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Doing Business With China. The Ten Keys.

Posted in China Business

A friend emailed me a post the other day and asked me if I agreed with him that it was the “most helpful post your blog has done for helping foreign companies doing business with China.” My response was that I wasn’t sure, but that it certainly ranked up there and that it had been so long since we did that post (more than seven years), I would run it again. Certainly though the advice in that post holds equally true (or more so) today as it did way back then.

Here is that post:

If you are doing business in or with China, you have to check out ChinaSolved. It is operated by my friend Andrew Hupert, who also operates DiligenceChina, [link no longer exists] which is one of the best China business blogs. ChinaSolved is shaping up as a terrific resource on doing business in China. It is already chock-full of useful business advice.

Its article, “Ten Commandments for Westerners In China,” [link no longer exists] is typical of the site’s excellent and straightforward advice for foreign companies doing business in China. And I found myself agreeing with nine out of ten. Here goes:

  1. “Know what you don’t know” (for many westerners, this is by far the most difficult challenge.). Any similarities between China and “back home” are purely accidental. This is a completely different culture. Do not be fooled by surface similarities or by local people who “seem to get it.” Sources of reliable information are your #1 asset.
  2. China is still a communist country – and there is absolutely zero chance of that changing any time soon.
  3. You have to show up to win. You must be physically present and put in the “face time.” There is no “autopilot” in China business. If you feel that you are too busy to learn about China, then you are certainly too busy to be successful here.
  4. If things worked well here in China, then there would be significantly fewer opportunities for competent westerners. Try not to get too frustrated by the challenges you face.
  5. Time does not mean money here. Chinese business people do not believe in “opportunity cost.” Even simple negotiations can drag on for a long time. Avoid getting sucked into an endless cycle of meetings that don’t accomplish anything.
  6. Truth, honesty, good-will and long-term benefit are all culturally-specific concepts. Don’t expect your western standards to carry over here. Win-Win is not standard operating procedure here. Do not fool yourself that your long-term relationship with a local partner means anything.
  7. Don’t check your brains in at the border. You wouldn’t hand over your company’s money, intellectual property or trademarks to a virtual stranger in Sydney, London or San Francisco and expect to make a windfall. Don’t do it in China. The people that are offering to open doors for you are the same ones that can lock you out. Beware of people who peddle their “powerful friends and great connections.” They can use them to hurt you as well as help you.
  8. Due Diligence becomes more important when the language and systems are unclear, not less important. Don’t settle for the “least worst” deal or partner. Partners don’t get more honest and relationships don’t improve as the amount of money involved increases.
  9. China will still be here next year, and in 5 years. Don’t be pressured into signing a contract or making a deal because you are afraid of “missing the boat.” The boat has been here for 4,000+ years.
  10. Having a sense of humor helps. Having a Plan B helps even more.

I agree with all but number 6.  I understand why ChinaSolved felt it necessary to put it in here, but I think it is wrong.

Truth, honesty, good-will and long term benefit are not culturally specific concepts and long term relationships with local partners mean a lot. I think ChinaSolved felt the need to put this in here to make up for the common mistake of Westerners equating a week of good businesses meetings and friendly dinners in China with being set for life. All of us (China consultants, China accountants, and China lawyers alike) who represent Western companies that are doing business with China could fill a book with stories of China deals gone bad. So let us just take it as a given that Western companies constantly make the mistake of trusting too much, too soon.

But, I personally have also have seen enough to fill a book about excellent, mutually beneficial relationships between Chinese companies and Western companies.  And, at least as far as I know, every one of those successful long term relationships was based on trust and mutual long term benefit.

So I say we downsize to just nine commandments.

What do you think?

  • Vigarano

    I think number six is just fine. Of course there are businesspeople in China (and every country) who value good and mutually beneficial relationships, and “get” that, but there are many, many, many who believe they have been placed on this earth to score as heavily as possible as often as possible.

    And yes, many do not believe in opportunity cost, which means they don’t understand that screwing a partner with whom a mutually beneficial relationship might be possible could leave them without any partner for months or years (during which time no money is being made).

    This attitude, by the way, is not limited to relations between Chinese and foreigners. Chinese screw one another all the time. Some years ago I hitched a ride with an acquaintance, a hugely successful Hong Kong businessman, and I asked him how things were going. He shook his head tiredly and said, “I am spending my entire life trying to make sure my Chinese (his operations were in Guangdong) partners don’t screw me. He’d been in business for four decades.

  • Francis du Bois

    Keep it until the books are balanced – now we have one compared to many others…

  • http://jacobyount.com/ Jacob Yount

    Point #1 rings ever true. Assumptions on “how things should be” can be cancerous to whatever project (or even your life there if you live there). Circumstances can change on a dime and factors are not based on how one “believes things should go”.

    5 and 9 are a good inter-connected concept; from a Western standpoint, the management of objectives takes a different overall look. A good dose of daily patience is a lifesaver.

    Enjoyed the post.

  • Joel Silverstein

    Point # 6 is most critical in my experience over many years dealing in the domestic China market. Chinese people do not trust each other other than close family or very long term friendships.

  • Tim

    The most glaring mistake with this list is number 2. China is an authoritarian government that is ostensibly communist. Call it socialism with Chinese Characteristics but do not be fooled into believing this is in any way a communist country.

    A few others that are missing:

    - China is a rule by law country and not a rule of law country; authority will trump regulation nearly every time.
    - The Party’s main concerns are maintaining stability and legitimacy; not making the business environment easier for foreign investors
    - hospitality is not friendship; your drunken host doesn’t really like you as much as you think
    - China is a low-trust, shame society; do not rely on the other side’s sense of fairness and ability to sleep at night
    -Leave you guilt over China’s treatment by foreign powers before you were born at home; it has no place in your decision making process
    - Guanxi retires or goes to jail; and you likely never had any in the first place
    - Chinese are incredibly resilient and highly aspirational; they don’t stay down for very long
    - They’re more like you than you think; Chinese are not exotic

    - Never accept “This is China, you won’t understand” as a legitimate answer
    - There is no such thing as a China expert; ‘US expert’ sounds silly, and they’re both stupid concepts
    - China will be more expensive for you than your local competitor; accept it and move one
    - There is no one-size-fits-all profile for Chinese personalities; it takes all kinds to fill a country of a billion plus

  • Jeremiah

    Okay. I’ll bite. I think all are valid. I particularly like numbers three and four. I would add a bit about cultural differences. Too often disputes/disagreements/conflicts between foreigners and Chinese doing business together are chalked up to cultural differences. In my experience, sometimes culture has little to do with it. There are just some people who don’t get along. Before assuming it’s culture–a great gulf fixed–look to see if it is a personal issue that can be resolved by the standard means of talking it out or reconfiguring the work team. Sometimes it IS culture, but often it is not.

  • Bill Hable

    Points 3 and 4 are the most valid. I’m afraid however that the internet has precluded more and more folks from following point 3.

  • http://www.shigroupchina.com/ Jim Nelson

    Jeremiah, very well said, Cultural differences often are not the main point. Chinese people can be found who are very Chinese and very ethical. It is the EQ and the ethics that we must think through when we hire, do deals, or otherwise cooperate.,

    I also puzzle about China is still communist. China is still authoritarian, sure, Some leftist thought gets played out, yes, But Obama is more left than this government, We should not fool ourselves that this government will be altruistic toward us, They will put their constituents first just like our government does. So they will help us when it helps them and the people all the time, We should not be surprised.