It’s not about Guanxi. It’s about your Business Model and Due Diligence

October 8, 2010 Posted by Chris Devonshire-Ellis Reading Time: 3 minutes

Op-Ed Commentary: Chris Devonshire-Ellis

Oct. 8 – There’s been a certain amount of blog chatter about “guanxi” in China – the role of relationships when doing business in or with China. Dressed up as an almost mystical intangible that needs to be put in place in order to succeed, a lot of the debate has been about defining it, attempting to determine its usefulness or otherwise, and much providing of hocus pocus over who has it and who doesn’t.

The ability to even determine what guanxi is or isn’t seems to mark you out as a China expert. Its utter nonsense and much of it is rather dull. In fact, guanxi doesn’t help you in any particular way in doing business in China. Instead it can be painful if relationships are used purely as a “you scratch my back and I’ll scratch yours” type of mentality. That’s not business. That’s the selectively tribal granting of favor. It’s sleazy in the extreme, and can lead to issues with corruption and ultimately into trouble with legislation such as the FCPA.

Rather than write guanxi into the Chinese business manual, then, it’s much better to concentrate on your business fundamentals and common sense. While businesses vary, following a business model that made you successful elsewhere is almost certainly, perhaps with a few adjustments, going to work in China. I mentioned some of these in my article “In China, White Goods Become Red.” If you have your business model worked out, it won’t need any adjustment for “guanxi.”

Of more importance in China is conducting your due diligence when buying from China (ensuring what you pay for is what you get, that QC structures are in place, and that letters of credit are authorized only when the goods are verified), selling to China (making sure you get paid), and of course when establishing a business in China. We’ve written a lot about the subject, with some of the more detailed pieces here:

Examining a Chinese Company Business License

Verifying Chinese Registered Capital Amounts

Conducting Due Diligence on Chinese Financial Statements

Financial Due Diligence When Assessing Chinese Partners

Legal Due Diligence When Assessing Chinese Partners

Not once do we mention “guanxi,” and the more serious minded businessman won’t need to either. A successful business involved with China is about conducting your due diligence, about the integrity of your business model, and it’s about working hard and with the right people. It’s definitely not about mysterious relationships with any inscrutable Chinese gentlemen.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at info@dezshira.com. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion