Guide to doing business in China

Almost without exception, the research studies we conduct for Western companies show that a key difficulty is understanding the different ways of doing business in China. This interesting article puts forward some guidelines for the Western business seeking to do business in China for the first time.

Establishing A Presence

Pursuing the right strategy for China is obviously a matter for each individual company, but you won’t go far wrong if you follow these 10 very valuable rules:

1. All the Time in the World
Western business visitors are often deadline-driven and unwilling to slow down to the Chinese pace when discussing business. But in China the pace can be fast and slow simultaneously. Those involved in negotiations know how long they can drag on when the Chinese side is consulting internally or has other reasons for delay. But Chinese negotiators can move with lightning speed on other occasions. Chinese negotiators use time more consciously than do their Western counterparts.

2. Separating Fact from Fiction
“Virtually everything you hear about China is true, and so is the opposite”*. Western thought is dominated by linear logic whereas Chinese thinking is influenced by early philosophers, who saw a paradoxical balance of opposites in all things. Where Westerners tend to look for clear alternatives (option A instead of option B), Easterners may examine ways to combine both option A and option B. This difference in approach may make a Westerner think that a Chinese negotiator is being illogical, evasive or devious, when he believes he is being quite straightforward. (*John Frankenstein, University of Hong Kong)

3. Relationships
Westerners normally build transactions and, if they are successful, a relationship will ensue. However, the Chinese believe that prospective business partners should build a relationship and, if successful, commercial transactions will follow. This difference underlies many misunderstandings arising from business negotiations. Virtually all successful transactions in China result from careful cultivation of the Chinese partner by the foreign one, until a relationship of trust evolves.

4. Guanxi
The logical development of close relationships is the Chinese concept of guanxi. According to the business analyst, Tim Ambler of the London Business School, the kernel of guanxi is doing business through value-laden relationships. In a highly centralised, bureaucratic state, the use of personal contacts was the only way to get things done. Guanxi is the counterpart of a commercial legal system. Where the latter is relatively weak (as in China), the need to rely on guanxi will be strong. As long as the relationship is more valuable than the transaction, it is logical to honour it. The idea of a friendship leading to business is attractive. But Easterners who are familiar with guanxi are more cautious than Western converts. The obligations of guanxi are very real. In the wrong place, at an inappropriate time, with unsuitable people, the obligations can become a trap which is hard to escape.

5. Contracts
Chinese and Westerners often approach a deal from opposite ends. To a Westerner, starting with a standard contract, altering it to fit the different circumstances, and signing the revised version, seems straightforward. Commercial law is ingrained in our thinking. But traditionally, commercial law scarcely existed in China and certainly indicated bad faith. The early appearance of a draft legal contract was seen as inappropriate or, more likely, irrelevant, because it carried no sense of commitment. The business clauses might form a useful agenda. But obligations came from relationships, not pieces of paper.
Today, returning home with a signed piece of paper is a symbol of progress, but nothing more. The Chinese may be signing a contract to humour their guests. To them, a completed contract may merely be the proof that both sides have grown close enough to develop a trusting relationship. Further concessions may then be requested. A difficult prospect for the Westerner who has shaved his margin down to the bone.

6. Mobilise Local Assets
The challenge of learning to speak Chinese fluently, the complexities of the Chinese way of doing business, and a strong sense of national pride mean that a foreigner will only extremely rarely be accepted by Chinese interlocutors on equal terms. The solution is to find a reliable Chinese ally to work with you. An effective Chinese colleague will often be able to analyse body language at meetings, work out who in the other negotiating team holds real power (not always the boss), and help smooth out any inadvertent wrinkles.

Conversely, the presence of a Westerner should be exploited to the full. Chinese interlocutors will often see a visit by a foreigner as an indication of sincerity and commitment by the Western company. Perversely, they often do not accord mainland Chinese or Hong Kong representatives the same status as a foreigner. The ideal sales team, therefore, is often a Chinese to take care of the working level contacts, and a foreigner to do honour to the higher echelons.

7. Face to Face
“Face” is an essential component of the Chinese national psyche. Having face means having a high status in the eyes of one’s peers, and is a mark of personal dignity. The Chinese are acutely sensitive to gaining and maintaining face in all aspects of social and business life. Face is a prized commodity which can be given, lost, taken away or earned. Causing someone to lose face could ruin business prospects or even invite recrimination. The easiest way to cause someone to lose face is to insult an individual or criticise them in front of others. Westerners can unintentionally offend Chinese by making fun of them in a good-natured way. Another error can be to treat someone as a subordinate when their status in an organisation is high. Just as face can be lost, it can also be given by praising someone for good work before their colleagues. Giving face earns respect and loyalty. But praise should be used sparingly. Over-use suggests insincerity on the part of the giver.

8. The Pecking Order
Mao Zedong’s thoughts on discipline published in 1966 provide a valuable insight into structures which persist in Chinese organisations even to this day : “The individual is subordinate to the organisation. The minority is subordinate to the majority. The lower level is subordinate to the higher level.” This quotation, which underlays the way China was governed for over 20 years, indicates why Chinese society and companies are very hierarchically organised, and why Chinese people seem to be more group-oriented than individualistic and often do not like to take responsibility. Similarly, people are seldom willing to give an opinion before their peers as it might cause loss of face with a valued ally.

9. Tricks of the Trade
Chinese negotiators are shrewd and use a wide variety of bargaining tactics. The following are just a few of the more common strategems :-
i) Controlling the meeting place and schedule
The Chinese know that foreigners who have travelled all the way to China will be reluctant to travel home empty-handed. Putting pressure on foreigners just before their scheduled return can often bring useful benefits to the Chinese side.
ii) Threatening to do business elsewhere
Foreign negotiators may be pressured into making concessions when the Chinese side threaten to approach rival firms if their demands are not met.
iii) Using friendship to extract concessions
Once both sides have met, the Chinese side may remind the foreigners that true friends would reach an agreement of maximum mutual benefit. Make sure that the benefit is genuinely mutual and not just one-way.
iv) Showing anger
Despite the Confucian aversion to displays of anger, the Chinese side may put on a display of calculated anger to put pressure on the foreign party, who may be afraid of losing the contract.
v) Attrition
Chinese negotiators are patient and can stretch out discussions in order to wear their interlocutors down. Excessive hospitality the evening before discussions can be another variation on this theme.

10. Counterplay
Foreign negotiators dealing with Chinese may find some of the following tactics helpful :-
i) Be absolutely prepared
At least one member of the foreign team must have a thorough knowledge of every aspect of the business deal. Be prepared to give a lengthy and detailed presentation, taking care not to release sensitive technological information before you reach full agreement.
ii) Play off competitors
If the going gets tough, you may let the Chinese side know that they are not the only game in town. Competition between Chinese producers is increasing. There may be other sources in the country for what your counterpart has to offer.
iii) Be willing to cut your losses and go home
Let the Chinese side know that failure to agree is an acceptable alternative to making a bad deal.
iv) Cover every detail of a contract before you sign it
Talk over the entire contract with the Chinese side. Be sure that your interpretations are consistent and that everyone understands their duties and obligations.
v) Be patient
Chinese generally believe that Westerners are always in a hurry, and they may try to get you to sign an agreement before you have adequate time to review the details.

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