From face to guanxi: creating and sustaining cultural fluency and insider status

It is common to define guanxi as power or influence though social networks. It has also been defined as “networks of favor exchange ties” (Bian, 2019, Yen & Wang, 2011), i.e., networks of personal ties that are close enough to entail norms governing the exchange of favors. The aim of understanding guanxi and putting it to work is for a Western business executive ideally to become sufficiently an “insider” that they can have fruitful relationships with their Chinese counterparts and thereby become part of their networks.

A core way one develops guanxi and thereby cultivates networks of influence is by increasing the face of those with whom one has relationships, and those with whom one wants to have relationships. As those relationships deepen, guanxi develops. One becomes able to rely on others—and be relied upon by others—in many ways, from making a deal beneficial for both sides, to helping fulfill one’s duties and obligations to other individuals and firms, and to accessing resources. Because of Interconnectedness, it is not straightforward to clearly distinguish when face is at play versus guanxi. Often, it is both.

Gudnxi illustrates each element of our Ethical Triad. First, the inextri-cability of gudnxi and face exemplify Interconnectedness—promoting the face of Chinese counterparts is how one gets in the door and part of how one maintains relationships so that one can participate in gudnxi. Second, to accurately understand how gudnxi takes different forms in different situations, and to exercise it, requires Awareness of the relevant aspects of face, relationships, and networks. Finally, it exemplifies Context-First insofar as one must first accurately assess the context of each situation one faces before invoking gudnxi, including the relationships in play.

An important aspect of gudnxi is its variability in relation to hierarchies (a topic we will take up in greater detail in Chapter 5). What counts as right or wrong depends in part upon the hierarchies at work among the relevant parties. As a concrete if simplistic example, consider a mid-level manager. They might be fairly blunt, perhaps even blustery, with their supervisees, because that is seen as an appropriate show of leadership and authority. Yet, the same manager might become very quiet and deferential in the presence of their supervisor, because this is an appropriate show of respect and deference. Because the relationships are different—who is the superior, who is the subordinate—what counts as “correct” behavior varies. To many Westerners, a person who behaves in this manner would be considered two-faced or hypocritical. Westerners often think less of people who treat subordinates poorly while treating bosses unctuously. It is seen as a sign of moral inconsistency. But in Chinese contexts, this is often ethically appropriate, and indeed sometimes even required. This is Context-First in action again, because the question is not “what is the rule for treating others well” as much as “what is the context—in this instance, what hierarchical relationships and which role do I have, such that certain behaviors are appropriate or required.” It also requires Ethical Agility insofar as the manager must be able to adjust their outward behavior depending on the situation, in this case the differing roles within hierarchical relationships. Putting all that into practice depends, of course, on the manager having sufficient Awareness regarding these relationships and the associated Chinese cultural norms for determining what is ethically permissible, appropriate, and required.

In addition to hierarchy, the closeness of a relationship is ethically relevant. We have several times in this book noted that one owes more consideration and concern towards one’s close friends, family, and longstanding business relations than to new acquaintances, strangers, authorities, and outsiders. A quintessential example of this principle we cited earlier was the contrast between Chinese people being reserved and deferential in many business situations, yet very pushy and disrespectful of personal space when, for example, queuing for a train among relative strangers. We studied the famous so-called “goat problem” (sometimes also called the “sheep problem”) in Analects 13:18. The question concerns whether a child should disclose to the authorities whether a parent has stolen a goat when it is presumed that the family needed food. The non-Confucian Lord of the state of She thinks that uprightness (zhi) requires the child to disclose against the parent. According to the standard Chinese perspective, however, the child owes a greater responsibility to a parent with a starving family than to a random authority figure, and uprightness therefore requires the child not to disclose. This story illustrates not only Awareness and the primary importance of Context (in this case, relationships over rules like “don’t lie”), but can also help explain certain behaviors that some Western companies find frustrating. To Chinese ways of thinking, the greater responsibility or duty is owed the person with whom one has a relationship (like a longtime business partner or someone within the company), rather than a stranger, foreigner, or random authority figure.

The importance of closeness in a personal relationship—or lack thereof— also helps explain why many American and European businesspeople report trouble getting Chinese partners to honor agreements, especially contracts (Saxon, 2006). The foreigner is like the authorities in the goat story; the Western business partner is neither family, nor trusted friend, nor insider (Feldman, 2013). We start out as unknown outsiders, and foreigners on top of that. To further complicate matters, the confidence and even bluster so often prized in Western business contexts is interpreted as insulting. The Western businessperson expressing what they think of as overt confidence is, in fact, addressing the Chinese partner in the way the Chinese partner thinks it is appropriate to treat an underling (De Menthe, 2013). The Ethically Agile Westerner accurately understands the situation and applies the appropriate principles or values.

The tension a Westerner might feel about favoring family and friends in various contexts is considerably lessened if not absent altogether in China. As business ethicist Tom Donaldson has written, whether nepotism in foreign subsidiaries is tolerable or violative of a company’s core values is one of the most common and vexing issues of international business (Donaldson, 1996). Whereas a Westerner might hold fairness or equal treatment as fundamental ethical values, and be taught to avoid nepotism, to Chinese perspectives the closeness and length of the relationship are primary ethical considerations. This is a central cultural notion that drives the Chinese concept of gudnxi. Status within your relationships and the networks they form determine ethical standing as insider or outsider, close relation or distant (Buderi & Huang, 2006). That, in turn, affects how much consideration you deserve, both in terms of ethics and etiquette (because of Interconnectedness). Are you to be dismissed like Xi Jinping dismissed Mark Zuckerberg when Zuckerberg asked Xi to name his child, or do you deserve something more, like being kindly and apologetically let down, or offered an acceptable alternative?

As we have noted, Westerners (and many Chinese businesspeople as well) misunderstand and misapply gudnxi, sometimes deliberately and with corrupt intentions. One form of such “bad gudnxi” concerns the intentional use of social networks to generate illicit favors or participate in corruption or excessive nepotism (Nolan, 2011). Out of respect for others and the ties one has with them, one is expected to do certain favors for others within one’s guanxi network. However, this can go too far, as when agreements are made with clearly unqualified individuals or firms that flout quality or safety standards. A dramatic example of this occurred in Shanghai in 2009 when a nearly-completed 13-story building fell over on its side (Woetzel & Towson, 2017). Its foundations were reportedly unable to sustain the stresses that occurred as construction continued in the construction complex in which the building was located, including on an adjacent parking garage.

A second form of “bad gudnxi” occurs when guanxi is invoked as a means to justify practices that not only violate Western legal-ethical norms, but Chinese cultural-ethical norms as well (Feng, 2005, Barboza, 2006, The Economist, 2007). For example, Chinese bankers sometimes creatively reinterpret the norms of gudnxi, whether with clear knowledge of what they are doing or not, to justify illicit behaviors and activities including money laundering and embezzlement (Nolan, 2011, p. 3367). If you bring up the subject with any businessperson, foreign or domestic, big company or small, the reaction will almost uniformly be one of resignation over the overwhelming pervasiveness of bribes and kickbacks both in private business transactions and in dealings with the government. The sobering truth is that foreign firms seem to be as much perpetrators as victims of corruption and, to justify their behavior, they will often mischaracterize their corruption as simply following what they allege to be the norms of gudnxi (BBC, 2005).

But their use of the term guanxi to justify their participation in an informal system of bribery and corruption is not an authentic norm and has little basis in Chinese ethics.

Guanxi must go beyond simple favor exchanges to be authentic. In Chinese culture contexts, business deals are to be built on personal non-superficial relationships, the kinds on which trust as well as reputations can be built (Yen, Barnes, and Wang, 2011, Bian, 2019, pp. 28-65). That is how deals are made that benefit the parties involved, while simultaneously the most ethical practices and the best responses in the face of disaster are achieved (Rosen, 1999, Pearce & Robinson, 2000). Guanxi takes time to develop and best develops organically, ideally over the course of years (Barnes, Yen, & Zhou, 2011). As we discussed in connection with face earlier, a common concern in response to such advice is that it would take too much time. In essence, however, that is already a declaration of failure from the Westerner, not only because of the persistent importance of guanxi, but also because Chinese perspectives on time are very different from broadly Western, and especially American, perspectives. If you’re thinking to yourself “this is complicated, this is weird, it would take too long,” then you have “drawn the line” like Confucius’ student Ran Qiu, who had decided that the Confucian Way of living was too difficult before giving it a solid try (Ivanhoe & Van Norden, 2005). It bears repeating that investing in relationships is the price of doing business in China: “if you do not have time to learn about China, then you do not have time to succeed in China” (Hupert, 2014). Though some things in China infamously happen at incredible speed, such as construction in cities, one should assume that Chinese partners are always playing the long game. To insist that building personal relationships—as part of business— takes too much time is to prevent oneself from being able to understand and engage Chinese mindsets, effectively sabotaging one’s own opportunities.

One concern worth mentioning about the feasibility of Western individuals and businesses engaging in effective relationship-building and the exercise of guanxi is that favor-exchange and gift-giving are often restricted or forbidden by home-country legal strictures such as the US Foreign Corrupt Practices Act (FCPA). This, however, can be overcome. There are many stories where scripts as simple as the following were sufficient to cultivate and preserve relationships: “my government does not allow me to give you the gift or recognition you deserve, for that I am sorry and mean no disrespect." Experienced business executives report that acknowledging Chinese norms and participating in even modest gift-giving goes a long way toward maintaining relationships and gudnxi, even when the value of the gift is lower than would be the norm within China (Hupert, 2014, Verstappen, 2015).

Establishing corporate-level gudnxi with international reach is not easy, but it can be accomplished. Israeli tech firms have, for example, successfully incorporated gudnxi into their relations with Chinese counterparts (Berger, Herstein, Silbiger, & Barnes, 2015). Two crucial takeaways of Israeli experiences are discussed by Yanjie Bian. First, Israeli managers describe the relationships with Chinese businesspeople in personal terms: “talk openly as friends,” “have a brotherly feeling towards the contact person,” and “would try my best to help out my contact person when he/she is in need” (Bian, 2019, p. 165). Second, even though gift-giving as practiced in Chinese business contexts appears to many Israeli businesspeople as bribery—as it does to many Europeans and Americans—they “understand the importance of giving a gift as a ritual of empathy or fellow feeling . . . how to give a gift is more important than what the actual gift is” (Bian, 2019, p. 165). Thus, Israeli businesspeople find success while avoiding bribery concerns by focusing less on the monetary value of the gift—as one would have, traditionally— and focusing instead on cultivating their conduct in giving smaller gifts in ways that are face-saving, and hence relationship-building, in regard to their Chinese counterparts.

Of course, in the fast-paced world of business it is not always possible to invest years in the hopes of securing a deal or a contract. For long-term supply and joint-venture relationships, it is essential to invest significant time, but for more episodic business relationships it is still important to slow down with Chinese counterparts and put in some time. The investment of time won’t always pan out, but it is essential if one is to have any hope of securing important deals. Private equity investor Brewer Stone has been traveling to China for three decades. He explains how much effort is required to attempt to establish gudnxi in a compressed time frame and also the limits of what it can do—in essence, it can help make the deal possible but it is not enough in itself to seal the deal. “Will mastering the nuances of Chinese traditions and business culture guarantee success? I would say absolutely, but only to a point.” He offers the following story to illustrate the limits of gudnxi:

I made a great deal of effort to be culturally sensitive in building a relationship with the Chairman of one of China’s largest and most innovative electrical metering companies—and at a personal level it was a very rewarding relationship. We had tea ceremonies together, took slow’ walks around the shores of the scenic, willow tree ringed West Lake in Hangzhou, had numerous long and complex meals, and toasts, discussions of Chinese history, food, language, etc. On the business side too, he seemed to really value my and my firm’s advice. But did we really become deep friends, like the people he grew up with or went through the Cultural Revolution with? No way. And in the end, he made business decisions in a very practical way that took significant account of a broad swath of interests—his own and local government looming large—and did not make deal closing easy.

(Stone, Interview, 2020)

 
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