There has been a bunch of blog posts about guanxi recently — on Chinese Negotiation, on the China Law Blog, on Silicon Hutong, and others.
My audience is mostly interested in sourcing and QC issues in China. What should you do about the supposed power of personal connections (“guanxi” in Chinese)? NOTHING.
Guanxi is no more than a network of connections, Chinese style. The sort of connections that build trust and allow shortcuts (“no need for inspections, right?”). The sort of contact that expect returns for favors (“we hurried up to stay on schedule last time, so this time we can be a little late, right?”) Exactly what foreign buyers should avoid…
China is usually a dog-eat-dog environment where no one cares about the other parties at stake. So a network of trusted parties is so unusual, it deserves a special name, right? Maybe. But it is a dangerous distraction.
Importers usually do not need to cultivate personal relationships with their suppliers. Of course it helps A LOT to regularly spend time with them, and it hurts A LOT to be rude and condescending. But that’s all you need to know.
What is the mistake most foreign purchasers do? They give TOO MUCH weight to personal relationships. They should use their common business sense, and keep a cold head. Most Chinese exporters are used to dealing with foreigners, and after all you are the client… Why should you adapt to them?
So, how should you deal with your Chinese suppliers?
You don’t need to be their friend. You should keep verifying their job, because trust has nothing to do with this. You should react and ask a lot of questions when red flags appear. You should not feel obliged because of a good dinner or because the salesperson is so nice. See a previous article (Relationships with Chinese suppliers: be clean!) about this topic.
What we need is not a special term for personal relationships. We need a word for the I’ll-stab-you-in-the-back-as-soon-as-it-is-immediately-rewarding-to-me-and-I-don’t-care-about-you attitude that most Chinese businesspeople display with anybody outside their immediate circle.
If one special Chinese cultural concept is important, it’s “face”. When a Chinese supplier says “it’s not my fault, the problems are caused by my materials supplier”, it means “I can’t send the materials back to him, because he would lose face and hate me for that — so we used his junk anyway, and in the same way we expect you to accept our substandard products”…
What do you think?
Update: I should link to a China Briefing post about this same subject: It’s not about Guanxi. It’s about your Business Model and Due Diligence, by Chris Devonshire-Ellis. Good stuff!
I think it’s guanxi, not guanGxi.
Renaud Anjoran says
Oh yes, right. Guangxi is the province. I just corrected it 😉
Greg Torode says
Chris Devonshire-Ellis got it right I think here : “its not about Guanxi its about your business model and due diligence” on China Briefings blog
Seems you think alike. Well noted.
Renaud Anjoran says
Yes, I totally agree with his view. Thanks!
One thing that you’ll find with Chinese people and institutions is that they’ll often set things up to avoid the influence of personal relationships. For example, in imperial times, the examination system was set up specifically to avoid the influence of personal relationships, and there was the law of avoidance which was that an official could not serve in his native province. Even today, you see this. One rule that the Communist Party follows is that the General Secretary for a locality has to be an outsider, and the Party and military frequently rotate positions in order to keep people from developing local relationships.
This matters with dealing with foreign business people, because often a Chinese company will bring in a foreigner *because* they don’t have any local relationships.
Also, having a foreigner can allow someone to save face. To give you the example, the response to “I can’t send the materials back to him, because he would lose face and hate me for that — so we used his junk anyway, and in the same way we expect you to accept our substandard products” is
“Well you can tell your supplier that it’s not your fault, and there is this annoying and obnoxious American that is holding your feet to the fire, and you really have no choice, but to have him take back the product.” At that point, your supplier can tell his supplier that “I’m your friend, and I’d like to take your product, but there is this really annoying and obnoxious American that is causing problems for me, and so I need you to do better, and we can both get mad at the American.”
(Also note that this isn’t culture specific, you can replace “American” with “legal and compliance” or “stupid outside consultant.”)
Renaud Anjoran says
Very interesting, thanks Twofish!
Sam Miller says
Guanxi is still alive and kicking in China, especially in the inland provinces. If you are doing business in Anhui Province, for example, you will see that guanxi is used with regularity. I suspect that business people or China bloggers who say it does not count for much any more are based in big cosmopolitan cities like Shanghai or Bejing where guanxi is somewhat curtailed, or they are simply not observing it. If you place an order with a factory and everything comes out roses it doesn’t necessairly mean that guanxi was not involved. The supplier may have used guanxi to get your order shipped out on time, or to get certain raw materials used in your order.
Renaud Anjoran says
Hi Sam, I am not pretending that it is dead or useless. And yes, of course it is used all the time between suppliers and sub-suppliers.
My point is that foreign buyers should not put their hand in this system, or their suppliers will expect some favors in return. And these expectations will concern issues that are seen as non-negotiable on the buyer’s side (how about “let’s not do QC this time”?)
To be a buyer, and talk about no-need-Guanxi is easy. Just make sure you get the quality you need, every time, all time.
Situation is very different if you want to sell in China for Chinese, or if you need partnerships, or services from Chinese partners, or if you want your people to work for you with responsibility and motivation. If you reject Guanxi, it’s going to be cheaper for you to stay out of China. Take a little effort and try to learn basics about Guanxi and Yi.
Hi BeijingMan, of course one needs to play by the Chinese’ rules for selling into China. My point is actually exactly the same as yours: foreign buyers should insist their Chinese suppliers to play by their (foreign) rules.
Jacob Yount says
Renaud, I lean more towards agreeing with you on this one. In fact I believe (and from 9 years of living here) that guanxi is a bit overrated. I’d wager most foreigners don’t get it, don’t use it, the Chinese don’t involve them with it (contrary to what most foreigners think in their minds). Also would go further to say that many Chinese don’t use it or understand it.
My wife (who is Chinese) and I were discussing this just recently. Instead of guanxi, there seems to be another underlying system, we call the “system of favor”. With our suppliers, as you mentioned Renaud, we’re respectful, we pay on time, we pick our battles (don’t blame for errors but grow and learn together) and this creates a mutual professional relationship. We don’t rely on this to control quality or to open doors, just like we don’t rely on guanxi. But we do gain “favor” with our suppliers, our neighbors, colleagues and acquaintances and this eases the roads of trouble in China. When it comes to hard details, facts and quality, the only ones you can rely on is yourself and your own team in proper, professional implemented control.
If a suppliers senses you want to play guanxi games, they may let you in but it could be a losing situation. Folks who seem to play the guanxi game will pull when convenient for them. Is guanxi still used? Yes. But, from my China life, there are other options that have proved useful and allow you to remain professional.
Renaud Anjoran says
Thanks Jacob for weighing in…
As you say, treat your Chinese counterparties right for some time, show some consistency, and they will return the favor.
Again, I might be a little too opinionated on this issue, but the reason is that too many importers make big mistakes. Personal relationships matter, but business is business!