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Is Guanxi Social Capital

Is Guanxi Social Capital?

Brian Crombie

Mississauga, Canada

e-mail: BrianCrombie@https://www.wendangku.net/doc/d517832252.html,

Abstract: Are Chinese concepts of guanxi different from social capital? Or is guanxi a more historical, philosophical, codified version of social capital? Would understanding guanxi better help businesspeople practice social capital in the west? This paper describes both guanxi and social capital, compares them, and analyses their similarity. Comparing guanxi to concepts of social capital will help companies do business in China, but it will also help better explain and put social capital into action in the west. China, by virtue of its size, its dynamic economy, and its unique form of capitalism, is changing the world. While guanxi is changing, close personal relationships are still very critical in China. And yet guanxi is not that different from concepts of social capital. If anything, understanding guanxi clarifies social capital in a western concept. The greater historical root of guanxi and the Confusion philosophical base help explain why personal relationships and trust are so important. Information-sharing, resource acquisition and trust in business relationships are the key to both. We in the West would be a lot more successful in gaining social capital if we treated it more like the Chinese do guanxi.

Keywords: guanxi, social capital, China.

Reference: Reference to this paper should be made as follows: Crombie, B.(2010) Is Guanxi Social Capital? The ISM Journal

of International Business, ISSN, Volume 1, Issue 2, March 2011. Biographical Notes: Brian Crombie is a DBA candidate at ISM. Crombie has a 20 year corporate career including CFO of a specialty pharmaceutical company, Managing Director of a private equity company and has worked in Canada and the United States for major corporations. He has a Harvard MBA and an HBA from the University of Western Ontario Ivey Business School. He is currently Principal of Crombie Capital Partners, a venture capital investor and consultant in Finance / Strategy / M&A and co-chair of the Mississauga Summit.

Introduction

Just prior to boarding our Vancouver to Taipei flight for a Canadian Trade Mission to Taiwan last December, we were taken aside and given an important briefing by our Taiwan government official on guanxi. Bill informed us that we needed to buy 20 gifts to misinterpreted as a bribe or an inducement, but instead be gratefully accepted as a gift. These tokens of appreciation needed to be Canadian, preferably something personal, and they should be practical, not something that would likely be disposed of. Maple leaf cuff links, a Canadian pen set or maple syrup were ideal; expensive cross pens were too expensive, while a Canadian moose doll might be viewed as a throw-away gift. Chinese guanxi necessitated personal gift giving to establish close personal relationships we were told.

Our official advisor then asked if we had an extra bag to bring back all the gifts we would likely get on our trip. We organized our gifts by meeting and recipient to ensure that the most expensive went to the most senior attendee at each meeting and the best gift received was saved for the most important meeting with the President of Taiwan. We were instructed on how to give and receive business cards (like presenting a favourite photograph), the proper way to walk into a reception room (by seniority), the protocol for sitting at meetings or meals (one side of the table only and by seniority), and how best to speak and respond at these meetings (only when addressed). While they also did a great job briefing us on economic, trade and political issues, it was almost as if they believed the success or failure of our trade mission would depend more on our proper guanxi, or business etiquette and relationship building, than on any scintillating issue

discussion we might have. Guanxi the approach to and conducting of relationships

are critically important to the Chinese we were told again, and again.

than a religion, the main concern of which is to establish harmony in a complex society of contentious human beings through a strong and orderly hierarchy. It is based on the principle that human beings are fundamentally

relation-

(Park & Luo 2001: 456).

When I started my Doctorate in Business, I was interested in studying innovative clusters and economic development. I thought I would come up with a new concept of

the importance of venture capital or the critical mix of government policy with financial capital and an entrepreneurial spark. I read about the importance of human capital and social networking, how economic decisions were embedded in social interactions and music scenes or theatre scenes or art scenes, where interaction between people led to accelerated metabolism within the cluster (Florida 2008). I read about comparisons of Route 128 around Boston, where interaction was limited in silos and hierarchical, while Silicon Valley has an extensive dynamic, non-siloed and flat ecosystem (Saxenian 1994). And finally I read a series of reports by the World Bank analysing economic development world wide leading to a series of papers on social capital with the final

paper

In Shanghai for a two weeks of classes this spring, we came back to guanxi on several occasions and I got to wondering; was guanxi really all that different from social capital or social networking as it is understood in the West, or is it just a more historical, philosophical, codified version of social capital? Would understanding guanxi better help practitioners of social capital practice it in the west? This paper, will describe the roots of both guanxi and social capital, compare them, and come to conclusions on their similarity. There are 224 https://www.wendangku.net/doc/d517832252.html, videos on guanxi, 355 books on Amazon and 395,000 hits on google about guanxi. It is my belief however that understanding guanxi and how it is similar to concepts of social capital will help individuals and companies do business in China, but more importantly, could also help people interested in economic development and entrepreneurship better explain and put social capital into action in the west. Too often we try to understand guanxi as purely a Chinese cultural aspect

we discussed in the west such as social capital and social networks. At the same time, social capital seems to be a confusing misunderstood concept in the west; understanding guanxi will help our understanding and our practicing of social capital here.

As an important but side issue, better understanding of guanxi and social capital will also be important for Canada, and other countries, in understanding the importance of its

senior political relationships with China. After being the first major western democracy

nada in recent

Michael Ignatieff observed that the current Canadian Prime Minister Stephen

Harper

. According

remaining stoic as Chinese Premier Wen Jiabao upbraided him in public, complaining that five years is too long between visits for the heads of the third and 11th largest economies in the world. As the engine of global economic recovery, China is

too

-Chinese trading

relationship is nothing more than transactional, going against the logic behind Chinese 2010: 1). These observations underscored the important role that Canadian and other foreign political leaders need to follow in order to develop social capital and guanxi with senior Chinese officials. Guanxi is important in business, politics and life, as is social capital.

Guanxi

Guanxi is the personal connection betwee

guanxi. Guanxi is made up of three parts: ganqing

the depth of a relationship; renqing the moral obligation to the connection; and mianzi or face which in China means social status and prestige. In comparison, some have negatively viewed guanxi as just pursuit of personal self inte

Guanxi is described

You Say

Guanxi

Guanxi . It's the first word any businessperson learns upon arriving in China. Loosely translated, guanxi means "connections" and, as any China veteran will tell you, it is the key to everything: securing a business license, landing a distribution deal, even finding that coveted colonial villa in Shanghai. Fortunes have been made and lost based on whether the seeker has good or bad guanxi , and in most cases, a positive outcome has meant knowing the right government official, or a relationship nurtured over epic banquets and gallons

(Balfour, 2007: 1).

Fan (2010) refers to guanxi as based on strong ties of family or social relationships such as classmates. Outsiders can enter the network via mutual friend recommendations. Guanxi networks facilitate economically efficient exchanges in a fragmented, weak-rule-of-s rapid transition from a command to a market economy since 1978. Chinese culture views the guanxi obligation to reciprocate

Fan provides a fascinating comparison of relationships in the west versus China:

To Westerners, relationships help the individual; To (Fan 2010: 12).

Sheida Hodge, an American business women, who lives in China and works as

a orced socialization complete with lavish dinners, gifts,

and maybe even an invitation to the US for more socialization often perceived as a waste of valuable time by American businesspeople who want to focus on the task at hand of completing projects and m

is the assurance of trustworthiness in a business climate where historically the Chinese legal system may not have protected business contracts and dealings as effectively as in the West. Therefore, people do business with people they know personally, or who are recommended to them by trusted relationships.

Chinese businesspeople are very guanxi is building a relationship of trust and credibility. This is not necessarily accomplished by mere socialization, but by communicating substantive information about you and your

company proving to your Chinese counterparts that you are a reputable source with which to do business. Viewed through this lens, guanxi seems less like a time-

2008: 1).

A more comprehensive and academic description of guanxi is:

implications for

interpersonal and inter-organizational dynamics in Chinese society. It refers to the concept of drawing on a web of connections to secure favours in personal and organizational relations. Chinese people and organizations cultivate guanxi energetically, subtly, and imaginatively, which governs their attitudes toward long-term social and personal relationships. Guanxi is an intricate and pervasive relational network that contains implicit mutual obligations, assurances, and understanding. The practice of guanxi stems from Confucianism, which fostered the broad cultural aspects of collectivism manifested in the importance of networks of interpersonal relations.

Guanxi

has been the lifeblood of personal relationships and business conduct in Chi (Park & Luo 2001: 455). Guanxi Its Importance

There are four main differences between Western and Chinese management according to Arias (1996): the need to take a long-term time horizon, a desire to for risk reduction, a consensus oriented decision making approach, and the importance of guanxi or personal relationships. Guanxi is much more that just knowing someone; it is:

Continuing reciprocal relationships with banked favours;

Building a network wider than just the two at the middle; and

Individual-oriented, not firm-oriented, social-oriented, status-oriented.

All of the above is as a prerequisite to a building a productive long-term business relationship. I once worked for Jimmy Pattison, a great Canadian who is a self-made billionaire that started off as a used-car salesman. Mr. Pattison often repeated the

us that while good products, low prices, quality service were all important, but in the end, you needed to have a good personal relationship to get a sale or a business deal consummated. Arias (1996) put forward a concept that relationship marketing is very similar to guanxi.

evolved from a concept of exchange or rational transactions to one where the focus was customers and other partners, at

s 1996: 147). He goes on to argue

therefore that while not identical, westerners can understand guanxi far better if they think of it as relationship marketing.

People and companies in China use guanxi to establish, maintain and organize relationships with other people and firms. Academics have described both horizontal guanxi with suppliers, buyers and competitors and vertical guanxi with government and regulatory institutions. The similarity here to concepts of bonding, bridging and linking social capital is stark. Guanxi is transferable with a common connection and a a favour needs to be returned; and it is intangible the

Guanxi networks help a company survive and grow through resource acquisition, shared knowledge and legitimacy.

Why do Chinese people and companies feel they need to develop Guanxi networks? An institutional theory perspective would suggest they do it because others do. A resource-financial, knowledge and management expertise, including legitimacy. Transaction cost theory would say that the guanxi network reduces the cost of doing business because you would do business more quickly, cheaply and without legal documentation with people you know and trust. The reality in China may be that with poor application of legal rules and property rights, together with ineffective market allocation of resources, guanxi allocates resources better than the pure market or the bureaucracy. The guanxi network substitutes for the court system and government allocation (Park & Luo; 2001). The key to a guanxi relationship is the establishment of trust between two people. Trust, according to several academics, is the willingness to rely on another with confidence because they are reliable, have integrity, are consistent, competent, honest, fair, responsible, helpful and benevolent (Wong 1998). Firms and people are reliant on

others for some needed resources, and guanxi fosters a trusting relationship that helps which encourages individuals to allocate resources in proportion to their contributions. However, the Chinese generally employ the Need rule, which dictates that dividends, profits or other benefits should be distributed to satisfy recipients legitimate needs, regardless of their relative contributions (Wong 1998: 26). Wong developed a conceptual model to help understand guanxi. He broke guanxi and its overall relationship quality down into four constructs, ranging from weakest in guanxi to strongest in guanxi:

Adaptation Dependence Favour Trust The strongest relationship quality is characterized by the following:

Trust Benevolence, righteousness, propriety, wisdom and fidelity. Fidelity is loyalty, the repayment of a debt of gratitude and favours. Non-repayment is considered immoral.

2) Favour a humanised obligation, combining social cost, quality and relationships.

3) Dependence The Chinese desire for internal harmony is achieved by compromise, social conformity, non-offensive strategies and submission to social

exp

4) Adaptation Simply the customization of products or services by suppliers to the requests of others.

Source: Wong 1998.

Wong (1998) then tested the four levels of guanxi, or the strength of the relationship, through both a quantitative and qualitative survey of Chinese firms, by analysing firm performance, the formalization of the relationship and the cost of termination of the guanxi relationship. He found that the stronger the relationship, leading to achieving a high level of relationship or trust, produced the strongest firm performance and the highest cost of any termination of the guanxi relationship. These were described by the participants as win-win partnerships; difficult to achieve, but the best to have if they can be attained. Interestingly, trust and formalization were not correlated, suggesting that if one thought a relationship needed to be formalized, then something might be wrong in view those who want prenuptial agreements. Dependence was also not correlated with

either trust or performance, suggesting that if you are dependent on so

two-way relationship but just a one-way one. From a sociological perspective, while more positive than negative interaction is best, all positive and no negative is

positively correlated

with performance, but negatively correlated to relationship termination, which is logical since if you adapted your product or service to cement a relationship, and then your partner terminated it, you would be significantly harmed.

In the present-day, fast-changing Chinese environments, guanxi has become even more entrenched with strong and direct implications for social attitudes and business

practices. Guanxi is a critical factor in firm performance in China, affecting the flow of economic reform, and property rights remain ambiguous, guanxi has become more important to manage uncertainties and external dependency. (Park & Luo 2001: 455). Park & Luo (2001) explored the importance of guanxi by comparing both its vertical and

horizontal application with sales and profit growth for a sample of Chinese companies in that they found a strong correlation between guanxi and sales growth, but not with profit growth, suggesting that guanxi helps to position a firm in its market, establishing external

relations, acquiring resources and establishing legitimacy, but does not help to improve weak legal constraints on market competition, guanxi provides an opportunity

enhance market share through improved competitive position and other applications of Through guanxi, Chinese firms acquire and build social capital, and broker structural holes or gaps with key stakeholders. Chinese firms build guanxi networks to gain

needed resources, and overcome strategic and institutional weaknesses.

relationship that demands continual commitment from all parties. Such

attachments make the guanxi sust

in China represents two distinctive applications of a single networking skill: one horizontally applied with competitive forces, and the other vertically applied with government authorities. It reflects highly complex social phenomena that

are

(Park &

Luo 2001: 473 - 474).

Snell and Tseng (2001) looked at the darker side of guanxi, and investigated the ethical

dilemmas of relationship building in China and corruption. They put forward the paradox that guanxi is

impor

(Snell and Tseng 2001: 172). Some Hong Kong business people in an early 1990 survey reported that 5% commissions or grease payments were inescapable, with 70% admitting participation in these questionable practices (Snell and Tseng; 2001).

Confucianism, Leninism, the absence of rule of law and guanxi are all connected parts of the Chinese moral order (Snell and Tseng 2001). The four ideals of Confucianism are:

1) loyalty and reciprocity; 2) selfishness is a sin; 3) an eastern golden rule that says do not treat your parents as you would not wish your children to treat you; and, 4) proper conduct and orderly relationships. Leninism added industrial feudalism or networked capitalism where the party hierarchy organized and controlled society through networks of relationships. The absence of the rule of law was filled by a moral code that championed the needs of family and clan not individual rights like in the west. Guanxi re-emerged after the Cultural Revolution as a way to obtain information, resources

and

reciprocal

177). A recommendation letter or letter of introduction, a system for checking

credentials, technical information exchange, friendship, banquets and gifts are all part of

the proce

are understood as integral to the relationship rather that impersonal means to

attain

The roots of Chinese culture are based on four roots: 1) their agrarian history which stresses the virtues of rural life, 2) Confucius and morality which stresses hierarchy and an organized society as well as Taoism and the yin (feminine, dark and passive) which needs to be reconciled with the yang (masculine, light and active) 3) Chinese words which are really pictures which train them to think in big pictures not the details and 4) a wariness of foreigners (Graham & Lam 2003). In negotiations Graham & Lam (2003) argue that in addition to guanxi Westerners need to take into account the importance of intermediaries that transmit trust, the importance of social status, interpersonal harmony, holistic thinking, thrift, persistence and the importance of saving face. They urge against impatience in deal making and company building and stress the importance of investing now in China and Chinese relationships that will pay off in the long term. They compare Western and Chinese attitudes with the following table: Their basic cultural values and ways of thinking:

However, guanxi is changing, based on several case studies detailed by Snell and Tseng (2001) conclude that:

-seeking opportunism, and

dishonourability rather than by trust relationships based on mutual warmth, loyalty and respect. Given the absence of civic traditions and the networked nature of Chinese society, relative deprivation appears to have found expression in egoistic, acquisitive forms, rather than, as Party ideologues

would urge, altruistic rallying to improve both material and spiritual civilization

(Snell and Tseng 2001: 196).

Tse (2010), in his recent book The China Strategy , thinks business has changed dramatically in China over the past two decades. Originally from China, Tse immigrated to the US, and then spent 20 years in western education and within a global consulting company. He came back to China expecting government involvement in every aspect of

he key to any kind of progress was guanxi, the Chinese

in many markets now was a good product, marketing, brand strategies and distribution, and that competition was just as fierce as anywhere else in the world, if not more so. Also, government was no where to be seen, and he had a nuanced conclusion on

guanxi:

the heart of any business arrangement;

in China, relationships are still the most important factor. True guanxi (personal

of one kind or

another. But because of the way Chinese business culture operates, turning on the intricate play or the ties among a host of people an organizations, the cultivation of connections and relationships will remain an important factor for

decade

China, for both traditional cultural reason and ideological ones, sees its self as standing at the core of all important decisions to do with the running of the

county in general (Tse 2010: 188).

Fan (2010) describes the difference between guanxi and corruption well when he provocatively states: -focused, whereas corruption is transaction-focused.

Guanxi apparently can not be bought (Fan 2010: 28).

An even more provocative statement about guanxi is made by Fan (2010) in the opening

Guanxi is it still important?

argues that we should all endeavor to be the architects and builders of our social networks, like the spider, and not just the flies that get stuck in others webs.

Social Capital

Social capital in the west is based on a thesis that neo-classical economics fails to explain the social reality in which economic transactions take place where the level

network fragmentation or cohesion, the ties an actor has to financial, political and technical networks, and the ability to bridge traditionally closed areas, all work together to determine economic outcomes (Granovetter 1992). McCraw (2007) points out that Schumpeter was the first, in 1928, to argue that economics needed to move beyond pure economic theor -classical

economic model disregards three classic sociological assumptions: decisions are influenced by non-economic factors such as sociability, approval, status and power; economic action is embedded in social networks; and institutions/organizations are socially constructed (Granovetter 1992).

Sociologists in the late eighties considered the necessity to add social capital to human, physical and financial capital as an influence on economic development (Lin & Kuo 2006). Social capital accelerates information flow, establishes social credentials to increase community cohesion, encourages collaboration (Lin & Kuo 2006), the coordination of activities, and collective decision making (Grootaert 1998). Social capital is:

the institutions, relationships, attitudes and values that govern interactions among people (Hjerppe 2003). It entails intensive interaction

nt in it produces a gain (Lin & Kuo

2006).

Social ties in closely integrated networks impact personal needs for survival, comfort and intimacy (Putnam 1993). Loose or diffuse ties across different social boundaries are more effective for creativity and risk-

social boundaries of social class or political power may be effective for leveraging information and resources as well for resolving conflicts (Woolcock 2001). The literature has distinguished three

hierarchical levels of society) (Healy 2005). The World Bank (2004) had a similar description of bonding (ties to people with similar demographic characteristics), bridging (ties to people with different characteristics) and linking (ties to positions of authority, such as public and private institutions). However, Stam & Elfring (2008) argue that little research has focused on how different types of social capital function and are used in

different economic situations, where all types may be needed but to different extents. Finally, Stuart & Sorenson (2005) argue that bonding social capital is for the encouragement to strike out as an entrepreneur, bridging is to find new opportunities and linking helps to access different resources.

Bonding social capital

Bonding social capital, the tie one establishes with a close-knit homogenous group within a family, or company or group, is the adhesive or glue in a community that leads to trust and a sense of identification (Putnam 1993). This tie establishes norms, trust, shared values and vision which build cooperation and collaboration, and it provides discipline against inappropriate behaviour. As Putnam (1993:3) describes it, bonding

The

(Putnam 1993: 3). Conversely, the absence of close bonding

social

(Woolcock 2000: 2).

Coleman (1988) discussed the concept of closure observing that a closed homogeneous system in a community reinforces the status quo and leads to better performance. Similarly, people and companies in a cluster with bonds can learn through frequent interactions, share knowledge and capitalize on opportunities, and transact business more quickly because they do not need the protection of contracts (Lin & Kuo 2006). However, Taylor (2005) noted that much of the empirical cluster work on bonding social capital has been conducted in successful clusters and therefore the role of profit and

price may have been neglected. Trust and loyalty are important only so long as the price

2005: 5). Putnam (1993) and Woolcock (2000), in contrast, argue that to manage shocks, communities need to be able to generate consensus via strong bonding social capital.

Bridging social capital

Bridging social capital is the tie one establishes with different communities or heterogeneous groups, and it is the lubricant in community interaction (Lin & Kuo 2006). Bridging social capital is typified by the ideas, knowledge or best practices that one can acquire from interacting with different groups, domains, functions or industries, as well

as the benefit of acquiring disparate resources, and discovering new technologies and

benefit to individuals of relationships that bridge gaps in society. Bridging social capital facilitates access to information and resources from diverse individuals in different functions, companies or industries. Several workplace studies performed by Burt have shown that employees with the most bridging ties enjoy the highest compensation and most rapid promotions (Burt 1997).

Entrepreneurs who build loose networks with complementary firms outside their own firm or industry facilitate access to knowledge and resources that are not readily available within the immediate industry but are critical for innovation (Stam & Elfring 2008). The ties that form these networks provide exposure to a diversity of approaches, perspectives and ideas, and they bring together different product offerings or technologies from various industries to create new opportunities. Bridging ties provide a unique brokerage opportunity to see information asymmetries and create novel combinations (Burt 2007). Bridging ties also provide contacts to providers of marketing expertise and strategic knowledge that may not be available within the firm's own industry. Connection with leading companies in other industries also provides legitimacy (Stam & Elfring 2008).

Empirical network studies were performed in Italy and found that bridging social capital was positively associated with economic development (Sabatini 2006).

Reminiscent of

Sabatini (2006) found that southern regions there still exhibit the higher levels of bonding social capital and the lower levels of development than northern communities where bridging ties are prominent. Similarly, comparing two high tech clusters, Route 128 in Massachusetts and Silicon Valley in California, Saxenian (2004) distinguished the former as a tight, closed and unproductive network, while the latter is characterized as a loose, well-connected and extremely productive network that works well by bridging social capital.

Linking social capital

Linking social capital, a variant of bridging social capital, connects individuals with political power, or financial resources or community authority (Woolcock 2001, Lin & Kuo 2006). People who exhibit high linking social capital can access financial resources more quickly, influence government policy, and acquire people and ideas from universities and other research institutions (Woolcock 2000, 2001). Linking social

capital in business, government and civic society has been shown to be important in the

development of good economic policy in knowledge and innovative clusters (Wolfe & Nelles 2009).

Shane and Cable (2002) showed that economic-only explanations for early-stage financings are na?ve as they do not take into account social relationships, trust, reputation and third party references which are critical to the financing decision. Venture capitalists rely on ties to provide information and on references from trusted people about abilities, reputations and the social obligation felt by the entrepreneur (Florida & Samber 1999). Studies also found that geographic proximity, whereby the firm and the venture capitalists operate in the same cluster, were important to attaining financing (Florida & Samber 1999, Shane and Cable 2002). Sorenson & Stuart (2005) found the importance not only of clustering and the geographic proximity of the lead venture capitalists and the tech company for venture capital, but also the importance of unusually popular events that would attract and motivate players to interact.

Wolfe & Nelles (2009) present case studies where local communities/clusters with linking networks formulate economic development plans to alter economic prospects and respond to economic shocks. In comparison, incentive programs instituted by many governments trying to foster economic development are typically top-down, bureaucratic and without links (Wolfe & Nelles 2009). Rodrik (2007) concludes that what is needed for economic development is more flexible forms of strategic collaboration between public and private sectors. His argument that industrial policy-making has to

stitute for effective public policy but rather

relations with public institutions are vitally important, as are bridging relations with different socio-economic and demographic groups, however, the poor are left instead to draw upon their intensive bonding relations (family, friends, neighbours) to manage high levels of risk and vulnerability.

Collier (1998) investigated social capital in Third World countries and concluded that it is economically beneficial because it generates three externalities: the transmission of knowledge about behaviours of others; knowledge of technology and markets; and a reduction of free riding and fostering of collective action. One study of 29 countries comparing economic growth with measures of trust and civic cooperation found that each had a significant positive impact on growth when controlling for other variables (Grootaert 1998). According to Bartkus & Davis (2007) social capital addresses many of the central strategic questions of our era: cooperation and collaborative

advantage;

strategic knowledge processes; strategy making under uncertainty by providing insights into the ways in which social networks and relationships provide both flexibility and strategic options; and the link between strategy and organization.

A balance of each type of social capital bonding, bridging and linking - is probably desirable (Healy 2005). Bonding social capital aids in risk reduction when innovating, bridging social capital facilitates the inspiration of new ideas and innovation, and linking development (Lin & Kuo 2006). Too much bonding can lead to insularity and cultural ghettoization, while too much bridging can leave people vulnerable and without close friends and social support; yet, without linking, communities can be isolated from centres of power and influence (Healy 2005).

British Prime Minister Tony Blair

said that human capital is at the core of the new economy. But increasingly, it is also

social capital that matters too the capacity to get things done, to co-operate, the magic ingredient that makes all the difference (Halpern 2005: 284).

Is Guanxi Social Capital?

Western concepts of social capital characterise it as almost commercial, transactional and impersonal. The same applies in organization theory and strategic planning management literature that define networks in similar manners. However, guanxi is very

personal ut close relationships built over time and many events, and the

exchange of favours. Guanxi is social capital both guanxi and social capital are based on reputation or face, trust, and reciprocity of favours.

Guanxi has numerous similarities to bonding social capital, in explaining how a dense community sticks together and helps each other with resources, information and business. Guanxi starts with the family, the extended family and tight groups like classmates and the Party. The need for reciprocity is a comparable constraint on bad behaviour or not compliant behaviour as trust is within the typical definition of bonding social capital. The bonds stop self serving opportunism. While the bond may be similar, the process is very different. China and guanxi may have it more right because in China, transactions often follow successful relationships or the establishment of guanxi, while in the West, where we are too focused on transactions, a relationship comes about only after successful transactions. Maybe if Western businesspeople focused first on the

There is a parallel here to that old adage which states that men want sex to feel good, while women want sex when they feel good.

Guanxi is also very similar to bridging social capital as a common reference person can introduce one person to someone new as a way to access resources and information. Cultivating new people as part of your guanxi network is well accepted. Developing a relationship, gifts, sharing social occasions are all prerequisites to doing business

better or more heroic if a person can do it on his or her own. But then we find that we still need a team others to help our access to financial capital, human capital and physical capital in order to achieve an objective. Once again, we in the West are too transactional-oriented. We establish the relationships to get the resources or information when we need them. In China, one establishes a guanxi network with a long-

willing to and even

desirous to be seen as providing the favour first.

With the lack of a rule of law and the uncertainty in the Chinese transitional economy, guanxi also is established with government officials and officials in other institutions such as banks and regulators. This is very similar to concepts of linking social capital. Conclusion

China, by virtue of its size, its dynamic economy, and its unique form of capitalism, is changing the world. The historical application of guanxi is going through some changes as the economy matures, but the close personal relationships that are necessary for good business are still critical. And they are not that different from concepts of social capital in the west. If anything, guanxi and an understanding of it, clarifies the

greater historical root of guanxi and the Confusion philosophical base help explain what exactly personal relationships and trust are all about. Information-sharing, resource acquisition and trust in business relationships are the key to both social capital and guanxi. We in the West would be a lot more successful in gaining social capital if we treated it more like guanxi by:

working on relationships first and transactions second;

building trust first and business deals second;

giving small, respectful and thoughtful gifts;

This approach to guanxi in the West offers sharp contrast to our typical practices of hiring corporate lawyers first to go about drafting detailed shareholders, management, non-disclosure and non-compete agreements instead of spending time getting to know the people we are planning to have a business relationship with. Relationships matter most, but legalese and due diligence is too often our first overture.

Relationships are also crucial within senior political interaction. I was impressed by a recent press release from the Liberal Party in Canada on a Global Network Strategy which sounds like worldwide guanxi to me.

advantages as a country: our global diasporas, our linguistic and ethnic diversity, our geography, our resources, our technology. The Global

overall priorities. Acting in partnership with business and government, colleges and universities, civil society organizations and private citizens and especially our youth

(Ignatieff 2010 b: 1).

After reviewing papers on guanxi, and relating them to social capital and my own personal experiences, several lessons came to mind which I summarize for business people in China as well as in the West, in order to be better practitioners of guanxi or building social capital:

1. Net sharing not networking. to collect contacts or business cards;

instead establish strong personal relationships by openly sharing information and resources.

2. People do business with people. Never pass up an opportunity to spend time truly getting to know a key contact, whether it be over lunch, golf or during a social occasion.

3. There is no free lunch. If someone promises you great access for nothing, be grateful but also suspicious; increased transparency everywhere ensures equal access.

4. Remember the reciprocity of Don Corleone

you ask for a favour, the Godfather will ask for a favour back sometime.

5. It takes a community with social capital to build knowledge.Knowledge

comes from a group of people, whether in a classroom discussing, a work team strategizing, or a group of businesspeople interacting.

6. Your reputation, your face, is your key.Your reputation can unlock many

doors, but if it gets rusted or broken, many doors will be locked shut.

that the documentary has a conclusion summarizing well my belief in the importance of

n human

success and the narrator Oprah Winfrey states,

bodies or our brains, but in the strengths of our relationships relationships among the many or between just the

References:

Guanxi:

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Balfour, Frederik; You Say Guanxi , I Say Schmoozing; Business Week; November 19, 2007.

BBC; Life: Wildlife Documentary, 2009.

Fan, Xiucheng; Guanxi-is it still important?; Lecture to ISM Marketing in China DBA course, April 2010.

Graham, John and Lam, Mark; The Chinese Negotiation; Harvard Business Review; October 2003.

Hodge, Sheida; Guanxi: The Art of Building Relationships in China; https://www.wendangku.net/doc/d517832252.html,; 2008.

Ignatieff, Michael; Global Networks Strategy press release; Liberal Party of Canada, June 15, 2010.

Seung Ho Park and Yadong Luo: Guanxi and Organizational Dynamics: Organizational Networking in Chinese Firms; Strategic Management Journal; Number 22 page 455 477, 2001.

Snell, Robin and Tseng, Choo-sin; Ethical Dilemmas of Relationship Building in China; Thunderbird International Business Review; Vol 43/2 171-200, March-April 2001.

Tse, Edward; The China Strategy: Harnessing the Power of the World's Fastest Growing Economy; New York: Basic Books, 2010.

Wong, YH; The Dynamics of Guanxi in China; Singapore Management Review; 1998. China:

Breslin, Shaun (2005). "China and the Political Economy of Global Engagement," in Richard Stubbs and Geoffrey R. D. Underhill, eds, Political Economy and the Changing Global Order

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ategy Priority Market;

Government of Canada, 2010.

Dhaliwal, Sukh; Canada China Relationship; Liberal Roundtable on China, January 2010. Emmerson, David: Canadian Economic Future: Why China Matters; Speech to ..2009.