The importance of "Guanxi" 

Regardless of business experiences in ones home country, in China it is the right "Guanxi" that makes all the difference in ensuring that business will be successful. By getting the right "Guanxi", the organization minimizes the risks, frustrations, and disappointments when doing business in China. Often it is acquiring the right "Guanxi" with the relevant authorities that will determine the competitive standing of an organization in the long run in China. That is why the correct "Guanxi" is so vital to any successful business strategy in China. But too often developing and nurturing the "Guanxi" in China is very demanding on time and resources.

How business is conducted 

The Chinese culture is distinguished from the Western culture in many ways, including how business is conducted. For example, the Chinese prefer to deal with people they know and trust. On the surface, this does not seem to be much different from doing business in the Western world. But in reality, the heavy reliance on relationship means that western companies have to make themselves known to the Chinese before any business can take place. Furthermore, this relationship is not simply between companies but also between individuals at a personal level. The relationship is not just before sales take place but it is an ongoing process. The company has to maintain the relationship if it wants to do more business with the Chinese. 

Many Westerners use the two words "Guanxi" and relationship interchangeably. While on certain occasions, "Guanxi" has certain negative connotations related to bribery and corruption, relationship usually refers to emotional bounds, trust and friendship that originated from previous satisfactory experiences dealing with each other and frequent contacts. 

How relationship is established 

First of all, it does not have to be based on money. Treating someone with decency while others treat him/her unfairly could result in a good relationship. Second, it starts with and builds on the trustworthiness of the individual or the company. If a company promised certain things and delivered as promised, the company is showing trustworthiness and the Chinese would be more inclined to deal with them again. Third, being dependable and reliable definitely strengthens the relationship. It is like being friends, and friends can count on each other in good and tough times. A good example is related to the 1989 political instability in China. Companies that stayed found their relationship with the Chinese strengthened as they were viewed by the Chinese as friends who did not abandon the Chinese when they needed friends. Fourth, frequent contacts with each other foster understanding and emotional bonds and the Chinese often feel obligated to do business with their friends first.

"Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. Political and administrative interference in business have declined. More and more companies have found themselves on their own surviving without government subsidiaries. If they are not getting any help from the government they are more reluctant to be influenced by government officials. So government "Guanxi" may have less influence with these companies.

Since "Guanxi" and relationship could function as an information network, companies with wide "Guanxi" and relationship networks often have much higher performance than companies with little or no relationship with the Chinese.

Advice for Western companies

Western companies should work to develop strong relationships between themselves and their Chinese counterparts. These relationships should be both between companies and also between individuals. Relationships should be used as the basis for developing "Guanxi", or influence, related to the process of doing business in China. There is a risk involved with "Guanxi" though. When something goes wrong, the relationships are challenged, and the former friends are not friends anymore. "Guanxi" can also be very one-sided. When "Guanxi" is involved, there is a risk of obtaining an invoice of twice the amount that you bargained for.