Left Flank

Yuan Hongwei is pulling the Foley defense after fleeing Britain on a fake passport ahead of a warrant for distributing knock-offs. How convenient! But, in PRC, he's a hero.

I know this is old news, but this Stratfor email alert (perhaps I should resume my subscription?), in its "Terrorism Weekly Alert", of all places, sparked my interest in the subject.

At its heart, Chinese culture is far more relational than Western culture, and this difference is especially pronounced in business culture. Western business culture is transactional, while Chinese business culture is relational and based largely on honor and respect. Because of the transactional nature of Western business culture, what a Western businessperson (and perhaps even the U.S. government) would view as corruption on the part of a Chinese employee would be seen by the Chinese as the normal, natural and ethical process of business — a process that has as its end social harmony, as well as profit. The Chinese, in turn, would see the Western principle of evaluating all business relationships on a transactional and purely financial basis — and expecting all employees do so on behalf of their Western employers — as quite unnatural.

Because of this cultural conflict, insisting that Chinese employees abandon guanxi and follow Western business practices serves to further undermine the employees' loyalty to the company. Because of their strict codes of conduct, Western companies often are seen as alien and incomprehensible entities — a perception that can cause Chinese employees to further intensify the practice of guanxi, causing them to become even more loyal to friends and family while their loyalty to the company declines. As Chinese employees come to understand that Americans seek a different standard of behavior, their intensified guanxi often can become more covert, not because they believe the behavior is shameful or improper but because the continuance of such behavior is necessary for the Chinese to feel they are behaving ethically in the midst of a corporate culture that is ignoring what they view as the natural order of things.

This cultural clash creates a fundamental problem for Western companies doing business in China. Western business is built around reducing costs, not maintaining relationships. The moral principles of Western business — maintaining low prices for customers and increasing shareholder value — collide daily with the Chinese principle of guanxi. In some instances, guanxi can undermine the business process by imposing costs that reduce competitiveness.

In many companies, the guanxi center of gravity is the bilingual cadre of employees who are Chinese-born but who frequently are Western-educated — a class of individuals Western companies depend heavily upon. While these people attended school and maybe even worked in the West, culturally they still have obligations to personal relations that they believe transcend their business and legal obligations. Some Chinese employees can use the strictures of working for a Western company to avoid guanxi obligations that they find objectionable, but this is not a universal thing. Western companies often expect Western-educated Chinese to adhere to Western business ethics, and they are frequently shocked when they find these employees engaging in some of the more blatant forms of guanxi.

Much to the dismay of corporate security directors and internal control auditors, the deep cultural roots of guanxi mean that attempts to tackle the practice cannot be expressed as absolutes. Stamping out all corruption in Western business operations in China often is undertaken as an attempt to stamp out guanxi — which is a frustratingly impossible task. Again, not all guanxi is corruption; some of it is quite harmless, and attempts to completely stop the practice will alienate Chinese employees who see the company as being disrespectful to their culture and trying to subvert it.

While guanxi cannot be eradicated, it can be molded if it is understood for what it is — and is not. Western companies conducting business in China must first understand that they are subject to some Chinese ideals and norms of behavior that are uncommon in the West. They also must recognize that Chinese employees regard many U.S. business practices as alien and unnatural, just as some Westerners regard guanxi as unethical. Finally, it must be understood that China is not a corrupt society — it is an utterly different society. Because of this, it is very difficult for Western companies doing business in China to try to redefine the culture of their Chinese employees without alienating them. This process also can be unnecessarily destructive, especially when alternatives exist, such as publicly acknowledging that guanxi is a way of life but setting clear and strict parameters within which it can or cannot be practiced. These parameters can assist in keeping a company legal and in business.

Obviously, it's too late for Yuan, but it might also be too late for a global perspective on doing business. If Chinese netizens' reaction is any indication, a populist backlash against globalization is a many-headed hydra ready to appear in many guises all over the world.