Guanxi Culture and the Chinese Economy

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
The Guanxi Culture in China
Benefits of the Guanxi Culture for Investors in the Chinese Economy
Demerits of the Guanxi Culture
The Modernization Process and Guanxi Culture
References

Introduction

In any country, there are unique prevailing conditions that govern the economy of that country forcing it to move in a given direction, and setting the distinction between different economies in the world as regards to the nature of economic activities undertaken in that of that country. These factors that cause differences in the economy are usually correlated to the factors that lead to the development of a country, determining if the country is a developing one or an already developed one (Cope and Watts 2000).

In all the economies, there are cultures that abide and lead to the differences that are noted between the different economies as well as the occurrence of different economic activities in that economy. Usually, these economic cultures are inherited from one generation to another and can be traced as having resided in that economy for a very long time.

In fact, most of the economic cultures are a result of the integration between the traditional cultural practices and the economic advancements in that level, especially in terms of modernity. Hence, most of the economic practices are borrowed from the traditions of a country and applied in the respective manner in a more modern economy (Bosch, Huse and Senneseth 1999).

However, in most of the modernized and already developed and stable economies, there is no reliance on the traditional ways of trade and culture in economic activities. All these have been replaced by newer and modernized ways of trade and carrying out economic activities, ways that have been birthed by the integration of the economic activities and technological advancements, economic stability, interactions with different economic cultures and many other factors of modernity.

The interactions between different economic cultures have an effect of diluting the original culture in any given economy and restatement of such cultures to an advanced version of the practices as the old ways of trade, which usually slow growth and have less benefits in the economy are forsaken even as new and more elaborate and effective ways are adopted for the economic practices in that country. This has been the trend in most of the major economies all over the world (Chacko and Harris 2005).

In addition, the factors of competition between economies for both the supply of products in the market as well as the customer base in that economy have led to consecutive revolutions and evolutions of most of the economies as they seek to perform better than their counterparts.

In this way, most of the economies have formulated new and more productive and effective practices in their economic activities forsaking the traditional ways that were governed by the culture of a country related to the economic activities carried out in that economy (Corps 2005).

China is one of the countries that has been undergoing a lot of difficulties and obstacles in development of its economy. There are a lot of factors that have slowed down the development of the Chinese economy resulting to the country not having achieved full development like some of its close allies such as Japan.

One of the greatest challenges in the Chinese economic development is the population size in that country (Wellman1988). The country has the largest population in the world, and even if it undertakes a lot of economic activities and trade practices that are dominant all over the world, and even as the country has continually stood its ground in invention of cheaper and more advanced technological applications, the country still faces a lot of roughness as far as development of its economy is concerned.

A supporting factor to the large population in the country is the reliance on different cultural practices in the economy, a factor that has led to the slowed growth in the economy (Smallbone and Welter 2001).

China is one of the few countries known to adhere strictly to its traditions and to follow most of its cultural practices to the letter. In this way, the country has undergone a lot of unique and prominent changes as far as the economy is ;concerned, though with the current modernization processes being experienced all over the world, the country has started experiencing more friction between its cultural practices and the factors of modernity, especially in its economy (Song 2006).

It is no doubt that China, just like many other developing countries, has finally accepted and embraced the process of modernization, a process that is bound to lead to a revolution of its economy and all the practices therein, as well as all the other related factors. There is therefore no chance for a dominance of the culture of the country as it will quickly be replaced by the factors of modernity, factors that will become the main dominance in the economy (Vanhonacker 2004).

One of the most prevailing and long-serving economic cultures in the country is the guanxi culture, a culture that involves establishment of relations between business people, mainly major investors. The relationship dictates that one of the parties prevail over the other and gains a lot of benefits whenever the one being prevailed upon gains from the investment or generally the economic activity he/she is involved in.

On the other side, the one being prevailed upon is almost fully dependent on the one prevailing over him for security at business, hence he/she is able to gain a lot of help if his economic activities fail or need a boost. This is an economic culture that has had a lot of benefits in the economy of the country, though not without a lot of major drawbacks with an effect of delaying the development process of the country in the long run (Davidsson 1995).

However, due to the embracing of modernity and the new ways of trade and economic practices, there is a lot of changes that are bound to take place in the economy of the country. One of the main expected changes in the economy will be the dilution of the prevailing traditional cultures and an introduction of new and modern cultures.

The same is expected to happen in the economic platform. There is hence a great expectation that the most prevailing economic culture of guanxi practices is going to be decline and eventually disappear as modernity takes root in the economy (Lee 2002).

This study seeks to find an understanding of the concepts of the guanxi practices in the economy of China as well as a prediction of the expected changes with the entry of modernity, one of which is definitely going to be an exit of the guanxi practices (Karlsson and Dahlberg 2003).

The Guanxi Culture in China

The guanxi culture, in a nutshell, is the establishment and practice of formation of relationships within the business platforms in the economy of China. This practice is cultural and can be traced back to the traditions of the country and its economic activities. The culture involves a form of relationship between business people in which one of the parties in the relationship is partially or fully dependent on the other for all the undertakings in his business such as capital, expenses and financial security (Fan 2004).

In the guanxi system, the dependant is able to have some security for his business and avoids a lot of struggles in the starting and running of his business. On the other side, he is prevailed by his superior and is bound to follow instructions from him/her. In this case then, the one prevailing over the dependent party is able to subject pressure and command respect from the dependant.

He can hence manipulate the dependant in the way he wishes and gain more benefits in that aspect by forcing the dependent to carry out some economic activities for him as well as benefiting being indebted by the dependent in a manner that allows him to have a share of the returns of the dependant’s economic activities. This way, as the superior party invests more into the dependent’s business, so does he benefit from the returns from such an activity, though he is also subject to loss incase the dependant’s business fails (Vanhonacker 2004).

Due to the high competition in the business world of China, many investors and business people have chosen to adopt the guanxi culture and establish networks aimed at helping the constituents of such a network to become more competitive in the economy as well as enlarging the magnitude of all the businesses represented in the network.

In this way, most of the businesses have adopted the strategy of involvement in the networks that have a face in the economy, networks that are viewed as being able to act in more competitive ways and have a stronger force in their action against competition from other networks.

This way, the businesses are able to gain popularity and acceptance from customers as associated with their dominating network as well as gaining full support from the network in terms of financial security and financial boost incase of a need to rejuvenate the business or even expand it causing it to be more competitive (LACLC 2009).

The culture however dictates that there are two main levels of parties in any given business network. One of the parties is a superior one which is constituted of very rich and influential investors who have invested a lot of finances in the economy with an aim of attracting other business people to join the network and utilize its resources, while the other party involves the inferior constituents who are ordinary business people seeking aid for their businesses to thrive in the highly competitive economy.

The culture also dictates that the inferior party works very hard at the dispensation of the superior party and that the superior party gains most of the benefits from the hard work of the inferior party as the inferior is viewed as being indebted to the superior (Lee 2002).

On the other side, the establishment of business networks requires a lot of involvement of different parties if the network is to become powerful and influential and hence raising the level of competitiveness for its constituent businesses.

The network does not just include investors and business people but also is constituted of high profile government officials and government bodies, business partners and even the staff in the specific businesses. The stronger and more effective the co-ordination between these parties is concerned the stronger and more influential the network is (Buderi and Huang 2002).

Though there is a lot of opposition of the guanxi culture by most of the other developing and developed economies on the basis of ethics as it involves taking advantage of others for one’s benefits, the culture remains a great icon in the economy of the country (Lian 2005).

Benefits of the Guanxi Culture for Investors in the Chinese Economy

There are a lot of benefits that are gained from the application of the guanxi culture in the economy of China. For any investors in the economy, there is a need for joining of business networks established in the guanxi concepts so as to ensure safety and security of the business as well as gaining high competitiveness much faster that when one is not in any network.

In this way, one is able to easily gain access to financial facilities as well as security for his investment hence avoiding stagnancy or slowed growth in business (Kwintessential 2008).

On the other side, one needs to join a business network that is dealing with foreign partnerships so as to be able to carry out international marketing of his products and hence become more competitive both nationally and internationally.

Most of the major business networks have established partnerships with foreign investors and other foreign stakeholders who are very instrumental in venturing into foreign and international markets where they are able to market and sell products for the member firms in the network (Srivastava and Teo 2004).

Hence, if one is in business network, he may be able to easily carry out international trade, a very fundamental practice for the success of businesses in the highly competitive economy of china. Actually, most of the networks have formulated ways of being more dependent on the export market rather than local trade of their products as the supply of products in the country is very high and there is also very high competition between suppliers leading to low prices for the products within the country (Lee 2002).

Involvement in a business network can help an investor be able to attain the best workforce for his venture from the highly competitive and diverse labor market. The labor market in the country is saturated with high supply of potential employees and also the labor costs in the country are low due to the high population and literacy levels that have led to a continuous increase in the supply of labor (Herbert and Link 1982).

However, it may be a bit tricky for new investors to seek labor from the labor market without seeking proper intervention by the experienced people who have dealt with the labor market. An association of a business network may help one get proper and skilled labor force that will aim at helping him achieve the goals of the venture, especially since there is a need for establishment of better relationships with the staff if any venture is to be successful in the economy (LACLC 2009).

In the spirit of the guanxi culture, for any business to be successful in the economy of China, it has to be reputable and have gained a lot of trust and reliability. This way, it is able to attract more demand for its products.

However, the whole process of gaining reputation is very hard for an individual enterprise and hence there is a need for one to join a network that is already well established and reputable. With the joining of a venture into such a network, the venture acquires the same level of reputation as the entire network hence it is able to become more reputable and gain a high level of competitiveness in an easier way (Lussier 1996).

Demerits of the Guanxi Culture

There are a lot of demerits associated with the culture of guanxi practices in the economy of China. The main one is that the whole system is very suppressive to the majority inferiors who are always in a perpetual state of debts to their superiors or to the network. Most of the networks hence take advantage of these situations and manipulate the ventures into what they wish. The whole system is hence a cause of lack of growth for the owners of different ventures, even if their ventures are seen to thrive very well (Buderi and Huang 2002).

The culture has also resulted to slow development of the economy as it utilizes old and outdated strategies in marketing and sale of products and also leads to slowed development of most of the members. This way, the economy has taken very long to develop, leading to the country not yet having achieved proper development (Smallbone 1990).

The Modernization Process and Guanxi Culture

The embracing of modernization into the country’s economy is a great milestone for the economy. Most of the business investors will be able to become more independent even as they employ modern marketing and sales strategies both locally and internationally and hence they will no more need overdependence on other investors and business networks for their own growth.

This way, they will be able to venture into international business and also gain all the benefits from their ventures hence improving the competitiveness of their businesses (O’Neill and Duker 1986).

Hence, modernization of China is a slow but sure death for the guanxi culture. It will result to an immediate decline in the culture and an eventual disappearance of the culture and a replacement of the same with modern business strategies that will aid the country through its process of development (Reid 1991).

References

Bosch, O., Huse, M., and Senneseth, K., 1999. Resource configuration, competitive strategies, and corporate entrepreneurship, An Empirical examination of small firms. Entrepreneurship Theory and Practice, 43 (34), pp. 49-55.

Buderi, R., and Huang, T., 2002.Guanxi: The art of relationships. Thousand Oaks: Sage Publications Inc.

Chacko, J., and Harris, G., 2005. ICT and small, medium and micro enterprises in Asia Pacific – Size does matter. London: John Willeyand Sons Ltd.

Cope, J., and Watts, G., 2000. Learning By Doing – An Exploration of Experience, Critical Incidents and Reflection In Entrepreneurial Learning. International Journal of Entrepreneurial Behaviour and Research, 6 (3), pp. 104-124.

Corps, M., 2005. Information and communications technologies in small and medium enterprise development. Web.

Davidsson, P., 1995. Culture, structure and regional levels of entrepreneurship. Entrepreneurship and Regional Development, 7 (1), pp. 41-62.

Fan, Y., 2004. Questioning Guanxi: Definition, Classification and Implications. Web.

Herbert, R.F., and Link, A.N., 1982. The Entrepreneur. New York: Preager.

Karlsson, C., and Dahlberg, R., 2003. Entrepreneurship, firm growth and regional development in the new economic geography: Introduction. Small Business Economics, 21(4), pp. 73- 76.

Kwintessential, 2008. Guanxi: The Chinese Cultural Concept. Web.

LACLC, 2009. Chinese Business Culture: Guanxi, An Important Chinese Business Element. Web.

Lee, J., 2002. The importance of Guangxi (relationship) when doing business in China. Web.

Lian, L.W., 2005. Net value:making: SMEs see the value in ICT, The Edge Singapore. Jersey: Wiley Periodicals.

Lussier, R., 1996. Reasons why small businesses fail: and how to avoid failure. The Entrepreneurial Executive, 1 (2), pp. 10-17.

O’Neill, H., and Duker, J., 1986. Survival and failure in small business. Journal of Small Business Management, 24 (1), pp. 30-37.

Reid, G., 1991. Staying in business. International. Journal of Industrial Organisation, 9 (4), pp. 545-556.

Smallbone, D., and Welter, F., 2001. The Distinctiveness of Entrepreneurship in Transition Economies. Small Business Economics, 16 (4), pp. 249-62.

Smallbone, D., 1990. Success and failure in new business start-ups. International Small Business Journal, 8 (2), pp. 34-47.

Song, Z., 2006. IT training as a strategy for business productivity. New York: McGraw Hill.

Srivastava, S., and Teo, T., 2004. IT training as a strategy for business productivity: A framework for small and medium-sized enterprises in Asia. Web.

Vanhonacker, R., 2004. Guanxi Networks in China: How to be the Spider not the Fly. Web.

Wellman, B., 1988. Structural Analysis from Method and Metaphor to Theory and Substance. Thousand Oaks: Sage Publications.

Click Here To Order Now!