West Meets East
Make a good impression on potential business partners in China by orienting yourself to some key cultural differences.
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Because of the significant differences between Chinese and Western business cultures, companies planning to launch China-based endeavors must understand the etiquette rules and customs.
Achieving success with Chinese business partners means carefully cultivating a relationship of trust. If you blow it on your first attempt, you probably won't get another shot. Overall, the Chinese aren't fond of giving second chances.
"There's a right and a wrong approach to establishing a business relationship in China," says Sean Wall, deputy managing director at DHL-Sinotrans, a Chinese express-shipping provider. "If you're opening a footwear or textile business and at the first meeting tell the Chinese manufacturer how the industry works, and say 'This is how we'll do business'—that's the wrong approach.
"If you ask direct questions about a business—such as how much money it made in the past—that is the wrong approach," Wall continues. "If you expect business decisions to be made quickly at one meeting—that is the wrong approach. Chinese do not discuss or make actual decisions in a business setting."
You may find your usual methods of gathering information ineffective.
"Don't expect an answer to direct questions," Wall says. "And if you ask too many direct questions, Chinese simply won't do business with you."
Your conduct with hosts when out of the office together means even more than your behavior in business meetings.
"In the United States, you never do business with friends. In Asia, you only do business with friends," observes Sean Hurley, Asia Pacific human resources director at Agility Logistics, a provider of integrated supply chain solutions. "Before Chinese will do business with you, they want to spend time getting to know you personally. That usually means dinner with a lot of alcohol."
Know Your Audience
As in business everywhere, it's essential to understand the background and concerns of your contacts. Demonstrate your interest in founding a relationship with your potential partners by showing a firm grasp of the following issues facing Chinese businesses.
New focus on the domestic market. Historically, Chinese manufacturers focused on exports because the domestic market wasn't as strong, payment terms were unstable, and China lacked a credit system. Changes are occurring, however, because of the rapidly growing domestic market.
"So many products still don't exist here," observes Anna Cohen, president of Streamline Alliance, a U.S. trading company that specializes in China procurement services. "This presents an opportunity for companies to find new niches and make products with higher margins."
Unfortunately, companies don't always alert overseas clients that they plan to shift production to the domestic market. "We have to monitor what's happening in both the short and long term," says Cohen. "Thirty people in our Shanghai office frequently travel to Chinese factories to see how they're changing."
Westward expansion. In addition to focusing on growing its domestic market, the Chinese government wants to push factory development westward, where space is plentiful and labor is cheaper. To encourage this movement, the government is offering financial assistance—favorable loans, payments, and tax breaks—to manufacturers.
"If you move inland," observes Cohen, "many development zones offer good land deals and tax breaks."
These favorable conditions raise a number of issues for U.S. and European companies sourcing in eastern China. When will the plant move and how long will it take? Will the company be able to find qualified employees? What about logistics? The transport infrastructure in many western areas cannot support large containers, so how will goods move?
One major U.S. high-tech company built a factory in one of the new western development zones only to discover that the regional airport's runways were too short to handle the aircraft the plant required to service its outbound shipping volume.
"If U.S. companies don't know what's happening at their Chinese suppliers, they can't prepare for such changes and could be unpleasantly surprised," says Cohen. "Can the factory guarantee the same product quality after the move? If supplies aren't located nearby, it may take longer to source materials. How will this affect your supply chain?"
Quality troubles. Enforcing quality standards presents a huge challenge in China. "Right now, government enforcement mechanisms are far from robust," says Dwight Nordstrom, chairman of Pacific Resources International (PRI), a manufacturing holding and consulting company. "You can't assume a Chinese company will adhere to your quality standards over time."
Rising labor costs in and around major Chinese cities further complicate the situation. Product specifications begin bumping up against these costs, and a Chinese factory may switch to less-expensive materials, which might negatively affect product quality, without notifying the sourcing company.
"People can't be on-site 24 hours a day watching everything that goes on," says Mark Welles, vice president Asia/Pacific for TradeCard, a Web-based trade platform that synchronizes financial transactions with physical supply chain events. "So you need to establish processes for random, frequent sampling and stay on top of quality."
Additionally, be explicit in your specifications and requirements for both products and services. One European dog-toy company that sources from China "sends explicit production specifications about the kinds of substances that the products can't include," Cohen says. "Americans tend not to be as clear about their specifications."
Some U.S. companies make the mistake of testing the first sample that comes off the production line, then trusting that the factory will continue to produce to that level of quality. Cohen recommends sending products to an independent lab for testing and inspection.
The talent shortage. In China, companies struggle to find talent, especially in the supply chain segment. Of the 1.3 billion people in China, 80 percent work as farmers. China currently employs about 5,000 managers, but will need 80,000 in five years, according to a recent McKinsey study. Meeting this demand is among the biggest challenges the country faces today.
"Finding Chinese people who can develop into leaders is tough," says Agility's Hurley. "Americans and Europeans are used to taking initiative and getting the job done. Chinese society is patriarchal and organizations operate top-down. Workers tend to wait until they are told to do something—and only then do they do it. If they do something wrong, they lose face. So it's better to do nothing than do something wrong."
Given this cultural attitude, companies must adopt a more structured approach to management than what exists in the United States or Europe. Chinese employees expect clear, detailed instructions and a greater level of supervision and direction.
"Many Chinese workers are first-generation capitalists," Nordstrom says. "They didn't have parents who were managers or owners of profit-making businesses. You have to teach them how to do business."
Regulatory flux. Unlike Western societies, business law is a recent phenomenon in China. "In the 1980s, the total number of laws published in China filled a book less than one-inch thick," says Nordstrom. "Today, books of Chinese law can fill a room.
"Because many of the laws are new, knowledge and enforcement are sketchy," Nordstrom says. "The big difference from five years ago is that government relationship workers have to be aware of all the new regulations and understand the new class of bureaucrat whose job is to enforce these regulations. In the past, regulations were always negotiable."
Because of this regulatory flux, any foreign company doing business in China should consider retaining a government-relations manager. While legislation and regulation affecting supply chain activities is promulgated in Beijing, China's 33 provinces interpret these laws to suit local conditions.
For example, Beijing law requires Customs to release shipments within 12 hours if electronic data is presented correctly. Because of a major smuggling problem in southern China, local officials may require 100-percent shipment inspections, delaying clearance longer than 12 hours.
Words from the Wise
Knowing potential Chinese partners takes more than just understanding the issues they're currently facing. You also need to familiarize yourself with their prevailing attitudes, customs, and business approaches—not to mention some basic cultural differences.
Being aware of the following differences could help you avoid embarrassing, or even deal-breaking mistakes.
Negotiations. Don't get caught up in or bogged down by lengthy negotiations in China, because everything is a negotiation—down to buying admission tickets to a museum. Chinese are renowned for being tough negotiators.
Their primary aim in negotiations is to secure "concessions." Always bear this in mind when formulating your own strategy. Be willing to compromise and ensure that their negotiators feel they've gained major concessions.
If business negotiations turn sour, however, be prepared to walk away. "Once you get deal fever, and the other side gets wind of it, you've lost your leverage," says Welles. "Your board of directors has to be clear that a negotiation in China could last 14 months and not produce a deal. But no deal is better than a bad deal."
Don't expect quick decisions, and be absolutely sure of your facts. "Chinese people do their homework thoroughly when they prepare for a meeting," Wall says. "Westerners might have a gut feeling after establishing 90 percent of the negotiation figures, but the Chinese must have 100 percent of the numbers."
"Play it loose," Wall adds. "You may think you made little progress at a meeting. But at dinner, the Chinese businessman sitting next to you might say, 'We'll probably sign the contract with you tomorrow.' This style is tough for Westerners to get used to."
Contracts. "The business contract in China is a document that explains the deal at the point of signing," says Welles. "That paper won't necessarily protect you or prevent a quality issue from occurring. The contract creates the rules of the road that guide a relationship once you get one started."
Streamline Alliance has a Chinese subsidiary and signs contracts in Chinese using local law. "These agreements are easier to enforce," Cohen says. "An American contract written in English is impossible to enforce in China."
When DHL writes a contract between American and Chinese companies, it develops a hybrid agreement because "there's no one law system that can be used. Our lawyers have to go through the terms word by word with the Chinese partner to make sure everyone understands conditions they're agreeing to," says Charles Brewer, executive vice president-sales, DHL Express U.S.
Face. The perception of a person's character or prestige, known as "face," plays an essential role in the Chinese national psyche. Chinese feel acutely sensitive to gaining and maintaining face in all aspects of social and business life. They consider face a prized commodity that can be given, lost, taken away, or earned. Causing someone to lose face could ruin business prospects.
Westerners can unintentionally offend Chinese by teasing them good-naturedly. But just as face can be lost, it can also be given, such as by praising someone for good work in front of their colleagues. Giving face earns respect and loyalty, but praise should be used sparingly. Over-use suggests insincerity on the giver's part.
Chinese don't like to say "no" or be the bearers of negative news. Instead, they may hint at their answer indirectly in a conversation. Similarly, you may hear a "yes" response to almost every statement. Be careful of this empty "yes," as it may not always draw positive conclusions.
Verify what has been said to you to make sure you got the right message. It's important that all parties maintain face. If you think the answer to a question or proposal is really "no," verify your feeling by asking questions that can be answered positively.
Body language. Be conscious of body language and movement when doing business in China. Be as calm, collected, and controlled as possible. Keep your body posture formal and attentive, as this shows you have self-control and are worthy of respect.
Chinese usually greet one another with a slight bow or nod of the head. In business and with foreigners, they usually exchange a handshake upon greeting and departure.
They don't particularly like physical contact, especially when doing business. The only exception is when a host is guiding a guest. Even then, they will only make contact by holding a cuff or sleeve.
Business cards. When giving someone your business card, use both hands, careful that the writing faces toward the person you're giving it to, and say, "I'm pleased to meet you." The other person will bow slightly.
Likewise, when receiving a business card, accept it with both hands, make a small bow to the person, and say, "Thank you." Make a show of reading the card.
Don't place it in your pocket or purse immediately, as this is considered rude. If seated at a conference table, place the business cards you're given in front of you on the table. This shows respect to all present.
If you have time before your trip, get your business cards printed in English on one side and Cantonese or Mandarin on the other.
Respect Goes a Long Way
The many intricacies of doing business in China can seem overwhelming. But doing your homework, focusing on building relationships, and finding a trusted partner to be your representative on the ground can help you overcome the hurdles.
"Chinese are incredibly gracious," Nordstrom says, "and Americans are highly respected and appreciated. Anything you can do to show respect to them as a person, a family, a city, or a country goes a long way."
Mind Your Manners
Knowing what to expect when you meet with your Chinese contacts can help you make the best possible impression on them. Here's some advice.
When attending business and social meetings, arriving early indicates respect for the host. Although Chinese are not always on time, punctuality is viewed as a positive asset in others.
At dinner, wait for your host to tell you where to sit.
Use chopsticks, but never stick them upright in your rice bowl. This is a sign of death.
Chinese pride themselves on holding their feelings inside. They may not smile at a first greeting or as often as people do in other Asian countries. In Western culture, it's appropriate in a first meeting to engage in informal dialogue that includes humor. In Asian culture, however, humor can be seen as inappropriate. Talking about family is looked upon favorably because Chinese culture is family oriented.
Learning to say a few words in Chinese will go a long way toward beginning a good relationship. It's also wise to hire a translator.
In China, the family name precedes the given name, which is occasionally followed by the second name or the Western equivalent of a first name. For example, Huang Hua is called Mr. Huang, and Hua is his given name. However, some Chinese will switch the order of their names when they are dealing with foreigners. Further, many Chinese adopt Western given names.
Chinese have a high regard for rank and seniority, and are impressed by and more attentive to senior representatives of foreign firms. Ranking your company, especially if it's the biggest or the oldest of its type, can help to impress Chinese representatives.
Act Global, Work Local
Even major corporations can run into problems when they go into China without doing their homework.
"You can cut costs by producing goods in China, that's true," says St. Claire Gerald, supply chain management consultant and former director of supply chain management, Footlocker Inc.
"But you also have to manage suppliers located thousands of miles away, move raw materials into factories, and deliver finished goods back to your warehouses or customers."
Companies run into trouble when they skimp on due diligence. Toy company Mattel is a prime example.
"For years, Mattel has been bringing in millions of dollars of product from China," says Gerald. "It issued specifications for the factory that the toys must be painted, but that the paint must not chip. At the same time, it said the paint could not contain lead.
"The Chinese companies followed Mattel's instructions," Gerald points out, "but to meet the no-chipping spec, they used a binding agent, which did contain lead. They followed the specifications but added the extra step to meet Mattel's specs."
This miscommunication forced the toymaker to issue a major recall in 2007, right before the Christmas selling season.
To avoid mistakes such as this one, find local expertise—hire a third party who has contacts in your industry, knows well-connected people, and understands how the system works.
"If you want to produce apparel or computer chips, set up relationships with a partner who knows those industries and the people in them intimately," Gerald says. "That's my best advice: Find a partner who has local expertise, whom you can trust to act in your best interest."
"Spend face time with Chinese companies," Gerald adds. "Webcasts and podcasts are no substitute for face-to-face meetings. Face-to-face meetings pay dividends down the road in managing your suppliers.
"When issues arise, you have to be able to call on that relationship," he continues. "You need that foundation to work through problems. The road to success means establishing good personal relationships and working with a reputable partner who will support you."