How to Succeed in the China Business Environment - Lessons Learned
Thomas G. Putvin
Thomas G. Putvin, President, Putvin Enterprises Incorporated (PEI), Utica, MI 48315, 810/944-5111, firstname.lastname@example.org
Xiong Pei Lu
Xiong Pei Lu, President, SAIC USA Inc., Warren, MI 48093, 810/582-9117
86th Annual International Conference Proceedings - 2001
Abstract. To be successful doing business in China one must practice the three P's: 1) be prepared, 2) be patient, and 3) be practical. Today as China continues to open up to the outside world one thing does not change. China is as far away as you can get from North America, not only geographically, but also in terms of political, social, business and cultural aspects. With China's entry into the World Trade Organization (WTO) many North American companies are considering doing business with China for the first time. Vital to anyone's success in China is a clear understanding that the American way will not work and that western logic does not apply. Doing business in China is radically different than what most Americans would expect. You know the Purchasing basics; what you may not know is how to survive in such a "foreign" environment.
Purpose. The purpose of this presentation is to convey to the audience the importance of proper presentation when proceeding to do business in China and, based on lessons learned, to provide information on the value of being patient and being practical.
Process. The process used in the presentation will be to draw from the experiences and lessons learned from living in China and working with different joint venture companies to inform the audience on how to prepare, what to prepare for, and how to survive once in China.
Product. The product, or end result, will be that the audience will have the knowledge they need to hit the ground running and to be successful doing business in China.
Being Prepared. When starting out do not overlook the basics. Veteran travelers may take having a passport for granted, however, are you aware that you need a minimum of six months remaining prior to the expiration of your passport if you want to make a side trip from China to another country, for example, Singapore. Next, the visa; you need a visa in order to enter into China. The visa application and approval process can take up to six weeks. Also, you need to be prepared to deal with the time difference. Although this may seem like a simple thing, it will surprise you how many times you may want to pick up the phone during a break in a negotiating session only to realize it is 3:00 am back at the home base. Of course, you have to be prepared for different electrical current, 220v versus our 110v. As it turns out voltage is the easy part, the difficult part is being prepared for the assortment of outlets that you will need to have adaptors for in order to connect your transformer or dual voltage electrical device to. Oh, and do not expect to get off the plane and jump into a rental car. Hertz and Avis have not made it to China.
Be prepared for "culture shock." In the introduction to his book, Chinese Etiquette & Ethics in Business, Boye Lafayette De Mente says of the Chinese; "Their attitudes and behavior are rooted in a culture that is different from and often diametrically opposed to Western thought." This may be the understatement of the millennium. Here is an example of the cultural difference as well as a commentary on the Chinese legal system. This is a true story. A foreigner was involved in a traffic accident in Beijing. Everyone, police included, agreed that the other person, a Chinese national, was at fault. However, the judge ruled against the foreigner stating that if the foreigner had not been in China the accident would not have happened. The best way to prepare for the "culture shock" is to read and study the history of China. Starting with the fact that, as a people/civilization, they have been on that ground for over 5,000 years, the more and better you understand their rich history the higher your success rate will be in doing business with the Chinese.
From a company point of view, being prepared includes selecting the "right" person to send to China not necessarily the best person. Normally a company selects their best people for new assignments. In the case of China if the person selected had the best technical skills and was the best negotiator but was not adaptable, flexible, patient and very tolerant of different ways of doing things, there would be a high risk of failure. Also, when a company is going to station a person in China for more than six months, they need to consider the family situation. If the spouse, and/or children, are having great difficulty adapting to the culture there will be negative effects on the employees performance.
Being Patient. Dealing with the Chinese requires a great deal of patience. It will do you no good to be in a hurry. Very often we want to "cut to the chase" or "get to the bottom line." This is simply not how business is done in China. The Chinese have a totally different concept of time than we do. They are absolute masters at being patient, so if you truly want to succeed in China, you too must become an expert on being patient.
In addition, you must build the relationship, i.e., get to know the person you are going to be dealing with. There is no rule of thumb on how long this takes — from a western point of view it certainly is a lengthy process. Know this: if you don't do it you are doomed. Getting things done in China is all about knowing the right people and knowing who really makes the decisions. As a wise Chinese business colleague said, "this is the most difficult issue." For example, does the company executive you are negotiating with have the authority to make the decision, or does he need to get the OK from the Party Secretary, or the Mayor, or (if the deal is over $30 million) the MOFTEC official? How do you find the answer? Being patient and properly developing relationships will allow you to have contacts in China that you can rely on to give you the answer. This concept of having and developing relationships is known in Chinese as guanxi.
A good way to build relationships with your Chinese business associates is to take them to dinner. Even though this sounds like the way some western companies operate, the fact is, everything about it is different. First of all, it is not called dinner, it is a banquet and it is typically held in a private room in a restaurant or hotel. Whether you are the host or the guest, the Chinese will insist on strict protocol. So do not just go in and sit down at the table. The Chinese have a way of taking protocol to the n-th degree and even though they do not expect foreigners to know the protocol they do expect foreigners to follow the protocol. They will show you where to sit. At the end of the banquet the host proposes a toast and ends with "gan bei," meaning bottoms up. The guest then reciprocates. A word to the wise, do not attempt to keep up with the Chinese when it comes to drinking! This is an area they have perfected over a thousand or more years. It is more about tactics and business than it is about drinking. The object is to loosen the inhibitions of the foreigner and thereby gain some information or advantage that they may not otherwise achieve. Frequently one of the members of their delegation will have the responsibility to write down everything you say. One of their drinking tactics is to have each person in the delegation toast to you separately. Obviously, if there are five people in their delegation that means you end up drinking five times as much as any one of them. Another tactic is for them to arrange with the waiter to put something different (non-alcoholic) in their glass while you drink the 120 proof Mao Tai. Be aware, there are numerous variations to these tactics.
Patience is an essential part of negotiation and Purchasing professionals take this part of the business very seriously. So do the Chinese. They closely associate the strategies and tactics of warfare with business dealings. For those who want the utmost success in dealing with the Chinese, studying the writings of the famous Chinese General Sun Tzu is essential. Although the writings of Sun Tzu are almost 3,000 years old they are just as fresh and meaningful as the day they were written. Not only will this prepare one to understand when, where and how the Chinese are using these tactics, but one may also want to use some of these tactics. To paraphrase Sun Tzu, know yourself, know your enemy; 1,000 battles fought, 1,000 battles won.
Being Practical. Last but not least you need to be practical about what you expect to achieve in China. Do not ever go into a business venture in China with the attitude that you are going to take advantage of the developing country scenario and reap huge savings for your company. This will do you no good because eventually the Chinese will see through it. Be humble, be practical. The Chinese will appreciate that and it will contribute to your long-term success in China.
Being practical also involves understanding that there are differences in the way business is done, and, regardless of whether or not you agree with the Chinese ways, being able to learn about this different culture and adjust your behavior to avoid unnecessary conflict. For example, in our way of doing things, once the contract is signed it's over, done, "signed, sealed and delivered." Not so with the Chinese. This represents the beginning of the "negotiations," the start of a long relationship.
With all the differences, the strange ways, and the aggressive tactics that will be working against you, you need to be realistic and practical about what you expect to achieve in this foreign environment. Even though the difficulties and the differences have been highlighted here, things are not all negative. Of course, there are a myriad of other serious business issues that need to be sorted through, such as:
- The effect of China's entry into the WTO on their domestic economy
- What happens with the convertibility of their currency (RMB vs. USD)
- What is the potential for political unrest in the region if China decides to get aggressive about bringing Taiwan back into the fold
All companies need to do their due diligence before deciding to do business in China. There must also be recognition that any and all business decisions for China have a long-term focus.
Being practical is another one of the keys to having a successful business relationship in China. Just remember, practically speaking, it is still people dealing with people that gets the job done. The Chinese people are a very friendly, courteous, and caring people.
In summary, if you are prepared, do your homework, find out about the Chinese and what they want; if you have the utmost of patience in all your dealings; and if you are practical about what can be achieved; you will succeed in the China business environment.
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- Paynter, Alan, "Book of Opposites." Unpublished: 1999.
- Sinclair, Kevin, and Iris Wong Po-yee. Culture Shock. Portland: Graphic Arts center, 1990.
- Wee, Chow Hou, Lee Khai Sheang, and Bambang Walujo Hidajat. Sun Tzu: War and Management. Singapore: Addison-Wesley, 1991.