g uanxi : understanding social capital in the China market

1. guanxi: understanding social capital in the China market 2013 Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

2. introduction This document presents a framework for the senior team to begin conversations about what it is guanxi, how to think about it, and how to integrate it in specific strategies to grow the business. The document does not try to lay out a path for that strategy. Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

3. social capital In a broad sense, economic literature distinguishes social capital as a form of trust that lowers uncertainty in a broad range of social relationships. Trustis a complex assessment that encompasses multiple dimensions such as: consistency, accountability, reliability, loyalty, respect or conviction. Every culture has its own norms, practices and styles to engage in this critical aspect of collaboration in business. Every culture encompasses (or not) different spheres of human agency -such as business, private, government and commons - in their own terms. China’s contemporary style of developing social capital in business networks is distinguished as guanxi. Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

4. guanxi: tacit principles Guanxi is just relationship, bond, mutual care in the Chinese way. Guanxi is intended to benefit all the participants of a particular network of relationships. Using the network of business relationships for exclusive private benefit - at the expenses of all others - is called corruption. Guanxi demands a careful and balanced listening of all the participants in the network, encompassing a wide range of individuals or collective role identities and their concerns. Guanxi is not appreciated by its participants under the narrow lens of a specific transaction but in the long horizon of a relationship inscribed in a vast and pluralistic network. This horizon will vary for each individual and it will vary along the process of shaping the relationship. To cultivate guanxi demands a concern for reciprocity. It may require taking cost in the short term just for the sake of maintaining the relationship, it may demand that you make yourself available when the other is experiencing breakdowns or difficulties, or it may ask for sensitivity so as to recognize when a situation calls for the offering of a gift. Guanxi is a tradition that empowers the citizen to make political decisions for the benefit (or detriment) of the commons; however, it will also expose them to the later verdict of the hierarchy on their deeds. Guanxi is alive. In very simplistic terms, today it is being transformed by the cultural tension between an orientation toward communitarian concerns and an orientation toward individual’s concerns; by experiencing future as a passive agency or experiencing the future as coming from an active agency. Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

5. guanxi: investment funding criteria 1 3 2 Hybrid Investment: The company and the individual can collaborate in the medium term on a specific project of mutual benefit. Specific mutual investments as well as promises of results can be specified and monitored. Company Investment: The company is willing to pursue the development of guanxi with a specific market player. The company team defines the strategy, the action plan and the metrics to track value generated. The company defines the investment plan. Personal Investment: Guanxi is a relationship between individuals. It is personal capital. It can be “transferred” or “endorsed” to a company, team or other individual, but ultimately, all these decisions are personal and will benefit individual’s professional careers. Company Approach: The individual and the company share the funding of the investment. Company Approach: Company will fund the specific strategy. Company Approach: The company expects that their executives, managers and employees develop their own guanxi investment plan for their own benefit. The company will recognize these investments as far as they can be translated into specific promises of leaps in revenues or leaps in efficiency and cost reduction. Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

6. Investing in guanxi: orientation Invested Instruments to Develop Guanxi: Illustration Low Control Burning: • KB • Entertainment gifts Medium Control Burning: • Dinners • Attendance at Events Guided Investments: • Linking data • Co-financing events • Co-investing in shared capabilities and technology • Co-investing in expanding brands Personal Business + Weakest Strategy Burned Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.

7. Investment projects: priorities • The company will favor investing in guanxi against burning money in guanxi. • The company will favor guanxi that creates business, social and cultural value. The company will not favor guanxi that produces mere private value or damages business, social or cultural values. • The company will favor investing in guanxi when the instrument used for the investment grants the company teams more capacity to influence and guide its final impact. Guillermo Wechsler. 2013. This work is licensed under the Creative Commons Attribution-ShareAlike 3.0 Unported License.