Business Horizons

managerial principles in Japan, China, and Korea

Wa, Guanxi, and inhwa: managerial principles in Japan, China, and Korea

Jon P. Alston

Wa, Guanxi, and Inhwa: Managerial Principles in Japan, China, and Korea

Persons doing business with those in Japan, China, and Korea must realize that the guiding principles of management in each country, while sharing some features, differ in others.

Japanese, Chinese, and Korean business organizations do not run on the same managerial principles. Each society has its separate, distinctive philosophy that guides business managers. These philosophies lead to specific behavior appropriate to the setting; as a result, knowledge of their principles is not only helpful, it is critical to success in dealings with managers from those countries.

Although each of the three principles is unique, each also resembles the others to some degree. Each can be summarized in one word. In Japan, business relations operate within the context of wa, which stresses group harmony and social cohesion. In China, business behavior revolves around Guanxi, or personal relations. For Korea, activities involve concern for inhwa, or harmony based on respect of hierarchical relationships, including obedience to authority.


Wa refers to the value the Japanese place on group loyalty and consensus. It translates as the search for or the existence of mutual cooperation so a group’s members can devote their total energies to attaining group goals. To achieve wa, members of the group are expected to submerge their individual (selfish) goals in favor of the group’s. Wa, however, is not one-sided. Individual members profit only after the group has profited from their activities, but they must be rewarded nevertheless.

Wa takes place within a group context. The Japanese seldom interact with one another or with foreigners as individuals. Individuals are always members and representatives of one group or another. Wa relates individuals to groups. That is why most activities in Japan occur within a group and why group memberships are so important. Consequently, few Japanese are able to define themselves apart from their group memberships.

A Japanese worker, for example, will not respond to the question, “What do you do?” with the answer, “I am an engineer,” or “I am a computer programmer.” Instead he will say, “I work for Toyota” or “I am Toyota.” His specific position is less important than his group membership. In artistic circles, actors and artists often take their teacher’s name to show their membership in their mentor’s school and loyalty to their teacher.

Wa demands that members of a group, whether a work team, a corporation, or a nation, cooperate with and trust each other. There are few practices in Japanese corporations that do not encourage a sense of wa among their workers (Alston 1986, pp. 40-43).

Wa is so pervasive that the Japanese prefer, and usually insist, that all business dealings take place among friends. That is one reason why proper introductions are so important when business relationships are initiated. The Japanese do not like to deal with strangers. As a result, few business contacts begin with direct business discussions. A Japanese will first want to place the stranger within some group context. Business cards (meishi) are always exchanged and carefully studied when the Japanese meet someone. Americans doing business with Japanese counterparts need business cards that explain in detail their business ranks. Otherwise, the Japanese will not know how to relate to this seemingly isolated individual.

The establishment of close friendships with coworkers is also necessary, because wa demands that members of a group achieve total agreement through consensus. This demands constant discussions and compromises. However, these discussions take place within an atmosphere of friendliness and cooperation as demanded by wa. As a result, the Japanese prefer to maintain the illusion of surface agreement until a consensus has been reached–a fact not often realized by foreigners, especially Americans. At times, telling the truth might upset someone and threaten the group’s wa. There is no “laying one’s cards on the table” in Japan until a close understanding between parties has been reached, if even then.

The willingness to subordinate the truth to group harmony is illustrated in the term makoto, which is equivalent to the English word “sincerity.” However, the Japanese define this word as part of the process of insuring harmony and good will irrespective of the truth. Being sincere in Japan means being emotionally supportive; in the U.S., the same term means being honest and open in intent. An American who is being sincere will be blunt and totally frank, even if an exposition of the facts upsets the other person. In Japan, being sincere means having concern for the emotional rather than the factual. That is why Americans often mistake a Japanese “yes” for a “no.”

Wa also involves a specific time dimension. The group’s survival and eventual success are keyed to a long-term perspective. Once accepted, members of the group are permanent members–hence the ideal of lifetime employment found in Japanese corporations. The Japanese evaluate activities, such as possible business ventures, in light of how they will affect the long-term development of the group’s wa.

The establishment of personal relationships, bringing together two groups with common interests, allows the Japanese to view contracts as personal agreements that should be changed when conditions change. A change will be reciprocated in the future, but contracts are seen as fluid. A change in the cost of raw material will prompt a supplier to ask that the contractual price at delivery be changed, since higher costs might preclude a profit. The other party is expected to agree to the increase, if possible, on the assumption that the supplier will in the future offer discounts or preferential treatment.

In addition, wa demands that strangers already have established some type of social relationship, no matter how tenuous, before they meet. Such a relationship is formed through a mediator. Few business contacts proceed smoothly unless proper introductions have been made by a third party who is respected by both parties.

Mediators are important because criticisms of colleagues and fellow group members threaten the group’s wa. When criticism is necessary, a third party may be able to pass on criticisms and negative news that friends may not be able to state more overtly. If a clearer discussion of demands is needed, the mediator may pass a “letter of understanding” from one person to another. Such a memo can state a position or demands in blunter terms than those proper during conversations. Then too, the memo’s bluntness is decreased because the message was only indirectly passed from one party to the other. In this way detailed positions, demands, or interpretations of proposals are exchanged without threatening the group’s wa.

If a mediator or message is inconvenient, the Japanese use informal meetings to discuss formal matters. When a meeting’s setting is informal, serious discussions can be disguised as entertainment. That is why the Japanese spend a large part of their time entertaining clients and potential clients. Discussions at a bar can be semi-serious and hint at disagreements that would be unwelcome in more formal settings.

Entertaining is seldom a waste of time among the Japanese. It is during a meal or drinking session that personal relations are established and wa-threatening discussions can take place (although they cannot be too blunt, challenging, or negative in content). Americans should prepare themselves for numerous suppers and bar-hopping excursions to allow wa to develop and be sustained.


Guanxi is one of the major dynamics in Chinese society. The term refers to special relationships two persons have with each other. It can be best translated as friendship with overtones of unlimited exchange of favors (Pye 1982, 88). Two persons sharing a Guanxi relationship assume that each is fully committed to the other. They have agreed to exchange favors in spite of official commands to act neutrally. Whenever scarce resources exist in China, they are allocated by Guanxi rather than official or bureaucratic dictates.

Within this context, Guanxi bonds two persons through the exchange of favors rather than through sentiment. The Guanxi relationship does not have to involve friends, although that is preferred. Instead, the relationship is basically utilitarian rather than emotional. The moral dimension operating here is that a person who does not follow a rule of equity and refuses to return favor for favor loses face and becomes defined as untrustworthy.

Unlike wa, Guanxi has no group connotation; the relationship is total and personal. Each partner is now obligated to help the other, generally in an unlimited manner. The Chinese place great emphasis on rank, but Guanxi operates on the individual level.

This individualistic aspect of Guanxi, apart from the primary stress on family ties, allows Chinese workers to easily change employment. Guanxi relations that are no longer profitable or based on equal exchanges are easily broken. As a result, the economies in Taiwan and Hong Kong experience a large rate of both job mobility and entrepreneurship. Employees move whenever they see an advantage in doing so. Given the value of self-employment in Chinese society (illustrated by the saying “it is better to be the bill of a chicken than the anus of an ox”), Guanxi ties have to be continuously reinforced; when persons move from one company to another, Guanxi ties need to be established with the new personnel. This individualistic component of Guanxi allows for rapid changes in relations. The foreigner who lets his Guanxi relations lapse will find he has to deal with officials who may be totally uninterested in his projects.

A singular feature of Guanxi is that the exchanges tend to favor the weaker member. Guanxi links two persons, often of unequal ranks, in such a way that the weaker partner can call for special favors for which he does not have to equally reciprocate. An unequal exchange gives face (respect, honor) to the one who voluntarily gives more than he receives.

A consequence of this aspect of Guanxi is that claims of inadequacy should be seen as subtle demands that the other (and more powerful) person has the obligation to be magnanimous. During negotiations, Chinese officials expect that the (foreign) party will cede certain points because the latter is so much stronger and wealthier.

The power given to the weaker party reflects the Confucian principle of family loyalty, in which family ties demand the exchange of aid. A practical example of the prevalence of family-based Guanxi is found in government-controlled firms that have been given semi-independence since the mid-1980s. Many of these business concerns are headed by relatives of high-ranking party officials. These officials offered business licenses only to relatives or close friends. The following quotes from a recently published report illustrate the importance of Guanxi (Wall Street Journal 1988):

The only people who can get

licenses are those with good…

connections….Then they

cannot fail to make money because

they have a monopoly overtrade

in many goods, such as imported

cars. Behind every big profiteer

is a big protector….The

children of some leaders use the

cover of their parents to

profiteer. Who dares touch the tiger’s


A practical consequence of Guanxi is that personal loyalties are often more important than organizational affiliation or legal standards. An American wishing to expedite his goods through Chinese customs might (and often does) have to wait days, even weeks, before all appropriate documents are cleared or stamped. However, an importer who has a Guanxi relationship with a government official or customs officer can expect a more immediate and positive response.

As a result, a person’s rank or organizational position may not be indicative of his or her power. A person of low rank, in government or elsewhere, may in fact be very influential because of Guanxi relationships with those in higher positions. The implications of this are plain. Americans wishing to deal with the Chinese must develop Guanxi relations themselves or know persons who enjoy Guanxi with those in central positions.

The development of one’s own Guanxi relations is preferable, because these informal affiliations are more important than more formal ones. Representatives of foreign businesses must therefore expect a long stay in China to develop Guanxi relations and to discover who has Guanxi with powerful officials. Business with China cannot be done through cables and telexes. Export/import matters involve a relatively small number of persons, and a small group of Chinese officials make all major decisions. The challenge is to discover these influential persons and establish Guanxi with them or their associates; otherwise, the chances of business success are low. In essence, the Chinese bureaucracy inhibits action while Guanxi facilitates action. As an American states:

The informal (Guanxi) structure

is there for a reason: the official

system does not work. The

unofficial system is a legitimate

solution that creates jobs and

allows business to function

(Copeland and Griggs 1985,176).

In addition, the importance of Guanxi means that day-to-day policy is based on perceived personal interest and can change drastically. In many respects, Guanxi is anti-bureaucratic and pro-person. Unfortunately, policies change as quickly as personnel, so it is anyone’s guess how long a specific policy will be maintained. Contracts, for example, are binding only as long as the circumstances at the time and the signers of the agreements remain constant. Changes in either supercede all prior agreements.

This fact has a positive element, in that Chinese managers can be highly adaptable and entrepreneurial. Guanxi provides a balance to the cumbersome Chinese bureaucracy by giving individuals a way to circumvent rules when personal feelings or relations interpose. As L.S.T. Tai (1988) suggests:

A key to success in doing

business in China is personal

connections (Guanxi). The right

connections can bring cheap and

reliable material supplies, tax

concessions, approval to sell

goods domestically or for

export, and provision of assistance

when problems arise. But

connections alone are not sufficient.

By the same token, decision making in China is slow, even when the cumbersome bureaucracy is circumvented by Guanxi. Decisions are made from top to bottom in China, and the superior in each Guanxi link must agree to a specific proposal. This practice, which can lead to extremely slow decision making for important decisions, causes much frustration for those who expect consistency of policy and universal rules’ application from Chinese bureaucrats. In fact, policies change as powerful persons jockey for power, forcing their Guanxi associates to also change their behavior.


A key principle of Korean business behavior is inhwa, which, like the Japanese wa, is defined as harmony. However, the Korean term does not emphasize the group element as in wa. Rather, inhwa stresses harmony between unequals. Inhwa links persons who are unequal in rank, prestige, and power (De Mente 1988, 88, 131). This term requires that subordinates be loyal to their superiors and that superiors be concerned with the well-being of subordinates.

The concept is derived from Confucianism, which in this context emphasizes the regulation of unequals. It follows from the Confucian ideal that a person owes total loyalty to parents and authority figures, notably rulers, elders, and organizational leaders. In the modern world, inhwa demands that an individual offer loyalty to hierarchical rankings. Workers owe their employers and supervisors (and other superiors) the same loyalty they owe their parents and family elders. When Koreans state that all members of a company form a “family,” the implication is that the leaders are to be obeyed as if they were family elders.

As a result of this, Korean corporate management is categorized as “clan management,” a situation facilitated by the fact that many of Korea’s senior managers in a specific firm are related by family ties. Roughly one-third of all executive officers in Korea’s largest business groups are family members of fellow employees or employers.

Inhwa ties form first-line loyalties in the same way that family ties supercede all others in Korea. As a result, Koreans prefer to develop personal ties with strangers before they conclude a deal with them. The paramount importance of personal relations means that business relations, like those in Japan, should be between “friends” or on a personal footing.

The inhwa relationship binds two or more persons, usually of unequal rank, without reference to organizational or other group memberships. This emphasis on the individual makes the Koreans relatively individualistic, much like the Chinese. There is little organizational loyalty in Korea, and workers switch employers whenever it is beneficial. The Korean adage that “one Korean is stronger than three” implies that inhwa relationships cannot be taken for granted after being established.

Korean negotiators also show a corresponding individualism. In a series of experiments, John Graham and associates found that Koreans were three times as likely as the Japanese to say “no.” They were also more likely to interrupt and issue commands.

Foreign business persons must establish their own personal networks in government circles as well. Government officials “direct” much of Korea’s economy, and few major contracts will be made unless one or more government offices support the venture. The problem for an American is that these inhwa relationships are long-term and take time and patience to develop and cultivate.

In addition, once inhwa relationships have been established, they must be constantly maintained and strengthened. Since contracts are interpreted through the personal relationships of the signers rather than through the agreement per se, the contract is only as good as the personal relations that made it possible. Lawyers and other intermediaries should not take over from the original participants.

Korean contracts are not merely documents stating mutual obligations and rights. They are declarations of intentions backed by the integrity of the signers. The intentions of the parties are more important than contractual clauses. For this reason, renegotiation and redoing of contracts are expected behaviors. Koreans do not consider a contract binding if conditions or interests change.

Since the emotional dimension is more important than the specific contents of a contract, foreigners need to meet frequently with their Korean colleagues to develop ties of friendship. This feeling must be carefully cultivated after a formal partnership has been achieved.

No one should sign a contract with a Korean unless he or she is prepared to maintain that relationship over the length of the contract, often beyond. An agreement is only as good as long as the persons who negotiated are in power and interested in the project. Otherwise, the contract could be in danger (Leppert). A valuable ploy after a contract is signed is to perform favors for the main Korean parties so they do in fact maintain a proprietary interest in the project.

The inhwa relationship is intrinsically an unequal one, but personal relations occur only with those who have some claim of equality–especially age and prestige. Senior Korean officials will not deal comfortably with a junior member of an American negotiating team no matter how expert he may be. Koreans are extremely sensitive about titles and status, and those Americans who wish to deal with senior Korean officials should have senior rank themselves.

Another aspect of inhwa is that each party has responsibility to support the other person and make him happy. The latter results in kibun, which is defined as “feelings.” No one who is part of an inhwa relationship dares upset the other. As a result, Koreans do not like to bear bad news. Often, bad news will not be delivered until the late afternoon (if at all), so the recipient will not have his whole day disrupted. Listen very carefully if a Korean hints at business difficulties near the end of a business day! At any rate, Koreans who have established personal relations with others avoid passing on upsetting information.

As a result, like the Japanese, Koreans seldom criticize or give negative information outright. This practice may result in misleading information, as the Korean businessman tries to avoid delivering bad news. He may not even announce a delay in a delivery date, since doing so is too painful. Americans doing business in Korea must listen carefully and probe for hidden meanings when their inhwa-related friends report.

Non-Asians often overlook the sometimes major differences among specific Asian countries. The understanding of intra-Asian differences begins with an awareness of how each culture’s concepts, even though they might be related, differ from one another. Using the same key vocabularies, the non-Asian can begin the arduous task of discovering the significant differences as well as similarities among Asian cultures.

Jon P. Alston is a professor of sociology at Texas A&M University, College Station.

COPYRIGHT 1989 JAI Press, Inc.

COPYRIGHT 2004 Gale Group