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關系The Role of ‘Guanxi’ in China

Business

Howard Davies

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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

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What is Guanxi 關系 ?

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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

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Write Down Your Ideas on Guanxi

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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

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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

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

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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

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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

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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

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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?

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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?)

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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

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Guanxi as a Response to Institutional Weakness

Society needs arrangements which support transactions

WHAT DOES THAT MEAN?

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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?

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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

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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?

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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

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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’

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What Are The Private Costs and Benefits of Guanxi?

COSTS

BENEFITS

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What Are The Private Costs and Benefits of Guanxi?

COSTS– dinners, gifts (appropriate to the situation)

not usually money, help with kids’ education

BENEFITS– access to resources and permissions– favoured position for getting contracts

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What Are the Social Costs and Benefits of Guanxi?

COSTS

BENEFITS

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What Are the Social Costs and Benefits of Guanxi?

COSTS– 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

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Empirical Work?

Hong Kong Managers dealing with China Business identified

– sources of information– dealing with bureaucracy– sources of resources– transactions support

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What was Most Important?

Transaction Supporting Function of Guanxi

Then Getting Information Resources Ranked Last

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What Does That Imply?

The Positive Aspects Are More Important?

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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?

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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