The Dishonesty and the Misuse of the Gaunxi Practice - Case Study Example

Management The practice of gaunxi is most significant and prevalent facet of the Chinese society. It has become an important aspect in the business environment of China and has been a prominent aspect that is seen for driving the success of the business operating in the country. This study has highlighted on the positive as well as the negative aspects that the gaunxi practice imparts on the business as well as the Chinese society. Many of the researchers have linked the practice with positive organizational outcome but has also highlighted on the social dilemma involved. The positive side of the gaunxi practice is the interpersonal relationship which helps in fostering the business network. The good relationship between the supervisor and the subordinate are seen to generate benefits for the employees in terms of promotion, rewards and bonuses. However, the negative aspect is the dishonesty and the misuse of the gaunxi practice, which can bring detrimental effect to the interest of the society, organizations and groups. Name of the Student: Name of the Professor: Course Number: Date of the Paper: Positive and negative consequences of guanxi for Chinese managerial practices Introduction Traditional Confucianism plays a major role in China and attaches great importance to the social connection and individual happiness and emphasizes on the fact that social harmony can be properly accomplished if everyone plays their own roles within the several social networks. The other Confucian worlds include Korea, Japan and Southeast Asia. They all are strongly influenced by the Chinese culture and admits the importance of social connections in economic and social life. This particular phenomenon has aroused great interest among the Western research scholars and has made social connections of the people a hot intercultural topic of research. ““Guanxi” (Chinese), “kankei” (Japanese), and “kwankye” (Korean) have all been universal English vocabularies already” (Lu and Ma 115). Guanxi is defined as pervasive and intricate network of business and personal relations that helps in cultivating the Chinese culture in an imaginative, subtle and energetic manner. It commonly refers to the relationship between two organizations or individuals, which contains mutual understanding, obligation and assurance and also governs the attitude of the Chinese individuals towards the long-term business and social relationships. Guanxi is the most eminent aspect of the Chinese society and the business behaviour of the country revolves around the same (Campbell, 1987). Guanxi is an important determinant that creates significant impact on the performance of the business. This is due to the fact that the business and the Chinese economy are conducted on this guanxi network. All the aspect of the firm’s management and operations are either subjected to mediating or intervening impact of guanxi (Luo and Chen “Manegerial implications of Guanxi-based business strategies.”). This report focuses on the positive and negative impact of guanxi on managerial decision making. Development of guanxi in modern Chinese history After the establishment of People’s Republic of China, the social structure of the country remained static for next 30 years. Marxist-Leninist principles were adopted by the Chinese Communist Party and executed a centralised economic system that not only offered employment but also benefit to those who worked for state-owned enterprises. The society of China followed a hierarchical structure characterised by centralised government. The operations going in the industry were planned much ahead of time by the central government. In the similar manner the allocation of the human resource was also prescribed and controlled by the government. In return to this the government provided the “iron rice-bowl” policy, which presented employment and benefits to the individual for lifetime. Though these policies apparently appeared to be attractive but were offering huge disadvantages as the social status and the working of the employee were large under the control of the employers (Shen, 2008). This system denied individualism and supported collectivism. Though this system seemed to provide job security to the individuals but actually lost their identity and freedom and was owned by the organization. Confucian along with the dominant role of collective, continued to guide the behaviour of the people in maintaining the role-based guanxi. Guanxi in context to strategic alliance After the opening policy and economic reform came into effect in China, they have understood the importance of learning from the outside world and have been optimistic with the creation of strategic alliance in the scenario of industrial development. This formation was consistent with the culturally backed values of long-term oriented guanxi among the organization (Hitt et al., 173-185). Several researchers have found that guanxi among the partners entering into strategic alliance facilitates performance of the organization by encouraging the sharing on intangible resources and reducing the uncertainty of the market (Hitt et al., 2004; Murray, Kotabe and Zhou 187-208). Though it is not the only or the most important factor the helps in accelerating the business performance but guanxi is seen to be important among the partners entering into strategic alliance at works as a catalyst in the success of the business (Cui and Jiao 386-398). Guanxi serves the rationale of both requirement of obtaining instrumental value and affiliation. From the social perspective the benefit of guanxi practice is affective but from the instrumental perspective, it provides benefits in form of material gains (Bian 275-295; Lin 153-166). Guanxi has the characteristics of appropriation in an identical manner as the construction of social resources (Leana and Van Buren 538-555). An individual can create guanxi tie with a desire to have affective counselling but later on can be used for various other purposes. The extent to which conversion can take place in guanxi is based on the link that individuals establish with the amount of ganqing, renqing nad mianzi related to guanxi. Therefore, in close family ties guanxi can be used for the utilitarian purpose. Chung and Hamilton (2001) has stated that higher level of trust is guaranteed in closely and strongly tied relationship as a set of mutual obligations are inherited in the relationship between the interacting parties. Not only from the perspective of the family but also from the organizational perspective the result of following the guanxi practices is beneficial. However, research has proved that the result has always not been the one as desired. By combining both the cultural and social aspect and the ethical aspect of guanxi it has been suggested that the benefits of following the guanxi practices is driven by the robustness of the formal processes of allocation of resources and the decision of one’s while participating in the social circle. The ethical aspect of guanxi provides the opportunity to use it for the instrumental purpose which the social and the cultural aspect of guanxi predicts who and how many will be sharing the benefits derived. Due to the rigorous process of resource allocation, there is not much chance for an individual to manipulate the results. For instance while selecting the supplier, a personal guanxi tie with anyone coming from the buyer organization will not provide much benefit to the supplier in a situation where the buyer uses the process of open-bid. In this context two types of guanxi are discussed – role-based guanxi and soil-rooted guanxi. There are separate pros and cons in both type of guanxi when the processes of relationship building are considered. The role-based guanxi has a consistent relationship with the organizational structure; however, appears to be rigid and inclined to be impersonal. On the other hand, the soil-rooted guanxi supports innovation and is flexible in nature; although its practice can appear to be ambiguous to the observers. Thus, it can be suggested that in an ideal situation the circle of the soil-rooted guanxi overlaps with the scope of the soil-rooted guanxi (Landa 349-362). For instance, the representative of the buyer organization can have an acquaintance with the quality supplier, which characterises inner circle soil-rooted guanxi. In such a scenario, choosing a quality supplier from the own acquaintances can be a winning situation for both the representative and the organization. For the buyer organization, the commitment given by the suppliers appears to be more enhanced as a result of the existence of a guanxi tie. On the other hand from the representative’s perspective this transaction will not only bring benefits for her/his inner circle but also enhances interpersonal trust and friendship. Guanxi in context to inter-organizational trust Another way of assessment of Guanxi is via inter-organizational trust. Many of the researchers have emphasized on the fact that in alliance partner’s trust is an important aspect that provides sustainability of organizational performance, capacity of transfer in knowledge and increasing the organizational network (Bstieler and Hemmert 299-319; Luo 669-694; Zaheer, Mcevily and Perrone 141-159). The research done on alliance suggest that the two types of communication such as open communication and monitoring behaviours leads to the creation of trust (Agarwal, Croson and Mahoney 413-437; Bello, Katsikeas and Robson 77-93). The open communication and monitoring of the behaviour between the organizations takes place via social interactions. At the organization level, guanxi is considered as the integral aspect of trust building and social interaction. At this level guanxi is evident when the outcome of the same is applied to the organization. The Chinese history suggested that guanxi plays a vital role in establishing successful business relationship in China. When the question was raised regarding any other way through which the multinational organizations can conduct business in China, the answer was “No”. It has been suggested that Guanxi is necessary, yet not a sufficient condition that would help in successful collaboration of business. The multinational organization who enters into China, engages lot of time and effort to cultivate guanxi with their Chinese partners. At the beginning, this process appears to be complicated and often confusing for the multinational corporations, but once they become thorough with the process of guanxi, the negotiation becomes smooth and pleasant. Therefore, here the question arises regarding the consequences that guanxi makes on the management decisions. Guanxi in context to ethical business practices in China Many researchers have conducted studies on business ethics in the Chinese institutions and the application of guanxi among the organizational members. These studies have reflected that ethical practices have developed to a huge extent and are an integral part of the organizational management in the business world of China. However, it has been also reported that the moral standards of the member and the management of the Chinese organizations have also declined in the present scenario. It has been reported that the guanxi practice involves dishonesty, unreasonable resentment, discrimination and partiality; yet it is still supported by many of the organizational executives in China. There are a large number of researchers who have highlighted on both the optimistic and negative features of the guanxi along with the employment of these customs in the business world of China. Guanxi is realised by some as the major reason that brings success to the businesses running in the Chinese society. Guanxi is seen to be backed with position and power and extensive use of resources. However, guanxi is also seen to have some negative aspects such as the misuse or improper utilisation of these practices, which might confirm to be damaging for the business. In certain situation guanxi practices might involve individuals into unethical and wrong practices such as discrimination, partiality and corruption that are not at all satisfactory in the civilization or the organizational board (Tung 223-226). The business organizations in China are seen to have connection with their friends and acquaintances, which forms association in the Chinese business environment. The businessmen in China reciprocate with each other through a committed relationship in context to the guanxi practice in China. It has been explained that the connection with the families are considered to be the closest and then the insider to the organization. Thus, it can be concluded if any foreign businessman tries to establish relationship with another organization in the native land then if the organization or individual has a strong insider bonding then it is expected to provide huge success (Tung 223-226). Guanxi in business management Guanxi is an essential factor while doing business in China. Though there has been emphasis on the misuse of guanxi but there is also evidence regarding the success of the business in China who is employing the guanxi practices. The interpersonal relationship among the friends, partners and other organizational components are enhanced by the use of guanxi. Apart from this, the positive traits of the guanxi can be also seen in relational marketing practices pursued in the western countries. However, the basic dissimilarity that exists in the two techniques is that guanxi engages an informal relationship. It is heavily dependent on the relation, which is based on gracious interaction. This suggests that in this relationship emotions and sentiments is seen to have a strong and intense impact. Thus, the strength of the guanxi is determined by the feeling and emotions that is prevalent in the relationship. In reality it involves much more than what it appears and allows the exchange of support and facilities among the individual who are sharing the relationship (Tung 223-226). Guanxi and ethical standards The ethical standards that are seen to impact the business practices of China are corruption initiated by the organizational members, inconsistency in the development process of the firm and the rights if the shareholders are not offered as per the promise. In this context also there are both negative and positive facets of guanxi in the organization depending on how the practice is used. Guanxi is seen to create a positive effect on the business performance in case of market expansion by enhancing the position of the business in the market. However, negative facet arises when the members are seen to misuse their rights which may create negative impact. Guanxi has encountered controversies in terms of ethics. It has been opined by many that guanxi practices have lead to fraud in numerous cases, which makes moral judgment really hard. There are some other cases where positive impacts on the practices are also observed due to the ethical judgement incorporates by guanxi. There is large number of practices and rules that influences the guanxi for accomplishment of organizational objectives. If the management of the organization uses a set of practices and actions that influences the guanxi then the problem related to the ethical issues can be avoided. Guanxi is help in creating effective and efficient relationship with the complex network of the organizations, which serves as an essential tool in the in the success of the business by determining and moderating the ethical judgement within the organization. The research has observed a higher amount of harmony among the Chinese organizations which suggest usefulness of guanxi in organizational context (Tung 223-226). Relevance of Guanxi in the internationalised world A majority of the networking analysts of China suggests that from the international perspective the importance of Guanxi is seen to decline. However, interpersonal relationship is seen to play a major role in China, which are affected by the factors like local practices, size of the organization and the ability of the international managers to realize the culture forming the network and amend the practices of business accordingly. It has been emphasized that personal connections plays a major role in China while making business transactions and running family businesses. However, it has been suggested by some of the recent literatures that the economy is in a transitional state and becoming more competitive in nature. In such a scenario connection and networks as thought previously to be essential for the success in business are no more appearing to be imperative (Yang 459-76). Though guanxi has acted as a powerful tool in achieving success in the business in a civilization that required bureaucratic norms, institutional faith, authorized practices (Tsang 64) and principles but now when the country is applying international principles in terms of management, property rights, law and accounting standards, the significance of guanxi is seen to decrease. It is quite evident that guanxi has created a significant and large impact on the state-owned, public sector as compared to the private sector and has bigger amount of significance in small corporations rather than big conglomerates. Guanxi is not so much evident in the large family business and organizations as they are in the foreign, private companies, state-owned enterprises and localised family businesses. The larger companies due to their bigger size have guanxi and are not required to put more effort for creating relationships. The competitiveness in the industrial environment will foster superior competencies and productivities, which will enhance the organizational and technical skills that will make the shortages, disappear automatically and less necessity will be there to cultivate the guanxi network (Luo 300-350). If changes are made at the political level, it signifies that corruption and fraud at the high level will be removed but at the lower level the scope for doing favour to the family and friends while conducting business transaction will still remains deep-rooted in the culture. In China there are regional differences and distant areas of China are seen to follow the crooked aspect of guanxi with a crucial role played by the political and local connections in the business transaction, which is the most important negative aspect of guanxi. Conclusion The different researches that are mentioned above in the discussion shows that guanxi practices are an important aspect of the businesses in China and has been recognised as an essential determinant of success. Though there are few pessimistic facets of the guanxi practices but a large quantity of studies highlights on the optimistic aspects, which provides huge benefits to the organization following it. Therefore, it can be concluded that if the relationship between the individuals are enhanced then a greater amount of motivation and cooperation can be expected among the organizational members, which in turn will lead to the betterment of the performance and thereby, improving the profits of the organization. However, the management should also ensure that the practice is not misused by the organizational members so that the success of the business gets hampered. Works Cited Agarwal, Rajshree, Rachel Croson and Joseph T. 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