Guanxi is a Chinese word for which the closest English synonyms are connections and relationships, although neither of these words best encapsulates the broader cultural implications that guanxi represents. It refers to the dynamic and complex nature of friendships, trust, interpersonal relationships, and the construction of closed family relations, or a joined network, which are all deeply rooted in Chinese society.
Some have described it as “friendships with an exchange or continual exchange of favors,” while others have referred to it as “the social interactions within the network place and its members in the equivalent of an infinitely repeated game with a set of people they know.” It offers special relationships between people who need something and those that have the ability to give something. In summary, guanxi can be regarded as friendship with implications of continued exchange of favors.
Even though the use of guanxi networks skyrocketed after the 1979 reforms in China, and the concept started appearing in business publications in the West in the 1980s, the term has deeper roots. It involves a relationship between two individuals or organizations containing implicit agreements that are neither officially acknowledged nor written down. It is based on the fact that there is a high degree of trust and reciprocity involved, i.e., if one offers a favor today, it is with the belief that it will be returned in the near future, whenever the individual needs it.
Guanxi has been identified as one of the most critical factors in doing business in China, regarded as a source of sustainable competitive advantage, acclaimed as aligned to the concept of relationship marketing, and extolled as the future direction of business practices in the 21st century.
The right guanxi is shown to be a vital factor in business negotiations, bringing a wide range of benefits, including securing rare resources, bypassing the bureaucratic maze, obtaining information and privilege, selling otherwise unsellable goods, and providing insurance against uncertainty and risk when problems arose.
Tim Ambler describes how guanxi systematically unfolds in a business setting. He notes that
the first part of the “guan” is transferable. If A has guan with B and B with C, then B can introduce A to C, or vice versa. Otherwise contact is impossible. For this reason, faxes are unlikely to receive a reply until direct personal contact has been established. In the meantime, A has to fax B, who in turn, if the guan is satisfactory, relay it to C. The “xi” part of the word implies formalization and structure. Favors are banked to be repaid when the time is right, if ever. There is no urge to use up the guanxi stored; like insurance, one hopes not to need it, but its existence is reassuring.
Guanxi has been shown to have negative consequences as well. Some have viewed this phenomenon simply an emotional desire for the pursuit of self-interest. When such a network violates bureaucratic norms, it can lead to an “under-the-table” form of corruptive behavior. This can lead to, among other things, an “old boys’ network,” uneven income distribution, briberies, kickbacks and imperfect legal systems. When it takes precedence over civic duties, it has been shown to lead to nepotism and cronyism. Many experts also predict that guanxi’s role in business is likely to diminish eventually as China moves to a more open market system in this century.
Cultural differences and language barriers are often an impediment to outsiders in Chinese society, who might find it more difficult to cultivate guanxi with the depth possible by Chinese individuals. A foreigner being referred to as an “old friend” by the Chinese is often the first step in developing such relationships. Even in today’s China, guanxi is imperative to doing business and getting along in life.
- Jonathan Ansfield, “Where Guanxi Rules” Newsweek (December 17, 2007);
- Thomas W. Dunfee and Danielle E. Warren, “Is Guanxi Ethical? A Normative Analysis of Doing Business in China,” Journal of Business Ethics (v.32/3, 2001);
- Ying Fan, “Questioning Guanxi: Definitions, Classifications and Implications,” International Business Review (v.11/5, 2002);
- Flora F. Gu, Kineta Hung, and David K. Tse, “When Does Guanxi Matter? Issues of Capitalization and its Dark Sides,” Journal of Marketing (v.72, 2008);
- Douglas Guthrie, “The Declining Significance of Guanxi in China’s Economic Transition,” The China Quarterly (v.154, 1998);
- Scott C. Hammond and Lowell M. Glenn, “The Ancient Practice of Chinese Social Networking: Guanxi and Social Network Theory,” E:CO (v.6, 2004);
- K. P. Leung and Y.H. Wong, “The Ethics and Positioning of Guanxi in China,” Marketing Intelligence and Planning (v.9/1, 2001);
- H. Wong, “The Dynamics of Guanxi in China,” Singapore Management Review (July 2004).
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