Doing Business in China

Course Code: IBU 306

Instructor: Dr. YANG Jun Jie
Associate Professor in Management
School of Economics and Management
junjie.yang@xmu.edu.my
China’s Business Culture
Contents
1. Face
2. Guanxi
3. Government Relations
4. Business Etiquette
Source: https://www.hofstede-insights.com/
The Rules Are Fixed; The People Are Flexible
- Chinese proverb
Rules only seem to be fixed for the moment; they may have been
promulgated but overtaken before officials get around to implementing
them.
Foreign businesses in China need local partners in just the same way that
they do in any world market. Relationships have to be cultivated with
distributors, suppliers, customers, local government and administration,
and the community in general.
 Face: Making Other People Look Good
Face is a pervasive concept both in business settings and in Chinese
family and personal life.

Giving face Losing face

showing that you care for another person: causing someone to “lose face” through
-by listening intently and responding in an appropriate -demonstrating lack of respect,
and constructive way, -referring to mistakes or criticizing in public
-by providing help when asked for a favor, and by -or a refusal to come forth with, at least moral
actively putting the other party in a good light in front support, is frowned upon.
of other people, especially superiors and other
influential persons.
-Giving face is different from just “being a nice guy” or
“helping out” — the face aspect emphasizes the social
context, the fact that the other party is made to look
good in front of others.
Giving, and Saving, Face
The emphasis here is on “perceive” —loss of face is a subjective matter. Typical
situations that can cause a perceived loss of face are:
Typical situations Timing, context, and communication
-Being upbraided or criticized in front -Avoid criticism in front of others.
of others. -Take into consideration the face issues of all
-Promotion of a colleague. colleagues concerned when you promote a
-A new job role. coworker or assemble a team.
-Being asked to report to someone -Encourage feedback.
more junior, even on a short term -Use face to your advantage.
project.
Guanxi: Business Relationships
Chinese people are generally more dependent on the people around them than
are Westerners.
This does not necessarily mean that Chinese people are not individualists —
just that they are more attuned to the needs and sentiments of other people.

Negative
It is also often portrayed as a
“negative” aspect of China,
linked to corrupt and unethical
practices.
vs Positive
Guanxi is often translated as “contacts” or
“relations”, but these English terms tend to
carry negative connotations of impenetrable
“old boys” networks, whereas the Chinese term
is usually used in a positive sense.
Guanxi: Business Relationships
Relationship A relationship that implies mutual benefit.

A statement of confidence that the person will help a particular

Statement
person if asked to do so.

Way A way of giving face and establishing a relationship.

Network A networked view of the world, a problem-solving approach

that uses contact networks to quickly find information or solve
Problems.
 From the Soil: The Foundations of Chinese Society
Author: Fei Xiaotong
Publisher: University of California Press (26 Oct. 1992)
(Xiangtu Zhongguo, 《鄉土中國》). Shanghai: Guancha,
1948.)

The Chinese Game of Trust (中国人的信任游戏)

Author: Luo, Jar-Der, Ye Yongzhu
Publisher:Social Sciences Academic Press (2007)
 In this chapter, Fei Xiaotong addresses the problem of selfishness vis-à-vis each person’s
From the Soil. The service to, and responsability for, the public welfare, i.e., the problem of the line between
foundations of Chinese the group and the individual.
Society (chapter 4)
In Western societies, individuals form organizations, whereby each organizations has its
By Fei Xiaotong own boundaries defining who is part of the organization and who is not, and the relation
of each individual to the organization is the same. All members in an organization are
equivalent. He calls this an “organizational mode of association” (tuantigeju).
In China, on the contrary, each individual is claimed to be surrounded by a series of
concentric circles, produced by one’s own social influence. Each web of social relations has
a self as its center. Each circle spreading out from the center becomes more distant and at
the same time more insignificant. Everyone’s circles are interrelated, and one touches
different circles at different times and places. On different occasions, one’s own social
network comes into contact with someone else’s. He calls this mode of organization a
“differential mode of association” (chaxugeju).
A practical consequence of this difference in social networking is that, in the West, people
struggle for their rights, while in China, people seek connections in higher places and do
things for the sake of friendship.
Another consequence is that, in China, private selfishness is justified by moving toward the
state: both public officials and private persons use the same conception of the social order
to define the context of their action. This is different from a Western society, in which
public and private rights and obligations belong to a different ‘organization’ and are divided
distinctly. A “differential mode of association” does not allow for individual rights to be an
issue at all, and social morality makes sense only in terms of the personal connections.

Source: https://www.china-europa-forum.net/bdfdoc-160_en.html
 Strangers: no tie 陌生人 无关系

弱关系—生人

熟人关系 人情交換
Social relationship同 — 九同及介紹 Jiutong (Nine relationships:九同)
人
family exchange -tongxing (同姓), same family name
家人关系 -tongnian (同年), same birth year
自 -tongxiang (同乡), same hometown
我 Self
需求法則 -tongbao (同胞), same ethnic/country
-tongzong (同宗), same clan
Three principles: -tongxue (同学), same school
人情法則—報或人情交換 -tongshi (同事), same work unit/colleagues
a. Demands
人情帳與情感關係 -tonghang (同行), same job/sector
b. Social relationship
exchange -tonghao (同好), same interests
公平法則 c. Fairness

Network with differential mode of association(chaxu geju,差序格局)

Source: Luo, Jar-Der, Tsinghua University, Beijing, China
 Guanxi: Business Relationships
Being led to believe that guanxi is something “different” or “mysterious” can be costly.
Avoid trusting empty
Business is business; the way to build guanxi is to show that you care, that you are
claims to guanxi
trustworthy, and that you are in the relationship for the long term.

Guanxi is less important In a planned economy, where companies had few business incentives, good guanxi
than before was often the only way of ensuring access to products and services. The same
situation still prevails today in heavily regulated industries or when
your main customers are state-owned companies or government institutions.
In summary, however, the guanxi concept is overrated now.
• Every person has a guanxi network.
Guanxi: Networking the • Guanxi is not (necessarily) something one is born with.
Chinese way • Guanxi can be built and maintained in a systematic fashion.
• Guanxi has to be built with patience and over time.
• Guanxi should be built in advance, before you need them.
Guanxi is a
“Relationship marketing” theory.
straightforward business
Chinese prefer doing business with people they know.
concept
It transforms an obscure cultural phenomenon into an operational part of personal as
well as corporate business strategy.
 Guanxi: Business Relationships
You must be in -Guanxi can be built and transferred from person to person.
charge of your own -Foreigner’s advantage: China is open, curious, and interested in things
guanxi foreign. Chinese officials often actively desire contacts with foreign
business people and politicians.
-Chinese colleagues, and beyond your business (soft skills).

-Guanxi is not primarily something you are born with

Guanxi checklist -You need to develop your own guanxi.
-Guanxi must be created before you need it.
-Guanxi need to be managed in a structured way.
Government Relations: How Important Are Government Relations
-One of the most prevalent myths about doing business in China is the
importance of “government relations”.

Li Ka-shing and China’s political leaders

-Sometimes, it appears to us that government relations are deemed

important mainly as a perceived status symbol.
Government Relations: Which Government Relations Do You Need?
In China, “government” is used to denote a wide range of ministries, departments,
and institutions at several levels of government -- central, provincial, and local.
Depending on the industry you are in, and the size of your company, all of these
may impact your business.

Central government Central government is most prominent as regulator. Some areas of

business, ranging from power and infrastructure to finance, direct sales
and the practice of law, are still heavily regulated. Securing permissions
to do business may require extensive lobbying of central government
functions.

Local authorities Local government relations, on the other hand, is the one area where
most foreign businesses in China will have a real need to invest time and
effort.
Fostering relationships with local authorities is important because of the
sometimes vague and loosely interpreted regulatory environment in
China.
Government Relations: Which Government Relations Do You Need?
Liu, X. X., Tsui-Auch, L. S., Yang, J. J., Wang, X., Chen, A., & Wang, K. (2019). The color of
faults depends on the lens: MNCs’ legitimacy repair in response to framing by local
governments in China. Management and Organization Review, 15(2), 429-458.
Source: https://www.cambridge.org/core/journals/management-and-organization-
review/article/color-of-faults-depends-on-the-lens-mncs-legitimacy-repair-in-response-
to-framing-by-local-governments-in-china/7FE97B6943D9B1E5154F050DB1B14A09

Shandong vs Chongqing

As the Chinese market matures, and the business environment becomes more
streamlined and transparent, the need for maintaining local guanxi will also continue
to decrease.

But relations with local authorities such as the business and commercial bureau
(which issues local business licenses), the labor bureau (hiring and firing), local
environmental authorities, and state-owned utilities may still have a significant
impact on day-to-day operations.
Government Relations: Government Relations Checklist
Government relations in China may be important in some specific areas, but
are often overrated:

Guanxi checklist -There is no need to build relations for their own sake.
-Carefully identify the relations you really need.
-Create relations before you need them.
-Do not overuse relations.
-Be yourself.
-Government relations are not a business panacea.
 In public remarks, he often uses the same
phrase to describe how he manages his
relationship with the authorities: “Stay
close to the government and distant from
politics.”

Wang Jianlin
Founder and Chair of Wanda Group
Source: China's Globalization: Interview with Jianlin Wang, Wanda Group
https://www.youtube.com/watch?v=u4nZ1kFtENc

Source: Wang Jianlin, a Billionaire at the Intersection of Business and Power in China,
https://www.nytimes.com/2015/04/29/world/asia/wang-jianlin-abillionaire-at-the-intersection-of-business-and-power-
in-china.html
Discussion
What’s your understanding on:
“Stay close to the government and distant from politics”??
 Discussion
What’s your understanding on:
“Stay close to the government and distant from politics”??

“It’s a fact that China’s economy is government-led, and the real

estate industry depends on approvals, so if you say you can ignore the
government in this business, I’d say that’s impossible,” Mr. Wang told
state television in a February interview. “I’d say it’s hypocritical and
fake to say that. … But at the same time, for example, we don’t pay
bribes.”

Source: Wang Jianlin, a Billionaire at the Intersection of Business and Power in China,
https://www.nytimes.com/2015/04/29/world/asia/wang-jianlin-abillionaire-at-the-intersection-of-business-and-power-
in-china.html
Watch Mark Zuckerberg Speak Mandarin | The New York Times

Source: https://www.youtube.com/watch?v=yGHKCnbbZJ4

Speaking at a forum at Tsinghua University in Beijing, Facebook’s chief

executive discussed innovation in China, Facebook’s future in the
country and why he is studying Chinese.
Discussion
What do you think???
Business Etiquette
Name card For example, when handing over a name card, you should always use both
hands -to hand it over with one hand is seen as lacking in respect for the
other person.

Drinking habits The situation has improved somewhat during recent years, and there are
large differences between different regions and businesses, but in some
industries, heavy drinking will still be an integral part of doing business.
Toasting is systematic and organized, and aims at drinking the opposite
party under the table.

Table manners Alcohol aside, Chinese table manners are relaxed. The important thing is to
take care of the people around you by making sure they help themselves
from every dish and that their glasses are never empty.
When toasting, Chinese people usually clink glasses together, and the trick
is to hold the edge of your own glass lower than the edge of the person you
are toasting with.
Chinese Dining Etiquette - Decode China
Source: https://www.youtube.com/watch?v=FFnPcHCDVVY
Cultural difference in business Valerie Hoeks TEDxHaarlem

Source: https://www.youtube.com/watch?v=VMwjscSCcf0
Reading
Burt, R. S., & Burzynska, K. (2017). Chinese entrepreneurs, social
networks, and guanxi. Management and Organization
Review, 13(2), 221-260.
Granovetter, M. (1983). The strength of weak ties: A network
theory revisited. Sociological theory, 201-233.
Xin, K. K., & Pearce, J. L. (1996). Guanxi: Connections as
substitutes for formal institutional support. Academy of
Management Journal, 39(6), 1641-1658.
Group Discussion and Presentation
Find a successful or a failed example that a MNC (either local or
foreign) applied guanxi to develop business in China and
elaborate possible causes.