Thursday 18th Apr 2019 - Logistics & Supply Chain

Watch your Guanxi

In managing relationships with Chinese suppliers it is vital that Western companies understand the concept of Guanxi.

Increasing numbers of Western firms source products and services in China and while many execute and manage new business relationships successfully, others fail. Although sourcing in China may be financially attractive, there is a growing concern that in doing this, Western firms expose their businesses to new sources of supply chain risk. One source of risk is undoubtedly the cultural differences between China and the West. The aim of new research by Cranfield University’s Centre for Logistics and Supply Chain Management is to answer the question – how can firms mitigate against the risks associated with cultural difference? Building a relationship which involves cultural adaptation to create a hybrid cultural interface may be the answer.

Our initial research suggests that in cross-cultural settings between China and the West, risks hinge on the differences between Guanxi, one of the most important dynamics of Chinese society and a big influence on Chinese business, and Western forms of relationship management. The first phase of our research has led to the identification of three basic cultural differences.

First, the Chinese are family-oriented whereas Westerners are individualistic. In contrast to Western culture, Guanxi puts group interests above the interests of the individual.

Second, the Guanxi network is based on family connections and provides a support network for individuals and businesses. In the West, institutionalisation has created a more formal support network of regulated associations and institutions.

Third, Guanxi building takes place between individuals and is based on the interplay of face and favour and the principle of Yin-Yang – i.e. when there is conflict in a relationship, only two movements are available to either party, to pull or to push the door.

As Chinese individuals will not confront others directly, when the other party pushes, Chinese will pull and vice versa. This is called complementary response or yielding. On the other hand, Western relationship building tends to begin at an organisational level and follows a more structured step-by-step approach based on economic principles. The Guanxi building process is also based on a long-term orientation whereas Western relationships are built with a short-term orientation.

These differences are the risks facing both parties as they build and sustain a cross-cultural relationship.

Our initial field research suggests that in order to mitigate such risks, a process of bilateral cultural adaptation is necessary to create a hybrid cultural interface. The next phase of our research is to test a set of propositions designed to uncover how firms adapt to and manage the cultural differences identified.

For the first difference, we expect the cultural adaptation process to involve the bilateral convergence of Chinese and Western orientations, for example, Chinese learn to take a more individualistic stance whereas the Western firm adapts towards a family-oriented approach.

For the second difference, we expect to see the unilateral adaptation of the Chinese firm.

Finally, to mitigate the third difference, we expect that Western firms will adapt more than Chinese firms as business is likely to be in a Chinese context and therefore relationship building will tend to follow local protocols.

If your company is interested in taking part in this research project, contact Dr Christine Rutherford at Cranfield School of Management on +44(0)1234 751122.

Fu Jia and Dr Christine Rutherford are supply chain specialists at the Centre for Logistics and Supply Chain Management, Cranfield School of Management

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