Insight into Guanxi in Business – Chinese Specific Culture
Guanxi (simplified Chinese: 关系; Hanyu Pinyin: Guanxi) refers to interpersonal connections in a broad sense. Guanxi is a cultural characteristic that has strong implication for interpersonal and inter-organizational dynamics in Chinese society. In the modern society, Chinese people and organization still cultivate guanxi energetically. China’s economic reform and open door policy have not restrained, but rather have catalyzed a proliferation of guanxi. Guanxi has been pervasive in every aspect of Chinese social and business activities. It is thus critical for businesses, whether foreign or local, to understand guanxi culture in Chinese business world.
Chinese Characters for Guanxi (Relationships)
As for Guanxi in business, the term of “guanxi” is defined in a narrow sense, which reflects firm-level networks among organizations, or the links between firms and the task environment or government officials. Two points about guanxi in the study need to be emphasized. First, guanxi in this study means firm-level connection between business people, businessmen and the task environment or government officials. Guanxi becomes an intangible asset at the organizational level as personal relationships are dedicated to and used by the organization. Second, although many foreign people often confuse guanxi development with unethical behaviors, the guanxi in this study have no association with corruption, bribery etc. it just reflects Chinese guanxi culture and the application in business practice. In fact, most of Chinese people have a clear understanding of the boundary between Chinese guanxi custom and unethical abuse of guanxi development. In short, our research only focuses on favor-seeking guanxi rather than rent-seeking one. Favor-seeking guanxi is culturally rooted, while rent-seeking guanxi is institutionally dedined (Su, 2001).
Guanxi Literature Review
Guanxi has been the lifeblood of personal relationships and business conduct in Chinese society. In the fast-changing transition economy, guanxi is a critical factor in firm performance in China, affecting the flow of resources and a firm’s interaction with the task environment. In fact, guanxi has become a kind of leverage to manage uncertainties and external dependency.
In China, people place special emphasis on guanxi cultivation called La guanxi. Whether any methods of guanxi cultivation are applied to the reality, a Chinese philosophy called Renqing play an underlying cultural role in guanxi development. It is a precondition to develop a guanxi network and to use the network for one’s own advantages (Yeung and Tung, 1996). It is a form of social capital that provides leverage in interpersonal exchanges of favors (Yang, 1994). If a person want to weave a more extensive and stronger guanxi network, he or she should be consciously deliver more renqing to the interested people by applying a variety of methods such as having a dinner in the restaurant or gift-giving etc., while keeping the related people’s face (mianzi).
Guanxi operates in concentric circles (Yang, 1994), and the guanxi network is mobilized to accomplish desired results when a situation arises which is beyond an individual’s capacity (Redding and Ng 1982). Interactions in a guanxi network become complex due to the dual roles of each individual, that is, as a passive follower of the norm in a predetermined relationship and as an initiator of voluntary relationships (Yang, 1994). Guanxi have a direct or indirect impact on business transaction in Chinese business context. Previous studies show that guanxi affects financial outcomes (Luo and Chen, 1996), and market benefits (Davies et al., 1995).
As two researchers, Yeung and Tung, said in 1996, Chinese people weaving a guanxi network are also bound by renqing obligations. The rule of renqing reciprocity establishes a structural constraint that curtails self-seeking opportunism and preserves social capital within the existing network structure (Coleman, 1990). Disregarding this reciprocal obligation or the loss of renqing obligation causes guanxi damage or even guanxi termination, which will eventually affect the established business transaction.
Conceptual Background for Guanxi
Dimensions of guanxi construct
Literature suggests that guanxi is a multidimensional concept formed by three analytical dimensions or ties: affective, normative and instrumental (Hwang, 1987). The affective dimension of guanxi refers to the development of close relationships with another person solely due to the existence of affective bonds between them. It is“generally a relatively permanent and stable social relationship. It can render an individual’s feelings of affection, warmth, safety and attachment. Aside from the satisfaction of 9 affective feelings, one can, of course, utilize this tie as an instrument to procure some desired material resource, but its expressive component always claim precedence over its instrumental component” (Patricia, 2003). Usually, these affective ties are gender specific (Fei, 1992). The normative dimension indicates that guanxi often develops because two particular individuals are tied to each other through some kind of prescriptive relationship categorized as being friends or relatives. Finally, the instrumental dimension stands in opposition to the affective tie. When a person tries to develop an affective tie with another person, then this tie is the goal itself. However, when the person attempts to establish an instrumental tie, then Hwang (1987) indicates that “the relationship serves only as a means or an instrument to attain other goals. Thus, this relationship is basically unstable and temporary” (Patricia, 2003).
However, this three-dimension view of guanxi is only useful for analytical distinctions. In fact, when we analyze a particular guanxi, we find a mix of the three dimensions. The combination of these dimensions determines the nature, strength and stability of a particular guanxi. As Hwang (1987) indicates, a relationship purely instrumental is generally short-term and unstable. If the firm desires to transform an instrumental relationship into guanxi, then it needs to strengthen either the affective or normative dimension or both. On the other hand, Chung and Hamilton (2002) note that the instrumental, affective and normative dimension do not necessarily run in the same direction. Nevertheless, as Chung and Hamilton state that inconsistency among the three dimensions does not prevent the development of a guanxi relationship. It is the case, however, that a guanxi with dimensions going in different dimensions will be weaker than if there are aligned.
Guanxi Principles
According to the results of many researchers on guanxi, 4 guanxi principles characterize the guanxi network. First, guanxi is transferable among parties related through a common connection in the middle. Depending on the guanxi transfer, people can expand his or her personal network in a more efficient way. Second, guanxi is reciprocal. A person is viewed as untrustworthy when he/she refuses to return a favor and he/she does not follow the rule of reciprocity (Alston, 1989). Third, guanxi is intangible. The long-term viability of guanxi depends on the members’ commitment to the guanxi. Guanxi does not specify the range or frequency of exchanging favors. Guanxi members are tied together through an invisible and unwritten code of reciprocity and equity. Finally, guanxi is utilitarian rather than emotional. To a great extent, guanxi, especially firm-level one, is based on the exchange of favors, not an emotional attachment. Accordingly, the guanxi network does not necessarily involve friendship, although friendship is preferred in some cases.
Renqing or Favor
The rule of renqing implies that if an individual has received something from other people, then this person should return the favor. Hwang (1987) states that renqing is a set of social norms “by which one has to abide in order to get along well with other people in Chinese society” (Patricia, 2003). This term emphasizes “the value of maintaining personal harmony and social order among persons situated in a hierarchically structured relationships. Otherwise stated, the principle of renqing implies not only a normative standard for regulating social exchange but also a social mechanism that an individual can use to strive for desirable resources within a stable and structured social fabric” (Patricia, 2003).
The question now is the following: When is the time for returing a favor? As we discuss before, the basic logic of guanxi is reciprocity. A long-term and stable guanxi should be a relationship that generates mutual benefits in the long run. As Yao states (1987), this mutual benefit is achieved through “a socialized balanced reciprocity of obligation and favors” (Patricia, 2003). However, the logic of reciprocity is distant from being predetermined. Make the following affirmations. First, there is no specification on when a person should return a received favor. Second, the amount of exchange can be flexible. However, both persons need to perceive them more or less equal. Third, intentionally the particular type of returned favor is not explicitly determined. As Chung and Hamilton (2002) state “there is, literally no way to quantify the favor in order to find out whether they are of equal value. Indeed, the whole point of renqing is its indeterminate nature: open-needed, flexible, oriented towards a future that is unknown and unknowable” (Patricia, 2003). Four, there is no well-defined norm on how much a person should give in return for a previous favor.
In sum, Chung and Hamilton state that the logic of guanxi is governed by the logic of reciprocity. This logic however is necessarily fuzzy. The exchange is supposed to be unspecified, and therefore a favor is flexible in time, amount and exchange” (Patricia, 2003). Now the point is why both sides accept this undeterminacy related to guanxi. Well, we must not forget that guanxi is a continuous and long-term relationship. The actual amount of exchange can be flexible. However, both persons need to perceive them more or less equal.
Guanxi Development
Guanxi possesses the dynamic nature in its development. The model of guanxi development includes guanxi initiating, guanxi building and guanxi using (Chen, 2004). In different stages, there are distinctive guanxi objectives, interactive activities and operating principles. At the initial stage, people try to identify and create guanxi bases through familiarizing according to the principles of mutual self-disclosure. In the second stage, people enhance guanxi quality by expressive behaviors or instrumental transactions according to the principle of dynamic reciprocity. In the third stage, people seek benefits or re-evaluate the guanxi quality through exchanging favors based on the operating principles of long-term equity.
In this study, guanxi development is divided into 3 phases across the whole life cycle of guanxi development – guanxi cultivation, guanxi utilization and guanxi termination. Guanxi cultivation encompasses guanxi initiating and building by the methods of familiarizing, expressive or instrumental behaviors to create guanxi bases or enhance guanxi quality. Guanxi utilization is to use the established guanxi to voluntarily expand guanxi network or bring benefits to individuals or organizations. Guanxi termination indicates that guanxi deteriorates or diminishes to such an extent that the established guanxi transform to totally bad or complete loss.
Benefits of Guanxi
Recently, several empirical researchers have examined the outcomes of guanxi. Most studies focus only on positive outcomes of developing guanxi. For example, the empirical study conducted by Davies et al. (1995) suggest three major benefits that arise from the establishment of guanxi: key sources of information, sources of resources and other areas (smoothing transport arrangements, smoothing collection of payments and building up the firm’s reputation and image). First, in some markets, reports on domestic markets are very limited so that guanxi network may be an important source of information on market trends as well as on both present and potential opportunities and threats. Second, guanxi facilitates access to labour and physical resources as well as relations with local governments. And third, other guanxi benefits range from the smoothness of issues related to product transport and distribution to the building of organizational image and reputation. Other studies analyze both positive and negative aspects of guanxi. For example, recently, Lee, Pae and Wong (2001) developed and tested a model to analyze factors that positively affect guanxi as well as the impact of guanxi on organizational performance. They state that once guanxi is established, it has positive effects on organizational performance. In particular, it offers good means of facilitating transaction by allowing access to limited resource/information, preferential treatment in business dealings, and protection from external threats. On the other hand, negative aspects of guanxi include the associated corrupt behaviors (e.g. favoritism, nepotism) (Patricia, 2003). What factors influence guanxi? According to the findings of their study, guanxi is positively affected by a firm’s decision-making uncertainty and perceived similarity (like mutual understanding, common interests and shared values and experiences), while negatively affected by opportunism.
Guanxi Hierarchy and Generic Guanxi
The practice of guanxi stems from Confucianism, which fostered the broad cultural aspects of collectivism manifested in the importance of networks of interpersonal relations. Chinese society has been functioning as a clan-like network since Confucius codified societal rules, values and hierarchical structures of authority during the sixth century BC.
In a collectivistic culture, the rules of guanxi are prescribed by Wu-Lun (5 relationships: emperor-subject, father-son, husband-wife, elder-younger brothers and friend-friend), which is a set of typical Chinese feudal ethics that define the hierarchical relationships between the noble and the humble, the close and the distant, as well as the individual and the group (family or clan). Specifically, the three cardinal guides (San-Gang: ruler guides subject, father guides son, and husband guides wife) and the five constant virtues (Mencius’s Wu-Chang: benevolence, righteousness, propriety, wisdom and fidelity) work as the traditional ethical codes that still prescribe the differentiations among role relations (Hwang, 1987; Yueng and Tung, 1996). In concept, interpersonal relationships or guanxi in modern China are seen from the lun perspective as normal when affection is between parent and child, righteousness between ruler and subject, order between older brothers and younger brothers and sincerity between friends. The rules that guide the guanxi network are that the humble cannot assail the noble, the distant cannot overrun the closer, and the individual cannot override the group (Yueng and Tung, 1996). In other words, guanxi from society cannot be considered more important than that from the family or clan, though the Chinese are often in a dilemma in comparing their guanxi with ruler and with family. So, guanxi operates in concentric circles, with close family members at the core and with distant relatives, classmates, friends and acquaintances arranged on the periphery according to the distance of the relationship and the degree of trust (Yang, 1994). A person’s guanxi network is illustrated as follows (the radius of these circles represents the psychological distance between the self and a given guanxi partner):
Guanxi Hierarchy
Due to the ego-centered nature of the Chinese guanxi network (Fei, 1992), the guanxi quality (the strength of social ties) is assessed by the distance between where the guanxi partner located in the guanxi hierarchy and the center in which the self is located. That is, the more inner circle the guanxi party is located on, the smaller the psychological distance between the guanxi partner and the self, the better the guanxi quality is.
Based on the model of Guanxi Hierarchy, guanxi is divided into 5 generic guanxi in this study: first-tier generic gaunxi is embedded in close family members at the circle core, with distant relatives (second-tier generic guanxi), classmates (third-tier), friends (fourth-tier) and acquaintances (fifth-tier) arranged on the periphery according to the distance of the relationship and the degree of trust. A point should be emphasized that although these 5 generic guanxi are generally arranged according the hierarchical model, the specific guanxi ties of an individual do not exactly follow the structure of the model of Guanxi Hierarchy – some specific guanxi (ties) can move outward to become more distant or inward to become closer, for example, a friend may be more intimate for a person than his or her distant relatives, when he or she treats this kind of friendship as brotherhood.
Among the above 5 generic guanxi, first-tier family member guanxi is predetermined relationship which dictates individual behaviors and would obviously be the priority for guanxi utilization, while the rest 4 generic guanxi allow individuals to play more active role in extending own predetermined family member relationship to external network. The achieved ties are those that are either activated or constructed voluntarily bey in individuals.
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In fact, Guanxi as Chinese Culture definitely influence the business, of course, including the industrial sales and marketing in China. As for foreigners, it should be necessary lesson to do business in China.
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Great work – I see that you have quoted previous authors. Do you have the references for these in Harvard style?