How to be the spider, not the fly
Several years ago, a large US financial consulting and auditing company thought it wise to employ a relative of the PRC finance minister as one of its senior representatives in China. With the institutional restructuring of all major banks on the books, the consulting company was convinced such a personal relationship (guanxi) would be an asset.
When a major PRC policy bank put out a tender for a restructuring project financed by the World Bank and the Asian Development Bank, the company promptly put in a bid. But contrary to the company's expectations, it did not win the tender. The bank apparently feared that choosing a company affiliated with the finance minister's relative might create political difficulties for the finance minister, in this case the perception of favoritism.
Though the US consulting firm believed that bringing the finance minister's relative on board would be an asset, the client for the project viewed the connection as a liability. Indeed, staying away from the minister's relative potentially strengthened the PRC policy bank's relationship with the minister. Because the policy bank carefully avoided creating the impression that the minister favored his relative's company, the minister could trust the bank not to create political liability for him in the future-and to watch his back in the China guanxi game.
Spinning the web
Guanxi is part of the fabric of Chinese society. Personal relationships are central to every aspect of Chinese society, including business. In the West, relationships grow out of deals. In China, deals grow out of relationships. The cultivation of guanxi is an integral part of doing business.
In China, a network of multiple relationships is necessary because of China's constantly shifting political landscape, fragmented sources of authority, and the businessperson's resulting need to be an "insider" at all levels of this hierarchical society. Furthermore, multiple relationships serve as coping mechanisms for the obligations arising from each individual relationship.
Each of the relationships in a guanxi network has its own particular characteristics, and each entails a peculiar protocol. Friends in China who help you in your business dealings are not like friends elsewhere. Western managers can relate the benefit sought with the bond created to achieve a given objective. But Westerners are generally unaware that in China social relationships may mean much more than what Westerners intend because they are so fundamental to the Chinese national character. To Westerners, relationships help the individual; to Chinese, they also define the individual. In China, if you are related to a senior official, you will be treated with more respect and accorded more face. In short, the status of the people with whom you have relationships helps define your status.
Business literature considers guanxi a necessary but insufficient condition for success in China: it can help but won't hurt. But my 15plus years of experience working in China have made me aware of the darker side of guanxi: a guanxi network can be a spider web in which one can quickly get entangled.
Reciprocity, obligation, and ethics
Guanxi networks entail reciprocity, obligation, and indebtedness among actors, as well as the aesthetic protocol that comes with cultivating these relationships. Chinese people are accustomed to thinking about these obligations, how they are incurred, and how they are paid off. One way to gain prestige and improve status is to be well-versed in situational and relational ethics, that is, knowing when and how to use guanxi and when and how to pay back the resulting indebtedness. Few Western managers understand that their status and respect, what Chinese call "face," are gained from knowing how to act. Even fewer know and understand the liabilities created by guanxi.
The essential …