Well, it’s now official, I’ll be back in Toronto on February 6. I will be home for at least 3 weeks, possibly more, but nothing is confirmed right now. If you want to contact me while I’m home, send me an email (found on the right hand side of my site) as I don’t have a phone number yet.
I’ve been asked by a few people to explain the relevance of Guanxi in China today, but it is sometimes better to reference other people’s excellent work than to re-invent the wheel. I saw this post on the China Business Blog explaining Guanxi as it relates to modern China.
From the post:
Literally “guanxi” is a Mandarin Chinese term that describes the complex, inter-dependent relationships that exist between two or more parties. “Guan” means “close together,” and “Xi” means “relationship.” In practice, of course it is a bit more complex. Diligence China provides a good introduction:
“Guanxi. Technically, it means connections. In mainland China where monetary profit was not always feasible, people developed a semi-formal means of supporting allies and building up a “bank” of obligations owed. It is not always subtle or sublime, though Chinese are so familiar with the idea that there is less need to discuss it directly.”
But I also like this one, from James McGregor, author of “One Billion Customers”, which I have quoted before:
“Guanxi, the oft-cited Chinese word for relationships or connections, is overrated, temporary, nontransferable, and resides in the hands of the individual who has it. Never, ever put your business in the position where you are dependent on one individual for access to government officials.”
The post goes on to talk about the relevance of Guanxi in China today, citing specific references from the author’s personal experience.
The Chinese business landscape is constantly changing - what works today probably won’t work tomorrow. In the past, Guanxi was everything. Today, Guanxi alone gets you nowhere, but a combination of smart business acumen, as well as Guanxi will see you succeed. With the continuing rapid growth of China, the question on your mind should be “What do I need to succeed in tomorrow’s China?”
I’ve added an RSS feed for my book section - it lists all of the books I read; I’m reading about 1 book/week. If you don’t know what RSS is, and you are slightly curious, try clicking on the link (if you use IE7 or Firefox, things should become clear).
It feels like the last few weeks have been pretty busy, but I’m not too sure with what - although I was in Shenzhen for the day, and 3 hours on the train probably didn’t help. I’ve still been reading a lot, in fact I recently read a really good book on the Luxury Goods industry called Fashion Brands: Branding Styles from Armani to Zara. It is a pretty comprehensive book, detailing the origin of legendary brands such as Louis Vuitton and Hermes to more modern brands such as Gucci and Armani, and even outlines how trend setters at Zara and H&M are revolutionizing the fashion industry. Luxury brands such as LV don’t make any real money off of the clothes, it’s the accessories that make money, but the clothes help sell the name and the dream.
The book also talks about the rise of Nike, Adidas, and Puma as fashion icons (did you know that Adidas was started by two brothers, and after WW2, the brothers got into a fight, and one of the brothers went to start Puma?). In fact, these “athletic” companies are mostly into the fashion game - the average consumer never uses the technologies that these companies promote, yet everyone buys them.
I also enjoyed the section on the relevance of the internet to the luxury brand companies. Up until recently, none of these companies have successfully utilized the internet - it’s primarily due to the fact that no one at these companies really understands it. These companies are now starting to tune in to the fact that a majority of their regular customers use the internet for shopping, but there is still a ton of work that these companies have to do to start engaging their customers online.
Perhaps the most relevant part to me was the last few chapters - the China angle. China is where so many of these brands want to be. The economic growth here is leaving these brands salivating at the mouth - whether it is justified or not. Take a look at any of the first tier cities - the luxury brands are everywhere. Even the more prosperous second tier cities are attracting these brands. There is one city in the north of China which apparently has seven Ferrari dealerships (unfortunately the name escapes me right now)!
My favourite part of the book was when the author was talking about the counterfeit market in China. None of the luxury brands (the “athletic” brands are not in this category) have manufacturing operations in China, yet China is where a majority of the world’s counterfeit merchandise comes from - Chinese factories have mastered the art of copying luxury fashion items. Everyone knows where these copies are coming from, but they never seem to disappear. There are a few large areas in China/Hong Kong that are home to counterfeit markets - they have been in business for years and everyone knows about them, but as of this writing few (if any) have been successfully closed. The author hints that the luxury brands actually like the fakes because they help build brand awareness - it is in the best interest of these brands to let the counterfeit market thrive. The theory behind this is that when consumers can actually afford to buy the real thing, they will, but until that point, the fake market is getting their name out better than the luxury companies ever could.
I’ve previously talked about how the difference in culture is an important thing to understand when doing business in China, and recently I learned about the wedding culture of Guangzhou (which is a city in the south of China).
Chinese weddings are very different from the traditional North American (NA) wedding, but the NA style wedding has been gaining popularity in China over the past several years – thanks largely in part to diamond companies like DeBoers, who have been marketing NA style weddings in China in an effort to increase sales of diamond rings.
But I’ll keep this post focussed on the topic – weddings in Guangzhou! I was invited to a wedding in Guangzhou, and the first question that came to my mind was “what do I buy as a present?”
I asked a co-worker of mine what the traditional present was in China and found out that there are no wedding registries and there are no presents. Instead, it is customary to give a red envelope with money as the gift. I also found out that the amount you give is dependant on two things. The first is the quality of the restaurant where the wedding will take place, and the second is your relation to the soon to be happy couple. When in doubt, 150 RMB seems to be the safe choice.
So far, this is pretty traditional, but it seems that Guangzhou residents add on a special twist. When you arrive at the wedding, you are expected to give your present to an “accountant” (I’m not sure if this person is a legitimate accountant or someone just acting the role). The “accountant” will then mark down on a list how much money you gave. At some point during the wedding, someone will go through the list and compare the contents of this list with the contents of another list stating the proximity of your relationship to the happy couple. At the end of the wedding as everyone is leaving, someone will stand at the door and hand each person back a red envelope filled with money in it! The amount you receive depends on the closeness of your relationship to the couple (this is the point of comparing the two lists).
So for example, if you are a distant friend, you might receive 5 – 10% of your gift back (a gift of 100 RMB would see you receiving 5 – 10 RMB). The closer your relationship to the couple, the higher percentage you receive back. If you happen to be the boss of the bride or groom, you will receive a minimum of 100% back – yes, a minimum, there does not appear to be an upper limit, but my source tells me that more than 125% is highly unlikely.
And there you have it; a Guangzhou wedding provides a return on your investment – both emotionally and financially.
