Run a Google search on the Chinese phrase “Guanxi” will get you over 500,000 hits on topics mostly concentrated on doing business in China. The phrase has been over-used, over-quoted, and over-rated, for the past 20 years since China opened its commercial door to the rest of the world. Sometimes, the phrase has been hailed as the center and the focal point of running a successful business in China. Everything else, such as a sound business plan, a strong financial background, and genuine knowledge of the industry, becomes only the supporting cast. With Guanxi, some believe that running a business in China is as simple as taking a deep breath. Without it, it is deemed that any business will fail even with a sound and solid plan. The author is not trying to downplay the importance of maintaining a good relationship with your business associates in China. He believes, however, that a business built only on Guanxi is doomed to fail in the long run.
After years of development, transformation, and most of all, growth, businesses in China is no longer a closely knit society protected by the confinement of the Chinese laws and regulations. Instead, they are competing in the global economy, where quality, time to delivery, innovation, and cost competitiveness are the source for success. Instead of a proliferation of Guanxi, here are a few examples that the Chinese suppliers are developing themselves into the world class suppliers: - Supplier transformation: Chinese suppliers are now equipped with the latest technologies, armed with the best talents, and sourced from the most competitive areas, to provide the world the most innovative products at the most competitive price. The Chinese auto industry, which has seen an amazing growth in the past 10 years, is projected to pass the total production capacity of that of United States within this decade.
- Rules and regulations advancement: Smart suppliers are focused on becoming the best of their respective businesses. Many are adopting the rules of the ISO, FDA, CE, and other government regulating agencies. The notable ones are ISO16949 for the automotive industry, ISO13485 for the medical device industry, and ISO14001 for Environment management.
- Information technology investment: Oracle, SAP, and other ERP software now forms that basis of many Chinese suppliers IT infrastructure. Further investment in IT to fill other needs such as Customer Relationship Management (CRM) and Supplier Relationship Management (SRM) are now making its way across China. These tools have been widely available in United States, and now the Chinese suppliers are quickly adopting them.
Guanxi may have played an important part during the growth of the China economy over the past decade. It will still play a role in the future. However, Guanxi is not going to develop the technological advancement that is required to support the growth of the auto industry, to help comply with the many rules and regulations around the world, nor to transform the information technology landscape. Instead, a successful business in China will require a sound business plan, strong financial background, and genuine knowledge of the industry.
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