In order to make your products presence in China last, and ensure your business expansion successful
in the long run, you must understand one of the most important elements of running your business operations
in China - the concept of “guanxi”. Understand this is more important than all the work
researching, establishing foreign offices, and making initial contacts with freight forwarders. Even
after completing your first successful move into this vast market of opportunity, you will find all
your efforts pointless and fail terribly in China without this practice. Technically, “Guanxi”
stands for any type of relationship. In the Chinese business world, however, it is also understood as
the network of relationships among various parties that cooperate together and support one another.
The Chinese businessmen mentality is very much one of "You scratch my back, I’ll scratch yours."
In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily.
No matter how much experience you have in American business management, the right “Guanxi” in China will make all the difference in ensuring success. The inevitable risks, barriers, and set-ups you’ll encounter in China will be minimized when you have the right “Guanxi” network working for you. It takes time and experience in order to be able to observe and identify who will be most beneficial to you. Developing and nurturing “Guanxi” requires time and resources. Your immediate Chinese network can indirectly link you to new acquaintances and information resources.
The Chinese and Western cultures conduct business differently, even if, on the surface, transactions seem to be the same. The Chinese prefer to work with people they know and trust, so are less inclined to simply close a deal. With a strong relationship, however, you can be trusted and even favored. This relationship extends between companies and also between individuals at a personal level on an ongoing basis.
"Guanxi" can take on many forms. It does not have to be based on money. It is completely legal in their culture and not regarded as bribery in any way. So, there is no need to feel uncomfortable about it. Trustworthiness of both the company and individual is an important component. Following through on promises is a good indication of this. Treating someone with courtesy while others treat him or her unfairly is another aspect. Frequent contact fosters friendship as well. Chinese feel obligated to do business with their friends first. There are risks with this system, as well. When something goes wrong, the relationships are challenged, and friendships quickly disappear.
Establishing “Guanxi” with high rank officials is also helpful. Although Chinese companies are increasing having to survive without government subsidiaries, many foreign companies still need strong relations with government officials. For example, the process of obtaining a new license to market your products in a new region of China is greatly accelerated and much less expensive with the right connections.
The time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often more much more valuable, especially in the long run, and when you’re in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). While this practice may seem intrusive, as you spend more time learning the Chinese culture, it will become easier to understand and take part in this practice that is so central to successful Chinese commercial activity.