When you start doing business in China, many local consultants and partners offer overseas businesses a shortcut to China riches by offering to use their connections or “guanxi” to help make things happen. Is this a good idea?
Business in China is like running a race. Local Chinese managers will definitely sprint off the line and put a lot of distance between you and them in the early stages. But as many western businessmen have found out, if you can stay in the race for a long time, you may ultimately outrun them. Local businesses often do not see the sense or appeal of marathons.
That analogy is helpful in explaining the issue of “guanxi”, or connections. Much is made of guanxi in the glossy news magazines and in current paperback business manuals. But like “localization”, “face”, and other China-biz buzzwords, the concept of guanxi takes a little analysis before western businesses can apply it to their advantage.
For newcomers who have read the airport newsstand manuals on China, there will be a strong impulse to take the “guanxi shortcut” of hiring a consultant who promised to lots of connections. Be aware that these are NOT your connections, and may not ever be. You have to develop your own, which will take time.
Guanxi is great to have – BUT you have to build it up yourself. Be very careful when trying to buy or rent it. Consultants and partners do not transfer or bestow upon you their guanxi. As a matter of fact, they demonstrate your lack of it. Imagine that the situation were reversed for you back home. Your lawyer or a consultant introduces you to Mr. Li from Beijing, who is has just arrived in Chicago with money to spend and is looking for help setting up a retail network. You may choose to work with him, you may not. But you certainly have no illusions that Mr. Li is a serous player in your market because he has hired an acquaintance of yours. In fact, you probably conclude that Mr. Li lacks his own connections, and isn’t willing or able to build his own network.
Another concern is that the people who use their connections to open doors for you can also use them to slam shut those same doors. We’ve all heard stories of western businessmen who were cheated or swindled. Well, almost every one of those unfortunate incidents began with some partner or fixer who offered to help out through the use of his extensive network of friends in the government or other companies. Be careful.
When a newcomer to China is shopping for professional help or partners, guanxi should definitely be one of the things to discuss. But a local consultant should bring much more to the table than JUST his contact.
There are 3 aspects of guanxi that you should be aware of:
- 1 – When someone does you a favor, you now owe them a favor. That’s the real point of guanxi – it institutionalizes social behavior in the business world. Chinese associates keep track, and if they feel you are not holding up your end they may become uncooperative – or may try to collect what is owed in some other way. Also, be aware that your consultant or partner has guanxi obligations of his own – so make sure that YOUR business is not HIS payback to someone else for past favors!
- 2 – The best possible option may not be in your network. Lot’s of people have ended up hiring idiots and buying from crappy suppliers because of guanxi relationships. And once you hire your friend’s dimwitted nephew, you’re not supposed to fire him. Bad for your guanxi.
- 3 – Your guanxi connections may end up knowing a lot more about your business than you want them to. Lots of partnerships, JVs and other business relationships have turned sour. That guy who wants you to pay him for the truckload of cracked fixtures you can’t use may be the classmate of your accountant and 3 biggest customers. Oops.
In short guanxi, or good relationships, are as good and important an idea in China as it is in any other market. But when relationships become commoditized, the wise businessperson determines the value of each exchange before the transaction is undertaken. Those that try to buy their friends often find themselves in the same situation as those that try to buy love. They put themselves in the company of the sorts of people who put a monetary price on that which their betters would rather give to the worthy.
