Discussion Questions Define the term Guanxi.

Guanxi can be translated as relationships and connections. In all the Chinese dominated societies in Asia, people use the word Guanxi to speak of someone who knows lots of people, who is well connected, and gets things done, not necessarily through formal channels. Thus Guanxi is a social dimension and a human factor. What are the main theoretical explanations for Guanxi?

Founded on prior literature (Geddie et al., 2002, 2005; Sabine, 2005; Tsang, 1998) there is an opportunity to link the two concepts, where relationship marketing is a formal legal contract defined and protected by the institutional framework, and guanxi is an informal interpersonal relationship involving mutual trust which is not stated explicitly in the legal contracts (Zhang and Zhang, 2006). How important are Guanxi in business relationships between Chinese and Western companies? To what extent should MNCs consider building Guanxi as part of their business strategy? In western, they would like to make a deal by signing contract. In Chinese, they would like to make a deal by Guanxi. In KFC case, it gets successful because it picked the right joint venture partners in china. There were two JV partners of KFC, state-owned bank and a food distributor. They helped KFC a lots because they are government enterprises, which had a good relationship with government. It may help KFC to get the license quickly and prevent the regulatory hurdles. The other JV partner is already in the food distribution industry; its experience can help KFC to run business in China. They contribute read-to-use physical assets and Guanxi of various categories to KFC. Therefore, they facilitate KFC relatively smooth start-ups and early business success. To conclude, a right local partner is important for MNCs to setup their overseas company. For MNCs run business in China, we know that China has lacked a strong rule of law. Because the law has not often been able to provide the legal protections which it does in the west, Chinese people needed to develop another means of ensuring trust amongst themselves in personal and business matters. Maintaining face, or reputation, among people within ones own network is also an important characteristic of Chinese culture. Because of the importance of maintaining face, Chinese people will usually not take advantage of a person with whom they have guanxi. This is true because if they develop guanxi with them and they were to take advantage of them, all of the people in their network would know what they had done and they would lose face with this network. By losing face they would also

lose the respect of others in the group and potentially lose their connection with their network. Therefore guanxi has become a means of building trust that law cannot always provide for Chinese people in personal and business matters. For these reasons, a Chinese company will feel far more comfortable doing business with a company which they have strong guanxi because they believe it will make it far easier for them to trust their business counterpart Suggest relationships. strategies for MNCs to create and maintain Guanxi

There are a number of online networking sites where you can make business contacts. If you are a trader (importer/exporter), you are probably already a member of Alibaba. Use the site to begin communications with your China contacts. For consultants, entrepreneurs and business people, Dragon China Business Network is a place to meet new China contacts. Professional networking sites like Linkedin and Xing, although they are not Chinafocused, have Chinese members and China groups. Keep in mind that online networking is just a starting point. Eventually, face to face meetings will be necessary to take these relationships to the level where there is mutual trust between both parties. Also, don't confuse guanxi with the style of business networking you may be accustomed to in North America or Europe. Guanxi goes beyond basic business networking. It takes longer to develop but in the end is more powerful.

While developing guanxi is important to doing business in China it is not necessarily easy to develop, especially for a foreign company. Having a full-time, long-term presence in China is essential to developing and maintaining guanxi. In addition, to effectively develop guanxi your company it will be helpful to have a native-born Chinese person to be responsible for developing these relationships. A native Chinese person will be familiar and comfortable with the cultural niceties of developing guanxi in China. Your local Chinese staff or representative should meet regularly, in both formal and informal settings, with potential and current customers and relevant government agencies to develop strong relationships on behalf of your company. If government relations are important to your business your company may also want to consider hiring someone experienced working with the Chinese government on a full or part-time basis to leverage their contacts and experience with the government on your companys behalf.