1. 關系 The Role of ‘Guanxi’ in China Business
Howard Davies

2. Objectives To clarify the meaning of ‘關系’
To note how ‘關系 is perceived by Western observers
To consider 3 different explanations for the importance of guanxi in China
To consider the role of guanxi in the future

3. What is Guanxi 關系?

4. What is Guanxi 關系?
“the set of personal connections which an individual may draw upon to secure resources or advantage when doing business or in the course of social life”
Davies 1995

5. Write Down Your Ideas on Guanxi

6. Some Ideas On Guanxi? Personal Reciprocal obligations
Continuing over time if nurtured
Declining if neglected
Insider/outsiders
New friends/old friends
Networks of connections
‘Investing’ in guanxi
Consideration for others
‘People’ orientation

7. WHAT ARE WESTERN PERCEPTIONS OF GUANXI?
Guanxi = Corruption and Complication
Building guanxi is expensive and time-consuming
Without guanxi nothing can be done
Difficult to identify who is the decision-maker
Negotiations take too long

8. How Can We Explain Why Guanxi is so Important in China?

9. How Can We Explain Why Guanxi is so Important in China?
Guanxi may be the product of Chinese culture
Guanxi may be a very useful response to institutional weakness in China
Guanxi may be a response to the opportunities arising from administrative controls

10. 關系 as a Product of Chinese Culture I
the Chinese individual’s experience is of “self in relation to other”, not the autonomous and self-contained self of the West - wu lun五倫
Chinese people tend to put others into categories more sharply than Westerners
Chinese people are more family-oriented and regard helping the family as an ethical imperative - giving business to a relative seen as a god thing, not a bad thing

11. Guanxi as a Product of Chinese Culture II
Individuals are linked by:
the ‘expressive’ tie - family - distribution by need
‘instrumental’ tie - strangers - earning a living -
‘mixed’ tie - with non-family people you expect to interact with into the future

12. 關系as a Product of Chinese Culture III
In the ‘mixed’ tie individuals have an obligation to do favours and to reciprocate those favours
If someone asks me for a favour, whether I will give it depends on
how will others think of me if I give or if I refuse?
how big and how soon will be the return favour from them?

13. Guanxi as a Product of Chinese Culture IV
If I have a good network of connections I will get what I want
Developing good guanxi is more profitable in China than elsewhere (BUT IS THIS REALLY TRUE?)

14. The Results? Negotiations take longer ;
time is needed to build up the personal side of a business relationship
the consequences for the networks of all participants need to be taken into account
The “real” decision-maker is difficult to identify;
it is the whole network, not an individual
Network members not involved in the business may be involved in meetings

15. Guanxi as a Response to Institutional Weakness
Society needs arrangements which support transactions
WHAT DOES THAT MEAN?

16. Guanxi as a Response to Institutional Weakness
Society needs arrangements which support transactions
I must have confidence that I will be paid for goods I supply and that I will receive the goods I have paid for
how can I have that confidence?

17. Guanxi as a Response to Institutional Weakness
Society needs arrangements which support transactions
I must have confidence that I will be paid for goods I supply and that I will receive the goods I have paid for
private armies - inefficient and expensive
religion?
trust
legal system

18. Guanxi as a Response to Institutional Weakness
Fully developed economies use the legal system to support transactions
China does not have a fully developed legal system
300,000 lawyers needed
What about trust as a substitute?

19. Is Guanxi a Substitute for the Missing Legal System?
Mistrust of strangers is strong in Chinese culture
But a group of people who know that they will transact with each other into the future will behave in a trustworthy way
the ‘folk theorem’ in game theory
Use of guanxi allows transactions to take place; GREAT PRACTICAL USE

20. Guanxi as a Response to ‘Rent-Earning Opportunities’
In a planned economy, shortages create opportunities to earn rents
Even in a market economy administrative controls creat opportunities unless the administration is properly designed
Individuals may try to get access to resources through bribery (which might be efficient)
Or they may use their ‘guanxi’

21. What Are The Private Costs and Benefits of Guanxi?

22. What Are The Private Costs and Benefits of Guanxi?
dinners, gifts (appropriate to the situation) not usually money, help with kids’ education
BENEFITS
access to resources and permissions
favoured position for getting contracts

23. What Are the Social Costs and Benefits of Guanxi?

24. What Are the Social Costs and Benefits of Guanxi?
inefficiency if people deal with a limited pool of others
corruption may have social consequences
BENEFITS
allows transactions to take place in the absence of trust and effective institutions

25. Empirical Work?
Hong Kong Managers dealing with China Business identified
sources of information
dealing with bureaucracy
sources of resources
transactions support

26. What was Most Important?
Transaction Supporting Function of Guanxi
Then Getting Information
Resources Ranked Last

27. What Does That Imply?
The Positive Aspects Are More Important?

28. What of the Future? Will Guanxi Remain So Important?
a better legal system will make it less necessary as transaction support
a market economy and administrative reform will make it less profitable
but is Chinese culture unchanging?

29. The Possibilities?
1. Guanxi is inefficient and is only currently used because the benefits outweigh the costs. IT WILL BECOME LESS IMPORTANT, WHICH IS A GOOD OUTCOME
2. Guanxi is more efficient than a legal system and continues to be important for that reason, WHICH IS A GOOD OUTCOME
3. Guanxi is inefficient but so deeply rooted in Chinese culture that it remains very important. THIS IS A NEGATIVE OUTCOME