Five Challenges Facing Entry Into The Asian Markets

Five challenges facing entry into the Asian markets

PART ONE: RELATIONSHIPS

The following part relates to relationships between people. It focuses on the differences in how Western and Asian business people approach relationships, how these relationships are developed and how various cultures have an effect on such relationships. The issues discussed are mainly threefold and are divided into: (1) Guanxi relationships; (2) Individualism, Collectivism and Confucianism; and (3) Westerners in China.

1: Guanxi Relationships

Having watched a fare share of Hollywood movies one is bound to have noticed the different methods of doing business in Asia. In more than one Hollywood movie a group of American businessmen try to set up a deal with some Chinese businessmen. Before any deal can take place the businessmen first have to meet with the Chinese businessmen and do what seems like anything BUT negotiate a deal. They go to a karaoke bar, out dinner, get drunk, play golf, and exchange gifts. This practice is commonly referred to as developing guanxi (a connection or relationship) and is a fundamental issue in the Chinese business culture. Understanding the way in which to develop guanxi, and eventually guanxiwang (a web of guanxi networks), is vital for anyone thinking about doing business in China.

Developing guanxi is the process by which two persons, or parties, do something for each other (a sort of favour) which develops a bond between the two, and a feeling of mutual obligation. Eventually, a series of such exchanges may lead to the formation of a guanxi based relationship. Yamagishi and Yamagishi (1994) believe that trust is not the main issue in guanxi but rather the assurance that one has created a feeling of mutual obligation towards the other party. In fact, guanxi doesn't even have to involve two people that like each other, as long as both parties continue to follow through with the obligations involved in the relationship.3

One thing to keep in mind when developing a guanxi relationship is that guanxi is much more than two parties simply exchanging favours or gifts. The ultimate goal is not to get a favour for a favour but to establish a long term relationship with another party. As described by Luo (2000), 'The relationship itself must be presented as primary; the gift exchanges, useful though they may be, are treated only as secondary'. The risk involved in misunderstanding this relationship is that it can lead to the formation of a "meat and wine friendship" which may sound fine to a western business man, but is in fact a Chinese metaphor for mistrust.4

Commonality

In order to form guanxi there has to be a 'commonality'4 which can be any connection between two persons such as a place of birth, school, or work). Being in someone's family automatically gives a person some measure of guanxi but not working in the same organization.4 Commonality is therefore necessary but not sufficient to form guanxi. Some guanxi is even transferable. An example would be if A is interested in forming a relationship with C. The problem is that A does not have any known commonality with C and can therefore not start the development of guanxi. On the other hand, if B has a guanxi relationship with both A and C, then B can actually act as an intermediary, and introduce A and C -thereby forming a commonality between the two. According to Chon-Phung (1999) 'a person who brings a buyer and seller together is more than a middleman -he vouches for the reputation of the one he introduces.4 Thus, strangers doing business become strangers no more.' Sometimes however, an intermediary is not needed. This is possible if both parties anticipate a future relationship and therefore believe that a commonality has already been established.4

Renqing and Mianzi

An unpaid obligation as a result of a guanxi relationship, such as a favour not yet returned causing the feeling of being obliged towards another party, is referred to as renqing. A failure to live up to a renqing is a loss of face. Mianzi (literally "face value") is very important to the Chinese and concerns a person's decency, personality, and dignity. Face is also a key element in the development and maintenance of a guanxi relationship and is something that the Chinese believe can be measured and quantified (Ho, 1979).4 The Chinese also believe that face can be regained and increased. The bigger someone's guanxiwawang is, the more face that person has. Loss of face can therefore be devastating and can result in the breakdown of the guanxi relationship.4 One famous Chinese saying even states that "men live for face as trees grow for bark" , which emphasizes the importance of face in Chinese society.

Guanxi and the Chinese business environment/China

According to the book 'Asian Eclipse: Exposing the Dark Side of Business in Asia' by Michael Backman (2001) , "know-who is as important as know-how" when doing business in China. This way of thinking is mainly because China has one of the most ill-equipped legal systems in the world. There are laws in China which deal with issues facing Chinese businesses but, according to Backman, these laws are poorly drafted, vaguely worded, contradictory, and might not even be known to or understood by the very officials responsible for enforcing them. So, in an environment when you can't trust the legal system to enforce its own laws you are forced to do business selectively with those that you know and trust. Personal relationships are needed in order to get deals done and to dissolve any future disputes. They are also needed in order to weave through the maze of bureaucracy to get the necessary approvals from the local authorities. This is a huge problem for many Western businessmen and probably accounts for why up to 90% of foreign investment in the provinces is by Chinese businessmen from abroad.7

Individual vs. Organizational Guanxi

Guanxi is an individual relationship between two parties. It is therefore important to note that a relationship between two large groups, or organizations, should not be classified as a guanxi relationship and it would be wrong to say that an organization has 'good guanxi'. The reputation of an organization is still defined by the connections of the personnel within it, the more connections that employees have the better the reputation of the organization