The benefits of “Guanxi”: The value of relationships in developing the Chinese market

Abstract

The early 1990s have seen a radical change in China's position as a market, giving a new urgency to the need to address that market effectively. It has long been recognized that doing business in China is particularly difficult and that a key difference between Chinese and Western business practices lies in the relative importance of personal relationships (“guanxi”) in the former, as opposed to the specification and enforcement of contracts in the latter. However, previous studies of this issue have tended to focus on the perceptions of Western executives, and they have not identified in any detail the nature of the benefits that accrue to the establishment of guanxi or their relative importance. This study uses data gathered from Hong Kong Chinese executives experienced in Chinese business practices in order to identify their perceptions of the nature of the benefits that arise from guanxi and their relative importance. The results provide a ranking of benefits and suggest that there is an underlying structure of four factors, which may be characterized as procurement, information, bureaucracy, and transaction-smoothing.