Guanxi or common sense, part II – the WTO column

(Later also at Chinabiz)
My little rant about foreign companies who mistakenly assume that all Chinese can provide helpful portions of guanxi caused quite some reactions. Of course I could not address all subtleties of the matter and certainly, kakila-hereditary Chief Clark Smith might be right that Aboriginals in Canada still need their guanxi, because they cannot get bank loans, as he writes in a comment, but I would like to limit the argument to China.

“I think guanxi is extremely important in doing business in China,” writes business consultant Ari van der Steenhoven. “It seems the companies you quote did not have much knowledge about doing business in China.” That was indeed my main argument: lack of common sense can kill any business, with or without guanxi.
Guanxi has become an issue in China among foreign business people – and not in their own countries – because of the cultural differences, writes Mike Noske from Zhangjiagang. “Can I stress the point that I believe the western business world is very much cognizant with the concept of guanxi – we just call its different: “the old school ties”, “lodge brothers”, “mates” are three that comes to mind. But because we don’t acknowledge it as openly as the Chinese do with ‘guanxi’, the possibilities for unethical outcomes as a result of ‘western guanxi’ are in my view much higher than in China.”

I’m not too sure about the last part of Mike Noske’s argument. While guanxi might still have an influence, as Van der Steenhoven argues, I do see its influence is diminishing. When a market is dominated by monopolies and oligopolies, when government officials can decide about market entry, distribution channels, then there are barriers you have to develop your business based on your good relationship with those government officials. Newcomers might not appreciate my argument when they see how much influence the government in China still has, but compared to a decade ago, the government interference in much of the economy has diminished greatly.

A representative of a larger car company, who has to remain anonymous, argues that ‘guanxi’ is still very much in place, and not diminishing as I say. “In my opinion this is [still] true for small ventures but also for a huge corporation like the one I am working for. One of the main reasons why our company gets into the headlines of the Chinese newspapers when something small or something big goes wrong is, that we send our lawyers to the government instead of the "invitation to the Karaoke bar". Have you noticed that there is hardly any bad news about Volkswagen? In my eyes this is because due to their long experience and very good connections to the government, their mistakes are not communicated in the same way.”
This might still be right for the media, because they belong to the least deregulated industries in China. But as Volkswagen has discovered the hard way over the past decade is that ‘guanxi’ perhaps might still keep your corporate disasters out of the media, it does not help anymore in selling cars. Ten years ago Volkswagen was big in China, because they could keep the competition out and force the majority of the car owners to buy their outdated Santana.
Now in the car market, the consumers are in charge and guanxi on that previous scale has lost its impact. “Guanxi is nonsense, you can do business with everybody nowadays,” says one of my local hit men, who is conducting many business negotiations. “You have to know how to organize the kickbacks, that is the only thing you need to get things done.”

Fons Tuinstra

Doing business in China