Table of contents
1. Introduction……………………………………………………………………………….
2. What is guanxi network?………………………………………………………………….
3. Guanxi and Chinese Business…………………………………………………………….
4. Future of guanxi networks………………………………………………………………...
5. The Role and Functions of Guanxi………………………………………………………..
6. Ethical side of guanxi networks…………………………………………………………...
7. Conclusion………………………………………………………………………………...
Introduction
China went through the period of rapid economic development during last several
years. Economists try to find different ways to explain this growth. To get
a better idea about the economic structure of China it is necessary to take
into account guanxi networks as they have extremely important influence on the
social, political and cultural life of the country. In my paper I will try to
distinguish the role guanxi networks play in China and future trends of their
development. Some specialists say that guanxi is one of the factors that influences
the rapid economic growth. Guanxi relations get together millions of Chinese
firms and institutes into one network. We must remember about historical and
cultural background of these networks. Guanxi networks make an important part
of the past of the country and they are rooted into Confucian Chinese tradition.
Literally, main principle of guanxi can be literally described as “I scratch
your back; you scratch mine”. It is a principle of reciprocity, which
means that when one participant of the group does not return an obligation,
all the members of the network lose their prestige and should be responsible
for this failure.
The necessity of network represented by multiple relationships in China is obvious.
Constant political changes, sources of authority in governing and the necessity
of close ties between people in business are the main reasons of guanxi popularity.
History of China and mentality of Chinese people prove that the network is an
important component of Chinese history and is necessary for the further development
of the country. In China social relations mean much more than in Western countries.
Multiple relations define individuals in China. The person is treated with more
respect if he is involved in the network. Popular scientific literature points
that guanxi is the guarantee of China’s success. There is an opposing
point of view on this subject. Some researches state that guanxi network has
negative impact on the development of economy of the country.
What is guanxi network?
Network assumes the dependence of people but at the same time it gives political
and institutional autonomy and business efficiency. Indebtedness is one of the
main principles of guanxi networks. By indebtedness we understand close connections
inside one group and dependable relations between the members of this group.
Indebtedness means great responsibility and undertaken obligations. People who
helped you to reach your goal are very important and you must keep in mind that
social connections assume corresponding obligations. It is even more important
to know more about your potential partners than about the bargain because it
will help you to protect your business from being involved in the web. Chinese
businessmen believe that such a strategy allows them to get as much profit as
possible and to predict result of the bargain.
The word “guanxi” is rather new in China and some centuries ago
it did not exist at all but now it is widely spread and known by the Chinese
and the foreigners. Here it is necessary to note that though the term itself
is comparatively the type of relations have been peculiar to China for many
centuries. Very often by guanxi we understand “social capital”.
Literally the word can be translated as “connections”. The term
can be difficult to understand for Europeans as it has no analogies outside
the Asian countries. The word ‘guanxi’ can have both - positive
and negative connotations and is used in mass media and literature in different
ways. Negative shade of meaning implies corruption, remnants of the feudal society
and obstacles in reaching economic success. Those, who use the word “guanxi”
in positive meaning, think about close relations, humanity and sincerity in
the sphere of life where guanxi connections appear. There is also an argument
about the importance of guanxi networks in the Chinese society. Some regard
it as global phenomenon, which has major impact in all spheres of life; and
others regard it as usual phenomenon, which exists in most of the counties in
the form of social, political or cultural networks. Brass (1992) defines guanxi
or social networks as “a set of actors (individuals or organizations)
and a set of linkages between these actors.” Xin and Pearce (1996) define
guanxi as “dyadic personal connection in a Chinese context.” Guanxi
influences different spheres of life. It can be subdivided into family guanxi,
guanxi with friends, business guanxi and government and political guanxi. A
person can be involved in one or several networks simultaneously.
Guanxi and Chinese Business
“Guanxi networks enable Chinese companies to transact business efficiently
and to minimize the potential dangers of operating in high-risk environments.
In fact, the strength of guanxi ties is generally recognized as it is a key
determinant of business success in China. Studies have shown that companies
gain a competitive edge by building and maintaining a strong guanxi network.”(Yeung,
Tung, 1996). Guanxi networks are especially important for small firms because
they usually help them to survive and avoid bankruptcy. A lot of Chinese companies
exist under the threat of political pressure and social instability. Chinese
companies are not located in China only. There is a great number of them in
Southeast Asia and some other countries. Chinese population is very small there,
but it controls a great share of the economy of the country. Of course, this
fact can provoke negative reaction from the native population. It is the guanxi
network that helps Chinese companies to survive and act in hostile conditions.
Guanxi also helps companies to raise capital and it is very important for Chinese
firms in foreign countries where the Chinese are not native inhabitants and
can be discriminated. So, networks mitigate political and economic risk. In
addition, it helps to get rid of bureaucracies. Government of every country
has a number of rules and regulations unknown to public and so Chinese companies
and firms can be confronted with these difficulties. Guanxi networks are able
to help these companies to be aquatinted with such “secrets” and
so avoid possible problems. They also help to solve problems between the government
and the particular company when they appear.
Guanxi network is especially useful in countries where judicial and political
systems are not stable, as it helps to make business transformations. Now China
is the member of the World Trade Organization and its legal system is on a much
higher level than it used to be just a couple of decades ago but it does not
mean that laws there are perfect. Discrepancies between the government and companies
are a usual thing and “rather than depending on an abstract notion of
impartial justice, Chinese people traditionally preferred to rely on their contacts
with those in power to get things done.” (Luo, 1997, p. 54). It seems
that Chinese people prefer to interpret laws with the help of networks. Guanxi
networks simplify the work of companies, especially of small ones as they help
to solve problems with shortages of food, transport, communication. Fighting
the bureaucratic system networks help companies with necessary resources and
information. In some cases effective work of the company can be impossible without
the guanxi help. Guanxi networks are also important as they can predict the
market changes. The field of influence of Chinese networks is much wider than
of any company or firm and it does not have national borders. Information about
any changes of conditions or demands of the market is spread inside the network
very quickly, which enables the companies to make necessary changes.
Chinese companies usually hire workers using guanxi networks. When Chinese employers
hire a worker with the help of guanxi networks they understand that this worker
may be not the great professional but they can be 100% sure in his loyalty and
commitment. Chinese history proves that such workers justify hopes of employers
and such method of hiring can be rather effective. This system of hiring exists
for a long period of time and influences both financial and legal marketing
spheres of business same as the personal sphere.
Future of guanxi networks
Great changes in the Chinese society have caused hot debates about the future
of the social network. There are two confronting sides who express opposing
opinions on the subject. Some specialists state that the role of guanxi in post-reform
China will gradually decline (Gunthrie, 19). “They argue that this role
will continue to expand leading to an economic system that is substantially
different from the rational-legal systems that define Western market economics”
(Guthrie, Wank, 2002). Another group of researches predicts the enforcement
of the social network influence (Bian, 1994).
They also predict the increase of guanxi influence on the labor-market. The
belief that guanxi can help to solve all the problems and that person can achieve
nothing without its help is still very strong in the minds of people. Guanxi
is still regarded as a very influential social phenomenon which can not be neglected.
Fast-changing economical situation creates new challenges and new opportunities
and can have great influence on all spheres of social, economical and political
life. At the present moment social network takes an important place in the process
of employment, together with such channels as hierarchy channel and market one.
In his research, taken in different cities of China during 2003 - 2004 Huang
Xianbi comes to a conclusion that “it is clear that social networks (e.g.,
guanxi networks) are pervasive and powerful, which are conducive to solving
the barriers or gain edge in the job competition” (Xianbi, 2005). He also
states that the influence of guanxi networks is especially strong in popular
working areas, such as banking industry or insurance. Popular job areas can
vary during different periods of time and in different parts of the country.
Social networks are still very important in achieving high social positions.
At the same time, there are spheres that require special skills and knowledge,
where guanxi networks do not work. Technical sector can be a good example of
such a sphere.
Starting from the 1978 general changes in the economical course of the country,
adopting new perspectives of capitalist development and opening the country
to the global market have changed the role of guanxi and its influence. “The
Chinese government has already made progress in diminishing the role of guanxi.
Banking reform is getting rid of relationship banking, smuggling crackdown is
getting rid of relationship trading, the separation of the army from business
is ending relationship business”(Li, 2003). A lot of effort was made to
turn country to legislative way or problem solving but despite all the efforts
latest researches show the growth of guanxi influence (Ghertman, 1997). It can
be partially explained by the transitional period from feudal economic structure
to capitalism. From the other side there is more pessimistic view and some researches
believe that guanxi will not lose its influence with the flow of time (Pitman,
1999). It becomes evident that the influence of guanxi was not demolished by
the economical changes and even vice versa, it becomes stronger and grows with
the flow of time.
Despite great influence of guanxi networks, there are areas, like coastal cities,
for example, where other channels of job acquisition become more and more important.
In the mentioned above coastal cities market channel becomes more and more important
in the process of job acquisition. It can be explained by the fact that these
sphere require special skills and exact knowledge of the subject more than any
kind of protection given by the guanxi network.
The Role and Functions of Guanxi
In order to win the job competition, a rational competitor may consider employing
social networks, which not only excel in collecting suitable information for
the target job, but also serve as a flexible, reliable and low-cost channel
to influence job acquisition. (Xianbi, 2005).
In China, guanxi is regarded as “social capital”, or “the
aggregate of the actual or potential resources which are linked to possession
of a durable network of more or less institutionalized relationships of mutual
acquaintance and recognition… which provides each of its members with
the backing of the collectivity-owned capital a “credential” which
entitle them to credit, in the various senses of the word.”( Bourdieu,
1992, p. 248). So, this social capital can be transferred to economic, political
or business capital. Hwang restricts the notion of social capital and talks
about the possibility of turning it into “face”, which makes a symbolic
capital (Hwang, 1987). Symbolic capital here means the value of the favor done
by the person and the prestige of doing him the favor. Thus, quanxi network
becomes the basis of “gift economy”, which exists in China. It is
a specific type of economy peculiar to this country and to a number of Asian
countries. This economy is based on the principle of reciprocal obligation and
indebtedness. It is a unique phenomenon hardly perceived by rationalized Western
mind. The Chinese themselves stress than guanxi does not possess the instrumental
component only but also involves the affective one. It means that actions of
people are governed not only by rationality and intention to obtain profit,
but also by humane feelings of gratitude and moral obligation. Some Chinese
stress on the warmth and enjoyment, which are the parts of guanxi. This unique
combination of counting and sentimentalism is often hard to understand for people
from the other countries.
Ethical Side of Guanxi Networks
One group of experts believes that Guanxi network is a perfect mechanism that
stimulates and develops business but, at the same time, their opponents criticize
it and emphasize that guanxi gives the birth to corruption, cronyism and nepotism.
So the next step of our work is to analyze the possible negative effect of guanxi.
Very often guanxi is characterized as a kind of corruption, because most people
think that tapping relations of networks make them similar with corruption.
All in all there is a number of principles that make them different. Corruption
is a short-term relationship while guanxi is a long-term one. Corruption is
an immoral kind of relations while guanxi networks are accepted by ethic norms
of the Chinese society. Guanxi is legal and corruption is illegal and is prosecuted
by law. Chinese networks are based mostly on exchanges of favors that are social
transactions and the main threat in these relations is to lose your face. Corruption
is based on monetary exchanges that are economic transactions and so may have
real legal consequences. Corruption is usually an agreement between two persons
and network provides long relations where guanxi ties can be transferred to
other participants of the organization. All these differences are obvious but
sometimes guanxi networks involuntary create such conditions where corruption
can develop.
Chinese companies are mostly represented by small family-owned companies and
the owners of these companies usually hire people whom they trust. Such phenomenon
is called nepotism: more qualified and professional people are rejected because
of the lack of close ties with guanxi. Candidate with good guanxi ties is more
suitable for the company, which belongs to the same guanxi network. “Since
guanxi is primarily rooted in interpersonal relationships, employees bring their
guanxi with them when they join a new organization.” (Luo, 2002).
Building guanxi relations is not an easy thing but the results always justify
themselves and it is very important to know methods to strengthen these ties.
Different kinds of entertainment and gifts are an integral part of the Chinese
cultural tradition and they also improve relations inside the guanxi network.
They show your respect, goodwill and interest but if your intentions are not
sincere and you want to get profit form relationship without emotional involvement,
it won’t work. The Chinese are very attentive and always feel your sincerity.
Using gifts in an improper way leads to serious consequences and you have a
real chance to lose your face forever.
The main principle of guanxi networks is trust. People trust each other inside
the social group, they rely on each other and the attitude to person who does
not belong to guanxi is cold and even suspicious. Sometimes it is a real disadvantage
because businessmen have no trust and respect for parties and companies that
are not connected with guanxi. It can have negative impact on business itself.
It is obvious that Chinese firms do not operate in absolutely fair environment
and so they can not believe all official information that is open for public.
Chinese businessmen are sure that public information about the firms can not
be accurate and trustworthy and so check it with the help of guanxi networks.
It is the main feature that differs European and Asian companies because European
ones very often believe public information.
Conclusion
In my paper I tried to describe the phenomenon of guanxi in China and to find
if guanxi network is suitable for the further development of China and how it
will influence Chinese business in the future. There are two points of view
on this question. One school claims that guanxi will continue its influence
in social, political and business spheres. The second one insists that despite
all the advantages guanxi all in all will lose its influence. My own opinion
is that guanxi networks are necessary for the normal economical development
of China as they aren’t only based on economic needs of native population
but are the part of Chinese culture and traditions. Guanxi networks will peacefully
coexist with standardized laws and these two institutions will harmonically
control business in China.
Chinese networks are based on indebtedness, interaction and obligation. Aesthetic
norms help to control the relations inside the network. Guanxi networks help
firms and companies to survive in hostile surrounding and help emigrants in
foreign countries to achieve business growth and social recognition. Chinese
people know these aesthetic norms and follow them so they can gain correspondent
status in the society. They know when and how to use guanxi. This means they
know how to get profit with the help of guanxi. Chinese people are sure that
guanxi networks guarantee them support and protection.
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