Importance of guanxi in Chinese negotiation

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Guanxi matters to your Chinese partner, supplier, and colleagues -- so it matters to you. Will guanxi help westerners in China? Possibly -- but it is certain that mishandling guanxi and relationships will hurt your chances. Learning to manage relationships in China is vital to success.

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  • 1) Business and social. Chinese negotiators don’t like doing business with someone that they don’t feel they know. Relationships play a much larger role in Chinese business than in the West. The basic rule is that the Chinese side doesn’t necessarily have to like you, but they have to feel that they know you and that you won’t betray them.------------------------2) It won’t be long until someone offers you a deal that is too good to be true, either because you and he have such terrific guanxi – of by virtue of his powerful connections. Be careful. It’s important to be able to buiild relationships, but you shouldn’t be throwing your business plan in the trash because you know a guy who knows a guy. Still, the art of guanxi requires that you extricate yourself without insulting him or looking like you don’t value his network.
  • Chinese deal making places a great emphasis on relationships and personal connections. In the US and northern Europe, deals are a product of due diligence and test orders. Successful transactions lead to cordial relationships. Americans associate the word “relationship” with emotion, family, or affection. Chinese don’t. For the Chinese side, relationship-building is integral to the business. What Westerners see as an obstacle or hoop to jump through, is to the Chinese, the first step in a never-ending negotiation process. In China, the sequence is different. Relationships lead to transactions.
  • It has become fashionable for Westerners – especially the Old Hands – to say that you should guanxi should be ignored. This is understandable, but is wishful thinking. You may want to dispense with guanxi, but your counterparty probably doesn’t. Relationship building is still integral to traditional Chinese negotiators. In Shanghai and Shenzhen, guanxi may play a relatively small role in your negotiation. In Beijing and most of China, you would be wise to budget time and resources for relationship building. Think of it an investment .
  • Chinese negotiators aren’t comfortable diving right in to deal specifics – especially price – but that doesn’t mean that they’re not on the job. Relationship-building events like banquets, luncheons, KTVs, and other meetings are not the place to haggle over contract points – but it is the time to get to know one another. They don’t have to like you, but they do have to know you -- and trust you on some level. Relationship-building is the time to find out about plans, goals, risk tolerance, and business philosophy. Sample questions: Where do they see themselves in 5 years? How do they define a partner? What are their long term plans, and what role do you play? Chinese have an undeserved reputation for guile and subterfuge – many times Americans either don’t ask the right question or hear anything but what they want to hear. If the Chinese side says something your dislike or don’t agree with, don’t just ignore it for the sake of saving face or fear of rocking the boat. Your negotiation has already begun.
  • It’s reciprocal – you will be expected to give as well as get. Guanxi is a matter of credits and debits. Some of the things you expect as a matter of course – like dealing with paid suppliers and having relationships with government ministries – they may consider to be value-added services that put you in their guanxi debt. When Chinese do buisiness together, they keep careful track of who is doing what for whom, and how much each party owes. Westerners get into trouble when Chinese suddenly call in a debt that the foreigner didn’t know he owed. This often occurs when you open that shipping container or check on the progress of a project and things have not gone as well as they were supposed to. guanxi is social, but it’s all business. It’s based on utility value. Don’t be surprised if that Chinese counterparty you recently met who seemed so reserved and modest suddenly starts talking about influential connections, powerful networks, and his expansive operation. He’s not bragging, but demonstrating what he’s got to offer. You are expected to indicate what you want from him, and demonstrate what you have to offer. There are two pitfalls you want to avoid – one is missing the opportunity to participate in a meaningful way by keeping the conversation too light and nonsensical. The other is to inadvertently promise the world. It’s personal – don’t try to buy their cooperation. There was a time when just about anything you gave a Chinese host was sure to impress him, but those days are long past. China has become a consumer society, and there’s a good chance that your counterparty is very jaded when it comes to material goods. Bourbon story – Makers Mark, Jack down
  • Importance of guanxi in Chinese negotiation

    1. 1. The importance of guanxi when negotiating in China A ChinaSolved 10 Slide Solution
    2. 2. About Andrew Hupert - Author• 9+ years in China, – 3 in Taiwan & HK• Principal at Best Practices China ltd – Specialist in US-China Negotiation – Corporate training, consulting, and project management – Client list available upon request• Publisher of ChinaSolved.com and ChineseNegotiation.com Full list of publications and slideshows available on www.AndrewHupert.com
    3. 3. Guanxi for the Busy American• A professional’s guide to building relationships in China.• Written for the Western negotiator who needs to transact and execute.• Available on Kindle, iBook and all major e- formats.
    4. 4. 1) The Take-away• Guanxi is a network of connections and relationships among members of a business community.• It is intentional, planned, and negotiated.• Guanxi is one of the many skills you should develop to be successful in China.• It should not be the sole driver behind your business decisions in China.
    5. 5. 2) What is guanxi?• Guanxi – A network of counter-balancing relationships and social business connections.• It is systematic, formalized, and can be quite ritualistic.• Guanxi places the same obligations on YOU as it does on your new Chinese partner.
    6. 6. 3) Is guanxi unique?• Is ‘guanxi’ different from a network of relationships elsewhere in the world? – To you, maybe not. – To your Chinese counter-part, YES.• Some Chinese tend to understand guanxi as a uniquely Chinese phenomenon that is beyond the understanding of Westerners.
    7. 7. 4) Guanxi is Due Diligence• In traditional Chinese business, audited financials, company profiles, credit reports and 3rd party ratings either didn’t exist or were meaningless.• Guanxi, networks and relationships served as the primary means of performing ‘due diligence’ among Chinese business people.
    8. 8. 5) Guanxi rules• It’s reciprocal. Debits and credits.• It’ based on mutual utility value• It’s personal. – Who are you? – What do you believe in?• It’s ongoing and long-term.
    9. 9. 6) Myths about guanxi1. Guanxi is a euphemism for corruption.2. Guanxi is the only key to success in China.3. If you have guanxi, you don’t have to worry about laws, regulations, bureaucrats, etc.
    10. 10. 7) Guanxi caveats:• The same people who can open doors for you in China can also shut & lock them .• Guanxi can’t be bought, borrowed or transferred.• Guanxi is between people – not organizations, departments, bureaus or institutions.
    11. 11. 8) There are 2 main types of guanxi relationship:• The Guanxi Buddy –Flattery –Wants to get paid• The Guanxi Boss –Teacher –Wants to run things
    12. 12. 9) Guanxi Best Practices• Deals are driven by fundamentals• Guanxi is a strategic policy• Guanxi is easy to build, hard to repair.• It’s a two-way street.• Relationships take work.• Over-compromise, with limits.• Contracts are your last and worst defense.
    13. 13. 10) Final Warning• Guanxi rarely helps foreigners.• The only time you will ever hear the word from an existing partner is when – He expects to be paid for his relationships with someone else – He is calling in a “guanxi debt” on you, and expects you to make some kind of sacrifice.
    14. 14. Guanxi for the Busy American• A professional’s guide to building relationships in China.• Written for the Western negotiator who needs to transact and execute.• Available on Kindle, iBook and all major e- formats.
    15. 15. Further Reading www.ChinaSolved.comwww.ChineseNegotiation.com Linkedin: China Solved

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