"If we had complete trust between one another, would the cost of doing business become zero?"
Mohammad left a comment in our previous post about corruption and how guangxi plays a role in it. In his comment, Mohammad wrote:
My uneducated analysis, Mr Red, leads me to believe that in the Brunei context graft is akin to "Guangxi" or "Kongsi" in the Chinese culture of doing business, be it subtly done transparently in the open or discreetly in secret.
So to Chinese business people, under the table deals are the norm rather than the exception and deception is the name of the game.
To Mohammad:
Yes you're right. In the absence of a robust, transparent and independent legal system to protect contracts (such as in Singapore and other developed countries), you fall back on the basic form of reducing risk when doing business with someone, and that is to do business with friends and acquaintances whom you trust rather that strangers who you do not know much about. Guangxi or Kongsi is firmly part of the Chinese culture, be it mainland Chinese or overseas. Guangxi if not managed properly can and will lead to corruption as these form of 'contracts' are never written, implicitly agreed upon and processes such as tenders become nothing more than a facade and an academic exercise to legitimise what other people would consider corruption.
This is however not to say that all Chinese cultures use guangxi in order to do business. If that's the case, a Taiwanese/Malaysian or Bruneian businessman would never even venture overseas with an overseas partner cos the cost of trust would be too high. What Guangxi does instead is to reduce the business risk brought about by doing business with strangers. While Guangxi may reduce risk, it doesn't do it efficiently enough in a globalised market - how many people do you know in the world? And as a businessman, would you unnecessary restrict yourself to do business with only people you know? This is where a good legal system steps in - if we have a good legal system, business deals can be openly discussed between 2 new business ventures, while a relationship is being built up, knowing full well if something goes awry, then the legal system will be able to step in to protect individual rights laid out within these contracts. And Guangxi isn't a Chinese condition too, it's simply explained in Chinese terms what we would call relationship based business.
One way to move away from corruption (in the business environment at least) is to develop a legal system strong enough that will uphold the terms of contracts so that trust based on an existing relationship does not become an over-riding factor when it comes to business deals. In Brunei, we have been privy to tonnes of business dealings that verges on corruption because contracts that are supposedly open to tender are given to people they know because of the trust that exists (don't forget the trust that is greased by behind the door kickbacks to one another too). As Guangxi between 2 parties builds up, it becomes stronger and becomes more likely that one partner will seek the other out in future contracts, thereby propagating the cycle. But in our push to freer markets, such business models can do more harm than good to the economy because when one agency continues to work exclusively with a service provider at the expense of other possibly more viable competitors, a system of monopoly and collusion would have developed.
Let us not forget though, there are other forms of corruption in Brunei that is so institutionalised that removing it might be akin to ripping away a piece of our own culture. And we all know that that would be impossible, but even it if is possible, would be too costly and painful to bear (in the short term, because we know sooner or later, we WILL have to get rid of all forms of corruption for the future of our country).
Mohammad left a comment in our previous post about corruption and how guangxi plays a role in it. In his comment, Mohammad wrote:
My uneducated analysis, Mr Red, leads me to believe that in the Brunei context graft is akin to "Guangxi" or "Kongsi" in the Chinese culture of doing business, be it subtly done transparently in the open or discreetly in secret.
So to Chinese business people, under the table deals are the norm rather than the exception and deception is the name of the game.
To Mohammad:
Yes you're right. In the absence of a robust, transparent and independent legal system to protect contracts (such as in Singapore and other developed countries), you fall back on the basic form of reducing risk when doing business with someone, and that is to do business with friends and acquaintances whom you trust rather that strangers who you do not know much about. Guangxi or Kongsi is firmly part of the Chinese culture, be it mainland Chinese or overseas. Guangxi if not managed properly can and will lead to corruption as these form of 'contracts' are never written, implicitly agreed upon and processes such as tenders become nothing more than a facade and an academic exercise to legitimise what other people would consider corruption.
This is however not to say that all Chinese cultures use guangxi in order to do business. If that's the case, a Taiwanese/Malaysian or Bruneian businessman would never even venture overseas with an overseas partner cos the cost of trust would be too high. What Guangxi does instead is to reduce the business risk brought about by doing business with strangers. While Guangxi may reduce risk, it doesn't do it efficiently enough in a globalised market - how many people do you know in the world? And as a businessman, would you unnecessary restrict yourself to do business with only people you know? This is where a good legal system steps in - if we have a good legal system, business deals can be openly discussed between 2 new business ventures, while a relationship is being built up, knowing full well if something goes awry, then the legal system will be able to step in to protect individual rights laid out within these contracts. And Guangxi isn't a Chinese condition too, it's simply explained in Chinese terms what we would call relationship based business.
One way to move away from corruption (in the business environment at least) is to develop a legal system strong enough that will uphold the terms of contracts so that trust based on an existing relationship does not become an over-riding factor when it comes to business deals. In Brunei, we have been privy to tonnes of business dealings that verges on corruption because contracts that are supposedly open to tender are given to people they know because of the trust that exists (don't forget the trust that is greased by behind the door kickbacks to one another too). As Guangxi between 2 parties builds up, it becomes stronger and becomes more likely that one partner will seek the other out in future contracts, thereby propagating the cycle. But in our push to freer markets, such business models can do more harm than good to the economy because when one agency continues to work exclusively with a service provider at the expense of other possibly more viable competitors, a system of monopoly and collusion would have developed.
Let us not forget though, there are other forms of corruption in Brunei that is so institutionalised that removing it might be akin to ripping away a piece of our own culture. And we all know that that would be impossible, but even it if is possible, would be too costly and painful to bear (in the short term, because we know sooner or later, we WILL have to get rid of all forms of corruption for the future of our country).
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