Networking is crucial for the success of any business; multinationals in China aren’t exempted from this rule of thumb. And because the Chinese highly value personal connections- sometimes more than business relationships, every entrepreneur looking to set up business here needs to understand the importance of Guanxi or Networking in China.
What is Guanxi?
When two like-minded parties collaborate at a personal level in order to achieve a mutually-beneficial business goal, the ties that connect them can be termed as Guanxi. Unlike the formal business ties that most western-based business partners have with each other, Guanxi is founded on mutual respect. It is a deep and affectionate form of respect that each party expects and is expected to reciprocate on a long-lasting basis. With time, Guanxi gets deeper and touches on familial, political, and even societal levels of business collaboration.
Having good guanxi has key impacts on your entrepreneurial success in China. Here are 5 of those:
1. Helps you shape policy for optimal competitive advantage
When networking in China, your main focus should be on personal relationships, not business ties per se. Therefore, to have a one-step advantage before setting up a business in China, learn some Chinese words and phrases that you could use to let them know that you are really interested in the conversation. This is the first lesson that you will learn upon landing in China. But how do you learn? You mostly learn through networking. Through networking, you understand that approaching potential investors with your mind fixated on gaining some sort of competitive advantage will only scare them off. This is the knowledge that helps you formulate clever business policies that give you the competitive advantage that you want while still keeping your cards to your chest.
Talking of policy formulation, you need to understand that your policies must align with your industry, the nature of your business, and most importantly, geographical location. You will only know these things during networking meetings. For example: If you intend to start operations within a heavily-regulated sector, say, healthcare or banking, you will need a business policy that does not only incorporate like-minded business people but also the authorities. Sensitive sectors, e.g. the security sector, demands strong guanxi with state-owned corporations.
2. Teaches you how to address the nation’s diverse customer needs
Guanxi helps you to meet the diverse needs that the diverse consumer market in China demands. When you network, your Chinese partners help you to tailor your marketing strategies for urban regions such as Beijing, Shanghai, or Shenzhen. These are regions whose natives understand a little bit of the western culture, and probably wouldn’t mind a couple of western campaign strategies.
You will also learn through Guanxi that people living in Jiangsu, Fujian or any other inland region in China may not be open to western interference. Guanxi helps you to partner with the local, small, family-owned business that runs the economy in rural China so that you can easily penetrate into the rural market. While at it, a Chinese recruitment agency will help you to recruit the right locals for different roles in your company, especially in Western and Northern China where you are likely to struggle without a sizeable number of local employees.
3. Deeper trust
When your clients, employees, and partners relate with you on a personal level, the trust they have in you deepens. This trust is by far and large mutually beneficial: People who trust you will be more willing to pursue a meaningful course with you. Chinese business people want you to show a genuine interest in their culture, while at the same time respecting the cultural differences that exist between the west and the east. That is how they will trust you. The good thing is that they will readily reciprocate your kind gesture; they will respect your culture and guide you on how to navigate around the emotive issues of religion and culture.
4. Better rapport with distributors and suppliers
When you practice guanxi on a business level, you are able to create a good rapport with your distributors and suppliers. That is the key to business growth in China. Sometimes all you need to nurture this rapport is a business meal or drink; never underestimate the power of a simple business dinner in China.
5. Aids in building relationships with authorities
This is straightforward, really: Foreigners in any international market often struggle to generate as strong government and sectoral ties as the local businesses do. This is still the case in China. If you want to have top-level business interactions with authorities, then you will need good guanxi with local firms.
Author: George Foster