Guanxi is a Chinese word the means “relationships”, and is a central concept in the way Chinese do business. If you want to do business effectively in China you will need guanxi. Why is guanxi so important? A business person with guanxi has a wide network of contacts that he or she can call upon to get things done. This is especially important in China where the communist government has hands-on involvement in many aspects of business, including such critical areas as licensing and taxation. You don’t have to be doing business in China for very long before you will witness guanxi at work, be it with overcoming bureaucratic hurdles, expanding a business, or resolving issues with suppliers.

The rapidly growing Chinese economy has been producing thousands of new millionaires and a key attribute held by many of them is a strong network of contacts, and the ability to use these contacts effectively. A good example of this is Hong Kong billionaire Li Ka-shing who used his guanxi to secure necessary permits for his real estate deals. It is important to note that guanxi is a reciprocal relationship — it works both ways. While you can impose upon your contacts to do favors for you, you will also be expected to do favors for them when necessary. There is an element of implied trust. Also note that guanxi is not strictly a business relationship. There is a personal element to it and it helps if the two parties genuinely like each other.

Fortunately, Chinese business people are very open to expanding their business networks and making new contacts. Unfortunately, guanxi cannot be developed over the telephone or by email. These relationships must be built face to face, often outside of business hours. Many good business relationships have been forged late in the evening in restaurants or karaoke bars. But perhaps the best place to forge these relationships is in business schools, particularly MBA programs.

China standard of living has been levered up exponentially over the years that it’s now the one of the top few economies in the world. Through the decades, the standard living of China has been rising and consumers are changing their needs and wants. The Chinese no longer seek for basic needs such as food and shelter According to Maslow’s hierarchy of needs, higher standard of living has fulfilled Biological and Physiological needs of the consumers thus the Chinese are moving up the level and demanding more compared to the past.

Hence, a lot of foreign investors in China are no longer just producing their goods in China. Most foreign companies are now marketing their products in China itself due to the large population demand. With a population of 1,313,973,713 (July 2006 est.), labor is not an issue in China. With a huge consumer base and increasing economy, many foreign investors are fighting for a piece of the China market. Furthermore, the China government is encouraging more foreign companies to enter in the China market and certain regulations and procedures have been are no longer as stringent as before. With the government support, China received a total of 622.4 billion U.S. dollars in foreign direct investment from 1979 to 2005.

However, entering the China market is not an easy task. The government procedures in China are not easy to understand. Full of complexities and paperwork, many foreign investors are always so confused when dealing with the authorities. The Chinese have their own style of working which may irritate foreigners who are not familiar with the procedures here. Any complications with the government can lead to long delays with any business opportunities. Therefore, the best way to prevent any complications with the Chinese government would be to engage a local party to help the foreign company with the administrative stuff. First of all, locals would not have any problems with any language barriers. Locals would be more familiar and comfortable dealing with the higher authorities. Furthermore, they would know the proper negotiation methods here in China.

The Chinese cherishes relationships among people. They believe that with good relationship comes trust which will lead to mutual success. Hence, the Chinese businessmen will ensure a strong and stable relationship with their business partners before carrying out any dealings with them. This way of doing business often causes conflicts among foreign investors and the locals. Foreign companies need to understand and familiarize themselves with the Chinese culture. If not, miscommunications can ruin any potential business deals and mess up the whole plan on China market entry.