Developing Business Relationships. And Bribing in China.

ben hot pot

Every self-respecting follower of Chinese culture and business has to, at some point, post an article on networking, or “guanxi”.

Ironically, there isn’t a word in Chinese for “Networking” that I’ve been able to find thus far.

Building guanxi means creating close personal relationships with business partners so that you may work together on a higher level of mutually-beneficial trust.

In the US, when we want to do a business deal, we find the best candidates available, approach them with our plan, sit down for a few meetings to discuss terms, hammer out a contract and sign it. Then we begin working together.

This system of doing things exists in China as well, but only as a last-ditch option. Usually, you want to develop a relationship with somebody before they will listen to you. This is because, in Chinese culture and business, strong bonds are formed in the most inner circle of friends. Outside of that circle, there are 1.3 billion “other” people that you cannot trust.

I know of businessmen who lived in China for 20 years and said “You can’t get involved in bribing people. Once you open that door it just gets bigger, and increasing amounts of money are expected to flow through it”. I’ve also met businessmen who lived in China for 20 years and said “You must bribe people if you’re going to do any successful business in China”.

China is a country of contradiction. Both statements above are 100% true. How is this possible?

Those in the “can’t bribe” camp were either in very very large companies that easily created guanxi through possession of a huge brand name or technology that nearly everyone in China wanted to get their hands on. Or they have and use lawyers to walk the razor’s edge of what’s acceptable according to their own country’s laws. Most of the “must bribe” camp ends up represented by smaller businesses who refrain from entering the country out of a negative view of how things operate over here. They also don’t have any guanxi. There are no people willing to help them out based on a strong sense of mutual trust.

There is also “the third possibility”. Western companies entering China form partnerships, or hire consulting firms or advisers, that smooth over issues with local entities. In some cases, these companies artfully explain to the western firm that they will take care of everything. Sometimes this involves leveraging their guanxi to get a small business through the process. Some of the things that transpire may or may not be above board by western standards. But the western company has no idea what’s going on other than the consulting firm has handled all registration efforts with the local government.

So what if you need to develop guanxi quickly?

I have a friend in China, a successful artist. He’s married to a former Olympic diver. About eight months ago his wife held a party for all of her old diving friends. This included a power couple: the husband is now an actor and former Olympic diver. His wife is a famous singer.

My friend, at one point, made a bet for a lot of money over a drinking game common in China. I’ve seen him lose this game a few times, but never for money unless he intended to. The case was the same here. He last a LOT of money. I watched him do it. But when I got home that night and thought about it, I realized the chances of a guy who spent half of his adult life training to be an Olympian probably didn’t spend much time in karaoke bars playing drinking games. It was highly unlikely that he just waltzed in to the evening with the honed skill level required to beat my friend. It was even less likely that my friend would bet that much money unless he expected to lose it.

My friend was, essentially, giving the superstar a gift that would ensure he wouldn’t be forgotten. Later, I assume the superstar referred other wealthy friends to my artist friend to buy paintings for their new office building or home.

Was this a bribe? Or was it an investment? If this happened between a company and a government official I think most westerners would call it a bribe. I think most Chinese people would call it “The way things are here”.

I’m not coming down one way or the other on the subject of bribing. I’m just trying to give my readers a clear understanding of how it works over here. This is what the terrain is like if you decide you’d like to enter this market.

But there is a point in business culture in China where guanxi and building it through bribes will come up. There are also cases where it is never needed. The picture in this blog is me with a group of my oldest friends in China. I’ve never bribed any of these guys, and they’ve never bribed me. This is my inner circle. When I decide to do business in China, I talk to these guys first. They are artists, lawyers, finance gurus and media experts. They are well-established and well-connected. All of them, at one point throughout China’s development, have had to make business deals that would definitely be marked down in the “bribe” category by western standards. I’ve known them since the 90s. We are friends, but that’s where we’ll do business as well. Because we can trust each other.

The single best tool one needs to enter the Chinese market, especially as a small business, is an understanding of the culture. If you want to sign manufacturing agreements for export or enter the domestic retail market, or do business in or with China in any way, you need to understand the culture or you need to find an employee or a business partner or adviser who does. You need to find a way to navigate the terrain without crossing any legal lines in your own country while simultaneously navigating a complicated culture where gifts are the norm between businesses. Dave Howard, owner of Howard Communications Ltd., prompted me to re-write much of this blog because he pointed out that small businesses have less leverage than large corporations due to the lack of lawyers, money and power. I agree with him on this point. My original intention, which was not conveyed, was to point out that small businesses are often afraid to enter the market due to their perception that they’ll be required to take unscrupulous or illegal action to be successful. This is not usually true.

Even large businesses, however, will be more successful if they learn about the culture before plunking themselves down in China. As someone who speaks the language and has been traveling to this country since 1994, I can attest to the complexity of doing business here and the utter importance of knowing as much as possible about how to navigate the landscape from both the western legal perspective and the Chinese cultural structure. A melding of the two is necessary to achieve success.

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