China is the world’s most populated country in the world, accounting for 19% of the world’s population, with more than 1.36 billion people (Pennsylvania State University, 2018). An important point for a global leader is that China’s economy continues to grow at an exponential rate and is poised to pass the United States from an economic standpoint by the year of 2020 (Moran, Abramson & Moran, 2014). For this reason, it is very important for leaders to understand cultural differences that exist in China as it is highly likely that one will need to develop business relationships with China. Guanxi is a Chinese term that essentially means social networking and is considered by many to be the most important business practice in China (Moran, Abramson & Moran, 2014) and it is crucial for a global leader to understand what this means and how one can develop such relationships to succeed in China.
A key to the success of guanxi is the development of trust and strong personal relationships. It is important to show long-term reliability and competence. Much of the business relationships with guanxi involves personal and mutual trust. Two ways that one can begin to develop these relationships in China is with gift-giving and hosting dinners (“What is Guanxi?”). In China it is imperative that one spends time outside of formal business meetings with business counterparts. This time can include tea sessions and dinner banquets (Goh & Sullivan, 2011).
Guanxi plays a far more important role in China than it does in the United States. A review of Hofestede’s dimensions of culture (Pennsylvania State University, 2018) points to the fact that a U.S. leader will likely need to spend time understanding guanxi as it relates to the dimension of individualism. China scores very low (20) in this dimension while the United States scores very high (91). This means that a U.S. leader is generally individualist and more experienced with individualist business counterparts while the Chinese are a collectivist culture where the group needs are typically more important than the individual. Guanxi lends itself such that both parties have to feel that they share the same goals and will receive the mutual benefits from the business relationship. A U.S. global leader will have to be flexible and understand the importance of this significant cultural distance in China.
China continues to grow from both a population and economic standpoint and the likelihood that any leader will conduct business with a Chinese firm grows every day. A global leader must understand the importance of guanxi as well as how to develop guanxi if one is to succeed in business with China. Guanxi has been developed over time in order for the Chinese to have a means of ensuring trust among themselves in both personal and business matters (Goh & Sullivan, 2011). Networking is important in most cultures but is of utmost importance in Chinese culture. Business relationships can only be successful in China if they are built and cultivated on personal and mutual trust.
Moran, R.T., Abramson, N.R., & Moran, S.V. (2014). Managing Cultural Differences (9th ed.). Oxford: Rontledge.
Pennsylvania State University (2018). Leadership in Global Context: OLEAD 410. Lesson 10: Asia: Focus on China and India, Penn State World Campus, The Pennsylvania State University.
What is Guanxi? Retrieved from http://www.worldlearnerchinese.com/content/what-guanxi.
Goh, A. & Sullivan, M. (2011, February 24). The Most Misunderstood Business Concept in China. Businessinsider.com. Retrieved from www.businessinsider.com/the-most-misunderstood-business-concept-in-china-2011-2.