The Art of Guanxi
by, 10th-July-2009 at 07:30 PM (865 Views)
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Isabelle missed two of the most aspects of Chinese guanxi, and I don't blame her. They are called TRUST, and its cousin, HONOUR.First we must understand Chinese culture when it comes to relationship building, or guanxi (pronounced gwan-shee). Having guanxi is utterly essential to doing business in China. There are many definitions of guanxi, but it would best be described as ‘connections’ and ‘relationships’.
Building relationships in China is a time-consuming process and not easy, especially as a foreigner. But once you do build your guanxi, it comes with a level of loyalty and camaraderie that will support you in tough times...
Yes, guanxi is actually quite basic. To enforce "trust" between two business parties in the Western world, we rely on laws and a paper contract, spelling out in detail about what why where when who should/must/will/shall do this or that, etc...
Over here, to enforce a paper contract, you rely on the whole legal system, court, judges, lawyers, police, accountants, etc... a whole plethora of state apparatus and trained professionals.
Over there in China, where such legal system is lacking and the "concept" of Western law is still alien to most people, how do you expect the Chinese to conduct business among themselves or with a foreign business party?
That's when trust and honour become important.
That's where guanxi comes in. The longer is the guanxi between two business partners, the deeper is their understand of each other and hence the stronger is the trust and honour linking them together.
It takes time to build guanxi because it takes time to get to know a person, or a business partner... it takes time or event to build up trust.
Event? Yes, sometimes an event or a sincere gesture from one party to another could build trust.
To illustrate in a negative way - the recent Rio's abandoning Chinalco in the last hour and then signing up with BHP almost immediately was a complete "backhander" to their guanxi. It's a treacherous killer move, and Rio's management could assume from then on any deal they sign with the Chinese, that piece of paper contract would be treated with "contempt" - if the Chinese could get away from it, they would.
How hard would that be if the Chinese really return a backhander to Rio? Well, just try imagine Rio going to a Chinese court to sue for their piece of silver...
Trust - a simple yet very powerful word... without which, it would be almost impossible for a business to operate in China. Right now, Rio I believe is falling into that pit - it has dishonoured its reputation and has lost the trust of a very important member in the inner circle of the Chinese leadership.
Just think about this - Rio sold 58% of their iron ore to China last year and is planning to expand their iron ore production next year... hoping to sell more to the Chinese!
... now tell me why the investors are so "bull" on Rio and its management?