Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment.

This article is the second in a five-part series addressing business relationships in the global business environment. This article discusses Guanxi.

RALEIGH, N.C. – Guanxi means relationships and in the Chinese business world it is the network of relationships among various parties that cooperate together and support one another. It involves an exchange of favors done on a regular and voluntary basis.

Do You Have the Right Guanxi?

Having the right Guanxi is vital to the success of your business strategy in China, including the right Guanxi with the relevant governmental authorities. This will help you minimize the risks, frustrations and barriers when doing business in China, and establish and maintain your business’ competitive standing for the long term.

Developing Guanxi may be very demanding in terms of time and resources, but this investment will be very worthwhile in the long-run. It is also something that must be developed from the very beginning, before you even set-up shop in China. It’s too late to begin once your business runs into problems.

To put this into other terms, it is networking taken to great depths and with consequences not usually associate with networking as it functions in the US.

How Do You Develop Guanxi?

For many Americans having Guanxi requires a change in attitude in business dealings. Chinese business people are looking for a long term relationship that can build and strengthen. They are not looking for a one time transaction that is exploitive. It is taking the win-win concept to deeper levels. It involves treating your business acquaintances or those with whom you have a business relationship fairly and decently with a view to future dealings.

Chinese people seek to do business with someone they know and trust. This is more important for longevity than what is written on a piece of paper and signed by the parties. Contract enforcement has less strength than the relationship with someone known and trusted. The relationship itself is the brick and mortar that holds together a business dealing, not the written contract.

Chinese people seek to transact business with those that are dependable and reliable. They do not jump into business transactions quickly or to the maximum. They may start out slowly or break a contract into smaller parts to ascertain that the parties are dependable and reliable.

Chinese business people will often first do business with their friends or family due to the emotional bonds and understanding that exists and which obligates them as well. In order to be successful you will have to break into this network, or create your own.

Form of Guanxi

Guanxi can take the form of money or other types of favors. It is not considered bribery in China. It is part of the cost of doing business. It is a system of exchange and possibly survival that has developed throughout Chinese history as the way to succeed in business.

A Word About Contracts

None of this is to imply that business in the US is unfair or that we don’t consider trust important. There are all types of business people in the US and China. The difference is that in China the relationship is the leverage and consequences are reflected in the relationship for future business. Contracts, even when signed, are often viewed as preliminary to the negotiations and not honored. In the US, the contract embodies all if not most of the leverage. There may or may not be future business depending on the parties and the terms of the contract. The personal relationship is not usually the determining factor.

About the author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and jkeston@kestonassociates.com.