Categories: Chinese cultureWorld

GuanXi and Social Capital : Importance and implications in business and the Internet

It is widely acknowledged that the Chinese culture has a somewhat different perception of how business is conducted. Guanxi, the Chinese social capital term, is the most widely discussed term to describe the Chinese business world, in both China and Taiwan. It is commonly used to emphasis the difference between Chinese and "western" business culture, and the difficulties in cross-cultural business interactions. In the past two years, with the Internet change towards social web and the increasing significance of social capital in western economies, Guanxi and its applications are becoming relevant for all.

Social capital is a core concept in business, economics, organizational behavior, political science, and sociology, defined as the advantage created by a person’s location in a structure of relationships. It explains how some people gain more success in a particular setting through their superior connections to other people. (Wikipedia)

Social capital is important in every society. It has been suggested that top universities in the US/UK breed top managers and influential members of the community not only because of academic excellence but rather because of the social relationships that are formed between society’s elite during school, which enables them to form strong social and political alliances. The background for social capital could be anything that brings two people to establish mutual dependant interrelations where one feels connected or obliged to help and promote the other. In Israel, for example, social capital is sometimes based on the source of origin or where one grew up in, but especially on serving together in the same army unit.

Guanxi is a central concept in Chinese society and describes, in part, a personal connection between two people in which one is able to prevail upon another to perform a favor or service, or be prevailed upon. The two people need not be of equal social status. It could also be a network of contacts, which an individual can call upon when something needs to be done, and through which he or she can exert influence on behalf of another. It can also describe a state of general understanding between two people: "he/she is aware of my wants/needs and will take them into account when deciding her/his course of future actions which concern or could concern me". (Wikipedia)

While it’s true that social capital is important anywhere, it still seems to be stronger in Chinese culture. Guanxi takes social capital to the extreme, basing most of the business interactions on building, promoting and maintaining social relationships with existing and potential business partners. How I see it, in Guanxi the following are important :

  1. Who you know (/who knows you) – maintaining Guanxi is resource consuming and Guanxi that’s left untouched will be weaker than live Guanxi.
  2. Who the people you want to know know – if you’re trying to get somewhere, it would be helpful to know that Guanxi path to get there so that the right Guanxi connections will be approached.
  3. Who the people you know know – Guanxi may be introduced between two people if they both maintain Guanxi with a 3rd party. When starting Guanxi, it is important to let your self know what circle of Guanxi influence you’re going into. It is also important to consider… Who you’ll know through that Guanxi that you don’t want to know.

"Can Guanxi be a source of sustained competitive advantage for doing business in China" (Tsang, E.W.K., Academy of Management Executive, 1998) is an article that talks about Guanxi as a social capital organizational resource that should be managed and maintained by a company’s manager, and that helps better understand how to maintain Guanxi networks  :

Guanxi Audits – Since Guanxi is a crucial company resource, it is worthwhile for senior management to audit their company’s Guanxi with its outside stakeholders, such as customers, suppliers and government bodies. A Guanxi audit also enables senior management to analyze the progress that the company has made in playing the Guanxi game and to identify the strengths and weaknesses of the current guanxi network. […] The headquarters then consolidates the results and identifies opportunities for further exploiting the overall guanxi network. For instance, if it is found that guanxi that one operation possesses would also benefit other operations, steps should be taken to extend the guanxi to these operations.

Here’s an example of what a Guanxi network map might look like in an organization :

In the past two years or so, the Internet trend has been that of "social web" and the introduction of Web 2.0 that provides a platform for building social web :

The Social Web refers to an open global distributed data sharing network similar to today’s World Wide Web, except instead of linking documents, the Social Web will link people, organizations, and concepts. (Wikipedia)

Online communities have been formed with endless user-generated content and member based dynamics and interactions that form relationships and connections between people. There are amazing examples for the implementation of Guanxi and social capital in "social web" tools that I’ve been using recently . Take the very controversial Linkedin, for example. Here’s from the Linkedin description :

Your network consists of your connections, your connections’ connections, and the people they know, linking you to thousands of qualified professionals.

Through your network you can: Find potential clients, service providers, subject experts, and partners who come recommended. Be found for business opportunities. Search for great jobs. Discover inside connections that can help you land jobs and close deals. Post and distribute job listings . Find high-quality passive candidates. Get introduced to other professionals through the people you know.

While this might sound like a typical job-search partner-search site, I believe that in the core model it’s most definitely not. It’s a social capital tool that allows Guanxi mapping of both yourself and the people that you know. Every person, aside from a personal self-completed profile, has a list of "connections" and "recommendations" that might indicate the level of "social capital" that this person holds. It is possible to add a person to the connections if you know him and the person approves he knows you through an email message (which is what got most people upset due to possible spam abuse). Upon joining, I was able to find over 15 people who I previously worked, studied and lost touch with long ago, and to find other lost friends and colleagues through their "connections". When you search for someone, you can see how many Guanxi steps away that person is from you, allowing you to ask for an introduction.

True, you might argue that having someone in your connections tab on Linkedin isn’t any indication for a Guanxi relationship, since all connections are alike and there’s no differentiation as for the level of Guanxi and how strong the relationship is. Well, give this concept time and you’ll see how those problems might also be solved. Take, for example, a new Linkedin like service called VisablePath described by Techcrunch "VisiblePath Is A Lot Like LinkedIn, Except It’s Useful" :

Silicon Valley-based VisiblePath is a lot like LinkedIn, but it automatically determines who your real network is, and how strong each individual relationship is, based on your emails and calendar items that involve them. […]

VisiblePath obtains the information on who you interact with via a 6 MB Outlook plugin. Each connection is graded on a percentage scale that strengthens from frequent communication and atrophies over time unless you are emailing or meeting with the person regularly. The company is also creating ways to track interactions beyond Outlook, through phone calls and instant messages. […]

To “separate the wheat from the chaff” as CEO Antony Brydon stresses, Visible Path requires a certain level of interaction to establish a link in your network. People can’t establish connections to you in their network by simply emailing you or adding your email to their address book. You have to exchange emails, carry out meetings, or provide a deep level of contact information on their vCard to show a real relationship. Relationships wax and wane over time based on the length your relationship with a contact as well as the volume and momentum of emails exchanged and meetings organized.

This comes a lot closer to what a Guanxi-social-capital map should look like. I’m sure it will keep evolving.

Social capital and Guanxi can be seen as resources and tools for understanding business connections in both Asia. the west and the Internet. Based on the sarcastic "It’s not what you know but who you know" I’d say that "Who you know will help promote what you know and who you are" and so a better understanding of building, promoting and maintaining Guanxi is essential for all. Tools like Linkedin and Visiblepath might be the future in helping the person and the organization to do so. 

My Linkedin Profile is available here :

A little more on Guanxi:

View Comments

  • Hi Man:

    This is Edu. What's up man. Looking for some info about Guan Xi .... research work. What about you, what are you doing lately, do you continue at NCKU?

  • Great post.

    There is no denying the importance of who you know. In the popular game show “Who Wants to be a Millionaire” contestants have “Ask the Audience” and “Ask a Friend” as life lines in their quest to the million dollar question. This is a Prime Time example of the value of Social Capital at work. Obviously, closing a sale or getting a job because of some one you knew is the more common example of Social Capital. The tools you mentioned in your post like (LinkedIn, Visual Path and Medium) are fantastic new sites to broaden and manage one’s virtual social network and in the early evolution of Social Computing (Web 2.0) I would expect this type of development.

    However, I would argue that as virtual social networking continues to increase, we will begin to see a new set of Organization Management tools focused on the measuring and managing Social Capital. After all, have you ever seen an organization that wasn’t concerned about its working capital? (No). Then it is just a matter of time when organizations will want to measure and manage its Social Capital. If organizations spend millions on systems that measure and manage their working capital (Finance Systems) and/or their Human Capital (HCM), how much will they spend to measure their Social Capital?

    If you equate value to knowledge (information) as it relates to the sarcastic statement “It’s not what you know but who you know”, than the value of an organization is not what its people know but rather who they know. Over the last decade, organizations have frantically worked to manage the knowledge of their individuals, perhaps now they should focus on their collective Social Network. In the Chinese culture, how do organizations measure and manage the collective Social Network?

  • Hey! Great post. But there are a couple of important differences between social capital and guanxi, I think. Theorists of social capital have emphasized positive externalities arising from civic culture as a form of social capital, but guanxi is the opposite. Guanxi is formation of personal networks that undermines organizational effectiveness....the way, for example, businessmen and government officials form guanxi networks to the detriment of both the government and society, as well as, ultimately the business itself. I think the differing concepts of the social self in Chinese and western culture need to be taken into account before social capital and guanxi networks can be compared -- there has to be a way to differentiate social capital from mere personal networks. Here the field is insufficiently defined and theorized.

    Great post.


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