The Practice of Guanxi in China and Australian Businesses - Coursework Example

The Practice of Guanxi in China and Australian Businesses Table of Contents I. Introduction .............................................................................. 3 II. General Facts about Guanxi ………………………......................... 3 III. Differences in the Application of Guanxi in China and Australia .. 4 IV. Ethical and Economic Impact of Utilizing the Practice of Guanxi in Australian Business …………………………………………………….. 6 V. Conclusion ................................................................................ 8 References ................................................................................................. 10 - 12 Introduction Despite the tight competition in the global markets, the economic performance of China and Australia reveals an enormous success. As of 2006, the success of each country’s economic performance were measured with the gross domestic product (GDP) reaching a total of 20.9407 trillion Yuan or US$ 2.791 trillion (ChinaDaily, 2007) and US$1 trillion (Australian Government, 2007) in China and Australia respectively. Chinese businessmen have been using the concept of ‘guanxi’ as part of their business practice. Considering the uncontrollable success of China in the business world, it is essential for business people to examine the impact of ‘guanxi’ on the part of the managers and business organizations including its applicability to Australia. For the purpose of this study, the researcher will discuss the general facts about ‘guanxi’; the differences in the application of guanxi in China and Australia; as well as the ethical and economic impact of utilizing the practice of guanxi in Australian Business. General Facts about Guanxi The practice of guanxi in conducting business transactions throughout Beijing to Guangzhou and Shanghai to Urumqi is significantly very strong. (Newmyer, 2005) ‘Guanxi’ is about establishing a personal connection between two business people in order to develop a long-term business relationship, a mutual business commitment, loyalty, as well as unwritten obligation. (Chen & Chen, 2004) In the process of applying guanxi in business practices, business people tend to develop a mutual business relationship and trust needed to strengthen their business relationship. For example, a businessman receives a favor from a potential business partner such that he has recently been recommended by the potential business partner to one of the businessman’s target retailer, the chances that the businessman would do business with the potential business partner increases in exchange to the favor the potential business partner has extended to the businessman. Differences in the Application of Guanxi in China and Australia Guanxi is being practiced by Chinese businessmen in China by inviting a prospective business partner to their own home, a place where business transaction may take place or entertaining places like bars. (Tung & Verner, 2001) For example, a Chinese salesman would regularly ask out their target purchaser to go out with them for dinner, nightclubs, and/or karaoke bars. Gender factor is considered when applying Guanxi. In the case of a Chinese saleswoman, places such as nightclubs are avoided. When it comes to drinking beer, a saleswoman may invite the target purchaser provided that they go out in group. There are also some instances wherein Chinese people would end up occassionally giving gifts to their target potential business partner or someone who could be useful in hastening a business transaction. (Millington, Eberhardt, & Wilkinson, 2005) Gift giving, as a social custom in China, normally depends on special occasion such as the Chinese New Year, a mooncake festival, birthdays, a wedding celebration, etc. In China, the application of guanxi is not limited to business partners, relationship between sales person and purchasers, relationship between sales manager and production manager/personnel, etc. It go extend to the point that guanxi is being applied to government officials who could contribute some benefits on the part of businesses like pardon them from having to pay fines for causing air pollution, etc. Based on a cross-cultural observation, Chinese people do not easily build rapport with strangers as compared with the other foreign people. (Triandis, 2004) On the contrary, Australian businessmen are very much open to business dealings with strangers. (Executive Planet, 2007) Australian businessmen doesn’t need a very long introduction and regular meetings as compared with the Chinese businessmen. Chinese people generally trust their family members more than a person outside his/her family circle. (Fukuyama, 2004) To smoothen or bridge the trust issue, the practice of guanxi has to take place when an Australian consultant or businessmen enters into a business transaction with China. (Campbell, 2006) The practice of guanxi between Chinese and Australian businessmen usually takes place within natural social settings such as going to a restaurant for private Chinese banquets and wine. When Australian businessmen goes to China to visit and deal with the Chinese government officials or some huge private companies, they will be provided a cup of tea as soon as they arrive. (Callick, 2006) In the case of Australian business practice, they normally invite specific people to talk over a cup of tea or coffee, drinks, outdoor grill barbeque or dinner upon discussing some issues related to the business. (Executive Planet, 2007) Similar to Chinese businessmen, establishing a personal relationship with their business partners is also important to Australian businessmen. (Gorrill, 2007) The only difference between the Chinese and Australian guanxi is the cultural and traditional factors that influences how the concept of guanxi is being practiced. Ethical and Economic Impact of Utilizing the Practice of Guanxi in Australian Business The practice of guanxi has its own advantages and disadvantages. According to Peter Verhezen, guanxi is “deeply rooted in Confucian Chinese tradition” which involves relationship between two people. (Zsolnai, 2007) The practice of guanxi could lead to a stronger business relationship needed in increasing the efficiency of a business performance. The problem with guanxi starts to occur when the concept of guanxi is being practice solely for pure exhange or for the purpose of personal gains. Basically, too much guanxi or the practice of ‘nepotism’ – favoritism to relatives or close friends could also result to some ethical concerns in the business practices such as graft and corruption, tax evasion, etc. (Warren, Dunfee, & Li, 2004; Provis, 2004) The practice of gift giving, as a social custom in China or among the Chinese businessmen, is considered to be a method of corruption or bribery in another country. (Millington, Eberhardt, & Wilkinson, 2005) Australian businessman may perceive it as an illegal payment that is very much associated with corruption for the purpose of self-interest between the suppliers and purchasers. A favor-seeking guanxi is actually a business culture that could lead to unethical business practices such as bribery, tax evasion, and unjustifiable business decisions. (Su, Mitchell, & Sirgy, 2006) For example, Chinese businessmen may practice improving and putting in more effort in returning a favor. (Hampden-Turner & Trompenaars, 2004) In the process, it is possible that the long-term exchange of favors could result to bribing the other party in exchange of a non-ethical business practice. In the case of a rent-seeking guanxi, power or social collusion is being utilize for the purpose of greed and/or personal benefits. (Su, Mitchell, & Sirgy, 2006) For instance, a manager can be promoted by his boss because of a close relationship to one another. Such closeness between the two could make the boss order the manager to ‘smuggle’ some goods or perform tax evasion in exchange of either money or pretty women. (Warren, Dunfee, & Li, 2004) In the process, the manager would end up facing a moral conflict instead of simply focusing in managing the business operations. Demoralization among the managers would eventually lead to a decrease in the manager’s work performance. Aside from its ethical concerns, a serious economical concern is also evident. The practice of a guanxi such as a father-and-son, uncle-and-nephew, or brother-and-brother relationship in managing a business could also make the business owner hire unqualified employees for the reason of a strong family bond, etc. (Warren, Dunfee, & Li, 2004) In the process, the quality in production of goods suffers because of a long list of reasons associated with a close social relationship that could lead to possible purchasing of low quality products. Sometimes, business decision makings become solely dependent on social connection issues rather than focusing on the production of a good quality product. For example, it is possible for a manager to purchase a poor quality item at a very high price only for the reason that the product comes from his girl- or boy- friend’s, a wife’s, a brother’s, or a sister’s company. Sometimes, the practice of guanxi could even result to hiring a production manager who does not have the technical skills which could lead to a huge unnecessary production opportunity loss and additional expenses due to high rate of reject products. Corruption and bribery caused by guanxi distracts the normal flow of a country economic stability. In case of a serious corruption, foreign investors would normally think twice on investing in the country. Thus, foreign investment is likely to suffer in the end. In general, there is a strong correlation between corruption and poverty. (World Hunger, 2006) Given that the rate of bribery and corruption is high among the third world countries, the level of corruption in Australia is considered to be significantly increasing as well. (Matgi Tonga Online, 2007) Conclusion Considering that there is a need for Australian and Chinese people to enter into a business transaction, the application of guanxi practice is esstential since it increases the chances of success when doing business dealings in China. (Hampden-Turner & Trompenaars, 2004) The difference in cultural and traditional business practices between China and Australia has a great impact on how they deliver the practice of the concept of guanxi in doing business. Considering that Australian business people are open to making business with a stranger, the degree of practicing guanxi is much lesser and different on how Chinese businessmen applies guanxi in business. The practice of guanxi could create a positive result on a company’s business performance. However, using guanxi for pure practice of exchange or for self benefits and gains could result to some ethical concerns such as graft and corruption as it increases the level of causing harm to the profitability and production quality of a business. This major concerns need to be address when applying guanxi in the Australian business practice. *** End *** References: Australian Government - Department of Foreign Affairs and Trade. (2007). Retrieved October 2, 2007, from A Competitive Economy: http://www.dfat.gov.au/aib/competitive_economy.html Callick, R. (2006, September 18). Taiwan a Model for China. Retrieved October 4, 2007, from The Australian Business: http://www.theaustralian.news.com.au/story/0,20867,20428535-643,00.html?from=rss Campbell, A. (2006). Guanxi and Australian-China Consultants - The Risk of Dual Allegiance. National Observer Home , 68: 21 - 39. Chen, X.-P., & Chen, C. C. (2004). On the Intricacies of the Chinese Guanxi: A Process Model of Guanxi Development. 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