Guanxi
Guanxi is a term used in Chinese culture to describe an individual's social network of mutually beneficial personal and business relationships. The character guan, 关, means "closed" and "caring" while the character xi 系 means "system" and together the term refers to a closed caring system of relationships that is somewhat analogous to the term old boy's network in the West. In Western media, the pinyin romanization guanxi is more widely used than common translations such as "connections" or "relationships" because those terms do not capture the significance of a person's guanxi to most personal and business dealings in China. Unlike in the West, guanxi relationships are almost never established purely through formal meetings but must also include spending time to get to know each other during tea sessions, dinner banquets, or other personal meetings. Essentially, guanxi requires a personal bond before any business relationship can develop. As a result, guanxi relationships are often more tightly bound than relationships in Western personal social networks. Guanxi has a major influence on the management of businesses based in mainland China, Hong Kong, and those owned by Overseas Chinese people in Southeast Asia.
Guanxi networks are grounded in Confucian doctrine about the proper structure of family, hierarchical, and friendly relationships in a community, including the need for implicit mutual commitments, reciprocity, and trust.
Guanxi has 3 sub-dimensions sometimes abbreviated as GRX which stands for ganqing, a measure of the emotional attachment in a relationship, renqing, the moral obligation to maintain a relationship with reciprocal exchange of favors, and xinren , or the amount of interpersonal trust. Guanxi is also related to the idea of "face", which refers to social status, propriety, prestige, or a combination of all three. Other related concepts include wulun, the five cardinal types of relationships, which supports the idea of a long-term, developing relationship between a business and its client, and yi-ren and ren, which respectively support reciprocity and empathy.
History
The guanxi system developed in imperial, dynastic China. Historically, China lacked a strong rule of law and the government did not hold every citizen subject to the law. As a result, the law did not provide the same legal protection as it did in the West. Chinese people developed guanxi along with the concept of face and personal reputation to help ensure trust between each other in business and personal matters. Today, the power of guanxi resides primarily within the Chinese Communist Party.Description and usage
Guanxi refers to connections among individuals involving implicit expectations of loyalty, obligation, and mutual commitment. The concept includes both formal and informal on-going relationships. These relationships include both peer relationships and hierarchal relationships.In a personal context
Guanxi also refers to the benefits gained from social connections and usually extends from extended family, school friends, workmates and members of standard clubs or organizations. 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. Staying in contact with members of your network is not necessary to bind reciprocal obligations. Reciprocal favors are the key factor to maintaining one's guanxi web. At the same time failure to reciprocate is considered an unforgivable offense. Guanxi can perpetuate a never-ending cycle of favors.The term is not generally used to describe interpersonal relationships within a family, although guanxi obligations can sometimes be described in terms of an extended family. Essentially, familial relations are the core of one's interpersonal relations, while the various non-familial interpersonal relations are modifications or extensions of familial relations. Chinese culture's emphasis on familial relations informs guanxi as well, making it such that both familial relations and non-familial interpersonal relations are grounded by similar behavioral norms. An individual may view and interact with other individuals in a way that is similar to their viewing of and interactions with family members; through guanxi, a relationship between two friends can be likened by each friend to being a pseudo elder sibling–younger sibling relationship, with each friend acting accordingly based on that relationship. Guanxi is also based on concepts like loyalty, dedication, reciprocity, and trust, which help to develop non-familial interpersonal relations, while mirroring the concept of filial piety, which is used to ground familial relations.
Ultimately, the relationships formed by guanxi are personal and not transferable.
In a business context
In China, a country where business relations are highly socially embedded, guanxi plays a central role in the shaping and development of day-to-day business transactions by allowing inter-business relationships and relationships between businesses and the government to grow as individuals representing these organizations work with one another. Specifically, in a business context, guanxi occurs through individual interactions first before being applied on a corporate level. Guanxi also acts as an essential informal governance mechanism, helping leverage Chinese organizations on social and economic platforms. In places in China where institutions, like the structuring of local governments and government policies, may make business interactions less efficient to facilitate, guanxi can serve as a way for businesses to circumvent such institutions by having their members cultivate their interpersonal ties.Thus, guanxi is important in two domains: social ties with managers of suppliers, buyers, competitors, and other business intermediaries; and social ties with government officials at various national government-regulated agencies. Given its extensive influential power in the shaping of business operations, many see guanxi as a crucial source of social capital and a strategic tool for business success. Thanks to a good knowledge of guanxi, companies obtain secret information, increase their knowledge about precise government regulations, and receive privileged access to stocks and resources. Knowing this, some economists have warned that Western countries and others that trade regularly with China should improve their "cultural competency" in regards to practices such as guanxi. In doing so, such countries can avoid financial fallout caused by a lack of awareness regarding the way practices like guanxi operate.
The nature of guanxi, however, can also form the basis of patron–client relations. As a result, it creates challenges for businesses whose members are obligated to repay favors to members of other businesses when they cannot sufficiently do so. In following these obligations, businesses may also be forced to act in ways detrimental to their future, and start to over-rely on each other. Members within a business may also start to more frequently discuss information that all members knew prior, rather than try and discuss information only known by select members. If the ties fail between two businesses within an overall network built through guanxi, the other ties comprising the overall network have a chance of failing as well. A guanxi network may also violate bureaucratic norms, leading to corporate corruption.
Note that the aforementioned organizational flaws guanxi creates can be diminished by having more efficient institutions in place to help facilitate business interactions more effectually.
In East Asian societies, the boundary between business and social lives can sometimes be ambiguous as people tend to rely heavily on their closer relations and friends. This can result in nepotism in the workforce being created through guanxi, as it is common for authoritative figures to draw from family and close ties to fill employment opportunities, instead of assessing talent and suitability. This practice often prevents the most suitably qualified person from being employed for the position. However, guanxi only becomes nepotism when individuals start to value their interpersonal relationships as ways to accomplish their goals over the relationships themselves. When interpersonal relationships are seen in this light, then, it is usually the case that individuals are not viewing their cultivation of prospective business relationships without bias. In addition, guanxi and nepotism are distinct in that the former is inherently a social transaction and not purely based in financial transactions, while the latter is explicitly based in financial transactions and has a higher chance of resulting in legal consequences. However, cronyism is less obvious and can lead to low-risk sycophancy and empire-building bureaucracy within the internal politics of an organisation.
Guanxi has a bigger impact on leader-subordinate relations in China's state-owned enterprises than in private enterprises. This is because evaluation systems in SOEs are generally more subjective than in private enterprises.