Guanxi Doing Business in China

Thanks to one of my clients, I have been learning more about doing business in China. For those interested in doing so, be aware you will be miles ahead if your intention to do so is predicated by Guanxi.

In China, Guanxi (relationship) is a complicated field. A special feature of doing business in China will be the Guanxi (relationship) which includes relationships with the government body, investors, partners and even relationships with your own staff. So, when doing business in China, it is important for foreign investors to learn to coordinate with the China government, especially establishing a good relationship with government bodies dealing with foreign trade and economic cooperation.

Governmental procedures for foreign investors in establishing investments in China is extremely complicated. If you are unfamiliar about the procedures, you will delay your business opportunities. Therefore, it is important for you to be familiar with the investment procedures before carrying out your investment in China. A safer and more appropriate way would be to seek help from local organizations familiar with the same field of business or consultant firms who are able to provide professional advice and assistance. Willpower and patience may be essential for an investor to be successful, however, it is necessary for you to get help from professional bodies to ensure that your success will be achieved.

You can start small by seeking a suitable local cooperative partner when developing the China market. Many investors had established Sino-foreign joint venture, Chinese-foreign cooperative enterprise, etc. as a stepping stone to enter the China market. You will have to figure out which investment mode to choose to align with the enterprise’s characteristics and will be the most suitable for developing the enterprise’s business into the China market. Some investors who have maintained investments in China for many years proposed to small and medium-sized enterprises to take one step at a time when making investments. They should not be too ambitious at the outset. It will be best if they establish cooperation with local partners so as to reduce their investment risk. Even though China’s investment environment is constantly maturing, domestic regional development imbalances still exist. Therefore, building cooperation with local companies will be the most ideal way to protect foreign investors’ interests and investments.

China’s labor market appeals to many foreign investors very much. This is because on one hand, labor cost is low, and on the other hand, through 20 years of reform, China’s workforce has become matured and their skills have been constantly upgraded, especially in the coastal cities. Educational development is undergoing at a tremendous pace in China. It is no longer difficult to hire a high quality labor force in China today. Many successful foreign investors have even credited their success in China to their Chinese local staff. One big problem that is causing problems for foreign investors is maintaining a good relationship (Guanxi) with the local staff. First of all, top management should cultivate the company’s vision and values into the employees because what the local people are taught under China’s educational system may crash with the foreign management system. Only by letting the employees understand the company better will allow the company to function better.

Chinese emphasize on courtesy and face-saving a lot. This is due to China’s traditional culture, and courtesy can be seen in every aspect of their business world. Being courteous to government officials, cooperative partners and staff is essential. Senior president of China’s Siemens Company has rated courtesy of top importance while summarizing his China experiences. Besides displaying courtesy on general commercial affairs, respecting traditional customs and practices is also vital. Chinese people are very hospitable, but their self-esteem is very strong and they pay a great deal of attention to how other people view them and their attitude towards them. This phenomenon can be seen greatly in Northern China, which is associated with ‘face-saving’.

While doing business with the Chinese counterpart or partner, it is essential to give face (respect) to the partner or the other party, so that in this way strong cooperation can be fostered and the business will be able to grow and last.

Many foreign corporations have strict requirements for their staff in their home country. In China, this management method would probably backfire. Past experiences have shown that this kind of strict management method may not be suitable for the Chinese’s gentle personalities. Employees’ morale will be affected and they may lose the willingness and motivation to work in the company.

Handling organizational relationship in a Chinese context is a necessary skill for foreign investors to acquire in order to handle interpersonal problems in the Chinese way. It is important for foreign investors to be flexible in their management and be sensitive to China’s culture in order to devise an ideal management system best suited for their companies’ organizational culture.

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