7 Deadly Perceptions About Doing Business with China

Share Tweet Stumble Save Print Email This Post

Were really wasting time, says Janet Carmosky, CEO of the China Business Network. Carmosky knows what its like to be busy. When not running the China Business Network, a resource geared towards international professionals doing business with China; advising major corporations on their China strategies; or speaking at conferences, she writes about China for publications like the Economist and the Harvard Business Review. Carmosky, in other words, is a connoisseur of the elusive place where American culture meets Chinese. Its quite a feat, considering that the two cultures contain a significant number of diametrically opposed attributes. For example, definitions of time. The Chinese define time cyclically, while Americans have a linear definition that goes hand-in-hand with always being in a hurry. If were in a hurry anyway, how can Carmosky claim were wasting time? China is running rings around us economically, she explains in an interview with Business Pundit. Yet we continue to think theyre suffering from some sort of malnourished form of capitalism. We think they need our business. Thats just not true. These myths, along with several others, are causing Americans trouble, not only in their business dealings with the Chinese, but in a globally competitive economy as well. Carmosky wants to get as many American businesspeople through China 101 as quickly and effectively as possible. Being terrified of a culture, then masking those feelings in a sense of superiorityas Carmosky claims we do with Chinaisnt conducive to successful business and economic relations. Business Pundit interviewed Carmosky to uncover seven deadly sins around doing business with China. These sins have less to do with specific behaviors (such as talking about politics in a group, which is a big no-no) than with perceptions. Cleansing erroneous assumptions, however, and the smaller details will come into place more easily. Heres what Carmosky had to share, in her words: Perception #1: Assuming Chinese Do Business the Same Way Americans Do Though both parties deal in US dollars, Americans and Chinese have vastly different business cultures. While America is transaction-oriented, China is relationship-oriented. Theres a chasm between these two styles of interaction. (ed. The comparison between Chinese, Indian, and American styles of conducting business (below) illustrates the differences between us.) The United States: Transactions Define Everything

Americans are transaction-oriented. We like to walk in the door, figure out a deal, sign the contract, do the deal, and get out. We then use these transactions as building blocks towards developing some kind of a relationship. The building blocks are the transactions. The transaction is were buying, youre selling, its all very arms length. India: Projects Make Results Indians are project-oriented. Its a little bit of a longer view than a transaction, because in a project, there are more details and teamwork involved. A project involves doing the task togetherunlike an arms-length transactionbut theres a defined beginning, middle, and end. The Indians are *very* good at this. China: We Know Where You Live Capitalism The Chinese are neither transaction-oriented nor project-oriented. They are relationshiporiented. Chinese only use the people they know, like, and respect. To them, a transaction is not really business. This is part of the reason we have quality problems. To them, shipping a container of widgets for a letter of credit is not a relationship, even if youve been doing it for 16 years. Before they do a transaction or project with you, they want to know who you are. They have to figure out whether they respect you and like you before starting. Theyre not comfortable doing a project or transaction first. Their form of capitalism is we know where you live capitalism. Traditionally, theyd lend you money to start your factory because they know everyone in your clan or village. In the modern area, theyll lend you money because youre following certain directives. Everyone has to follow government directives. If the state tells lenders that have to lend to wind power, and you have a wind farm, theyll lend to you. If anything goes wrong, they know where you live.

Perception #2: Assuming a Contract Will Get You Respect from China Chinese are concerned with being in a business relationship that is based on mutual respect, realism, and flexibility, and that can evolve over time. From a Chinese point of view, if situations change during the course of your business relationship, naturally youre not going to be bound to the initial agreement. That would be rigid and unrealistic, so they dont respect that point of

view. They believe that if youre going to be business partners, its not about the rule of law, its about the relationship. For example, if Im a going to contract a cotton business with you as a supplier, and the price of cotton quintuples during the term of the contract, and Im losing my shirt abiding by the contract terms, then, from a Chinese point of view, youre driving me out of business by keeping me bound to the contract. As a Chinese, I would want a relationship where I go back to you and informally renegotiate the terms of the relationship. For example, I would say listen, the price of cotton has quintupled. We have to get out of this business completely; were going bankrupt here. I know were in a relationship with you where we have to supply you cotton for the next five years. So how about I find you some cotton from Turkey and Vietnam, and you and I both take some of that margin that we were initially going to take from the cotton field, and we invest it in a joint venture to process it. Wouldnt that be better for both of us? If youre impatient and short-term in that kind of situation, you wont win their respect. Theyll think youre using them by forcing them to sell products for you at low cost and almost no margin. Then they might say that if its going to be that way, then Im going to steal your intellectual property. Whats so one-sided about that? Theyre just treating you the same way. Perception #3: Assuming Chinese are Unethical Because They Dont Respect Contracts The misconception about doing business in China is that they dont respect contracts and that makes them unethical. What it really makes them is practitioners of we know where you live capitalism, which quite frankly theyve done really well with. Chinas been the most powerful, wealthy, and technologically advanced nation in the world a couple of times. And they invented capitalism. Theyre not suffering from some sort of malnourished form of capitalism compared to how Americans do it. Their form of capitalism is entirely relationship-based. Our form of capitalism is so impersonal. Its other peoples money (OPM), and its all about performance forecasts, transparency, etc. Its not about realism. The attitude isnt Hey honestly, I respect you, you respect me, Im a good businessman in my part of the world, youre a good businessman in yours, lets get together and make sure that this works for both of us. Its more about Im sorry, you missed your numbers, youre screwed. If you think about it that way, you see why respecting contracts makes more sense in a transaction-based economy. Perception #4: Thinking Chinese Need American Business A major misconception Americans operate on is the assumption that the Chinese need something we have. This is decreasingly true. Americans know it in their guts, but they do not want to say it. They will hire me to go in and be a corporate trainer. I will say: What are your objectives? They will answer that We dont want to inadvertently offend the Chinese. Well, in that case, I think you better start figuring out how the make them respect you.

Right now, we think that being a big American brand, like Johnson & Johnson, will make them move heaven and earth for you. They wont. Theyll take your purchase order if they need it, but American clients typically are not the #1 account for Chinese firms. Even if youre a big American company, they havent necessarily heard of you. If they have, they dont necessarily have any innate desire to do business with you. Your purchase volumes might be smaller than what they really want. Your demands for diversifying the product line (were a mature economy with a lot of customization) might be a serious pain in the butt for them. We think theyre going to want our business, and its just often not the case. The Chinese can do business with the British, the Dutch, the French, the Japanese, the Italians, the Taiwanese, the South Africans, the Yemeni, and 20,000 Chinese companies who are doing something similar to you. Back home, youre probably dealing with, at most, a couple hundred competitors. In China, youre dealing with global competition, a couple thousand competitors.

Perception #5: Treating Chinese Our Way, and Assuming They Will Adapt The dollar is in the can right now. As a businessperson, you have to really figure out the laws that the Chinese are in. Treat them as a valued customer. Sell them on the idea that you are an asset that they should be doing business with. If we want to play the game, we need to focus less on what we want from them, and more on what we have to offer, what we have that will add value to their professional lives. Right now, the mindset is more aloof. We assume they want to have our business. That really needs to change. We need to start with an open approach that acknowledges that these people dont have to do business with us. They dont need us. Past that point, you can be as American as you want. Were always going to want contracts to be respected, and the Chinese know that. They are working very hard at moving their whole economy and society to something thats more respectful of the rule of law. Were doing a great service to the Chinese nation as a whole by showing an example of how the rule of law is implemented. We need to keep doing that. We can be ourselves, just a little more openminded and respectful. Instead, Learn About We Know Where You Live Capitalism Know that Chinese are not going to respect me unless you spend some time showing them who you are and who your company is. Theyre perfectly happy to shoot you a container of widgets or a letter of credit, but if you want a real relationship, you need to show them who you are, as an individual. The Chinese do not separate their personal and professional lives, because its we know where you live capitalism. How would they know where you live if theyve never eaten at your house for dinner? My Chinese friends and I will call each other and talk about business

anytime of day or night, literally at 2 oclock in the morning. The time of day doesnt matter. You could call and say hey, Im out at the disco, lets talk about this business aspect. Being in a relationship means sharing more information with them, involving them in product development, giving them better terms, helping them finance their raw materials, and who knows what else. If youre their real partner, and give them what they need to grow their business, they will stick with you. Perception #6: Thinking All You Need is One China Guy Another important misconception is that if you have a China guy, youre fine. This is why it wont work: Picture a bridge. At one end of the bridge, you have a really effective local guide to New York City. At the other end you have a really effective local guide to Shanghai. Each guide is really good at his or her locality, but going across the bridge, they might get lost. Then there are people like me, who stand in the middle. I can kind of reach both ends, but Im not an expert guide to either place. If youre serious about doing business in China, you dont just need a single China guy, or a single expert who stands in the middle of the bridge. You need a whole team. Im talking about legal, tax, and commercial due diligence people, marketing strategists, HR specialists, Chinese local counsel (foreign lawyers are not allowed to practice law in China), and good government affairs people. It takes a whole network. If you underestimate the role of the Chinese government in creating demand and fostering enterprise growth, you are dead in the water. If you underestimate the importance of the regulatory regime in China, for example, getting your permits, licenses, and operating documents in order, you are dead in the water. I dont think corporate America really knows that yet. Perception #7: Thinking We Dont Have to Worry About China Yet Many corporate headquarters dont seem to realize that there is such a thing as Chinese business culture, but individuals are bumping up against it every day. A lot of employees in corporate America have realized how important success in working with Chinese colleagues is for their professional development. If you work for Proctor & Gamble, Motorola, Johnson & Johnson, or Black & Decker, chances are, some percentage of headquarters personnel are carrying out communications with China every day. There is growing awareness on an individual and executional level in America that Chinese are different from us, they are worthy of our respect, and were not dancing in the way theyre dancing, so we have to try to get along. Parting Words If you want to do business with China, you have to earn their respect. Do this by being open, flexible, realistic, having a sense of humor, and being a human being rather than a corporate functionary. Be someone they want to have a relationship with, not just the mercenary of a transaction. You have to prove to them that theres some advantage in working with you. Dont just take for granted that theres some built-in incentive.

Thats all it takes, the mindset of acknowledging that theyre really important to us. We need to put in a little effort to try and meet them. Maybe were not capable of meeting them halfway right now, but theyre all speaking English. Theyre all doing business in US dollars. If you think about it, theyre meeting us more than halfway. And I dont know whether thats necessarily permanent.

Understanding Chinese business culture and etiquette

The Chinese business practice is vastly different from the Western method that most of us may be used to. Of course, with the Chinese economy opening up, China's joining of WTO and the Olympics in 2008, many Chinese business practice are now beginning to align with more conventional methods. However, China will always have their own unique business culture and etiquette, given their unique history and background. "I was recently involved in a business meeting that went sour and threatened to scuttle a good deal. What happened was that the Chinese party recieving the American purchaser was late in reaching his hotel. The American was furious as he had a tight schedule and that they were late and threatened to withdraw his purchase. The Chinese party was late because they were given a vague address of a lake-side hotel. You see, what happened was that the American gave his hotel as Lakeside hotel. Unfortunately, there were numerous hotels along the lake but the Chinese were too shy to enquire which lakeside hotel earlier because they were afraid the American would 'lose face' for having given a vague address. Instead, they spent the morning hopping from one lakeside hotel to another looking for this American gentleman." A simple cultural difference threatened to scuttle a perfectly good working relationship. To avoid similar cultural disasters, here are some tips on how you can conduct a more successful business in China. The initial approach Chinese business contacts are mostly referrals; essentially a business relationship is struck based on another business associate recommendation. The best prices and deals often comes from a strong recommendation. However, it is common today for cold calls and direct contacts, given the availability of the internet and the competitive nature of Chinese businesses. You may source from the internet, trade fairs, catalogues and brochures, advertisements and approach the Chinese companies directly through a call or email. Alternatively, if you are seeking to invest in a factory in China, you can approach a investment committee or a business advisory directly. They will be able to advise you on your best location based on your industry, raw material and manpower needs. Please contact us directly if you have such a need and we'll be glad to advise accordingly. Business Relationship in China Chinese business relationship inevitably becomes a social relationship after a while. Unlike Western business relationship which remains professional and perhaps, aloof, even after a long time, Chinese business relationship becomes a social one.

The more you share your personal life, including family, hobbies, political views, aspirations, the closer you are in your business relationship. Sometimes, a lot of time is spent discussing matters outside of business, but then a lot of time, the other party is also making up his mind about your deal based on how much he sees your personal relationship with him. Seniority is important in China Seniority is very important to the Chinese especially if you are dealing with a State owned or government body. Instead of addressing the other party as Mr or Mrs so and so, it is always appropriate to address the other party by his designation ie Chairman So and So, Director So and So or Manager So and So. When giving out namecards or brochures, make sure you start with the most senior person before moving down the line. When giving out a namecard or recieving one, ensure that you are stretching out with both hands with the card. Remember to face the card you are giving out in a manner such that the recieving party gets it facing him correctly. Giving Face or Gei MianZi Giving face (aka giving due respect) is a very important concept in China. You must give the appropriate respect according to rank and seniority. For example, if you are buying gifts for an initial contact, make sure you buy better gifts for the senior managers instead of buying similar gifts across the board. Similarly, sitting positions in a meeting room or a dining table is accorded accordingly to rank, importance and seniority. It is good to seek advice before embarking on your first meeting with Chinese business contacts to avoid making the wrong move. Gifts and Presents Unlike earlier days when China was very poor, gifts, especially of Western origin was especially appreciated. Today, China produces and imports almost anything imaginable and gifts are no longer a novelty. However, gifts are always appreciated and especially in the smaller cities or towns, will continue to play an important part in your business relationship. Do note that if you are indeed giving gifts, make sure the senior people get a better gift or at least gifts perceived to have a higher value than their junior staff. Similarly, expect to recieve gifts from the Chinese, especially Chinese art products. It is polite not to refuse, especially if it is not of too high a monetary value. Lunch/Dinner in China There is no business talk in China without at least one trip to a restaurant. Sometimes, a trip is made to the restaurant even before any business discussion take place! Inevitably, the restaurant will always be a grand one and you are likely to be hosted in a private room. There is an elaborate seating arrangement for a Chinese business meal. There are fixed seating positions for the host and the guest and then they are seated again according to seniority. This is a very important aspect of a formal dinner and it is important that you follow the rules accordingly. However, it seems that the Northern Chinese are very particular to this formal seating arrangement while the Southern Chinese has loosen the formalities somewhat. Recommended Reading to understand Chinese social and business culture

Posted to China
Find out what corporate HR did not tell you Author: Ken Zhong Y.X ISBN: 981-05-1317-8 Drinking with the Chinese The Chinese are big drinkers especially in Northern and Western China. It does not matter if it is lunch or dinner; as long as a meal is being hosted, there will be alcohol. Chinese wine is the favourite, followed by red wine and beer. Chinese wine is more like fuel than liquor, having a alcohol concentration as high as 60%! No matter how good a drinker you may think of yourself, never, ever challenge a Chinese into a drinking contest. They will win, hands down! It is often seen as rude not to drink with the Chinese in a formal dinner. To maintain your sanity, either claim to be a non alcoholic or plead medical grounds as an excuse. This will let you off the hook with little or minimal drinks. Better yet, bring a partner who can drink on your behalf! After Dinner Entertainment in China Formal business dinner normally drags for quite sometime as there will be much social talk, some karoake, and drinking contests. Most of the time, everyone is too drunk to indulge in further entertainment after a dinner. In addition, if you are just new to this partnership, you are unlikely to be invited to further after dinner entertainment. However, once you are familiar with them, you may be invited to a Karaoke, or a Night Club, or a Suana. Do note that if they are the host for the night, all bills will be picked up by them for the night, including all entertainment. It is impolite to fight for the bill or worst, split the bills. Similarly, if you are the host for the night, you are expected to pick up all bills for the night. Controversial Issues in China There are some taboo areas in social conversations with the Chinese. Try to avoid these conversational topics as much as possible. I have seen many nasty arguements as a result of these topics: 1. You must not mention that Taiwan is an independent state or a country. 2. You must NEVER praise the Japanese or be seen to be good buddies with them 3. You can condemn Mao Tse Tung but avoid critising Deng Hsiao Ping 4. You must not praise Shanghai in front of natives of Beijing and similarly vice versa Other than that, you are pretty safe to converse with the Chinese anything under the sun!