I have been reading some of the China blogs lately – there are a lot of them – and have seen a few posts about “guanxi,” (关系）what is literally translated into English as “relationships,” but which really means “connections” This is one of the first words that you hear or learn when you do business in China. Guanxi is simply knowing the right people in the right places i.e. connections. Doing business in China used to be all about guanxi. In the 80s and 90s when certain products were under quota for shipment to the US, a quota could always be obtained by simply picking up the phone and working ones contacts. I used to see this happen all the time when I worked in the textile industry in China. If my boss needed to ship an order of bed sheets but he didn’t have a quota – because quotas of home textiles were usually filled by April each year – he would spend the entire day on the phone, the result being that he usually got the quota he needed.
As China has become a more legalistic society, guanxi has diminished value and for this reason some China bloggers and business people question its efficacy at all. These people say that all you need to succeed in China is good business sense and that guanxi nowadays accounts for next to nothing. I strongly disagree (as do others I have talked to ). Doing business in China is still very much about guanxi. I often call on people I worked with fifteen years ago to ask favors, to point me in the direction of a supplier or perhaps get me a favorable price on a product I am sourcing. Earlier this year, I found a factory that had a competitive price on product I was sourcing but the factory did not have the requisite export license. I ran this by a lady I used to work for and she said “no problem” and told me that she could arrange shipment of the product if I wanted to order it. This was quintessential guanxi at work.
In fact, I don’t know if I have ever done business in China when guanxi was not used at some point to overcome a hurdle. It is synonymous with doing business in China. Although guanxi may account for fewer back-door maneuvers in large, cosmopolitan cities like Shanghai or Beijing, it is largely how business is conducted in many rural places in China. It is true that you can do business in China nowadays without guanxi . But it won’t be easy.
I am a member of a small business group here in a suburb of Tokyo and I recently had the opportunity to attend an evening of talks about doing business in China – from the Japanese perspective. About seventy small and medium-sized business owners from the area were in attendance. In fact, there had been such interest in this event that the venue had to be moved to accommodate everyone. The three main participants were a well-known China specialist from the Hitotsubashi University Business School, an elite B-School in Japan; the owner of local print business who has been doing business in China for many years; and the head of a research institute who works closely with China. Some of the highlights of the evening were as follows:
– Professor Seki from Hitsubashi University emphasized that up until now development in China has taken place in three regions, Dalian, Shanghai and Guangdong. These are all coastal areas the professor pointed out noting that much of the interior of China has yet to be developed. He is very excited about the possibilities for Japanese businesses going forward in the relatively under-developed provinces. Of course when he said this I could not help but think of Fuyang, China (see Mulberry Fields archives)
– Professor Seki noted that although the cost of manufacturing in China is rising, China will remain the best investment for Japanese small and medium-sized businesses for at least the next ten to fifteen years. He spends a great deal of time in China – he is there at least once a month – and he feels the pulse of development. Interestingly a handful of people in attendance had never even been to China but they are aware that the “China price” is essential to their business success. As someone who lived in China for seven years and has been going there for twenty years, I always enjoy meeting people who have yet to make their first trip to China and I talked to several people like this afterwards.
– The owner of the printing company, Mr. Arai, has been doing business in China for about twenty years. He listed some of the ups and downs of doing business in China – including getting thrown in jail for one night – but said China for him has been a mostly positive experience. Although he detailed the challenges of finding good management – which sounded a bit like musical chairs – he said the overall quality of his rank-and-file employees was outstanding.
– Mr Ito from the research institute for precious metals detailed how he could not find anyone in Japan who could help him develop a particular metal press and he eventually had to look to other countries in Asia. He was emphasizing the importance of sourcing not only product but also talent from abroad, especially from China.
Overall it was a very interesting evening, the theme of which seemed to be that Japanese businesses cannot ignore China if they are to remain competitive. Judging from the excitement in the room, and it was palpable, it is evident that the Japanese are still bullish on China in spite of the recent clashes between Tokyo and Beijing.