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關系 The Role of ‘Guanxi’ in China Business

關系 The Role of ‘Guanxi’ in China Business. Howard Davies. 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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關系 The Role of ‘Guanxi’ in China Business

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  1. 關系The Role of ‘Guanxi’ in China Business Howard Davies

  2. 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

  3. What is Guanxi 關系?

  4. 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

  5. Write Down Your Ideas on Guanxi

  6. 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 Some Ideas On Guanxi?

  7. 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

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

  9. 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

  10. 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

  11. 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

  12. 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?

  13. 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?)

  14. 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

  15. Guanxi as a Response to Institutional Weakness • Society needs arrangements which support transactions • WHAT DOES THAT MEAN?

  16. 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?

  17. 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

  18. 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?

  19. 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

  20. 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’

  21. What Are The Private Costs and Benefits of Guanxi? • COSTS • BENEFITS

  22. 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

  23. What Are the Social Costs and Benefits of Guanxi? • COSTS • BENEFITS

  24. 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

  25. Empirical Work? • Hong Kong Managers dealing with China Business identified • sources of information • dealing with bureaucracy • sources of resources • transactions support

  26. What was Most Important? • Transaction Supporting Function of Guanxi • Then Getting Information • Resources Ranked Last

  27. What Does That Imply? • The Positive Aspects Are More Important?

  28. 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?

  29. 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

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