Just got a PR email touting a podcast by John Jullens, a Partner at Booz & Company based in Shanghai. The podcast sets out eight “best practices” for partnering with a Chinese business and though none of the eight should be the least bit earth shattering for anyone doing business in China or with China, they do all make good sense. Here they are as set out in my email, with my comments in italics.
- Focus on filling capabilities gaps by selecting a partner who is demonstrably able to provide the organizational capabilities a business needs to be successful in China. In other words, partner with a Chinese company that actually understands China.
- Don’t be fooled by guanxi, the importance of which is often overestimated and can deter focus from the goal of filling capabilities gaps. I agree. For most industries, there are many things more important than guanxi. For more on the overvaluing of guanxi, check out How We Really Feel About China, Part I: Guanxi
- Drop the marriage metaphor. This is consistent with Chinese antitrust laws, which allow for “non-monogamous” arrangements, such as joint ventures with more than one partner, including companies that are direct competitors. My advice here is merely to be flexible. Set up your deal so that the legal side serves the business side, not vice-versa.
- Keep on triangulating to fill data gaps. Because much data is simply not available or transparent in China, foreign businesses must create and constantly maintain their own information base by interviewing officials, friends and business leaders. Put more simply, make sure that you know your Chinese partner and to know your Chinese partner you must conduct due diligence that goes beyond just documents. For more on China due diligence, check out Doing Business In China Safely. The Due Diligence Basics.
- Conduct a thorough stakeholder analysis before signing a deal to identify your Chinese partner’s key decision-makers and influencers, whose identities, interests and roles may not be clear initially. This is particularly important when dealing with Chinese businesses, where the key decision-maker(s) is oftentimes not clear.
- Clarify decisions rights up front to prevent unexpected actions by a Chinese partner. For example, the Chinese partner of a western business once exchanged its entire management team with that of a direct competitor. This definitely makes good sense. The thing I would add here is that you should not assume anything and, in particularly, you should not assume that your Chinese partner does business even remotely the same way that you do.
- Go easy on the integration so as not to impose your business’ processes and standards on a Chinese partner to the point of destroying its unique capabilities and value. I agree and I think this is important. I have seen too many deals in the United States where company A buys company B because of what company B has to offer and then goes in and completely remakes company B in company A’s own image, literally stripping off all of what caused company A to buy company B in the first place. I think this tendency is even greater in transnational deals.
- Find ways to earn trust by stressing your long-term commitment, empowering the local deal team and showing respect for your Chinese counterparts. Sure. Why not?