Opportunity Knocks in China
By Dave Archer | September 30, 2006
As China has stormed onto the world stage of international trade over the past decade, much has been written about the opportunities and perils of doing business there. To be successful, it is critical to recognize and understand the underlying forces that are at work in that culture.
Some Chinese refer to themselves as "bamboo"; they are very tough and resilient – and there is a litter pile of Western companies that have crashed and burned in China to prove it. However, there remain immense opportunities to do business there as they look forward to another decade of an average of 10% annual growth – and the emergence of a middle class that is about to become a great market for imported products. The key is to understand what drives their behavior, and how to guard against the risks that lurk among the opportunities.
Don't knock prevailing Chinese business practices – instead, understand the cultural forces that influence how they think and act in business.
Explore 8 "Door Opening" tips to gaining an understanding of the values that influence their business behaviour:
Door # 1 – Cultivate Relationships
Guanxi – or personal relations – are extremely important in Chinese culture. In order to get a reasonable deal, it is very important to establish a good personal relationship with the principals on the other side. The better your relationship, the better chance you have of negotiating a viable agreement that benefits both parties.
Door #2 – Gather Consensus
Saving face is a major concern for people in many Asian cultures, and China is no different. They are very afraid of making a mistake, and if not entirely sure they are right, they are extremely reluctant to make a move. This is also reflected in their emphasis on group decision-making – often at the expense of personal initiative. Unless you are dealing with the top decision-maker at a company, expect delays in receiving a definitive answer while group consensus is being built at their end.
Door #3 – Embrace Hard Work Ethics
The Chinese value hard work on its own merit, and disdain those who don't. "She doesn't have a good job because she didn't study in school" was a comment I heard while in Shanghai recently. The stereotype of hardworking Chinese students here in North America stems from this very real value in their culture.
Door #4 – Conduct Due Diligence
Most people in China are extremely cordial and quite friendly, especially in a non-business environment. People there are usually polite, sometimes even have an air of innocence about them. However, in business and when money is involved, things can change. You may be treated like a king while your money is still in your pocket, but once they have it, the onus is on you to take steps to ensure that you get what you paid for. Conducting due diligence on your prospective business partner (credit checks, factory tours, asking for – and checking – references, written contracts, and having a representative that is on your side on the ground to monitor your business partner personally) are some of the ways of doing this.
Door #5 – Get It In Writing
Getting every aspect of a business transaction in writing applies in China, no matter how miniscule or obvious it may appear to us. Common knowledge and "goes without saying" does not exist, and if you leave yourself open by missing a detail in a contract, it will commonly be viewed as an opportunity to take advantage of your mistake – and in their mind, that's your fault, not theirs. Exact specifications should be included not only for the product itself, but also for the manufacturing process, raw materials, packaging, delivery times, and everything else imaginable that could affect the delivery, performance, and payment for the product.
Door #6 – Request Competitor Quotes
Benchmarking is extremely important to ensure that you receive a reasonable price. The first quote you receive for a product may be outrageous, but you can usually find out quickly by also requesting quotes from their competitors. The existence of intense domestic competition in China is one of the reasons they are so competitive in world markets.
Door #7 – Practice Business Savvy
Keep in mind that things are not always as they seem in China. You may be led to believe certain things about a company there, but when you go to check it out for yourself (or get your representative – Chinese speaking, of course – to do it for you) you may find the reality is far different. Here are some suggestions, based on real-life examples. If a company promotes itself to be ISO 9000 registered, be sure to ask for proof – and review the documentation carefully and confirm with the certifying ISO registrar. If a company purports to use a specific high grade of steel in its products, ask for the certificate of authenticity – in one case a metal stamping die was built of some type of steel that could not even be welded when the product needed to be serviced. And photos of factories may appear quite "different" from the real thing when it's actually visited!
Door #8 – Know How They Negotiate
The Chinese are excellent negotiators. When selling to them, their first answer to your quoted price, no matter what it is, is almost always "no", or "impossible". They know that Westerners often don't adapt their style to suit Chinese values; don't take the time to develop relationships (after all, in Western culture, personal relationships are not usually necessary to do business) and are often in a hurry to make a deal and go home. So they wait, watch, and listen – and take advantage of opportunities when they can.
Doors of opportunity in China abound – if you are prepared to knock before entering.