Top Ten Pitfalls to Avoid in Chinese Outsourcing - #3 Lack of a Relationship

#3 - Lack of a Relationship

Guanxi is the Chinese concept of social capital. I believe it literally means "relationships". Having guanxi can build opportunities, reduce frustration and mitigate risks when doing any kind of business in China. Without it you are just a customer or supplier.

Here's a case study. A tooling shop we worked with in Hangzhou had to close down and did so with very little notice. Because we were close to the situation and had good relationships within the company we found out early about the problems and were able to get tooling out of the plant before the closure. Several customers of this factory that did not work through us or have good relationships were stuck when their in-progress tools were stuck in the plant at the time of closure.

Here's another case study. A company in the US that we never did business with but talked about it, had promotional umbrellas made in China for schools. They kept their supplier relationships at arms length and used intimidation and threats when discussing pricing, delivery, quality, etc. They demonstrated the "I'm the customer and what I say goes" mentality some purchasing people use. Eventually their suppliers stopped answering their e-mail and ignored purchase orders. The company came to us to save the situation, but we declined because it wasn't a good fit for us. I believe they went out of business because they could not secure sources for their custom umbrellas.

Here's a quick list of things to do to build up gaunxi. Most are rather obvious.
- Do the right thing and be honest, dependable and consistent
- Be open with information that can be shared
- Have a long-term perspective
- Communicate often and consistently
- GO THERE - building guanxi requires some in-person time
- Have multi-level relationships with your customers and suppliers
- Be aware of cultural norms and issues in China

It's not hard to build relationships and earn guanxi in China. It does take time and a sincere interest in others and in doing the right thing.