Industrial Marketing Management 36 (2007) 81 86

Guanxi vs. relationship marketing: Exploring underlying differences

Cheng Lu Wang *
Department of Marketing and International Business, University of New Haven, West Haven, CT 06516, United States Received 5 April 2004; received in revised form 6 April 2005; accepted 3 August 2005 Available online 5 October 2005

Abstract The present paper attempts to explore the underlying mechanism between Western relationship marketing and Chinese guanxi by examining the construct equivalence of the two concepts. First, it distinguishes guanxi from relationship marketing in terms of the personal and particularistic nature of the relation. Second, it differentiates trust from xinyong, its counterpart in Chinese, based on a comparison of their roles in relationship building and maintenance. Third, it discusses the unique meaning of renqing, which is proposed as an underlying mechanism that guides behavior norms in guanxi and a mediator between trust or xinyong and long-term orientation. Finally, it concludes by discussing the managerial implications for international marketers who wish to succeed in the Chinese business market and the importance of adapting Western relationship marketing principles to guanxi marketing. D 2005 Elsevier Inc. All rights reserved.
Keywords: Guanxi; Relationship marketing; Trust; Renqing; China

1. Introduction Since the 1990s, relationship marketing has attracted much attention from academics and practitioners, especially in the business-to-business marketing (Dwyer, Schurr & Oh, 1987; Ganesan, 1994; Morgan & Hunt, 1994; Sharma & Pillai, 2003; Sheth & Shah, 2003). In contrast to transactional marketing, relationship marketing focuses more on establishing, developing and maintaining successful relational exchanges and good customer relationship (Berry & Parasuraman, 1991). In relational exchange, the choice behavior is constrained through the trust and commitment that develop between the two parties (Morgan & Hunt, 1994). Parallel to this shift in the marketing paradigm, there is a growing research interest in guanxi, which has been considered the Chinese version of relationship marketing or business networking (Ambler, 1994; Davies, Leung, Luk, & Wong, 1995; Lovett, Simmons, & Kali, 1999). Although some relationship marketing principles are regarded as a key determinant for a successful business in China, the uniqueness of Chinese culture makes the direct transfer of Western relationship marketing principles into China or other

Asian societies questionable. It has long been suggested that there is . . . a need for more fundamental research in international marketing in order to adapt establishment marketing concepts to the realities of the international marketplace . . . This is essentially a question of external validity and research should be encouraged to determine which marketing principles can be universally applied and which are basically ethnocentric (Cunningham & Green, 1984, p. 9). To examine the construct equivalence of key concepts when making cross-cultural comparisons of guanxi with relationship marketing, some related Chinese terms are defined here: Guanxi It is composed of two Chinese characters, guan (gate) and xi (connection). One must pass the gate to get connected to networks. As such, guanxi generally refers to relationships or social connections based on mutual interests and benefits (Yang, 1994). It is a special type of relationship that bonds the exchange partners through reciprocal obligations to obtain resources through a continual cooperation and exchange of favors (Chen, 1995; Davies, 1995). Xinyong While the term can be directly translated as credit (the word credit card in Chinese is xinyong ka), its meaning is closer to the Western version trust. Trust, in Chinese business relations, is more based on

* Tel.: +1 203 932 7209. E-mail address: cwang@newhaven.edu. 0019-8501/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2005.08.002

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ones credit of ability of return favors than relied on ones integrity and competency, as in the Western relationship context. Renqing This is a unique term in Chinese cultures, often referring to ones emotional responses when confronting various situations of daily life, a resource that one can present to another person as a gift in the social exchange process, and a set of social norms that one should follow to get along well with other people (Hwang, 1987). Ganqing It refers to feelings and emotional attachment among members of networks. It is often an indicator of closeness of guanxi. The most intimate ganqing is the qingqing, which is a blood-based emotional attachment that only existed among direct family members. In a business relationship where no qingqing exists, one often does ganqing touzi, which means doing investment with affection to build a good guanxi. Western relationship marketing and guanxi do share some basic characteristics such as mutual understanding, cooperative behavior and long-term orientation. However, they have quite different underlying mechanisms. For instance, guiding principles of a relational exchange in most Western cultures are driven by legality and rules, whereas guiding principles of relational behaviors in guanxi are driven more by morality and social norms (Arias, 1998). Trust, which plays a key role in relationship marketing, does not have the construct equivalence with xinyong in the Chinese culture and has limited impact on the development and maintenance of guanxi. Instead, what guides relational exchange behaviors in guanxi are reciprocal obligation and mutual assurance, which are based on renqing, a unique concept rooted in traditional Chinese culture. In particular, guanxi is cultivated and maintained through the exchange of renqing to attain mutual benefits. The present paper attempts to explore such an underlying mechanism by examining the construct equivalence between relationship marketing and guanxi. First, it distinguishes guanxi from relationship marketing in terms of the personal and particularistic nature of the relation. Second, it differentiates trust from xinyong, its counterpart in Chinese, based on a comparison of their roles in relationship building and maintenance. Third, it discusses the unique meaning of renqing, which is proposed as an underlying mechanism that guides behavior norms in guanxi and a mediator between trust or xinyong and long-term orientation. Finally, it concludes by discussing the managerial implications for international marketers who wish to succeed in the Chinese business market and the importance of adapting Western relationship marketing principles to guanxi marketing. 2. Guanxi as a personal and particularistic relationship Guanxi is a special type of relationship, but relationship does not necessary mean guanxi. Hwang (1987) compared three sorts of relationship. The first relationship is the expressive tie, which occurs mostly among members of such

primary groups as family or extended family, and therefore, is very personalized, stable and affect-driven. Because qinqing (affection between members tied in blood relations) is exchanged and resources are distributed on a need-basis, reciprocity is not necessary, and guanxi is not important (Davies, 1995). The second relationship is the instrumental tie, which represents a temporary and impersonal relationship (e.g. transactional relationships between the seller and the buyer) with other people outside ones family or extended family. In the instrumental tie, the relationship is utilitarian-oriented, and guanxi is also unimportant because the resource allocation is based on contributions and individuals are treated alike on a more objective basis (Davies, 1995). The third relationship is a mixed tie, which has components of both the expressive tie and the instrumental tie, but is sharply distinct from both of them. Guanxi is a mixed tie relationship in which resources are distributed in a beneficial way to individuals sharing the same personal network. While the relationship is not as close to each other as in blood relations, there exists ganqing or emotional attachment between exchanging parties within the guanxi network. Despite the fact that Western relationship marketing is long-term oriented and emphasizes cooperative behaviors between exchanging parties, it possesses more characteristics of an instrumental tie that lacks ganqing. In general, guanxi marketing differs from relationship marketing in the nature of relationships: impersonal vs. personal and universalistic vs. particularistic. 2.1. Impersonal vs. personal relationship Relationship marketing is typically impersonal and mostly at the organization level (Morgan & Hunt, 1994). Exchanging parties in Western societies tend to have economic and impersonal involvement in networking, and relational networking is mainly associated with commercial goals. Guanxi marketing, however, goes beyond the commercial meaning as members in the guanxi network exchange both favor and ganqing (affection) and, at times, its affective value is more important than its monetary value in social interactions. Guanxi works at a personal level on the basis of friendship and ganqing is a measure of the level of emotional commitment and the closeness of the parties involved. It is not uncommon for a person to take his/her personal guanxi networks with him/ her when leaving the organization. From the business perspective, people who have ganqing care about each other and treat each other more like friends than just business partners. Ganqing plays a key role in maintaining and enhancing a guanxi relationship and makes the impersonal business relationship more personal. A business-to-business relationship that cannot be readily imitated by competitors often involves ganqing touze (affect investment) in the personal relationship, such as sharing inner feelings or showing personal concerns. To achieve this, exchanging parties need to acquire an in-depth knowledge of their partners and to know what appeals to their needs (Yau, Lee, Chow, Sin & Tse, 2000). Chinese people believe they can only rely on those they have ganqing to protect them in times

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of difficulties and to help them reach their goals in better time (Jacobs, 1982). 2.2. Universalistic vs. particularistic relationship Relationship marketing has a universalistic nature in that the network is relatively open to any exchange partners as long as one plays by the rule of game. This is because most Western societies are considered high-trust cultures in which people can trust each other even though they do not have blood relations (Fukuyama, 1995). In such a case, written contracts are necessary to bind the exchanging partners to follow the rules, even among long-term relationship partners. Chinese society is a low-trust culture (Atuahene-Gima & Li, 2002; Fukuyama, 1995), in which trust is extended only to the immediate or the extended family members, and there is a lack of trust outside of the family. As a particularistic relationship, guanxi network is an exclusive circle of members because it embraces some characteristics of expressive ties, which are based on blood relations. Guanxi is highly network-specific and does not generalize to members of other social networks. Many observers have noted that in comparison to Westerners, Chinese have a stronger tendency to divide people into different levels of categories and treat them accordingly in terms of ingroup outgroup boundary (Triandis, 1989). To develop guanxi is to form the basis for a gradual transition from an outsider to an insider so that a long-term close relationship can be built. Entering such networks ensures trust building, decisionmaking, and competitive advantages for network members (Haley, Tan, & Haley 1998). 3. The different roles of trust in relationship marketing and guanxi Trust, along with commitment, is regarded as a fundamental building block of a relationship model (Garbarino & Johnson, 1999), as it encourages marketers to work at preserving relationship investments and to resist attractive short-term alternatives for the expected long-term benefits by staying with the existing partners (Dwyer et al., 1987; Ganesan, 1994; Morgan & Hunt, 1994). Trust is a key factor in determining long-term orientation because it fosters the focus on future condition, which reduces the likelihood that the other party will act opportunistically (Geyskens & Steemkamp, 1996). In the relationship marketing literature, researchers generally consider trust as the confidence in the reliability and integrity of exchange partners (Morgan & Hunt, 1994). As such, the trust construct is believed to have two essential elements; the partners credibility and benevolence (Ganesan, 1994; Kumar, Scheer, & Steenkamp, 1995). Credibility refers to the belief that the exchanging partner will perform the job effectively and reliably. When trust is based on such expertise and reliability, it is expected that the exchanging partys words and/or writings can be relied on (Ganesan, 1994). Benevolence refers to the belief that the exchanging partner will act in the best interests of the other party and this is based on the

partners personal integrity and intentions (Anderson & Weitz, 1989; Dwyer et al., 1987). Credibility and benevolence do not have the construct equivalence in Chinese cultures. A related word for credibility in Chinese is xinyong, which refers to a persons credit rating in business dealings. A trustworthy person is often referred to as having xinyong, which means ones ability to fulfill his/her promise and obligation. However, xinyong, which often relies on ones oral commitment, in a certain way differs from the Western concept of credibility, which largely relies on written statement such as in a system trust (Luhmann, 1979). For a system trust, a written agreement or legal contract is necessary to reduce the reliance on people, and the trust is placed on the system rather than the individuals. Impersonal enforcement of regulations provides institutional protection as people need only to assume that others are following the rules (cf., Kiong & Kee, 1998). In contrast, since Chinese network system emerges from personal agreement, not contracts (Haley, Tan, & Haley, 1998), xinyong is often built upon a persons past history and reputation to keep his/her promise or to fulfill his/her obligation rather than being enforced through a legal contract. As members in a guanxi network are connected to exchanging information, ones reputation of keeping a promise will be established merely through word-of-mouth communications. That is one of the reasons why an oral agreement is often honored in business transaction within guanxi networks and xinyong is only good for those who know each other well. Disregarding ones promise or obligation in a guanxi-based relationship will lead to the loss of face, which will eventually hurt ones social functions and interactions within the whole network. Benevolence, as a belief in partners honesty and good intention based on human nature, has less relevance to trust in Chinese cultures. In terms of traditional Chinese values, ren (benevolence), yi (righteousness), li (propriety), zhi (wisdom) and xin (fidelity) are the five constant virtues. Interestingly, it is not benevolence or ren, but xin, which also denotes faithfulness and obligation of paying debts of gratitude, that is most close to the meaning of trust (cf., Yeung & Tung, 1996). Developing networks of mutual dependence and creating a sense of obligation and indebtedness are keys in building up guanxi (Yang, 1994). As such, some researchers argue that in a guanxi network, assurance, rather than trust, appears to be more critical in the relationship (Standifird & Marshall, 2000; Yamagishi & Yamagishi, 1994). Assurance, according to Yamagishi and Yamagishi (1994), is an expectation of partners benign behavior based on the incentive structure surrounding the relationship rather than partners personal traits and intention. Indeed, the mere threat of network expulsion provides increased assurance that ones exchange partner will not act opportunistically, thereby replacing the need for trust in the exchange relationship (Standifird & Marshall, 2000, p. 24). Consequently, in a guanxi network, a temporary better offer from outsiders would not be sufficient enough for one to leave the current guanxi network, which provides benefits ranging from financial to informational, social and emotional support.

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4. Renqing: the underlying mechanism of guanxi To understand guanxi, it is imperative to understand the unique meaning of renqing in Chinese culture. The term renqing involves exchanges of favors following certain social norms and behavioral rules. Renqing provides leverage in interpersonal exchanges of favors and is much more highly elaborated and more tightly bound up with ideas of reciprocity than it is in many other cultures (Hwang, 1987; Yang, 1994). It can be understood in terms of two basic rules reciprocity and empathy depending upon the participants role as a recipient or a benefactor in the guanxi. 4.1. Reciprocity The rule of reciprocity focuses on a recipients behavior by the social norm expressed as if you have received a drop of beneficence from other people, you should return to them a fountain of beneficence (Hwang, 1987). People who share a guanxi relationship in business are committed to each other by the social obligation of reciprocity in that if an exchanging partner receives a favor, he or she owes renqing to the benefactor and should be ready to pay back once circumstances permit (Hwang, 1987). To maintain a healthy relationship, Chinese people place a high value on the obligation of reciprocation. However, there is a difference between Chinese and Western perceptions regarding both reciprocity and the time when a renqing should be repaid. Western societies emphasize shortterm, symmetrical reciprocation in a balanced exchange relationship, whereas Chinese recognize that renqing can be paid back in the long run with an expectation that the relationship will last into the unforeseeable future (Yum, 1988). Chinese believe that renqing need not be returned immediately, as it can be stored and returned at the right time, when the other party needs it. Indeed, renqing can never be calculated objectively (Hwang, 1987) Whereas a cash debt is easily repaid, it is almost impossible to repay the debts of renqing. A long-term relationship is thus expected to last forever based on such a circle, if only involved parties follow the reciprocal rule. On the other hand, the relationship would be endangered if the rule is violated. 4.2. Empathy The rule of empathy focuses on the benefactors behavior that is guided by Confucianism principle of forgiveness, propounded by the do not do unto others that which you would not wish done unto you and by its converse: Do unto others as you wish done unto yourself (Hwang, 1987). Empathy is the ability to see a situation from another persons perspective. The greater the degree of empathy, the fewer is the barriers to the development of relationship (Conway & Swift, 2000). As Hwang (1987) noted, a person who is versed in renqing is well equipped with empathy. In particular, a person is viewed to possess renqing if he or she has empathy towards others emotions and feelings and is ready to help others who are in need.

In a high-context culture, what is not said is often more important than what is said. Chinese people are unlikely to communicate their preferences and opinions openly, so as to avoid offending or for fear of being rejected by others. It is important for a business partner to anticipate the exchanging partys needs and to know their feelings without being asked or told (Yau et al., 2000). This is regarded as an anticipatory communication in the context of receiver-centered, in contrast to the Western sender-centered communication style (Yum, 1988). When a business partner in a guanxi relationship runs into troubles, the other party is expected to show understanding and offer help. The benefactor would expect a return of renqing from the recipient in the future when he or she is in need for help. 5. Concluding remarks: the relationship between trust and renqing in guanxi Guanxi and relationship marketing in the West have several similarities exchange partners have long-term perspectives, focus on the relationship itself rather than on a single transaction, make efforts to preserve the relationship, try to resolve conflicts in harmonious ways, and engage in multidimensional roles rather than simple buying and selling (Arias, 1998; Dwyer et al., 1987). Based on above discussions it can be reasoned that the underlying mechanism of relationship marketing is different from that of guanxi. Trust and relational commitment are the building block in relationship marketing, whereas renqing, including reciprocity and empathy, is the key to maintain guanxi. Trustworthy parties are more likely to lead to long-term orientation; however, such a relationship is operated through, or mediated by, an unspoken code of renqing. The renqing rules set behavioral norms guiding exchange parties based on face-saving and mutual insurance rather than the belief of exchange partners integrity and honesty. Whether one is trustworthy, or possesses xinyong, is determined by whether ones behavior follows the reciprocity. While the reciprocity rule of renqing will enhance the xinyong, the empathy rule of renqing will maintain the relationship given that empathy in business relations fosters understanding, consideration, tolerance and forgiveness. Members in guanxi relationships are expected to exhibit empathy for each other so as to maintain the relationship. As such, in the Chinese sense, trust is also comparable to the notion of uprightness, which involves the ability and willingness to perform all the expected behaviors at the appropriate times and in the appropriate fashions (Haley, Tan, & Haley 1998, p. 53). Members in guanxi networks expect that both sides will behave in an appropriate way and share mutual benefits. In Chinese cultures, exchanging parties will be committed to the reciprocal relation because of the structural constraints of the guanxi network. Chinese business people tend to accept xinyong from members within an exclusive circle or guanxi network. However, mere trust or xinyong is not sufficient to influence the long-term orientation of exchange partners. The constraints on xinyong, is neither written contract nor partners

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benevolence, as those found in Western societies. Instead, it is based on face-saving and renqing. Face-saving complements the inherent weakness of oral agreement, which is often used in traditional Chinese business dealing. Rules of renqing, such as reciprocity and empathy, provide incentive for relational commitment in the long run. The recipient is said to owe renqing to the benefactor and should be ready to pay back the debt of gratitude once circumstances permit. A person is viewed as untrustworthy or has no xinyong and may lose future exchange opportunities with all members in the guanxi network when he/she fails to follow the rule of reciprocity. On the other hand, the anticipation of repayment is the main motivation for Chinese people to offer renqing to one another (Hwang 1987). Guanxi will allow exchange partners to invest more into the relationship, and commitment of one party is likely to be reciprocated. 6. Managerial implication While relationship marketing has enjoyed great popularity in recent years, management practices may not be universally applied because culturally defined values will affect their effectiveness in different cultural contexts (Hofstede, 1992). Companies that apply home country practices based on Western theories without adaptations would suffer a variety of setbacks in China. Western firms investing in China may benefit more from seeking long-term partnerships through the gradual development of guanxi networks than from relying strictly on the more familiar contract-based agreements (Standifird & Marshall, 2000). Hence, it is crucial for the foreign business people to learn how to interact successfully with the Chinese partner. First, in a low-trust society, Chinese prefer to conduct business with those who are in the networks rather than someone who is new or an outsider. Such a particularistic nature of guanxi establishes barriers for multinational companies entering Chinese industrial markets. The term guanxi is, interestingly, made up of two Chinese characters: gate and connect. Thus, one must pass the gate before one can establish the connection with business partners in the network. Guanxi converts business partners, who are otherwise strangers, to insiders within the network. Therefore, in order to build an effective business relationship with the Chinese counterparts, foreign marketers must not only understand the rules of the game for doing business within the Chinese business environment, but also enter the guanxi network as an insider. Some researchers of Chinese business orientation noted that elements of both relationship and transaction marketing coexist in many firms (Styles & Ambler, 2003). In fact, whether a Chinese firm practices relational orientation or transaction orientation is more a matter of the membership of guanxi networks than a firms general business orientation. In other words, while China is often portrayed as a relational society (Styles & Ambler, 2003), it is also a low-trust society in which relationship orientation is only applied to insiders of guanxi network but not to outsiders of networks such as a foreign firm.

Second, for Chinese, business is not just a business, it is also a social interaction, in which renqing or favor is exchanged. Exchanges which take place amongst members of the guanxi networks are not sorely commercial, but also social, involving the exchange of favors and the giving of face. International marketers can increase perceived similarities by developing close and personal relationships and by enhancing mutual understanding of each others business culture and find the right contact persons in a potential partner firm. While a gift or favor is often exchanged, ganqing or emotional attachment is often more important in the long run. Gifts and, sometimes, bribery may only establish a short-term relationship that is easily imitated by competitors. A long-term relation based on ganqing commitment and friendship within the guanxi network will have a sustainable competitive advantage over outsider competitors. Third, while Western companies often judge partners based on corporate image and brand, Chinese business-to-business relation is often based on contacts or bonds with specific individuals, not among organizations (Davies et al., 1995). The social relationship is prior to and prerequisite for the business relationship. Thus, developing interpersonal relationships and mutual understanding at the personal level is a prerequisite for business success. It has been observed that it is a common practice for Western companies to rotate managers through Asian subsidiaries and offices. Incoming managers, however, do not automatically inherit the goodwill and networks of their predecessors (Haley, Haley, & Tan 2004). As such, it is important to understand the impact of personnel change on the continuous functioning of existing guanxi. Fourth, while legal contracts or written rules are becoming more common in business transactions in China, xinyong, which is often based on ones reputation to fulfill reciprocal obligation, plays a critical role in guanxi. Guanxi members are frequently tied together through an invisible and unwritten code of reciprocity, and the underlying motive for reciprocal behaviors is face-saving. Those who violate the reciprocity rule is considered not knowing renqing and Chinese people prefer to do business with those who know renqing. Failing to return renqing will not only result in loss of face but also result in the loss of future exchange opportunities with all members in the guanxi network. An unwritten xinyong is often the first step towards a written contract. In particular, the reciprocal nature of norms based on renqing and the emphasis of face-saving provide the exchanging partners with safeguard mechanisms from opportunistic behaviors and allow them to mutually depend on each other. Finally, the rules of renqing also imply empathy, which involves understanding, consideration, forgiveness and, most importantly, ganqing. An understanding of the empathy rule as they work in Chinese society will enable international marketers to better interpret Chinese firms exchange behavior and their willingness to stay in the relationship with an exchange partner. With renqing, trust between exchange parties can be established and long-term relationship is expected. Without renqing, trust can be lost and relationship will be ended. Therefore, relationship stability or long-term orientation of exchange parties will be

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dependent on the exchange of renqing between exchange parties. In other words, renqing mediates the effect of trust or xinyong on long-term orientation. Sometimes, when one follows the empathy rule of renqing may even rescue the relationship when trust is lost. This is demonstrated by an episode discussed by Kiong and Kee (1998). . . .four established merchants wanted to purchase a rubber estate. One of the merchants, Ang, approached the other three and suggested that instead of outbidding one another, they should cooperate. Ang was appointed as representative to put up a bid. If he was successful, they agreed, verbally, that the land would be divided equally. However, when Ang finally secured the estate, he betrayed his xinyong and kept the estate for himself. One merchant was extremely angry but the other two decided to overlook the incident, due to their ganqing and long-term guanxi. . . Thus, Ang was not finished despite his violation of xinyong (Kiong & Kee 1998, p. 86). As such, Western marketers entering China need to take a more empathetic perspective by showing that they are considerate, patient, and willing to offer assistance whenever a need is detected. In addition, being empathetic also means giving a renqing without expecting an immediate payback. A long-term relationship is more likely when there exists an unpaid renqing, as the rule of reciprocity expected by exchanging parties keeps the relationship evolving and lasting. References
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