Factors of Successful Relationship Management: Guanxi in China

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1 Chapter 59 Factors of Successful Relationship Management: Guanxi in China Huiying Zhang and Shuang Lv Abstract Guanxi, which is a concept in Chinese culture, has been paid extensive attention from scholars and managers in recent years. The purpose of this paper is to analyze the factors of successful relationship management in China and hope to be helpful for further study and practice. The studies of Guanxi in recent years are reviewed in the following content. And then, based on the clear definition of Guanxi which is given in the next part, analysis of its characteristics is summarized in Chinese cultural background. As a result, an integrated framework of Guanxi is proposed, which is a six-dimension model that includes common interest, communication, credibility, commitment, collaboration and compromise, and identify the key items of them. Keywords Guanxi Common interest Communication Credibility Commitment Collaboration Compromise 59.1 Introduction Relationship between people and organizations, which is called Guanxi in China, is a cultural characteristic that is the most common sense nouns. In our daily life, Guanxi is the most common phenomenon, which refers to every individual, family and organization. Chinese people and organizations establish, maintain and improve their Guanxi between each other energetically and subtly. Guanxi is an intricate and pervasive relational network that contains implicit mutual obligations, assurances, and understanding [40]. Guanxi has been the lifeblood of personal relationships and business conduct in Chinese society [55]. Nowadays, basing fast-changing Chinese environments, Guanxi has become particularly important for both interpersonal H. Zhang (B) S. Lv College of Management & Economics, Tianjin University, Tianjin , P. R. China hyzhang@tju.edu.cn J. Xu et al. (eds.), Proceedings of the Sixth International Conference on Management Science and Engineering Management, Lecture Notes in Electrical Engineering 185, DOI: / _59, Springer-Verlag London

2 696 H. Zhang and S. Lv and interorganizational relationship. Therefore, It is critical for businesses in China, whether foreign or local, to understand contents of Guanxi and properly utilize it in order to survive and shore up the foundation for long-term development. Although it is known that Guanxi is of vital importance to personal relationships and business conduct, which can conclude from previous studies, such as that Guanxi affects market benefits [14, 56], financial outcomes [30], competitive advantages [52, 57], and business performances [23], it is not easy to carry on the successful relationship management. Some scholars focus their research on influence factors of Guanxi utilization [8, 18, 40, 47], such as ownership, strategic orientation, enterprise scale, and so on. However, this paper focuses on the factors of successful relationship management, which contain common interest, communication, credibility, commitment, collaboration and compromise which is an integrative framework called sixdimension model. This study tries to explore the factors influencing Guanxi in China. Next, in Sect we discuss the related studies and define Guanxi to identify particular characteristics of Guanxi in China; In Sect. 59.3, we suggest an integrated framework of Guanxi, which is a six-dimension model that includes common interest, communication, credibility, commitment, collaboration and compromise, and identify the key items of them; In Sect. 59.4, discussions and future research are presented Conceptual Background Literature Review In recent years, with the acceleration of reform and opening up and the development of the Chinese economy, more and more transnational group came to China to investment or founding factory. Therefore, scholars and managers have given more attention to Guanxi, which is a Chinese culture concept, to help enterprises to establish the competitive advantage, gain scarce resources, and so on. The recent literatures about Guanxi are summarized in Table Although it is a summary, we can clearly see the number of studies on Guanxi increased year by year and the extent refined. We can see from the recent literatures, researchers not only concerned about impact of Guanxi on enterprise performance or cost, but also concerned about the key factors of Guanxi, which are more rooted in the concepts of structure of Chinese culture. Because it is a prerequisite for successful relationship management, which is also an important part of appropriate utilization of Guanxi in China. Next, we will give a clear definition of Guanxi and summary of characteristic of Guanxi for the following research.

3 59 Factors of Successful Relationship Management 697 Table 59.1 Summary of recent studies on Guanxi Bala et al [4] Peter et al [45] Wang [54] Peter and Paul [43] Lu et al [29] Zhuang et al [59] Robert and Gao [47] Chen and Wu [9] Yang and Wang [56] Shou et al [48] Trust and communication which are components of Guanxi are the two main channels of knowledge transfer. Government support and a shared mindset can only be secured when mutual trust is established, which is also key concepts in Guanxi. The underlying differences between Chinese Guanxi and Western relationship is trust or xinyong in long-term orientation. Guanxi has a significant influence on supply chain management. Guanxi and trust effectively reduce transaction costs in vegetable marketing in China. The impact of Guanxi on behaviors (such as power, conflict, and cooperation)among firms in a Chinese marketing channel Guanxi behavior as a type of personal social networking, it has its own antecedents, measures, and outcomes. Two types of Guanxi - with business partners and with government officials - affect corporate capabilities differently. Guanxi as a governance mechanism in business markets, is a fine balance among qing (emotion or feeling), li (reciprocity) and liyi (utilitarian benefits). Trusting relationship influences firm boundary agents Guanxi behavior. Bradley et al [6] Ganqing (an affective element), renqing (reciprocation and favor), and xinren (personal trust), which are crucial dimensions for fostering Guanxi. Henry [23] Nie et al [37] Chen et al [9] Li and Sheng [28] The role of Guanxi in the relation between market orientation and business performance. Guanxi has its negative side and interorganizational trust and relationship specific investment, as two potential mediators, can enhance and amplify the eroding effect of Guanxi on firm performance. Guanxi can be viewed as a business relationship management strategy that is leveraged by organizations in response to environmental conditions. Under different competition and technology environment, effects of Guanxi on firm profitability are different. Chen et al [11] In the different stages during the buyer-supplier relationship lifecycle, effects of Guanxi practice on Chinese buyer-supplier relationships are different. Leung et al [27] Mianzi, Renqing, Ganqing, Xinyong, are all key elements of Guanxi establishing, and guide successful negotiation. Chen [10] Peter and Xiao [44] Cheng [12] Guanxi could be utilized either to lower the set-up cost as entrepreneurs or to secure jobs as workers. Guanxi network closure increases propensity to stay, whose effects highcommitment human resource management reinforce. Relational benefits and Guanxi between partners improve the negative effect of relational risk on knowledge sharing.

4 Defining Guanxi H. Zhang and S. Lv Guanxi which is a complex, multidimensional, involving numerous theories concept, are the process of interperson and interorganization forming a link between each other. According to Industry/Interaction Network Approach [22], which is developed from IMP-Group (International/Industrial Marketing and Purchasing Group), Guanxi which is hierarchical, connects activities, combines with actors, and forms the resource links [19, 21, 53]. Establishing and maintaining a Guanxi network between organizations is a process of interaction and mutual influence. This process is based on Guanxi between enterprises, which are interdependence between each other, and coordinate their behaviors between whiles. It is accomplished through interaction in the process of establishment and development of Guanxi. Interaction consists of two closely linked processes: first, Exchange, and second adaptation [22]. According to transaction cost theory, the market management takes saving transaction cost as the principle. Thus the appropriate, suitable utilization of Guanxi can reduce the opportunism behavior to reduce the transaction cost [10], and then maintain good cooperation. But excessive utilization of Guanxi can cause the enterprise operation cost arise [40]. According to resource dependence theory, Guanxi itself is a resource. In today s unprecedented fierce competitive environment, it is not sufficient for enterprise just focusing on a particular type of resources to establish sustainable competitive advantage. Hence it is necessary to develop Guanxi network between organizations with access to different resources. It can create competitive advantage through mutual cooperation between organizations and sharing each other s unique elements and resources [24]. According to social exchange theory [25], mutual exchanges of interests form a dynamic exchange of Guanxi. The main norms and rules of exchange process of interperson and interorganization, while establishing and developing Guanxi with each other, is reciprocity. The theory use the behaviorism perspective, focus on the psychological benefits of Exchange, emphasize the interaction of non-economic input and output, make the intangible exchange such as trust as much important as tangible benefit exchange. It can suitable explain the phenomenon such as trust and commitment which can not analysis by the economic theory [3, 18, 35]. Based on the above review and analysis, we summarize several characteristics of Guanxi: (1) Guanxi is a process of change. Guanxi, as the same with any organism, which is alive, is a process of change and development. In this world, Guanxi with invariant network will never have. Dynamic of Guanxi is absolute while static is relative. It is in a certain condition which is a process of unsteady, complex and tortuous change, whatever in any level such as interperson or interorganization. Therefore, it is not a once and for all according to building Guanxi, and it requires constant training and investment. (2) Guanxi is valuable.

5 59 Factors of Successful Relationship Management 699 Guanxi, especially interorganization, is based on value exchange, which can be a tangible benefit or the intangible long-term emotional investment. However, compared with the pure emotional feelings between friends, it is more utilitarian, and more value-oriented. (3) Guanxi is reciprocal. In accordance with the social exchange theory, Guanxi is based on reciprocal. Mutually beneficial concept not only exists in terms of tangible benefits, but also in trust and commitment which are invisible. For example, when A does B a favor, it is to say there is emotional investment from A to B. Maybe not now, but after a time, when A is in trouble, B will also help. (4) Guanxi as a kind of resource, is able to exchange and transfer. Guanxi as itself a kind of social capital, is also a unique resource of enterprise, and can be exchanged and transferred during the development of cooperation. Here is an example, there is a good co-operational relationship between A and B, and B and C are also good partners. As A and B between C and B cultivating Guanxi, A and C will become good partners some day in terms of their strength of the ties with B. Precisely because Guanxi has all above characteristics, which make the concept of relationship has a different meaning in China, it can be appropriately use only when a clear understanding of Guanxi is well known A Six-dimension Model of Guanxi Guanxi in the Transition Economy Characteristics of the transition economy, are described as the traditional culture and the strong role of the government along with institutional defects and intense competition due to imperfect market economy. In transition economy country such as China, Guanxi is a typical process of doing business, through which organizations can significantly reduce transaction costs, seek government or political support, improve the business performance [51, 57]. Therefore, organizations in transition economy maintain Guanxi with customers, suppliers and competitors which are all market entities, and establish and keep Guanxi with government which has the right of scarce resource allocation in order to obtain legitimacy and the scarce resources in the market [38, 39] A Six-dimension Model of Guanxi According to the former studies, the conclusion about the mechanism of relationship and the performance of relationship sometimes are not coherent and the reason is

6 700 H. Zhang and S. Lv the particular economic background of transition economy in China. Therefore, the factors of Guanxi must take the transition economy in consideration. And based on all of above, a six-dimension model of Guanxi is proposed. The six dimensions are Common interest, Communication, Credibility, Commitment, Collaboration and Compromise. (1) Common interest Guanxi as it is valuable and reciprocal, must take the common interest as the foundation in the hierarchy of interperson and interorganization [13, 41, 50], otherwise it can not be a long-time relationship or succeed. It may be successful, if there have had the common interest. But if the partners do not have common interest, they could not avoid finally separation, even if celebrate the establishment of Guanxi everyday. Moreover, the intense competition which is caused by the imperfect market economy make common interest become a more important factor that partners would like to consider before they cooperate. It includes following several essential elements: knowing exactly about oneself and the partners; setting common interest above oneself interest; preparing transformation of Guanxi once common interest vanishing. (2) Communication Anderson and Narus [3] defined communication as the formal and informal sharing of meaningful and timely information between partners. Communication which is indispensable is so important that no communication no actual Guanxi. With communication, information sharing and value exchanging could be achieved. And more dynamic the environment is, the more communication both formally and informally the organizations need. Because in the transition economy, the dynamic is remarkable but the information carrying capacity from market or government to the market entities is weak. Therefore, organizations would like to communicate with other market entities and government timely in order to hold the new and value information. Many scholars have made contributions in the measure of this factor [7, 18, 32 35]. The essential elements are summarized from communication quality and information sharing two aspects: knowing exactly about aim and objective; having formal and informal communication frequently; sharing information openly; offering valuable information forwardly if needed; solving problem/conflict through communication. (3)Credibility Credibility, another factor to the success of the relationship, is particularly important in commercial activities, especially in countries with a transition economy like China. Credibility means mianzi which is important in traditional culture in China and an intangible form of social currency and personal status, which is affected by one s social position and material wealth [40]. It is imperative to maintain a certain level of mianzi in order to cultivate and expand a viable Guanxi network [57]. Therefore, building trust with clients or partners helps to enhance transaction performance and reduce the uncertainty in the relationship [26]. Integrated research achievements of the former researchers [1, 16, 18, 35, 36, 46], the key elements of credibility are: positive attitude of cooperation; trust of partners abiding by the contract; meeting the requirements of cooperation in technology and management;

7 59 Factors of Successful Relationship Management 701 considering our benefit by partners when when making important decisions; keeping vigilant because of partners not always loyalty. (4) Commitment Commitment which is defined as the affective willingness to maintain a relationship enhancing perception of future value [15], is a key factor in long-term relationships and the need of keeping in a steady relationship. Commitment is also a basis for cooperation, and that is the key point difference between social exchange and economic exchange [17]. Moreover, commitment is the key factor to ensure the strength, stability, durability, and profitability of Guanxi. Especially, in a transition economy in China, commitment in contract buffers the dynamic environment and emotional commitment improves the Guanxi of partner even closer and deeper. Our research follows contribution of previous scholars and divides commitment into attitude and behavior, contains the following key elements [18, 20, 35]: willing to make a commitment to one s own duties and keep it; writing all commitments in the contract; concerning about the long-term co-operational goals; making the commitment of obligation and responsibility; training technician and improving equipment in order to in order to achieve cooperation. (5) Collaboration Collaboration, which is essential in Guanxi network, can keep consistency of goals of relationship. And it can promote trust and positive development between partners during the frequent collaboration. Anderson and Narus [3] defined collaboration as an cooperative activities that are taken by enterprises in an interdependent relationship to achieve common goals, and in this way, all of the participators benefit from the relationship. Not only that, inter-organizational collaboration also helps partners reduce even solution of organization resource exchange agent [5]. More obviously, scarce resource and sophisticated technology may not hold in one organization s hand in Chinese environment, enterprise must collaborate with each other in order to achieve a cooperative target. Integrated from previous studies about collaboration [2, 34, 49], we regard collaboration as the following elements: participating actively and continuously by all the partners; establishing a good relationship with other participants to avoid misunderstandings; accepting the rights/responsibilities; contacting partners to work together on issues and conflicts under the uncertain situation; knowing clearly about which decisions can be made by one s own and which can not. (6) Compromise It can not be maintained of relationship without compromise [31], in other words, Guanxi is a process of compromise. In Chinese culture, compromise, as it is used appropriately, could contribute to the further development of Guanxi. From another perspective, it is reflected that the partners have the high degree of recognition and long-term goals. Compromise, as a key factor of Guanxi, which is concordant with value of traditional harmonious concept in China, can minimize the inharmonious factors. At the same time, from the results, it can take the interests of all parties into account, which is the best way to resolve the conflict [42, 58]. Based on former study [58], we considered that compromise is comprised of the following elements: respecting for partners culture and value; considering other partners commercial

8 702 H. Zhang and S. Lv and financial interests; striving to reach solutions that are equitable to all partners when differences arise. The six dimensions and their items are shown in the Table 59.2 below. Table 59.2 Six-dimension model of Guanxi Dimensions Common interest Communication Credibility Commitment Collaboration Compromise Items Knowing exactly about oneself and the partners Setting common interest above oneself interest Planning transformation of Guanxi once common interest vanishing Knowing exactly about aim and objective Having formal and informal communication frequently Sharing information openly Offering valuable information forwardly if needed Solving problem/conflict through communication Positive attitude of cooperation Trust of partners abiding by the contract Meeting the requirements of cooperation in technology and management Considering our benefit by partners when when making important decisions Keeping vigilant because of partners not always loyalty Willing to make a commitment to one s own duties and keep it Writing all commitments in the contract Concerning about the long-term co-operational goals Making the commitment of obligation and responsibility Training technics and improving equipment in order to in order to achieve cooperation Participating actively and continuously by all the partners Establishing a good relationship with other participants to avoid misunderstandings Accepting the rights/responsibilities Contacting partners to work together on issues and conflicts under the uncertain situation Knowing clearly about which decisions can be made by one s own and which can not Respecting for partners culture and value Considering other partners commercial and financial interests Striving to reach solutions that are equitable to all partners when differences arise 59.4 Discussion and Future Research An integrated framework of Guanxi, which is a six-dimension model concludes the factors of Common interest, Communication, Credibility, Commitment, Collaboration and Compromise. These are essential factors in the process of establishing and improving Guanxi, and the relationship will disappear in the lack of any one. Es-

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