Bite-size Case Study

Guanxi and McDonald’s

Published on June 30, 2016 Originally recorded 2013   3 min
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Throughout this presentation, we want to offer some real world examples of guanxi in use. In the following, my colleague, Lily Chen, presents an example from Beijing and Hong Kong. The three players in this case have grown up together, gone to school together, and now conducted many examples of successful business together. Their relationship has been continuously consolidated by many return favors over the years. It is a great example of guanxi at a macro-level, and also the importance of mianzi in Chinese business.
Despite having a 20-year contract, the US fast food giant, McDonald's, was evicted from its prime commercial site in the heart of Beijing's premier shopping district, after only two years. The businessman who wanted to build on the site, and who was able to engineer McDonald's eviction, was Mr. Li Ka-shing, one of Hong Kong's wealthiest businessmen. Mr. Li had a plan to develop a US two-billion dollar project, the Oriental Plaza in Central Beijing. In 1994, the development of his project hit an obstacle when McDonald's refused to move from the site Li had earmarked for the vast compound. To overcome this difficulty, Li used his guanxi with the Chinese authorities to secure McDonald's eviction. In 1996, the city authorities renegotiated their contracts with the US fast food giant, granting it better concessions, and the right to open more restaurants in Beijing. Of course, this was in return for moving out of the Oriental Plaza site. With McDonald's gone, Li gained permission to develop his vast shopping complex. Mr. Li had strong guanxi with the city officials, whereas by contrast, McDonald's had not kept its guanxi in good condition.