Written by: May Elgrabli
Today, approaching the international Chinese business world as an outsider can be extremely difficult. The challenges in penetrating the market include the clear cultural differences, the language barrier and the problematic legal coverage between China and the West. Moreover, interpersonal relations (Guanxi) have substantial value in Chinese society, one could refer to them as “the oxygen of the nation”. Let’s classify their utility; should the interpersonal relations be considered a key function or a fundamental barrier for outsiders when attempting to integrate into the Chinese business world?
Though it is quite difficult to measure quantifiably, experts make it evident that business in China today is largely conducted through interpersonal connections. Indeed, Chinese executives cultivate a network that has become fundamental in society, making trust and personal relationships vital keys for successful business ventures (Hope). Guanxi follows Confucius’ ideals of hierarchy in order to achieve order. The sheer magnitude of the interpersonal relations’ power over formal strategic choices calls to question what is the pivotal driving force of business in China; did interpersonal relations take the role traditionally held by institutional policy?
One approach suggests that China’s economic growth relies on these precise relations, as they serve as an informal determinant of strategic choices (Quer, Claver and Rienda). This approach could be rooted in the nature of the Chinese government. Indeed, Guanxi developed in the historical context where the government lacked a strong rule of law. Thus the Chinese people were required to develop an alternative way to ensure trust and protection when doing business (Goh and Sullivan). Yet if the economy is majorly dependent on Guanxi, one must wonder whether these relations would hold in the long-term, in this magnitude. Moreover, is it still relevant in today’s internet era?
It seems reasonable to assume that in China’s blooming digital era, where the internet is gradually penetrating every aspect of life, the status of the Guanxi tradition would gradually diminish. In the long term, the internet offers wider prospects of growth as it enables businesses to reach a much wider audience (Hope). However, Guanxi is rooted in Chinese culture to the extent that it has become over time an indispensable part in the fabric of business. Moreover, even today government support to businesses can be insufficient – making the cultural construct of Guanxi essential.
And yet, some disadvantages to Guanxi cannot be overlooked. It can be argued that (to some extent) Guanxi serves as an obstacle to businesses. By definition, it reduces the diligence on market-based standards and capabilities. By emphasizing personal relations, Guanxi overlooks the importance of the quality of a product, disregarding its merits due to value. This could create an unjust and inefficient judgment and lead to favoritism in the market (suggesting even corporate corruption or nepotism). Moreover, there is a limit to the utility of Guanxi. Relationships may be necessary but are certainly not sufficient on their own for company profitability. Moreover, focusing efforts mainly within China’s borders leads to a neglect of global networks (which could be much more exposing and teaching). Moreover, developing and maintaining Guanxi from abroad could be a serious burden with a very high cost for a foreign company; requiring full time presence in China, investing a lot of time and effort in understanding the culture, etc. Thus, lack of Guanxi could bring the fall of an otherwise perfectly profitable business. It might even serve as one of the reasons why 70% of international business ventures in China fail, according to experts. Therefore, Guanxi can be considered an obstacle for businesses.
It can be concluded that when approaching the Chinese business market, it is critical to include Guanxi as a strategic tool in order to succeed. Though it is quite challenging to establish and maintain (thus making it difficult for foreigners to penetrate the Chinese market), and one might even question its integrity, once developed its value will be essential as a significant facilitator of cross-culture communication and cooperation. Thus, in today’s reality Guanxi can be seen both as an obstacle and a key function for successful international business ventures in China.
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