dolution

Case Study

THE ROLE OF GUANXI IN CHINESE BUYING NEGOTIATIONS

In Chinese-based economies guanxi plays a critical role in developing interpersonal relationships that underpin negotiations within business. It is defined as being ‘a concept of drawing on connections in order to secure favours in personal relations. It is an intricate and pervasive relational network which Chinese cultivate energetically, subtly, and imaginatively. It contains implicit mutual obligation, assurance and understanding, and governs Chinese attitudes toward long-term social and business relationships’ (Luo, 1997).
Guanxi is a cultural phenomenon in relationships that involves

â–  Tight, close-knit networks (Yeung and Tung, 1996: 54);

â–  Interpersonal connections (Xin and Pearce, 1996: 1641);

■ Provision of a ‘gate or pass’ entry (Yeung and Tung, 1996: 54).

Guanxi occurs between people who share a group status or are related to a common person. It is also apparent among the frequent contacts between people as well as contacts between persons with little direct interaction (Dunfee and Warren, 2001). It involves ‘factions in Chinese politics . . . groups aggregated by chains of ties in which members of the groups are bound by a combination of group ideology, institutional interests, loyalty toward charismatic leaders based on the traditional principle of rectification of names and the leaders’ personal ties.’ … ‘Although networking and building relationships are important to political or business success everywhere in the world, the Chinese have much more intensive preoccupation with relationship building and deem it one of the most important principles of success than elsewhere’ (Guo, 2001: 1–2).
There are four major dimensions of guanxi which complement and reinforce one another, namely:

â–  Instrumental, i.e. involving self-interested motivation, based on the desire for abundant repayment and achieving personal advantage.

■ Etiquette, i.e. using social rituals to establish and maintain harmonious human relations with one’s acquaintances such as co-workers, colleagues, superiors or subordinates.

■ Moral, i.e. rules that follow a traditional system of ethics that obligates oneself to those within one’s guanxi network.

â–  Emotional i.e. whereby friendship plays a central role in regulating interpersonal relationships.

They coexist harmoniously, but they undermine and weaken one another when they coexist in tension.

Consider the situation where two salesmen are negotiating with a buyer regarding the purchase of paper supplies for the office. The first salesperson represents a major multinational corporation (MNC) but has not previously sold to the potential buyer. The second salesperson works for a local Chinese business. The former, while Chinese, has built up few or no links with the potential buyer: the latter, living in the local community and having been to school with the buyer, has considerable guanxi over the negotiation situation. The pull, or obligation, to repay earlier family agreements, together with the moral and ethical elements involved, will encourage the buyer to place the order with the local Chinese business no matter what other benefits may be offered by the MNC’s salesperson. Lower prices, quicker delivery and higher quality may be attractive but the power of guanxi is likely to override economic logic.