In the early 1990’s, prospects were good for the growth of tourism and investment in Yunnan, a province with unique ethnicities and bountiful nature in Southwest China. The Roaring Dragon at that time was a well-known 40-year-old four-star hotel, one of the first in the region, owned by the provincial government and managed by local Chinese.
But as a state-owned enterprise, their close to 700 staff lacked motivation since steady salaries would be paid for by the government in any case, and even though the hotel was still profitable, the government thought it wasn’t meeting its potential.
And so the government contracted foreign management companies to take over: One takeover in 1993 lost them nine million RMB in a year. The second one in 1999, by another international hotel brand, lost more than ten million RMB in less than four months, with hotel capacity nearing emptytowards the end.
In between these two periods, when Chinese management retook the system, the hotel did well again. It was clear that the foreign management did have better standards of services and more high-class hotel experience. But their international reputation did nothing to attract visitors; in fact, it sometimes seemed arrogant.
Both times, foreign-educated managers neglected the Chinese element of guanxi, or connections. These connections always came with a price: they were relationships of “you help me, I help you.” Giving discounts to friends in tour agencies meant they would bring their groups to you. Hosting banquets in honor of government officials meant you could pass through bureaucratic processes much more smoothly. Hiring your friends or relatives meant they owed you something. The regular up-dating of these guanxi—meals, tea, gifts, even leisurely chats over nothing—were essential for relationship maintenance of mutual benefit.
Guanxi is effective, but it is not always efficient.Foreign managers at the Roaring Dragon saw it simply as favoritism or nepotism; they banned discounts, hiring based on connections, and other incentives based on guanxi. Once, a foreign F&B manager outright refused a tour group a banquet because he deemed it too cheap. The tour agency, which another Chinese manager had carefully cultivated guanxi with and which often booked large groups into the hotel, never booked tour groups in the hotel again. The guanxi was ruined, and the agent left to a competitor. Government officials were no longer given star treatment and discounts, so they left, too.
Employees also complained that “the foreign management did not know the Chinese way”: they were no longer allowed to take long breaks, to invite their friends to the hotel for no reason, even to eat with each other as per new schedules. Long-time employees who were made redundant complained of not being treated with respect, since they were being laid off and paid on a single day without prior notice. Employee morale had depressed so much that even if they were not made redundant under new policies, many high-level employees left of their own accord, oftentimes with years of guanxi.
Guanxi, because it is so personal, is something that is not transferable. In their quest to make everything more efficient, foreign managers had actually lost the very business and people they sought to attract.
Guanxi are like the Chinese version of business networks, but wider-ranging and more informal. They make the carefully cultivated interdependent webs that much of Chinese business lives in. Guanxi is more than friendliness in China; it is how things can get done, through one favor or another. As foreign managers at the Roaring Dragon learned, don’t neglect guanxi for the sake of cold efficiency, because it may be more important than you think. People are the ones who answer the questions, place the orders, give you customers, and do the work in the end.