Building trust and relationships in China
by: Diego Gilardoni, Associate Partner of Hofstede Insights
The first thing to know when doing business in or with China is that China is a relationship-based society and therefore relationships come before business and not the other way around.
This is especially difficult to understand for business people coming from very individualistic cultures, who are very task-oriented. To many of them considering the development of a good relationship with a potential partner as a precondition to doing business together almost amounts to nonsense. But this is actually the way people do business in China: the saying “business is business, friendship is friendship” does not apply there because business and friendship are expected to merge and generate a long-term relationship.
The importance of personal relationships in business in China is symbolized by the concept of guanxi. Guanxi is often translated as “network” or “connection”, but it means much more than that; it is the web of relationships that a person builds throughout his/her life, and it encompasses more than the simple business relationships by including family or friendship ties at large. The importance of guanxi in China must be understood in the historical frame of a traditionally rural society where, for centuries, there was a lack of formal institutions and laws that made it essential to rely on personal relationships to organize and structure social life.
Literally guanxi is the combination of the words guan (关) and xi (系), meaning respectively “closed” and “connection”; it means therefore a close relationship between two people but also a closed relationship, which means that for outsiders it is not easy to become part of their guanxi. In order to be accepted into an existing guanxi, one has to gain the trust of its members, and building trust takes time and requires some concrete proofs (read favours) that the person can be trusted and welcomed into the network.
But guanxi is more than a network based on mutual interests, because it must involve a strong human and emotional component. It is therefore very different from the Western-style business networking, where companies’ common interests prevail over individual personal relationships. The fundamental element of guanxi is that the business relationship is always personal, between two persons, not between companies or organizations. This means that, when preparing for doing business in China, any Western business person will always have to remember that his future partners, counterparts, colleagues or employees will not do business or work with his company, but with him personally.
Another important point is that there is no guanxi without reciprocity, meaning that a strong business network cannot be built without a mutual exchange of favours. If someone provides some kind of assistance to another member of his/her guanxi, the latter is expected to reciprocate in some way sooner or later. The favour does not necessarily have to be business-related, given that guanxi is relationship-oriented and not transaction-oriented. Therefore, guanxi could be seen as an informal community based on trust and loyalty, which can open many doors and offer many opportunities as long as the obligation of reciprocity with no limitations of time and space is respected.
Three things are sure when it comes to building guanxi. First, without guanxi there is no way to do business effectively in China. Since China is a relationship-based society, building strong relationships with the right people is essential and can bring many benefits in terms of building corporate reputation, obtaining new customers, motivating employees, improving marketing effectiveness, easing business processes or improving business efficiency in the Chinese market. Second, regardless of the intrinsic value of a specific business deal, having a better guanxi than the competitors with the right people in the right position gives a strong competitive advantage. Third, and last but not least, building a good guanxi takes a long time. If a Western businessman expects to enter the Chinese market for a quick buck and then leave as soon as possible, he better think again.
For anyone who is planning to do business in China, is looking for a business partner or who is about to start a negotiation with a Chinese counterpart, the first thing that he/she must do is to build trust, which is the blood of guanxi. But building trust in China takes time. Impatient business people or managers who think their product or their technology is so good that building relationships is not necessary will most certainly face a painful disappointment. Once again, in China, relationships come before business and there is no shortcut to that. That is why patience is one of the most valuable skills when dealing with the Chinese market.
In order to build the right connections, the relationships need to be cultivated outside of the business setting. If this implies taking part in many dinners and social events that involve a lot of drinking, it is important to participate with an open mind and a good predisposition. In this context, it is always essential to remember that the real relationship is not between companies but between people.
Since building a guanxi takes time and involves a good amount of socializing, it is obviously easier to develop it for someone who is based in China. For the others, they need to understand that, if the Chinese market represents for them a priority that requires an investment in resources, people, and time, a couple of trips a year are not enough. Different visits need to be planned in order to build a good relationship with a potential partner. And in the common case where a Western company relies on an advisor based in China to help develop its business there, the latter can certainly lay the groundwork in terms of building the first connections and preparing the preliminary phase of a potential deal. However, when a counterpart or a potential partner has been identified, the person in charge of the deal must go to China and plan as many visits as is necessary in order to establish a personal connection.
For many Westerners, especially for those used to getting “straight to the point” who do not like to “waste time” in matters that are not strictly business-related, it will be very difficult to accept the idea that before becoming partners in business, the Chinese want to be friends with them. But they need to accept the fact that there is no shortcut to that. Building a good relationship with a Chinese business partner based on mutual trust will take time, but, once the doors of his guanxi are open, the chances of developing a successful business venture will increase exponentially.
In this context, it is essential to understand a central feature of Chinese business culture, one that many foreign business people ignore or underestimate to their own detriment: most believe that the personal relationship with a business partner develops after a contract is signed, while the Chinese believe that there needs to be a relationship before a contract gets signed. They believe that, since personal relationships are the best way to build trust, they should take precedence over legal and formal documents. This is why putting too much pressure on a counterpart to sign a contract because “time is money” and you need to catch the flight back home, without having established a good personal relationship beforehand, will most probably lead to problems that could affect the whole business.
In China, the very essence of a transaction is not legal but relational, and if a Chinese counterpart does not trust you yet because you have not established a personal connection, your insistence to sign a contract could only inflate his suspicions. This is really where you clearly see the biggest differences between the Chinese and the Western business cultures being played out.
Another very important point is that a person’s guanxi is strictly personal and therefore non transferable. Therefore, if the manager of a foreign company in China has been able to establish an important and wide business network along his many years spent in the country, when he leaves his post his guanxi will not automatically be transferred to his successor.
This personal element of guanxi is critical and must be taken into serious consideration by any company planning to develop a business venture in China. Building a guanxi is essential and it takes a long time to establish a good one, but the problem is that, today, many companies tend to shorten the time of the assignments of their managers in China. An assignment which is too short could actually prevent the firm from establishing the right guanxi and therefore limit the potential for success in the Chinese market.
To sum it up, guanxi is a central tenet of Chinese business culture because China is a relationship-based society, where the human and personal elements play a more decisive role than in most Western countries. It is therefore essential for any company planning to do business in China to integrate the development of the right guanxi in their wider market-entry strategy. Certainly, it takes time and effort to build a guanxi, and it takes even more time and effort to maintain it, but it is an investment that will eventually pay off and give an important competitive edge.