By: Peter N. Rasmussen
Uploaded January 2020
Asia Base Law & Projects (Suzhou) Co. Ltd.
When it comes to starting and running a business of any kind in China, there are ways to go about helping yourself and increasing your chances of being successful. It’s often about who you know and how you can leverage these relationships to your advantage. This is known in Chinese culture as "Guanxi". Not always a "must" in business nowadays - but often handy to have.
In the West a personal friend, a family member, or an acquaintance may ask for help and that is normal. We help each other out if it is not too much trouble for us. But we usually do it on a give and take basis. You help me, I help you. Our networks are us and our relationships.
In China personal networks extend to friends of friends too, which means in China a personal network is an endless network – a real life version of LinkedIn where everyone is connected one way or the other. Not only that, people are willing to help friends of friends almost as much as they would help their own. You go way further in the way you help and the amount of effort and resources you put in to help because that is just how it is. This is what Guanxi is all about in China.
The Chinese are very strategic about their Guanxi because the law is not always explicit enough and a lot is up to interpretation. In Western countries your worth as a supplier to a customer is based on how good your products or services are and your terms and conditions of the trade. But in China, when it comes to B2B at any significant scale, above everything else in the ranking is how good your Guanxi is with the buyer. Also, in other ways, Guanxi is very beneficial if you need to speed up something that is required in order to get your business running quickly and more efficiently.
To do business in China, you may want to figure out who you need to have good relationships with. Simply jot down the names of important officials, suppliers, buyers and others who can improve your speed, costs, sales, and even taxation. Also think about damage control in case you have an issue or one of your employees has an issue. Once you make this map you can try to divide them into two categories – one for those you need on a frequent basis and the other for those you would need in an emergency. That is, your direct Guanxi and your indirect Guanxi
This year marks my company Asia Base’s 25th anniversary year in China. Let me tell you a personal story from our first year in business. It demonstrates how important Guanxi works, and how having good relationships was useful. It was 1995 and Asia Base was in charge of setting up a factory in Suzhou. It was a huge $30 million investment for a foreign client. At the time, I had already been in China for several years and felt I had one foot into the Chinese culture. So early on in the project, I sat down with my first Chinese employee Arthur and mapped out who we would need to have Guanxi with to speed things up, get optimal permissions, better deals, lighter treatment for the mistakes that we made regardless of our diligence, and to do business as we set up the factory and put it into operation.
In one column we wrote down the names of the people who we would need to become friends with. In a second column we wrote what it would take to become friends with them. All of this was done manually, and we actually had a lot of fun doing it. We ended up with a long list of officials, customers, and important suppliers.
When we were done, we started to design how we could approach these people and initiate strong relationships with them so we could count on them in a potential time of need. If you want to make a Guanxi relationship with someone, there is nothing as good as being introduced. We started with the few people we knew already to see who they could introduce us to and who those other people, in turn, could introduce us to further downstream. Through this web of mutual acquaintances, we were able to build Guanxi.
For people we didn't have any way to get introduced to, we simply just had to meet them. We basically waylaid them so we would be able to invite them to have dinner with us. We visited them at their offices strategically at 4:30 in the afternoon, this way we made sure that we got a long enough meeting and an excuse to extend to dinner invitation afterwards. It was a great success.
Of course, it wasn’t enough to say, “I want to have a dinner with you to establish a relationship.” That person should also be interested in you, you should be somebody who could help them later by introducing them to someone of interest to their own businesses. But at the time we didn't really have much credentials as I was just a new Foreigner in town, and my colleague, Arthur, was just a young man. We couldn't really offer a mutually beneficial relationship network in a way that the Chinese would have.
It was necessary for us to build methods or assets that would make us attractive. If you go back into history, you will know that a person could always use money to buy relationships. Personally, I have never wanted to operate in this way, it's not a part of how I do business and I don't recommend that to anybody. I figured out very early that if I was to be successful in inviting people out for dinner and thereby building relationships, I had to be "somebody" in town.
I was already a person who could speak Chinese very well. Not many people at the time here in China could speak English, and as they could talk directly with me without a translator, I was kind of cool to hang out with. So, I had that asset, but I had to build more than just that. I volunteered to go on talk shows on TV and build a little bit of fame and it didn't take me long after I appeared on local television and in media time after time for few months, to become someone well known.
I became known as “The bald Foreigner,” and the Dane guy who spoke Chinese, was on TV talk shows, and made funny jokes. I could see people actually turning their heads on the street and recognizing who I was.
I remember one afternoon when Arthur and I had followed our strategy and gone to an office at 4:30 in an attempt to accost a person we thought would be helpful to have Guanxi with. We let the meeting drag on and suggested to continue over dinner, so sure enough, we went out with this high-level person. He called home and said, “Guess who I'm with? I'm with the bald Foreigner from TV who speaks Chinese. I'm going to have dinner with him!”
Let me tell you, that was really fun to hear! I didn't think of myself as a celebrity, but just because I had been on TV, he felt that he was with somebody. We went out and had dinner. He turned out to be a very helpful person for our project. He also introduced us to many other people.
We succeeded in building this Guanxi network by hard work, a lot of wining and dining, and a little bit of fame. Also, because we became capable enough to introduce Chinese people to other Chinese people, as well as foreigners. We learned the rules of the game. I was able to help many Chinese people in getting visas to travel abroad, visit countries and companies and build relationships with foreign companies and governments. I became a bridge for Chinese people that connected them to the outside world.
Gift-giving is part of Guanxi. It is used to remember each other at Chinese New Year, national holidays, or whenever gift exchange is socially appreciated. These gifts don’t need to be expensive, but there must be a recognition of some sort that such a gift should demonstrate.
Later, when we progressed with this investment in Suzhou, around 1995, it was when mobile phones became available – but hard to actually get. Naturally, I wanted a mobile phone and we had already built a relationship that could help us with an introduction. It wasn’t difficult for us to get a meeting with a high-ranking person who could help us. I asked Arthur, who was a local, “What kind of gifts should I bring to our meeting?” He recommended a box of cigarettes, like 10 packs. I thought about getting foreign cigarettes and bought Marlboros. Later, I handed them over and got my first mobile phone. I think the price was around $4,000 for a mobile phone at the time and a box of cigarettes wasn’t material enough to violate my strict “no bribing” principle that I live by. I was giving a gift.
Arthur looked at me and I could see how he cringed. I knew I had done something wrong, on the way out I asked him, “Was there anything wrong with the gift I brought? These Marlboro cigarettes?” He said, “Marlboro costs a dollar a pack which means you gave them a $10 gift.”
“Consider it like this”, he explained, “Chinese people have two pockets in their shirts. In one they have cheap cigarettes like Marlboros, and in the other they have expensive Chinese cigarettes. The cheap ones they smoke themselves, and the others they hand out when they work on their own relationships”. As a non-smoker I hadn’t paid attention to this, but Arthur showed me what kind of cigarettes the Chinese used for gift giving which turned out to be brands called “Panda” and “ZhongHua”. Panda were the cigarettes smoked by Deng Xiaoping. I learned that when you want to make an exclamation mark and stand out, you give a box of cigarettes that the receiver, in turn, uses as a fuel to work on their own important Guanxi.
I know the word "Guanxi" sounds a little amoral like corruption, but that is a misuse and certainly not the norm. Guanxi is not a dirty word at all, it is just a way the Chinese go about having relationships, building them strategically, so that they have who they need at all times. And even if they don't have them directly in their own personal network, they have them in their indirect network.
In today’s "connected world" we are all to some extent adopting a modern Western kind of "Guanxi-systems". Social media such as LinkedIn are doing it for us.