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.