What is GuanXi in Hong Kong and how does it work?

Guanxi, as a social norm of conduct, functions as complex adaptive systems that expand and interconnect to become a well-knit social network. It can also be used to denote a network of contacts, which an individual can call upon when something needs to be done, a system through which they can exert influence on behalf of another.

It implies trust, a stable relationship, and mutual obligations between parties, and it operates on personal, familial, social, political, and business levels. Guanxi imparts one’s business influence and ability to succeed in Hong Kong. Having good, bad, or no guanxi impacts one’s influence and ability to conduct business, including market expansion and sales growth. It is an ingredient to business success.

Building and managing Guanxi Relationships

Guanxi involves a long-term approach, just like business marketing. It emphasizes fostering relationships or social connections based on mutual interests and benefits. Guanxi management focuses on maintaining relationships with particular people through exchange or reciprocation of favors. It is the well-fixing and self-reinforcement of guanxi networks. They are synergistically activated internally, externally, and interactively.

Connections with the right firms in your sector helps to improve your Guanxi. As a professional service firm, Paul Hype Page has worked with businesses from various sectors. If you are looking to incorporate into the Hong Kong market, you will be able to join our extensive network of like-minded business owners.

General Knowledge of Hong Kong

To assist in establishing an immediate connection to a new Chinese contact, one should have a general knowledge of Hong Kong and its culture.

Formal introduction

Often, you will need an intermediary who is going to introduce you to a prospective business partner or associate. The intermediate is the person they are familiar with. He/she should at least be of a higher social status for the business owner to be introduced to the right who make vital decisions. How the relationship thrives will depend on the benefit that the other party feels they are getting by working with you.

Conscious effort

Consciously work hard to earn and maintain the trust of the persons involved. Have frequent visits, constant communication with the key persons, and plenty of socializing. Socializing makes you stand out and approachable. Thus, it implies that you will have numerous opportunities to be introduced to more people.

Keep the calendar of important events in their lives and their businesses like anniversaries and birthdays. Give gifts where appropriate. These gifts, if well packaged with the company emblem and logo, will also serve as promotional material and referrals.

Honor invitations

Once you have earned the trust of the parties involved, you are likely to be invited to entertainment events like clubbing or be invited to dinners. It is considered rude to turn down dinners. Ensure you keep time, take a gift, and observe the discipline of the environment. Dress appropriately according to the event or occasion. Dinners are commonly a way to probe positions without any formal commitment gently.

Role of Guanxi in Hong Kong Business

Hong Kong businesses were in full agreement that the keys to success were a good quality product, a low price, and excellent customer service. However, they have come to accept that success relies on providing the best customer experience. Customer experience is the end-to-end journey with a company and is measured through the cumulative impact of multiple touchpoints and interactions that result in the feeling of or lack of it. Hong Kong businesses are very well-placed to help improve their customers’ experience and overall customer relationships. Technology has played a significant role in fostering customer relationships by providing a platform for real-time connectivity and interactive feedback collection.

It is usually good to know business relationship dos and don’ts. For example:

• Decision-making hierarchy is often vertical; hence decisions are pragmatic and take time to be made. People at the bottom are not expected to express their opinion.
• Gifts are very common in the Hong Kong business. However, expensive gifts should be avoided as its symbolic value exceeds its cost. Gifts value are proportionate to the hierarchy with that of the Chief Executive being higher. Business meals are usually helpful in strengthening relationships.
• Business appointments are necessary and are generally by schedule away from vacations like Christmas, Chinese New Year, and Easter holidays. Business meetings take time, and an individual is expected to remain calm and patient while negotiating. The entrance is by the hierarchy of importance.
• There is usually small talk before a negotiation. Business people typically communicate indirectly; therefore, it is generally essential to select one’s words of acceptance or refusal carefully.
• There are usually moments of silence during business negotiations in which the parties take to contemplate their decisions.

Importance of Guanxi

Guanxi’s importance depends heavily on industry, geography, or the nature of the business. Good guanxi with authorities or state-owned companies that are usually heavily regulated is critical to doing business in Hong Kong.

Guanxi opens doors for new business and facilitates deals. The higher the guanxi relationships, the higher the chances of a business’s success. The odds of gaining access to a business opportunity and winning that opportunity are higher when you work your connections.

For example, a firm in the law industry that is looking to digitalize their business would require building Guanxi with an IT company. If you are looking for expansion and collaborations, Paul Hype Page will be able to assist you with business consulting.

It is important to have good guanxi with suppliers, partners, and customers. The benefits of this relationship are many. For example, customers can and usually act as a promotional agent. They will refer fellow customers to do business with you if they feel the company treats them well.

When foreign entities are looking to expand into the Hong Kong market, having the right Guanxi relationships is the key factor for their businesses to prosper

Maintaining open bureaucratic relationships and help businesses set up with minimum delays. In regard to the relationship with authorities, guanxi works across institutions rather than an individual. A business owner should have a non-market strategy and an individual dedicated to spearheading it.

An Example of Scenario Where Guanxi Applies

You are connected with a supplier; the supplier will, in turn, have/maintain good business with you preferable if your business or your government office is connecting him/her with other people to supply or if you are reciprocating with an offer beneficial to him/her.

In the western world, the same concept of Guanxi refers to having proper networks and connections. Being a firm with over 12 years of experience in the ASEAN region, Paul Hype Page have built up the relevant connections to help your business expand.

Guanxi In Relation To Auditors Independence and Ethical Decision Making

Guanxi influences the ethical decision-making process of business partners and business correspondents. For example, there is a relationship between an auditor’s moral judgment and the existence of guanxi. Guanxi interferes with the level of auditor’s independence. If the duration of guanxi with clients reaches five years or more, it severely impairs the auditor’s independence. Certified Financial Officers (CFOs) consider the increasing levels of guanxi associated with the auditors are not in the best interests of their principals, and hence affects the reliability of the audited accounts. In order to put auditors’ standards in check, standard setters should devise ethical guidelines requiring mandatory rotation of public accounting firms after a certain duration.

The Downsides of Guanxi

It is usually associated with corruption, which can lead to dangerous reciprocal obligations and collective blindness. to an extent, it puts one in a compromising situation as a party may take advantage and start asking for favors hence corruption. For example, awarding tenders and projects to a friend’s company rather than the most qualified because one feels that they need to return a favor or in order not to fall out of favor with a family or friend.

Guanxi should be approached with caution and should not be over-relied upon.

Abusing guanxi through aggressive or dishonest business practices can jeopardize a person’s reputation. Be mindful of the conflict of interests, whether governed by law or company code of ethics.

The key to dealing with guanxi is to remain diligent and be aware that the reciprocal nature of guanxi also dictates a free obligation to return the favor.