Guanxi (connections) in Chinese family businesses

In celebration of Chinese New Year, let us look at guanxi, which means “connections,” in Chinese family businesses.

Guanxi denotes personal relationships between parties, where one expects the other to do a favor, in return for a past, or in expectation of a future, service.  Networks include not just the nuclear family (who are expected to work on behalf of the family), but also extended relatives, school mates, colleagues, clan associations or social clubs.

Research says that guanxi stemmed from Confucian respect based on social and family ties; or from communist China circa 1950s to 1970s, where work units grouped together for better access to resources.

More than ‘utang na loob’

Here’s how a 65-year-old Tsinoy head of a retail family business explains guanxi: “Say I have known you since grade school, so I give you a loan for your printing business.  I am not a bank.  I do not immediately expect something in return.  I know that you are struggling, so I do not charge you much interest.  You are my friend, friends do not take advantage of each other.  But in future, when I need a printer to make labels for my products, I expect you to give me the best prices, prioritize my needs in holiday season even if you have other customers.”

Is guanxi like the Filipino utang na loob?

“Guanxi is more than that.  We don’t have to remind each other of reciprocal favors.  If we have to verbally request, then it becomes crass and no longer guanxi. Everything is understood, you see?  Guanxi extends across generations. I expect you to remember how my father helped yours, so in return, I expect your son to give back, etc.”

Is guanxi like the Filipino patronage system?

“No.  In patronage, the padrino is the patriarch.  He might have been the landowner; his tenants worked for him their whole lives. In exchange, he might be ninong during weddings, put their kids through school, pay for burial.  In guanxi, it’s true that sometimes one party is above the other in terms of wealth or status, but in many cases, guanxi exists between people of the same social or financial class.”

How about the saying “it is not what you know, but whom you know?”

“That implies that people actively seek out others to advance their interests, discarding those they find useless.  I know some shameful Chinese who use guanxi that way, but the successful ones, who have pride in their culture and respect for their friends, do not take advantage.  We don’t discard people, rich or poor, because who knows if you’ll need their help later on?  We do not deliberately cultivate politicians or tycoons, but in guanxi, if we help you, we expect you to help us when needed.”

“The closest Western idea of guanxi is the English old boys’ network, but guanxi is really very Eastern.”

Xin (trust)

Many first-generation overseas Chinese, including most tycoons in the Philippines today, started out from small businesses, such as shops or restaurants.  They worked extremely hard, saved most of what they earned, and through the years, accumulated enough capital in order to expand.

Aside from perseverance, hard work, and thrift, the successful ones also invested time and energy in building and maintaining their networks.  They watch each other’s back, cooperate in ventures, provide information.

On the surface, they may be competitors, and while some may indeed be, many are part of each other’s guanxi networks.

Guanxi flourishes where legal structures for business are not reliable.

“P-Noy is fighting corruption,” says the family business head, “but corruption remains entrenched.  We value xin (trust).  Who can we trust to safeguard our interests?  Government, law, courts? Ultimately, xin in our families and networks.”

Doesn’t guanxi lead to nepotism and cronyism?  “I agree that guanxi is not always good.  It backfires when we hire relatives or friends as favors even if they are good-for-nothing.   But today, we are more sophisticated.  We use guanxi to find the best qualified people, sometimes over family or friends.”

Can non-Chinese be accepted into guanxi networks?  “More complex, but yes.  Some of my best friends are employees who have dedicated their lives to our family business.  Their children now work with us. The important thing is that they prove their loyalty, earn our trust, reciprocate when needed.”

“Cultivate your networks,” he advises family businesses.  “If the Philippines gets its act together, then guanxi may disappear.  But for now, we still rely a lot on informal networks.”

Tune in next Friday, as we look at how some remarkable siblings built one of the strongest electrical and lighting brands in the market today.

Queena N. Lee-Chua is on the Board of Directors of Ateneo de Manila University’s Family Business Development Center.  Get her book

“Successful Family Businesses” at the University Press (tel. 4266001 loc 4613, e-mail [email protected].)  E-mail the author at [email protected].