The impact of guānxì in Chinese business -A study of Swedish SMEs in Beijing

Abstract: Background and research problem: China is today the world's third largest economy and, consequently, a rising number of Swedish companies see great business potential in the Chinese market. Foreign companies are often advised to make an effort to understand the cultural aspects involved in the Chinese business context. The way the Chinese handle their relationships and networks is called guanxi. The combination of Swedish SMEs eager to be part of the Chinese market on one hand, and the dynamics of Chinese business culture on the other hand, makes guanxi and its effects on business an interesting subject to look into. With this background, our research questions are the following: How does guanxi affect business relations? To what extent is guanxi affecting management control? In what way can guanxi be considered a key success factor in Chinese business? Purpose: The purpose of this thesis is to explore guanxi’s impact on Swedish SMEs’ operations regarding networking, control mechanisms and strategic choices, factors critical to business success. Our aim is that this study will be helpful to Swedish entrepreneurs in China. Method: The empirical data is based on interviews in Beijing with four company representatives and a professor of Accounting. The empirical data has been analyzed from a theoretical frame of reference collected in advance. Result and conclusion: Firstly, three different views on the importance of guanxi can be observed. The first view, represented by Chinese natives, implies that guanxi is important to business success. The second view implies that guanxi affects business relations in some industries. The last view implies that guanxi is overrated, and that it has no direct affect on business relations. Chinese natives consider guanxi to be of greater importance to business relations, than do Westerners. Secondly, guanxi has no effect on formal control mechanisms. Informal control mechanisms, however, is influenced by guanxi. For that reason, guanxi can make social control more important as an informal control mechanism hence affect management control. Lastly, guanxi is not an overall key success factor, but it is still an important factor for business success. Suggestions for further studies: Since the subject is relatively unexplored, several ideas could be interesting to pursue. For example, it would be interesting to explore the impact of guanxi on businesslocal government relations. Furthermore, carrying out a study on Chinese SMEs only would possibly give a different view of guanxi. Finally, it would be of great interest to do the same study but in a less developed region, perhaps in central China.