Notesale: Turn your study into money

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Question 2

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Guanxi literally means ‘relationships’; however academics have also expanded on
its definition, ranging from interpersonal relationship (Yadong Luo, 2000) to the building of
informal ties (Susana Rodrigues, 2010)
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Business in China
operates on a network system, of which requires constant growth; the greater a firm’s guanxi
network, the greater the benefits will be, in terms of customer base and profitability
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A guanxi network often
includes immediate and extended family members, colleagues, classmates and friends
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Companies heavily rely on their social ties to succeed in their respective
industries
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This is due to the tradition of gift-giving and
acquiring a reciprocal obligation whenever a favour has been granted by the other
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In addition to
this, MNC need to mentally prepare for what is involved in the building of guanxi
relationships, being the fact that it is a gradual process, therefore patience is a key factor
(Hagglund, Anders Björkstén, Johan, 2010)
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A firm’s ability to outperform its rivals demonstrates a competitive advantage, which is
achieved by offering higher customer value, in the form of a lower price or provision of a
better product or service
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The fact that guanxi is not limited to only apply to
Chinese natives, in that it is equally important to ‘foreigners and foreign organisations’ (Scott
D
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There is a selection of business strategy variables in which guanxi is embedded, such as
sales force marketing and credit liberalisation
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D: 3488034

commercial activities, where the seller ensures that he does not embarrass customers who
may be temporarily unable to pay (Luo, 2007)
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In China, ‘face’ is regarded as an intangible
commodity that is vital to a person’s reputation, dignity, and prestige (Seligman, 1999)
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It is inevitable that market growth is the definitive
aim for all MNC; therefore reliance on partner firms (guanxi hu) will be imperative, as this will
also secure a competitive stance alongside Chinese organisations
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For
example, MNC could have a strategy that sets out the creation of a highly intricate guanxi
network; this method of pre-emption would guarantee the inability of competing
organisations to succeed in imitating it
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As the Chinese are extremely curious about and drawn to all things foreign, it is
not unusual for them to approach those visiting their country
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Eventually, this will create a guanxi relationship, one which most likely encompasses
powerful figures, who can only help in making the network more sophisticated with their own
personal connections
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Drawing from a resource-based analysis carried out by Tsang (1998), MNC are certain to
gain competitive advantages in China providing that their guanxi networks (being part of
organisational human capital) are rare, valuable and imperfectly imitable
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For
business success in China to be a prolonged reality, strong guanxi must be developed with
the right people
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Taking
this into account, MNC should be very systematic and tactful in their selection process, in
terms of who they approach as potential members of their social network
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D: 3488034

Multinational corporations can use guanxi-based strategies to positively influence their
accounting and market performance; this illustrates that there is a correlation between good
guanxi and the high performance of an organisation
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The Chinese consider
guanxi a fundamental element to business success, mainly owing to the inadequacy of a
reliable legal system (Seligman, 1999) and political and economic uncertainty in the nation
(Yeung and Tung, 1996)
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On the other hand, Westerners believe in a more structured manner of forming
relationships, which should always be on a professional basis and revolve around a
conductive way of thinking
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It is
possible for MNC to exploit this cultural difference in the course of starting up in China, as
focus only needs to be on interacting with individuals that have the characteristics to form
part of the firm’s distinctive capabilities, rather than worrying about the traditional
prerequisites leading up to this stage
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Gao and Tian (2004) stated that enterprise managers can even use their guanxi
with government officials to influence government policy decision making
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KFC’s good guanxi with the Chinese central
government greatly helped them in receiving planning permission for construction of the
outlet (Luo, 2000)
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On the surface, the concept of guanxi appears to be a system of nepotism that operates in a
backward fashion and is associated with corruption
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Unfortunately, this is a more prevalent
occurrence where businesses are concerned, as their competitive nature causes one firm to
benefit at the expense of others within the same industry
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Question 2

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Within the Chinese society, it is only expected for MNC to use their guanxi
relationships to the maximum extent
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This means that these organisations can take full
advantage of their connections in order to purchase inventory at a considerably cheaper
rate
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Superiority over
suppliers is a competitive advantage; this idea originates from Porter’s Five Forces, a
framework detailing how attractive an industry is, which is solely determined by how
competitive it is
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Guanxi can also prove to
be very helpful when firms are in attempt to acquire some resources that are in scarce
supply
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Moreover, it appears that MNC can gain a substantial customer base, and achieve customer
loyalty without exhausting many resources to raise awareness of their existence and the
product/service they are providing
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The portrayal of an organisation in the media in a positive light, will
not only enhance its reputation, but will also entice new customers
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With knowledge that guanxi is a transferrable resource (Fan, 2002; Park and Luo, 2001; Luo,
2000), and should always be established with stronger parties, foreign organisations should
consider having an intensive application process in place when seeking new employees
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Once having
implemented guanxi-based strategies, as a way to achieve long-term goals and objectives,
MNC must master the art of nurturing informal friendships
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Finally, to increase the chances of gaining competitive advantages in China, MNC
should attempt to cultivate guanxi that is based on genuine friendship and emotion, rather

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Question 2

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The more reliable and stable a guanxi network, the more
opportunities will be available to these transnational organisations (Tian, 2007)
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It can both lead to
corruption in manifesting disadvantages for those outside of a social network, and at the
same time can put organisations in a competitively favourable position based on the
strategic implementation of their personal relationships in a corporate setting
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Guanxi provides the lubricant for any firm to conduct its business (Luo, 2007)
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Word count: 2,024

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Question 2

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(2004) Myths about doing business in China (Palgrave)
Genzberger, Christine A
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(1994) The Portable Encyclopedia for Doing Business in
China (World Trade Press)
Hagglund, Anders Björkstén, Johan (2010) How to Manage a Successful Business in China
(World Scientific)
Luo, Yadong (2000) Guanxi and Business (Singapore: World Scientific)
Luo, Yadong (2007) Guanxi and Business (2nd Edition) (World Scientific)
Tian, Xiaowen (2007) Managing International Business in China, (Cambridge University
Press)

Online sources:
Fan, Ying (2002) Guanxi’s consequences: personal gains at social cost, [Online] Available:
http://bura
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ac
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pdf [December 2012]
Rodrigues, Susana (2010) The Proceedings of the 2nd European Conference on Intellectual
Capital, [Online] Available:
http://books
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co
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(1999) Chinese business etiquette: a guide to protocol, manners, and
culture in the People’s Republic of China
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“Guanxi: Grease for the
Wheels of China” (The Chinese Business Review)
Yeung, Irene Y
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and Tung, Rosalie L

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