Guanxi – The Web of Relationships

There is a fundamental difference in the way Western and Asian firms approach business. Basically, for Western companies the business comes first and then the relationship follows. With Asian firms the relationship is developed first and the business flows from the relationship. Thus, a basic strategy for Asian organizations is the development of a web of relationships, or guanxi, that will eventually pay off with business opportunities. The development of long-term relationships requires time and patience, but in them Asians find commercial security. As Asian firm that really knows the people and companies it is doing business with reduces its business risks, as opposed to dealings with unknown, untried individuals and business organizations.

Western companies, on the other hand, seem not to have the desire, patience, or time necessary for Asian-style networking. Part of the reason may be traced to the relatively short stay of Western executives in Asian assignments. The typical stay of 2-4 years is not sufficient for the development and nurturing of long-term relationships. A more desirable strategy would be for Western firms to consider investing human resources over a 10-20 year time span. In a similar manner, many Western firms position executives in Asia without giving them decision making authority. This requires the executives to constantly confer with headquarters for advice and approvals – undermining how they are viewed by Asian business leaders and causing, in effect, a loss of face in a land where saving face is everything.

10 thoughts on “Guanxi – The Web of Relationships

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  5. As you point out, Western multinationals operating in Asia have traditionally faced two major challenges: 1) centralization versus decentralization 2) regular senior executive turnover

    Unfortunately, most companies choose centralized operations, leading to slow decision-making processes, hindering its ability to effectively execute in region. At the same time, Presidents of Asia Pacific who perform well, typically return to headquarters after 2-4 years to assume C-suite positions.

    However, the global economic uncertainty of recent years has made Asia more attractive both for investment and for employment. Companies are relocating their international headquarters and global business unit headquarters to Asia, such as Medtronic, Bayer, Stryker and Huntsman.

    Another trend I have noticed from observing my company’s clients who are Presidents of Asia for Fortune 500 firms is: Successful heads of Asia are 1) staying in seat longer 2) are more willing to switch to regional head positions that open at other companies rather than returning to corporate offices in US/EU.

    This is definitely an area worth watching over the coming years. Thank you for posting.

    • I have to say, those are very valid points.
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      Michael Czinkota

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