Business in China: Friends with Benefits
Jeff LoCastro, August 7, 2011
Founder & President, NCCREA
Guanxi (pronounced: Gwan-she) is the method by which all business is
done in China. Guanxi translates to "relationships." In the Chinese
business world it is understood as the network of relationships among
various parties that cooperate together and support one another.
Guanxi is not code for bribery, as some people think. It's simply
Friendship with Benefits.
Guanxi is a tradition covering thousands of years and is present in every
transaction in China. There is absolutely no way to get around it. Not
even for the Chinese. It is an integral part of life in China. What anyone
who is or planning to do business in China must realize is that Guanxi is
real, it exists, and you will have to play. In the above example you can
substitute virtually anything, including an invitation to your home, but
that doesn't change the nature of the Guanxi. Guanxi is like marriage.
You meet, you court, you exchange, and you work on it constantly. To
some it can be exhausting (just like marriage). But to keep it together,
it has to be worked. Because just when you let Guanxi slip away, that's
exactly when you will need it the most.
Guanxi is bonding, guanxi is friendship, guanxi is quid-pro-quo. Gianxi is
Vito Corleone without the "I'll make'em an offer he can't refuse." 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.
Therefore, it is an important concept to understand if one is to function
effectively in Chinese society.
And make no mistake about it, Guanxi will involve drinking and lots of it.
If your're an alcoholic or can't hold your liquor, you'd better partner with
someone who is not and who can. Your first test at your first lunch will
be Baijiu (pronounced: by-jo), a 130 proof "white wine" as the Chinese
refer to it. In the west, we might refer to it as White Lightning.
Regardless of the name, leave your sissy hat at home.
If your business or project is seen as valuable, you will have lots of
potential Guanxi participants. Possibly many times more than you want.
Through casual introductions, your Guanxi circle will grow and grow.
Sometimes seemingly out of control. But keep in mind that they are
Guanxi because your project has value, not because of the interesting
stories you might tell. Certainly you may laugh and sing and smile and
drink, but its your project and your ability to pull it off that most
attracts them. To be sure, your interesting stories may create a level of
endearment and your ability to hold your Baijiu develops a certain level
of respect, but it is the profit potential that drives it.
Regardless, to do business in China, you have have to play. However,
you don't have to play with everybody. You can pick and choose who is
in your fold. And that's the art. Who you "got" and factually to what
level can your Guanxi take you is the million dollar question. Everyone
you meet will boost of the "friendships" they have with officials and
"important" people. Even the cab driver will do it.
Because Guanxi is not just for foreigners, it also for Chinese; it's how
they measure their own importance. If he's a guy who knows a guy, who
has a friend whose cousin is _________, that guy isn't Guanxi material.
For example, unless among your Guanxi prospects are the president of a
bank or the president of a university, it behooves you to inquire gently
about the specific level of their influence or control. You will be insulting
no one if done with respect; they trade it daily. It's their most ancient
currency. In the above example, a bank and university president, are
hired/appointed by the local or central government and are likely
CPC members as well. They are by their nature connected and good
With good Guanxi it can be easy to clear a path at every turn. Resist
the urge. Use the Guanxi for everything else except cutting corners.
If a trusted allie, Guanxi or not, tells you , "oh, you don't have to do
that. I'll talk to the government. They will make an exception for you."
That may be true, and that may happen, but you are hanging your self
over an edge. What if the official who okay'd the short-cut leaves office
or gets pressure from another multi-level bureaucrat with whom you
don't have Guanxi? What if you're operating in one of the provinces and
the bureaucrat questioning the legitimacy of your operation/project
comes from the central government? That can be a substantial problem
that will put your entire project at risk. At times, you will be
told, "it's the way we do it in China." That may be true, but it isn't the
smart move. Use common sense. If you were in Sydney, Tokyo,
San Francisco, London, or Berlin and the guy (perhaps even a trusted
friend) at the planning counter said, "Hey, don't worry about getting
approval from the building department. I know a guy there. I'll talk to
him. Go ahead and start construction." At anytime would you ever
respond, "Great. Thanks. We'll start tomorrow." Of course not. If you
would not do it in your home town, your home city, your home province,
your home state, or your home country. . . . .don't do it in China. With
the help of Guanxi, do it all by-the-book.
The mistake that most businessmen make (nationals or foreigners) is
trusting the fate and future of their businesses to Guanxi. It is
important, it is critical, it is a necessary part of doing business in China.
And to be successful in the PRC, you have to be good at it. But you still
have to maintain control; you still have to use common sense.
Friends with benefits doesn't mean you cede control of your project or
enterprise. It means you respect the relationship, yet maintain control
over your domain. You use it when necessary and be prepared to give
back in proportion. Then set a process in place to maintain, love and
hug the relationship for the duration of which you have financial
interests in China. It's a lot of work, but the Benefit of Friends makes
Friends with Benefits worth it in the long run.
COPYRIGHT 2011 JEFF LOCASTRO
DISTRIBUTED BY NCCREA
CHANGZHI, SHANXI, PRC
Contact the author at: Jeff@NCCREA.com or Jeff@CaliforniaSecured.com
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