Guanxi in China and International Joint Venture in China - Essay Example

Management 8 October Guanxi in China Definition of Guanxi Guanxi is a Chinese term that refers to the approach of generating networks or relations, so as to get personal favors. It builds a complex extensive affiliate network which is vigorously, carefully, and creatively nurtured by the Chinese people. Guanxi consists of definite reciprocal obligations, affirmations, and knowledge, which are the attributes that guide Chinese approaches towards durable businesses and social relationships. Guanxi can therefore be generally taken to mean social relationships or connections with the presumption of extended exchange of favors. This makes it more than a simple interpersonal relationship or friendship; this is especially due to the fact that there are complementary obligations to act towards any calls for support. Despite the fact that interpersonal relations are characteristic of every society, Guanxi is special given that it is broad and plays a central role in everyday life. The formation of Guanxi depends on the availability of a base; it can be formed from different kinds of bases such as relatives, friendship, kinship, schoolmates, workmates, relatives, family members, club members, and hobbies. For an individual in the Chinese society, affiliation with a particular base has an attribute of personal identification with others that are equally important to him or her. For example, a work experience is important to two people with workmate Guanxi, while an educational experience is important to two people with classmate or schoolmate Guanxi. From this, it is clear that Guanxi bases can either be social bases or blood bases. Social bases result from social interactions; they include Guanxi’s between classmates, schoolmates, workmates, friends, and club members, while blood bases result from blood relations; they include Guanxi’s between family members, relatives, kins among others. Blood or family Guanxi’s are perceived as the most important of all Guanxi’s, since in Chinese societies the family is viewed as the basic unit of society, and relationships from this base tend to be stronger. 2. Building a Guanxi As mentioned earlier, Guanxi’s are built upon family relations, friendship, kinship and other types of close relations in the society. There are a number of principles that guide the establishment, implementation and maintenance of a Guanzi. These include transferable, reciprocal, intangible, utilitarian, contextual, long-term oriented and personal. The approaches employed in building Guanzi’s are also several; they include exchanging favors, giving gifts, socialization, recommendations or intermediary referrals, club membership, entertainment, government support, corporate credibility, and social reputation. From the information discussed, it is important to note that trust is a central attribute surrounding the formation, implementation, and maintenance of a Guanzi. For the formation of a Giuanizi, there is need for a social interconnection or a blood relationship among individuals. Recommendations or intermediary referrals are important in building linkages between individuals with no intimate commonality. The intermediary is often a person known to both individuals and it is through him or her that they get to know each other better, and build a relationship base on trust that culminates into a Guanxi. Common links are the easiest way that people use to get into a Guanzi. This is mainly because people with similar characteristics are more attracted to each other, understand each other, and have empathy towards each other. In order to build a Guanxi, there is need for an individual to stay in contact with colleagues in his circle by visiting them, exchanging gifts with them, and through greetings. Through this, contacts are built; however, uncertainties and mistrust may still exist and therefore the second step should involve earning trust. There are many ways of earning trust; however, the best way is through helping when a person is going through a difficult phase in life, or any other time when he or she may be in trouble. Such actions are viewed positively and through them, word goes to other people in a network regarding how trustworthy the individual is, which ultimately helps him gain their trust, and the actions get to be reciprocated. 3. Importance of Guanxi Individuals are social beings. Given this, there is need for good relationships among individuals for stability and order to reign. Due to the fact that people’s attention to others is mainly guided by what they can gain and what they can give making them quite selective, this also makes Guanzi an object of much significance in Chinese societies. Guanzi’s are important in building loyalty and personal networks that can be relied upon both in social and business aspects. In a business between two strangers for example, an intermediary forges loyalty between the two people making business between them a success. Credibility and competence can only be built through trust. This is the reason why trust is paramount in Guanxi relationships. In business, trust is very important. For example in business transactions there may be no mechanisms to test partners’ integrity, especially when there are no contractual or legal mechanisms, but with trust, both partners are bound to behave competently, reliably, and fairly. In social life, personal linkages are important. Everyone has needs and sometimes, being able to meet them becomes a challenge. Shortages in life can be simply sorted out through Ganzi’s. For example, a parent with a connection to a school owner or principal can use the connection to secure entrance for his child. In fact, the main reason behind people’s cultivation and maintenance of social connections as to e able to meet personal interests. In exchange for being assisted and in order to still get assistance in future, people reciprocate the actions of others. Guanxi’s therefore play important roles in the businesses and social lives of the Chinese people. 4. Dark side of Guanxi The dark side of Guanxi comes from the opinion that it is closely associated with bribery. The fact that the connections mainly depend on personal interests makes it prejudiced. For example, in a relationship among high class people, low class people may lack the chance to succeed in life, as a result of being sidelined and most opportunities going to the associates of the high class individuals. Name Instructor’s Name Management 8 October 2013 International Joint Venture (IJV) in China 1. Introduction International Joint ventures are business partnerships between firms from different nations. Sometimes, partnerships between firms from a single nation, but with the business operations located in another nation are also regarded as International Joint Ventures. Most IJVs involve two firms, one from a local nation and another from a foreign nation; however, some IJVs comprise of many firms from different nations. The main difference between joint ventures and single organizations comes from the fact that joint ventures are quite complex in all aspects, while single organizations are quite simple. In China, International Joint Ventures are a common phenomenon. There are various advantages enjoyed by firms from the establishment of IJVs. However, challenges also emerge due to the complex nature of these ventures. Appropriate partner selection eliminates some of the disadvantages that come with IJVs, consequently making them more beneficial to firms. 2. Advantages from establishment of an IJV Partners in International Joint ventures enjoy a number of benefits. These include cost and risk sharing, knowledge acquisition, resource sharing, rationalization of production, reduction of competition, increased local acceptance, and ability to bypass barriers to entry in markets. Firms that are part of International Joint Ventures suffer lower risks and need significantly little amount of capita to undertake operations such as production, marketing and expansion, due to the fact that the risks and costs are shared. In instances where a parent company lacks appropriate knowledge, selection of a suitable partner with the required expertise to form an IJV with is beneficial to the firm, which also gets to share its expertise with the other firm. An example is knowledge of a parent country’s market conditions by a firm, which assists in safeguarding an IJV from exploitation and expropriation. A local firm also offers increased acceptance in the local market to a foreign partner firm, which is an advantage for the foreign firm. Additionally, the foreign firm is able to bypass market entry barriers and other potential barriers, which would be difficult if the firm operated individually. Formation of IJVs also promotes rationalization of production with higher profitability that comes from the use of exceptionally better knowledge and technology. This is due to the fact that through this, proper decisions on production marketing and sales are made, and hence firms are able to operate optimally. 3. Reasons why many IJVs Fail There are many reasons why IJVs fail. International Joint Ventures can fail at any stage; that is, at the development and implementation stage, or at the advanced stage. Difficulties in forming and implementing an IJV can be caused by partners revoking their promises, lack of trust between partners, partners failing to learn from each other or one partner learning faster than the other consequently reducing dependency, and differences between manager making them refuse to work together. In the long term, IJVs fail due to lack of proper leadership, appropriate managerial roles and organizational structure, failure to adjust to the stages that are crucial in the development of the joint venture, and inability or unwillingness to learn and transfer knowledge, which in this case, can be from any partner. A closer look at the reasons for failure at the stages discussed can lead to the conclusion that IJVS mainly fail because partners fail to make their individual goals and objectives clear from the beginning, lack of clarity in the capabilities of each partner, partners failure to learn from and about each other, misjudgment of the impact or the venture to both or all parties in the case of multiple firms, and lack of IJV experience on the part of the teams involved in negotiations. 4. Advice regarding Selection of a Local Partner (i.e. another Chinese partner) Today, many changes have taken place in the global business market. This has made it difficult for firms to successfully create, manufacture, and sell products on their own for a prolonged period of time. This has been the main reason behind the formation of partnerships or joint ventures between firms, since through this, they are able to endure and survive competition in the global economy. Partner selection is a critical aspect in any joint venture. This is because it has the potential of improving or reducing a firm’s advantage in the local and foreign market. Therefore, there is need for selection of a proper partner in joint venture businesses for the ultimate benefit of both or all firms involved. There are crucial factors that firms need to consider in selecting an appropriate partner. These include compatible goals, complementary skills, product relatedness, capacity, commitment, a cooperative of common culture, and compatible or commensurate risks. A common culture makes cooperation between partners a very easy task, and in cases where cultural differences exist, they may not necessarily lead to liabilities if managed well. It is for this reason that foreign partners in an IJV need to always consider and respect the cultural norms and values of the other partner. Product relatedness is a significant aspect as it ensures compatibility in risks, goals, and to some extent skills between partners. In selecting a local partner, a Chinese firms need to consider a number of factors. These include the partners overall knowledge of the economy, knowledge of local business practices at any given time, power and image in the market, technological skills, experience both locally and globally, level of profitability, and asset base. When a local partner has these essential attributes, a joint venture operates more productively and efficiently and hence achieves more than each partner or firm could achieve on its own. Read More