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17.10.2010
09:39

Doing business in China

This really has gotten to be a key topic during my studies here at Tsinghua University. One of the most important reoccurring concepts which must be considered in the Chinese business environment is Guanxi. This term basically addresses the type of relationship which one has to build in order to do business in China. Take supply chain management for example. Supplier-buyer communications and information sharing is an essential ingredient in effective purchasing. To promote this a personal relationship or Guanxi must be established, over time to build trust and understanding between the two parties. This informal but strong tie to each other allows parties to open up towards each other, and business in China will not succeed without it.

An example of a company who broke Guanxi with their partner can be seen from the Danone Wahaha joint venture. The relationship between the two companies quickly turned sour due to a dispute over Danone’s increase in ownership of the joint venture. It was a small but high impact stake increase as it made Danone the majority shareholder with 51% ownership. The Chinese partners, feeling betrayed, would no longer cooperate with Danone and there was nothing Danone could do. Not even their newly acquired majority ownership allowed them to control the organization. The end result of the small stake increase was the loss of trust, which ultimately led to Danone’s exit of the Chinese market. So remember, when in China build a strong Guanxi and don’t forget to maintain it, your business depends on it.

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