Guanxi and Business

Yadong Luo

• Publisher: WSPC
• Year: 2007
• ISBN:
  9789814476911
• Edition: 2
• Topic: Business
• Subtopic: Operations
• Index: Business

Guanxi or interpersonal relationships is one of the major dynamics of Chinese society. A pervasive part of the Chinese business world for the last few centuries, it binds literally millions of Chinese firms into a social and business web. Any business in this society, including local firms and foreign investors and marketers, inevitably faces guanxi dynamics. In China's new, fast-paced business environment, guanxi has been more entrenched than ever, heavily influencing Chinese social behavior and business practice. However, as in other emerging economies, corruption in China is becoming more rampant, which makes guanxi and corruption often intermingled. As such, business executives need to place greater caution today in the practice and process of guanxi development and utilization.

Due to the growing academic and practical interest in guanxi, this second edition provides a timely update to the systematic and vigorous exploration of the various social, economic, cultural, and business issues relating to the complex concept and practice of guanxi.

Contents:

• Definition, Principles, and Philosophy of Guanxi
• Economic Perspective of Guanxi
• Guanxi and Firm Performance
• Organizational Dynamics and Guanxi
• Guanxi -Based Business Strategies
• Foreign Businesses and Guanxi
• Guanxi, Corruption and Governance
• Practical Guidelines to Guanxi Cultivation

Readership: Students, managers and academics in economics, finance, operations research, management and business sociology.
Keywords:Review:

Reviews of the First Edition:

“It is a timely book in its attempt to provide clarity to the concept, offer a conceptual analysis of the phenomenon, and provide practical ideas to managers … I consider the book to be an excellent primer for managers, especially Westerners, who wish to have a basic lesson on the concept of guanxi and related phenomena.”

Asia Pacific Journal of Management

“As a guide to current practice, this book is good value. It contains a wealth of illustrative stories and has useful summary diagrams of the main ideas. It will be of much use to practitioners.”

The China Journal

“This book is a timely contribution to this important subject … It has advanced our intellectual understanding of guanxi by linking it with a number of theoretical bases such as transaction cost theory, organizational networks theory, and resource-based strategy theory … Guanxi and Business is so far the most thorough penetration into the relevance of guanxi for business I have seen written … I highly recommend this book to all who seek to understand business relationships in general and mechanisms in doing business with Chinese societies in particular.”

Journal of Asian Business
Key Features:

• The second edition includes a new chapter on the differences between guanxi and corruption

1

DEFINITION, PRINCIPLES, AND PHILOSOPHY OF GUANXI

Interpersonal relationship (guanxi) is one of the major dynamics of Chinese society. Guanxi has been a pervasive part of the Chinese business world for the last few centuries. Any business in this society inevitably faces guanxi dynamics. This chapter begins with a definition of guanxi and other relevant concepts, followed by major principles underlying guanxi dynamics. The third section illuminates the social philosophy behind guanxi cultivation, utilization, and maintenance. The fourth section outlines the importance of guanxi to social life. The relationships between guanxi, gifts, and bribes are articulated next. The expected importance of guanxi in the future and theoretical directions for future research are highlighted at the end.

1.1CONCEPTS

Definition

Guanxi is one of the major dynamics in Chinese society. Guanxi has been a pervasive part of the Chinese business world for the last few centuries. It binds literally millions of Chinese firms into a social and business web. It is widely recognized that guanxi is a key business determinant of firm performance. It is the lifeblood of both the macro-economy and micro-business conduct. Any business in this society, including both local firms and foreign investors and marketers, inevitably faces guanxi dynamics. No company can go far unless it has extensive guanxi networks in this setting.

The Chinese word “guanxi”

refers to the concept of drawing on connections in order to secure favors in personal relations. It forms an intricate, pervasive relational network which the Chinese cultivate energetically, subtly, and imaginatively. It contains implicit mutual obligations, assurances, and understanding, and governs Chinese attitudes toward long-term social and business relationships. Broadly, guanxi means interpersonal linkages with the implication of continued exchange of favors. Guanxi is therefore more than a friendship or simple interpersonal relationship; it includes reciprocal obligations to respond to requests for assistance. Unlike inter-firm networking in the West, however, this reciprocity is implicit, without time specifications, not necessarily equivalent, and only socially binding.

Interpersonal relations are certainly not peculiar to the Chinese society. They exist to some extent in every human society. What is special about guanxi is the fact that it is ubiquitous and plays a fundamental role in daily life. The Chinese have turned guanxi into a carefully calculated science. Constructing and maintaining guanxi is a common preoccupation for entrepreneurs, managers, officials, and even college students.

Although used in speech since a century ago, guanxi does not appear in either of the classic Chinese dictionaries, Ci Yuan

(“Source of Words”, published in 1915) or Ci Hai

(“Word Sea”, published in 1936). The word consists of two characters, guan

and xi

. Guan originally meant a door; its extended meaning is “to close up.” Thinking metaphorically, inside the door you may be “one of us” but outside the door your existence is barely recognized. Today guan is often used to mean a pass in various sorts of economic lives, from social activities to organizational names (e.g., hai guan

means “customs”). In addition, guan can refer to “doing someone a favor.” For instance, guan xin

means “showing solicitude for,” guan huai

means “showing loving care for,” and guan zhao

means “looking after” or “support.”

Xi means to tie up and extend relationships, such as kinship (shi xi

) and directly-related members of one’s family (zhi xi qin shu

). It implies formalization and hierarchy. Whilst the word primarily applies to individuals, the concept can also be used similarly with organizations (e.g., xi means “department”). Xi can also be used to refer to maintaining long term relationships. For instance, wei xi

means “to maintain.”

Guanxiology is a cross-disciplinary, integrative field researching the formation, process, and outcome of guanxi connections. It has five features. First, guanxiology is a multilevel field. At the macro-level (context), it involves family, community, and society. At the semi-macro level (firm), it relates to managerial policy, business practices, marketing mix, organizational behavior, human resource administration, corporate culture, and business strategy. At the micro-level (individual), it links to interpersonal relations, incentive structures, social status, and family connections.

Second, guanxiology is cross-disciplinary. It has roots in sociology, economics, history, psychology, politics, and business. No one of these disciplines is more important than the others. Each explains different but partial aspects of the rationale and processes of guanxi formation, development, and consequences.

Third, guanxiology is highly integrative. Although cross-disciplinary, guanxiology has a unique, independent core of interpersonal relationship. To understand this core thoroughly, one needs to integrate all the related fields with environmental dynamics. The objective of integration is not simply to pull relevant, complementary paradigms or notions together but rather to strengthen our complete understanding of guanxi.

Fourth, guanxiology is extremely dynamic. This is mirrored not only in the process-orientation of guanxi but also the evolutionary nature of the field. Guanxiology assesses antecedent, concurrent, and consequent factors in the entire chain of guanxi cultivation. These antecedents, as well as related assumptions, may alter over time as contextual contingencies change. Therefore, guanxiology itself, though maintaining its core, continuously develops.

Finally, guanxiology is practice-oriented. Although guanxiology has its theoretical paradigms and conceptual principles, it hinges largely on practical dynamics. These dynamics shed light on how guanxi is constructed, maintained, and reinforced, hence enriching the development of guanxiology . Changes in the environmental contingencies affecting practice also influence the contributions and implications guanxiology makes to social welfare. Because of this, guanxiology is both a science and an art.

Guanxiology is worth examining because of the popular gloss given to its semantics, a gloss that brings out its satiric significance. It elevates the art of cultivating personal relationships into a full-fledged scholarly branch of knowledge equally valid and just as necessary as any other academic specialization (Yang, 1994).

A related concept is guanxi xue

, which literally means guanxiology . In practice, however, the Chinese use guanxi xue to express their concern with the tactics of guanxi construction and cultivation. Guanxi xue refers to the practical strategies that best ensure personal relationship building, utilization, and development. It implies skill, subtlety, and cunning, as conveyed by the English word “artfulness.”

Guanxi xue involves the exchange of favors and gifts, the cultivation of personal relationships and networks of mutual dependence, and the manufacturing of obligation and indebtedness. What informs these practices and their native descriptions is the conception of the primacy and binding power of personal relationships and their importance in meeting the needs and desires of everyday life. A corpus of assumptions and practices has been woven into a vociferous, self-conscious discourse. This discourse treats these personal exchange practices as something new, a social phenomenon that has gained strength in recent years (Yang, 1994).

Guanxi xue places an emphasis on the binding power and emotional and ethical qualities of personal relationships. It appears in economic transactions; political and social relationships; literature, newspapers, academic journals, theater, and film; and in both popular and official discourses. Compared with other social practices, there also seems to be a greater cultural elaboration of vocabulary, jokes, proverbs, and etiquette surrounding guanxi xue . In short, it is a ubiquitous theme in Chinese society.

Basis for Guanxi Establishment

The establishment of guanxi is dependent on the availability of a guanxi base — defined as a commonality of shared identification amongst two or more people. A guanxi base, whether ascriptive (e.g., based on kinship) or achieved through shared experience, facilitates the development of a guanxi relation without predetermining it. The relevance of any one type of guanxi base is different in different situations. For example, having a similar dialect identity is important for inter-firm relations but less important than kinship in the ownership and control of a firm. Over time, along with significant changes in the environment, the importance of a given guanxi base can also vary. The importance of guanxi remains, however. Possible bases for guanxi are detailed below:

1. Locality or dialect. For example, during the early stages of emigration to Singapore, many immigrants from China arrived without their close kin. They would turn to people from their villages or districts in China for food, lodging, and work. They grouped together according to locality of origin and spoken dialect. The latter criterion was more important as the dialects were mutually incomprehensible. This guanxi base was often institutionalized into mutual help associations organized along locality/dialect criteria. The importance of this guanxi base may diminish over time as later generations become more economically independent and more actively interact with the larger society.

2. Fictive kinship. The Chinese also organized clans based on common surnames. People sharing the same surname were considered kinsmen and were believed to have descended from the same ancestor.

3. Kinship. One’s immediate kin may be categorized as either agnatic (related by blood, usually to the father’s line) or affinal (related by marriage). While affinal guanxi are theoretically less reliable than agnatic ones, an affinal guanxi base is often important in helping a businessman develop a dependable guanxi network. Marriage was once used to bind two families together or tie a capable employee to oneself. The kinship guanxi base is important in intra-organizational relations, specifically in terms of shared ownership and control of business among private organizations. While kinship as a guanxi base remains relevant, the development of mass production, small family size, monogamous marriages, and more economic opportunities have challenged the availability of this base for the management and control of Chinese enterprises. In Hong Kong, Singapore, and Taiwan, for example, a new strategy adopted by Chinese businesses is the bifurcation of ownership and management, where professional non-kin managers are hired to run the company but ownership and control remain within the family network.

4. Work place. Colleagues share other bases of guanxi. Traditionally, colleagues were more often than not fellow villagers from the same dialect group or even distant relatives. Years of working together provided them with another basis for establishing or strengthening guanxi. Colleagues are important when one decides to start a new business. They are already familiar with one’s line of business, have some savings, and can usually be trusted after years of collaboration to be good business partners. Many private businesses in China today are formed by people who were former colleagues.

5. Trade associations or social clubs. Trade associations facilitate information gathering and opportunities for interaction through social dinners and activities. They provide opportunities to establish guanxi with potential buyers, suppliers, and financiers. In this sense, trade associations or social clubs can be viewed as a form of institutionalized guanxi.

6. Friendship. Friendship refers to relationships between people other than kin. These relationships are tinged with ganqing

(affection or sentiment). Friendship is not, however, considered a true guanxi base. Rather, another basis for guanxi, such as being colleagues, seems to be a prerequisite for the establishment of friendship. Friendships are important because they strengthen more close-knit guanxi, which is crucial in business. Red tape and lengthy business procedures can be avoided if an element of friendship and corresponding credibility is present. Without ganqing, guanxi is more distant and less reliable. The chances of securing a favor depends, in part, on ganqing and the closeness of guanxi which it enables.

In Chinese society, each person having such bases shares aspects of personal identification with others that are also important to them as individuals. They can assert identification with kin, hometown, school, work place, sworn brotherhood, and so on. For example, two people with classmate guanxi identify with an educational experience important to both of them. For simplicity’s sake, guanxi bases are divided into bl...

Table of contents

• Cover
• Halftitle
• Series Editors
• Title
• Copyright
• Preface
• Contents
• 1 Definition, Principles, and Philosophy of Guanxi
• 2 Economic Perspective of Guanxi
• 3 Guanxi and Firm Performance
• 4 Organizational Dynamics and Guanxi
• 5 Guanxi-Based Business Strategies
• 6 Foreign Businesses and Guanxi
• 7 Guanxi, Corruption, and Governance
• 8 Practical Guidelines to Guanxi Cultivation
• Appendices
• Bibliography
• Index
• About the Author