Ugly Procurement Practices in Singapore, China, Hongkong

Why “guanxi” or “corruption” is rampant in the building industry

The arts of doing business in the Asian countries have always rely on “guanxi” or the art of building relationships or connections to do business. This invariably results in corruption to secure contracts.

“Guanxi” or connections is an art or wisdom practiced by the Chinese in doing business. Chinese are good at “guanxi”. It also exists in the West, in the United States, too. But in Asian countries especially China and Malaysia it's just deeper. Singapore is no exception as our leaders also believe in this principle of doing business.

These are the many real cases in my 30 years in the industry. The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

How did the Chinese cultivate 'guanxi' or connections to do business. In building industry, this is how it is practiced.

They do it in the name of so called “entertainments” such as buying expensive dinners; sending expensive gifts during festive seasons and “red-packets” or cash filled envelopes.

The contractors, suppliers and consultants usually work closely together on good relational benefits.

How it works. First the suppliers will work closely with the Architects or Designers and Quantity Surveyors engaged on the job by the Developers. As Architect and Designers usually write the specifications for materials used for the Project.

Suppliers will try to get into the book of Architects and Designers by building up a good rapport with them. They usually do it through a scheme called “under table money” for contracts secured for the project.

The contractors in order to get selected to tender for the job will too try to get into a good relationship with the Architect and Designer as they can have a say in the selection process though many a times the Developer would decide on the short list of contractors to tender for the project.

It also benefit the successful contractor to be on good relationship with Architect so that they can influence the Architect to change specifications or construct method to cut price and the savings is shared between them.

The tenderer may also collaborate with the Architect or Designer to make up the tender price by certain percentage of say 10% to cover them when successful.

So how can we do business without “guanxi” or corruption

Build a new set of rules will not work. Make these things more open, transparent, and, in this way, more free, equal and fair.

I am an advocate for a win-win solutions among industry players. The only solution is to create a new kind of level playing field, where everyone benefits from an unfair arrangement by exploiting it equally.

Some people are real masters at corruption, and some aren’t. I hope to create an awareness so as to help the weak ones advance and take away the cream from the experts.

In other words: Fight fire with a smart and balance cost benefits designs, and corruption with sensible win win solutions where everybody walk away being a winner instead of current situation where the biggest pie of profit go to Developers and smaller or nil profit to contractors and suppliers.

The approach reflects the chances of curbing corruption, in the absence of independent monitoring agencies.

Corruption is growing all the time and had been just part of the system for decades and people are growing richer in China and South Asia.

Transparency or anti-corruption is necessary to stem the fire of rapid corruption.

If it wanted to control corruption, the various parties must understand that it is futile to employ audit professionals or institutional or countries pressure to suppress it. The various parties should understand that it is not a win win solution for them and that they should work together and want to do it.

Yet, far from fearing corruption, officials and businessmen “are afraid if you are not corrupt. They want you to be corrupt. If you don’t join in, if you want to be a good person, then you highlight their badness.”

The reason I publicize the real cases using 'guanxi' or relations in building industry is to explain why corruption is no good and is not a win win solution for all parties including end users.

Because of government's involvement, corruption in China is very serious and very rampant but under control.

Corruption is morally ugly. It also increases costs.

A society that relies on guanxi to get things done is a scary place.

When guanxi becomes stronger than rules, it’s dangerous to everyone. Why? Because if you use your guanxi, I’ll use my guanxi, and in the end the price of everything rises. When there are no rules, then everything is a competition, and those with more power win.

As China’s economy expands and becomes globalized, I think it’s going to grow.

Everyone knows that 10 years ago, success was 30 percent guanxi and 70 percent talent. Today, to succeed, you can reverse the ratio. Seventy percent guanxi and 30 percent talent will do.”

Had I remained a bureaucrat, I’d definitely have become corrupt. The reason is simple, virtually everyone offered bribes.

“You can resist temptation once but not a hundred or a thousand times.”