User:MGMT90018 2015S2 Guanxi (in Business)/sandbox

This sandbox was created as part of a class assignment

Guanxi describes the basic dynamic in personalized networks of influence, and is a central idea in Chinese society. It is customary for Chinese people to cultivate an intricate web of guanxi relationships, which may expand in a huge number of directions, and includes lifelong relationships. Guanxi has a major influence on the management of Chinese businesses and connects millions of firms into a social and business web. It occurs at different levels of business operations in terms of personal guanxi, corporate and organisation-to-organisation guanxi. However, organizational guanxi must be based on personal guanxi since business transactions are formed and carried out by individuals. The value of guanxi significantly depends on the status of the party with whom the guanxi is maintained and might become valueless or even turn into a liability when the partner loses power.

Essentially, “guanxi refers to personal, not corporate, relations and the exchanges which take place amongst members of the guanxi network are not solely commercial, but also social, involving the exchange of favours (“renqing”) and the giving of face (“mianzi”) or social status”. Moreover, guanxi also relates to the long-lasting social connections and network an organisation utilises to exchange favours for business purposes. Indeed, “guanxi contains implicit mutual obligations, assurances and understanding and governs Chinese attitudes toward long-term social and business relationships”.

Importance of Guanxi
Guanxi is considered as the essence of the Chinese business community, extending into politics and society. Strong valuable guanxi networks can assist an organisation to achieve business success in China. “Over time, guanxi in China has evolved into a powerful governance structure with unique expansion rules, operating mechanisms, and impacts on firm behavior”. Guanxi can affect a firm's performance in terms of the flow of resources and the business interaction with the task environment.

Organisations have recognized the value of guanxi and are keen to build their guanxi network by establishing relationships with partner firms and government officials as well as employing local and overseas Chinese managers. With regards to job selection, task assignment as well as training and development, guanxi competencies and skills are seriously taken into account. Moreover, guanxi has a strong influence on job searching, recruitment and promotion decisions. Indeed, guanxi plays a significant role in Chinese organisational behaviour when task uncertainty is high. Generally, most senior positions in organisations come with a high level of task uncertainty and performance immeasurability than lower positions. In most situations, the executives are selected based on a high level of guanxi and personal trust since it reduces risks for the owners.

Guanxi History and Cultural Aspect
Guanxi is found to derive from Confucianism, in which the word ‘lun’ in Confucian ideology has similar meanings to guanxi concept. According to Confucius, individuals are not isolated identities but belong to a system of interdependent relationships with five main categories: ruler-subject, father-son, husband-wife, brother-brother and friend-friend. In order to ensure the smooth functioning of society, individuals are expected to fulfil the responsibilities given by their roles.

Establishment of Guanxi
The establishment of Guanxi requires the existence of a guanxi base, which are common ties between two individuals. These shared ties bring people to a closer starting point of a central person’s guanxi loop. Guanxi formed on the basis of particularistic ties is significantly important, especially for Chinese business executives and identifying these ties sets the stage for future interactions. There are several common guanxi bases :


 * 1) Locality/ dialect: people share the same hometown and language
 * 2) Fictive kinship: people share the same surname
 * 3) Kinship: family members and relative
 * 4) Workplace: colleagues, employer-employee
 * 5) Trade associations or social clubs
 * 6) Friendship: friends, classmates

According to Dunfee and Warren, the availability of a guanxi base solely is insufficient to establish a strong guanxi. The partners then have to interact, exchange favours, build trust and credibility to form and maintain the relationship. However without a pre-existing guanxi base it is more challenging to form guanxi since the entrepreneur has to identify the right parties to establish connections with. In such cases, they may need to seek an intermediary who shares mutual guanxi bases with both parties to assist him in establishing an alliance network. The intermediary helps to guarantee the behaviours and sincerity of both parties, in which a personal reference from a respected member of the Chinese business community is extremely powerful and valuable. Moreover, in order to enter the guanxi network, the ‘outsiders’ are expected to take the lead in making commitments, always be helpful and empathetic and take advantage of intermediaries assistance.

Maintenance of Guanxi
Fundamentally, there are four strategies to maintain guanxi :
 * 1) Tendering favours: Reciprocal favors are the key factor to maintaining one’s guanxi web, failure to reciprocate is considered an unforgivable offense. It is an obligation for firms connected through guanxi to return favours in order to maintain trust and good faith. Indeed, the return favour should be generous and of great value to the receiver.
 * 2) Nurturing long-term mutual benefits: in order to maintain durable guanxi, business partners are expected to be understanding, flexible and sometimes make compromises if necessary. These elements are important to nourish and maintain the relationship overtime.
 * 3) Cultivating personal relationships: “Guanxi personalizes human relationships even in formal business organizations”. Close guanxi requires continuous social interaction, which includes social visits; banquet invitations, the preferment of gifts and most importantly personal attention. Without these, the guanxi becomes distant and may gradually wither.
 * 4) Cultivating trust: "The maintenance of guanxi is also dependent on an ongoing demonstration of reliability and trustworthiness". In fact, the quality of guanxi increases with a higher level of trust between partners.

Once the business has effectively developed its guanxi networks, the next challenge is to capitalize on guanxi to build competences at the organizational level. Firms can try to elevate interpersonal relationships to corporate network level by understanding and managing the boundary-blurring process, in which a manager considers the firm as an individual. By actively transferring interpersonal trust to interfirm trust, such as providing quality business-to-business services and ensuring that the partner firms are aware of such exchanges, firms may be able to depersonalize and corporatize such networks”.

Relationship Marketing
Business guanxi, a concept of trust and mutual obiligation, is prevalent in countries like China, Hong Kong, Taiwan and Singapore. China’s growing market has global impact and influences future global power-relationships, much research has been conducted to understand business relationships form the Chinese perspective. Research also focused on the affiliation between guanxi and similar concepts in the Western business culture. Western countries like the UK, Australia and the US are practicing an identical concept called relationship marketing to develop and maintain their business relationships. Although these concepts seem alike, they have distinctive angles of expression and outcome. Western models emphasize the immediate transaction itself and focus is placed on ‘getting the deal done’. The concept of friendship is not included in the direct business transaction but rather comes at a later point in time as a separate function to the business transaction. In order for Western companies to invest in China the concept of strong guanxi network needs to be learned and understand in which it may influence the overall business growth and success. Strong guanxi cannot be developed in a short period of time or after several meetings. In fact, it sometimes takes years to build a thourough understanding and trust between the two parties. This reflects the importance for Western companies to enter China at the early stage in order to build an understanding of the Chinese culture and to build strong Guanxi networks. Failure to do so might cause clashes within several aspects such as poor communication, lack of trust and termination of venture.

Australian expatriates working in China have different ways of applying guanxi between working in large international firms, smaller companies and those who look after their own business. No essential needs for guanxi to be existed in Australian context in order to extending relationship contrasting with people running their own business or working for smaller companies where guanxi have significant impact and socializing outside non-working hours with respective Chinese counterparts became indispensable. Eventually, it depends on which organization ones representing, social status and business position that reflect the decisions of whether to establish guanxi or not.

UK-Chinese joint ventures found guanxi concept has been accepted in the West for creating, developing and managing business. Guanxi was seen as a tactical instead of strategic aspect of relationship management because it is based on individual and to maintain guanxi in corporate level is quite challenging. Strategic aspect of relationship depends on crucial and ongoing business transaction where good guanxi could lead to competitive advantage for the company. Ultimately, applying guanxi in business precisely within Chinese society are interdependent.

Wasta
Arab World has its own type of interpersonal connection corresponding to guanxi named wasta. Wasta is Arabic for connections (or pull) similarly in China seen as a force in every significant decision in Arab life. Similarly in China the Arab world also represented by several business categories like small businesses, self-ownership business and extensive multinational companies. Quality of relationship between China and Arab World refers to reciprocated transaction, intensity (obligation strength) and durability existing in it.

Arab process of building relationships most likely guanxi prior to transacting business is very time consuming. Once established wasta, verbal contracts are absolute in which there were bounded by individual’s word and failure executing those verbally agreed obligations certainly lead to business relationship termination. Wasta involves a social network of interpersonal connections entrenched within family and kinship ties. It desired many valuable social process, central to transmitting knowledge and creating opportunity associated to the exercise of power, influence and information sharing via social and political business networks. Two types of wasta are good wasta and negative wasta just like guanxi which deliver positive impact in networking and potentially lead to corruption upon mistreated.

Wasta may be utilised as a form of intercession or mediation and it has come to mean the seeking of benefits from government. The wasta culture penetrated all Arab countries influence in all significant decision-making. Client normally obtain an advantage for themselves for example a job, government document, tax reduction or even admission to prestigious university. Ultimately, in the event of great competition towards the same goal or benefit only aspirant with strongest wasta will be succeed in getting them. Negotiations in Arab World normally conducted by involving several businesses simultaneously and organisation with strongest wasta connections are likely to winning the deal.

Types of Business Guanxi
Business guanxi is defined as the process of finding business solutions through personal connections. The nature of business guanxi is purely utilitarian, driven by the motivation to acquire scarce resources or to receive special treatment. Business guanxi is mainly based on connections through intermediaries and relies on a mixture of private relations and relations that lay outside one’s personal network. The type of exchange is money and power and every deal is expected to be strictly reciprocal. Downsides of business guanxi are corruption and social loss.

B2B vs. B2G Guanxi
Business guanxi encompasses both connections between individual businesses and connections between businesses and governments and regulatory authorities. The purpose of business guanxi between businesses and governments is to mitigate weak legal systems and to ease legal and administrative hurdels as well as to minimize any unpredictable risks arising from legal instabilities. Guanxi with business partners and guanxi between business and governments are distinct in terms of the actors’ postion in the guanxi network, the nature of the social relationships between the actors (bonding vs. bridging), the purpose of the guanxi network, and the sources of benefits being exchanged.

Working vs. Backdoor Guanxi
In the workplace, Working Guanxi and Backdoor Guanxi represent two different concepts. Whereas Working Guanxi involves the concept of lian in regards to face, Backdoor Guanxi is built on mianzi. The two modes also differ in frequency of interaction and exchange of favors as well as the clarity of expected reciprocal actions. Working Guanxi refers to relationships between individuals at the workplace to get things done and includes affective components to reach that goal. Backdoor Guanxi is the process where a person uses its Guanxi network to negotiate business solutions that include personal gains for at least one of the parties involved. The selection of a partner in Backdoor Guanxi occurs in one of two ways - either the involved parties have a direct connection or one party knows an outsider with the proper connection to facilitate the interaction.

Business Guanxi compared to other types of Guanxi
The most widespread classification of Guanxi comprises three categories – Family Guanxi, Helper Guanxi, and Business Guanxi. These classifications, however, are not mutually exclusive and therefore do not establish clear-cut boundaries between the individual categories. In general, the three Guanxi types differ in nature, motivation, and underlying values.

The nature of family guanxi is emotional and it is based on Confucian values. The concept is similar to the concept of expressive ties. The base of Family Guanxi consists mostly out of blood ties and the core values include affection, obligation, and empathy. The underlying type of exchange is love and support. Reciprocity is not necessary. The relation between the member can be best described as Zijiaren, which means translated into English something similar to “one of us”, meaning members of one’s own family. The time horizon of family guanxi is long-term or permanent and the relations therefore are strong and stable. A downside of family guanxi is nepotism.

Helper guanxi is similar to the concept of instrumental ties, meaning that the motivation for collaboration serves as a means to an end and is utility driven. Helper guanxi can be broadly defined as a process for exchanging favours between Shouren, which means translated into English familiar person, regardless of whether this person is an insider our outsider. The roots of helper guanxi are contemporary socio-economic systems where favours are granted and returned. The core values of helper guanxi are renqing (mutual exchange of favours) and mianzi (giving face to others). In helper guanxi exchanges the weaker partner usually gains more than the stronger party. Compared to family guanxi, helper guanxi can be described as less stable and not exclusively focused on long-term. One-off trades are possible. A downside of helper guanxi can be the burden of human debt.

Measuring the quality of Business Guanxi
The most popular way to measure business guanxi includes abandoning the single-dimensional concept of guanxi and examining the individual components of guanxi. These components encompass the individual relational constructs of renqing, ganqing, and xinren.

The GRX-Scale
The GRX (Ganqing, Renqing, inren) scale represents one of the most reliable measurement systems to evaluate the quality of business guanxi. The scale consists of 11 items, each measured with a seven-point Likert scale, anchored from 1 strongly disagree to 7 strongly agree. 4 items each measure Ganqing and Renqing, and 3 items measure xinren. The higher the score, the higher is the quality of Business Guanxi.

Measuring Ganqing
Ganqing links to the emotional side of Guanxi and can be built and developed through social interactions. In specific, ganqing encompasses emotional understanding, the willingness to share positive and negative feelings, and the willingness to take care of each other.

The 4 items for Ganqing in the GRX-scale comprise evaluating the following statements :
 * My supplier’s representative and I are able to talk openly as friends.
 * If I were to change this business supplier, I would lose a good friend.
 * I would consider whether my supplier representative’s feelings would be hurt before I made an important decision.
 * I would try best to help out this supplier’s representative when he/she is in need because he/she is a friend of mine.

Measuring Renqing
Renqing is composed of reciprocity, which is part of the Confucian philosophy, and empathy. It is carried out through an exchange of favors. An important characteristic of Renqing is that immediate returns are not expected. However, failing to return the favour in the long run is regarded as highly immoral in the Chinese culture.

The 4 items for Renqing in the GRX-scale comprise evaluating the following statements :
 * I feel a sense of obligation to this supplier’s representative for doing him/her a favour.
 * I think that ‘calling in’ favors is part of doing business with this supplier’s representative.
 * The practice of ‘give and take’ of favors is a key part of the relationship between my supplier’s representative and me.
 * I am happy to do a favour for this supplier’s representative, when he/she requests one.

Measuring Xinren
Xinren is comparable to the concept of trust. It represents a response to the Chinese environmental uncertainties where business standards and legal regulations have not been fully exercised and thereby limits the possibility of opportunistic behaviour.

The 3 items for Xinren in the GRX-scale comprise evaluating the following statements :
 * This supplier’s representative is only concerned about himself/herself. (reversed scale)
 * The people at my firm do not trust this supplier’s representative. (reverse scale)
 * This supplier’s representative is trustworthy.

Guanxi affecting Corporate Capabilities
Over the years, teams of scholars leading by Flora Gu have found that Guanxi can strengthen the performance advantage of company's marketing capabilities. This is also supported by a research done by Zhigang Shou and his team in 2012. However, Zhigang Shou's team also found that as the complexity of the network grows, Guanxi weakens the performance edge it brought about on a company's technology capabilities.

Disparities between Guanxi and Ethics
Guanxi brought up diverse confusions commonly misinterpretation with an ethical behaviors because guanxi engaged reciprocal exchange of favour. Nepotism, corruption and social loss obtained an extensive review by business scholars in their researches. For example gift-giving activity which normally bribery involved monetary transactions could easily showing friendship, goodwill and gratitude towards other party. For that reason, classifying between ethical and non-ethical aspects of guanxi turns out to be very difficult. Basically guanxi is based on personal ties and relationship building whilst bribery leads to illegitimate deal. In Chinese business culture sending gift to someone is either mirroring an appreciation or occasionally when indebted feeling rises towards respective party but that does not mean to expect same or higher immediate benefit in return. Eventually, rewards received from guanxi practice could be varies such as maintain good reputation and service as well as benevolent long relationship.

Looking at supervisor-subordinate perspective guanxi is develop to indicate respect and loyalty towards respective supervisor without any implicit reasons. Furthermore, rewards, incentives and other sorts of favor like intangible information or tangible services could be part of manifestations rather than prerequisites of high quality guanxi. Guanxi turns reciprocal exchange of favor into stronger personal ties and relationship satisfaction which instantaneously improve trust and reduce certainty that has been built over time.

Nature of human showing bias against another person they have close bonding and networking with eventually turns into nepotism. Besides, handing a gift seemed like prevalent conventional practice. Gift in guanxi was not considered bribe if it carries no hidden interest with respect to certain boundaries. Bribery on the other hand, showing immoral attitude among others then mistreat between parties implies nepotism. Essentially, most culture had clearly distinguished gift and networks between illicit actions such as bribery, nepotism and corruption. Although guanxi concept sometimes being misleading between misbehavior, guanxi significantly important in mostly Chinese society. Major distinction between guanxi and unethical behaviors are guanxi is developed over time and immediate reciprocal exchanged of favor is not compulsory whilst unethical behaviors typically require prompt return. Moreover, transactions between two related parties must be cleared without involving individual or private interest. Western countries had accepted the adoption of guanxi for the sake of doing business particularly in China or within Chinese culture which prevalent nowadays.