Magazine Summer 2012 Research Feature

Building Effective Business Relationships in China

China’s ways of doing business are becoming more Westernized. But non-Chinese executives still must work hard at building trust in relationships with their Chinese business partners.

Roy Y. J. Chua Reading Time: 23 min 

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China’s growth and integration into the world economy are driving changes in Chinese business practices.

China’s growth and integration into the world economy are driving changes in Chinese business practices.

A global automotive company entered the mainland China market following what it thought were the rules. Executives knew gifts were an important personal gesture and integral to Chinese business etiquette. They also knew that success in Chinese business culture was as much about whom you know as what you know.

To make the right connections, the company sponsored events and hosted lavish dinner parties to cultivate personal ties, including the all-important guanxi (commonly defined as personal connections between people doing business). Several years later, the company faced the fact that its efforts were producing minimal results.

As they tried to discover why, executives learned that despite all their efforts, the company had actually acquired a bad reputation among potential Chinese industry partners. The potential partners had come to view the company as a seeker of short-term transactional opportunities wrapped in expensive entertainment.

The Chinese executives the company had carefully courted socially now viewed it as a source of free entertainment — a perk they came to expect with every interaction. Even worse, the potential Chinese partners had developed the impression that the company had few compelling business propositions to offer since it didn’t seem to be focused on doing business. Although the company knew the people it needed to know, like many other companies eager to gain a foothold in China, it had failed in its efforts to build critical relationships —and as a result, its business initiatives failed too.

The Myths of Guanxi

In our studies of intercultural relationships between Chinese and Western executives, my colleagues and I discovered that a fundamental misconception has arisen about guanxi. Experts line up to sell Western executives courses, websites, books and articles that promise to help them build guanxi. But the advice rarely strays beyond superficial notions of family and friendship and tips about such things as keeping business cards out of one’s back pocket. Although there is an enormous focus on building relationships, there is little understanding of what makes them actually work.

The prevailing thinking about guanxi falls into two traps. First, it doesn’t recognize that the business environment in China is changing.

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About the Author

Roy Y. J. Chua is an assistant professor of business administration at Harvard Business School.

References

1. R.Y.J. Chua, P. Ingram and M.W. Morris, “From the Head and the Heart: Locating Cognition- and Affect-Based Trust in Managers’ Professional Networks,” Academy of Management Journal 51, no. 3 (2008): 436-452.

2. R.Y.J. Chua, M.W. Morris and P. Ingram, “Guanxi vs. Networking: Distinctive Configurations of Affect- and Cognition-Based Trust in the Networks of Chinese vs. American Managers,” Journal of International Business Studies 40, no. 3 (2009): 490-508.

3. C.X. Jiang, R.Y.J. Chua, M. Kotabe and J.Y. Murray, “Effects of Cultural Ethnicity, Firm Size, and Firm Age on Senior Executives’ Trust in Their Overseas Partners: Evidence From China,” Journal of International Business Studies 42, no. 9 (2011): 1150-1173.

i. R.Y.J. Chua, S. Chen and L.B. Kwan, “CDG: Managing in China’s Economic Transformation,” Harvard Business School case no. 411-067 (Boston: Harvard Business School Publishing, 2010).

ii. R.Y.J. Chua, M.W. Morris and S. Mor, “Collaborating Across Cultures: Cultural Metacognition and Affect-Based Trust in Creative Collaboration,” Organizational Behavior and Human Decision Processes 118, no. 2 (July 2012): 116-131.

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Comments (7)
david chen
Ladies and gentleman

My book "Doing business in China" covers all the significant pionts that you are talking about. Reading it can enlighten you on the ongoing Chinese business culture and a handful  solutions, profound analysis, advices and techniques, some of which you could not find anywhere elso.  The book is written by a cross-cultural expert. Chinese cultural expert and a native Chinese businessman.

Here is the link where you can get the book : for paperback: http://www.amazon.com/Doing-Business-China-Liwen-Chen/dp/1492308064/ref=sr_1_3?ie=UTF8&qid=1379899897&sr=8-3&keywords=liwen+chen

For complete electonic version: http://www.amazon.com/Doing-Business-in-China-ebook/dp/B00F10V3PK/ref=sr_1_fkmr0_3?ie=UTF8&qid=1379900069&sr=8-3-fkmr0&keywords=liwen+chen+doing+business+in+china+%2416.9
jacksteven0109
These business strategies are useful not only for China but for each and every part of the business world. I am a business owner and I had bought an existing business about 3 years ago. Its been three years since I am running this business but still I struggle to get clients and maintain them. The only principal I believe is that you can manage a good relationship with your customers by providing them your best service.
cmason
Thank you for bringing some light to the east-west bridge.   While the west is about a subtle as a hemorrhoid, the east has a very long culture that excels at the unspoken... consider classic Chinese art, for example.   While the west is in a hurry and usually does not look past the profits in the current quarter, China takes steps that build the future brick by brick, and the west cannot always see the vision behind the bricks.   This philosophical difference appears in many things in our two countries, from healthcare to business.  If a company would prefer all of your ideas first, they are thinking very far into the future, further than you may be around, for example.  Its not personal, just a long term strategy.  The West should be strengthening its own internal self.
joanna.musialik
A very interesting and very useful article.
Our organization is involved in cross-cultural entrepreneurship activities and we observe how this topic is crucial for successful business relationships and internationalization. 
In fact, cultural misunderstandings and stereotypes are one of the main cause of business failures.
anumakonda.jagadeesh
Yes. Chinese business strategy has changed a lot. They adopt western practices. I was in China recently and could see the tremendous difference in business approach now compared to the past.
Dr.A.Jagadeesh  Nellore(AP),India
E-mail: anumakonda.jagadeesh@gmail.com
jzremski
A very well-written and insightful article about a very useful topic. It is clear from this article that cultural understanding in the business world does not mean copycatting what one presumes to be a nation's business culture. It means truly learning the nation's business culture from those who are steeped in that culture and adapting to it.
lucy
Great article! The value of intercultural competence cannot be undermined in the current business world. I think intercultural competence development is critical not only when doing business abroad but also for effective management at home. Today many large organisations have employees from diverse cultural backgrounds and in order to be an effective global leader one has to have intercultural competency. I would recommend another post on the topic which goes into more detail on the topic of understanding different cultural orientations for those who are interested in learning more about the topic: http://www.opportunityindiversity.com/blog