy in Beijing our Ambassador was a virtual teetotaler. This proved a handicap in a society where a premium was put on a man’s ability to pull his weight at the bar. So it was that the Ambassador appointed one of my hard-partying friends to accompany him to these events. My friend’s one and only job was to do the drinking of his boss. His official title was “Trade Commissioner” but we all knew him as “The Ambassador’s Liver.”

6:30 PM  
Blogger Jinwoo IM said...

Thank you for your comment! I read the article you mentioned interestingly. Last year when I first go to the some cities of China, I was so surpriesed by the developed & developing situations.
Also, my group had experienced those kinds of meetings which showed the credibility between people by drinking.
After the visit to China, I have attended the study club dealing with the China issues.
Many of articles are saying that China will have difficult time during the transition to the Democracy(which will have a different type from other western countries').

12:47 AM  
Anonymous Hyoung-Min, Ham said...

Value Networking is Human Networking in China.
This is the comment from my company's former CEO.
His saying was very right.

7:33 PM  
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