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DON’T UNDERESTIMATE THE POWER OF GUANXI

Westerners who ignore the importance of relationships in Asia are losing out, explains Paolo Tavolato, Head of Asia Pacific at global business services firm TMF Group.

If you do business is Asia you should have heard of Guanxi, but how well do you understand it? Practicing this concept is fundamental to the success of conducting business transactions in Asia, yet it remains unfamiliar to many western multinationals. Westerners typically forego the time and commitment it takes to develop long-term business relationships and focus instead on how to complete a deal quickly. However, this is not the preferred way of conducting business in China and the wider East Asian region. If foreign firms are unable or unwilling to grasp the nuanced and complex concept of Guanxi, they will fail to reap the full commercial potential of Chinese and East Asian markets.

The literal translation of Guanxi means ‘ relations, ties, relationships or connections’ – but fundamentally it means much more than simply networking in the traditional sense. Guanxi stems from the writings of Confucianism, a philosophy practiced for more than 2,500 years, which advocates collectivism and prioritising the common good of the group above any opinions or feelings of an individual. Building a network of interpersonal relationships founded on trust and reciprocity is therefore seen as a major asset. People can spend their lifetimes building such networks that are founded on personal dignity, integrity and honour in Asian society. To take advantage of the system, betraying member’s trust and acting in one’s best interest versus the interest of the greater good would mean potentially destroying all connections within one’s network. Outsiders need to grasp the importance placed on this system if they are to gain the trust necessary to thrive commercially.

In business, this means that local companies in China and East Asia will prefer to transact with their peers. Deals are not closed with parties sat opposite each other at a boardroom table, but by spending time outside the office, whether it is on the golf course, over drinks or at a dinner banquet. Developing a relationship on a personal level means that a transaction is based on trust and upheld by the importance of human connection, rather than just a court of law. And crucially, these connections last long after the deal has finished.

Contrast this with western business practices, characterised by short-term transactions that are upheld by the other party’s competence and a legally binding contract, and there exists a clear disconnect. While this is designed to make business relationships more transparent and straightforward, Asian companies consider such practices a reflection of a fear of commitment on a personal level. Moreover, they also find the process of networking with multinational corporations to be rigid, bureaucratic and indifferent because they lack that personal connection.

TMF Group

From a Western perspective, relationship-based business dealings are subjective, informal and vague. The fact that Guanxi is complex and open to interpretation means that foreigners may perceive gift-giving or expensive dinners as bribery. This interpretation, though, is ethnocentric. Such traditions are used to gain “face” – an important part of Guanxi, meaning to gain respect- and they have been a part of doing business in Asia for a great many years. Chinese and East Asian cultures emphasise achieving customer retention and loyalty through relationship building, and this has important implications for foreign multinationals wishing to conduct business in those countries.

TMF Group is home to many business executives with a wealth of experience in Asia; here they give their top tips.

Tom Corkhill

Head of Relationship Management and leader of TMF Group’s growth plans in China Tom has a plenty of experience in Asian business and actively plays a role in the Hong Kong community; he is the current Chairman of the Australian International School and Vice Chairman of the Australian Chamber of Commerce in Hong Kong and Macau.

  • Acknowledge that doing business in Asia is culturally different
  • Be aware that “yes” doesn’t always mean “yes”; sometimes it means the opposite
  • It’s important to spend time with your business counterparts in both a formal and informal business environment to develop the trust and relationship before the deal is closed

Sue Yong

Working in London and Malaysia for more than 30 years, Sue has experience in audit, accounting, corporate secretarial and business advisory services and is a pioneer in the trust industry in Malaysia.

  • Spend more time listening and understanding instead of pushing forward your objective
  • Strive to achieve a mutual benefit and put yourself in your counterpart’s shoes
  • Don’t abandon a Guanxi connection once a deal is sealed or a transaction is done

Jochum Haakma

A lawyer and former career diplomat, Jochum Haakma is an expert in trade and investment promotion. He was assigned to a number of Dutch Embassies in Asia from 1986 until 2006, working specifically in Jakarta, HongKong/ Macau and Shanghai. He is Chairman of the China Group of the Holland Financial Centre and a frequent commentator in the media on Asian affairs. He is also TMF Group’s global director of business development.

  • Make friends before you make deals
  • Send the right people with correct attitudes and respect for local culture
  • Asian cultures promote modesty, self-control and avoidance of confrontation; avoid stating personal thoughts and feelings in communication and instead use metaphors and non-verbal gestures
  • Hire a local expert, someone who has extensive experience doing business in the area, to help; using third parties with a strong local presence, particularly in the early stages of territorial expansion, will help to ensure a smoother transition

When it comes to doing business in Asia, you can be incredibly successful if you focus on relationships; it just takes more time and patience. An understanding of and respect for local culture and business practice is vital for any foreign company looking to expand into China and East Asia.

About TMF Group:

TMF Group is a leading global provider of high value business services to clients operating and investing globally. It focuses on providing highly specialised and business-critical financial, legal and human resource administrative services that enable clients to operate their corporate structures, finance vehicles and investment funds in different geographical locations. TMF Group has operations in more than 80 countries across the Americas, Asia Pacific, Europe and the Middle East. www.tmf-group.com