By Michael Connolly

In China, it is said that everything is consequence in business is done through guanxi. It is how things get done. A foreign manager having landed in China a few months ago with a plan to dance down the yellow brick road to revenue and market share is probably scratching his head at this point. “It’s taking twice as long to do anything. It costs twice as much. And from what we can tell, we will only make half as much profit, if at all” Welcome to business in China.

One of the missing factors might be having the right connections. If, for instance, at a big product launch the Chinese media have been invited to cover and later, find that not a word made it to print, chances are the appropriate guanxi was not developed with the reporter and camera crew who covered the event. If the latest contract has stalled, in spite of polite words of assurance and head nodding, it can be surmised that the proper relationship has not developed and in China, a stalled initiative can mean months or even years of delay.

In western thought, one of the favorite paradigms for understanding effective relationships is outlined in Stephen Covey’s 7 Habits of Highly Successful people. In this book, Covey’s outlines of the concept of an emotional bank account. This concept has some distinct similarities to the concept of guanxi in China. The Emotional Bank Account is a metaphor describing relationships and the balance for interdependence. It describes how trust is built on a relationship. Though some connotations of guanxi portray it as another form of cronyism or corruption, it is a misunderstanding of the full meaning of the concept. Guanxi is about building trust. In the 7 Habits metaphor, positive behaviors are deposits in the emotional bank account and build a reserve of trust between the people in the interaction. Negative behaviors are withdrawals. A high reserve balance results in higher tolerance for mistakes, willingness to go the extra bit, and more open communication.

There are cultural differences. Understanding meaning across language barriers, how gifts are exchanged, or what favors a person might do to build guanxi, all have to be understood in a cultural context. In some cases, there is a fine line between guanxi and what some might consider corruption. It needs to be stressed because too often it is the small details that have a big impact in the success of building relationships. There are cultural expectations and these have to be learned. It is not something that can be done overnight or by reading a book. Specific tasks that allow one to develop guanxi might differ in Chinese culture from what a western mind might assume, but the basics are the same. Working with people that can be trusted is crucial to success.

Xin Baoping left his government position to start his private business in the mid-nineties. He now runs a successful financial consulting company and is author of The Making of a Boss, a book on business startups in China. In outlining some of the momentous change and opportunity that has taken place in China in the last decade, Xin believes that guanxi is the most important factor in determining the success or failure of a new business. “This is not unique to the Chinese mainland”, he says, “but common to all Chinese societies”.

In the current environment, the planned economy is giving way to the market economy, but regulatory infrastructure is still immature. Xin says,” When the old is in disuse and while the new order is being created, guanxi is there to keep order and get things done”. Many entrepreneurs are indifferent to the gray areas between guanxi and corruption. Xin adds," We need to face the reality."

It boils down to being able to get things done. Whether it is understood as guanxi or as an effective habit of successful people, it is fundamental. In a recent interview of a small business owner from the US, it was asked,”What is the single most important thing a person needs to do business in China?” The answer was, “Without a doubt, working with people you can trust.”