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Five Common China Mistakes To Avoid

Posted in Basics of China Business Law, China Business

American companies typically make a lot of mistakes in China. And even when they don’t make mistakes, they get frustrated.

Though mistakes and frustration will always be par for the course in China, at least some heartbreak can be avoided by following these five principles:

  1. Do not underestimate China’s up-front time commitment. American companies tend to underestimate the time their senior managers will need to devote to China, but the worst offenders are SMEs (small and medium sized entities). SME owners often think they can go to China one time, hire a brilliant local staff person to run the show, and never have to come back. Companies like that rarely make money in China — they either go out of business or discover that their local staff person’s brilliance is matched only by his or her self-dealing. Doing business in China is difficult, and almost never works without high-level people from the home office coming to China for at least a couple of years.
  2. Do not underestimate how long things take in ChinaWe Americans like to get things done fast. But China operates according to its own clock and sometimes you just have to back off and let things happen. Many Chinese companies are not primarily motivated by economic efficiency. Their goal may be employment for the local community, or to fill a quota, or to get the boss’s son a green card. If you are doing business in China, you must learn patience.
  3. Do not think you have a deal with a Chinese company until you have the deal. My firm’s China lawyers are always getting called by American companies wanting us to document a deal that never really existed. So many things can go wrong on a China-U.S. business deal. A Beijing-based American lawyer recently told me that around half of the deals on which he has worked “never closed due to cultural differences between the American and the Chinese sides.” If you add in another 20% or so for deals that fail to close because they cannot legally be done (though both parties thought that they could) or because the Chinese side found someone else (it is very common for Chinese companies to be negotiating with multiple companies at the same time) or just changed its mind, you can see why just doing deals can be so frustratingly difficult.
  4. Do not underestimate the difficulty in finding quality personnel for your China operationsFew Chinese professionals today understand what American companies need. They generally do not understand the level of detail, the idea of thoroughness, the standards and the expectations that American businesses take for granted. Chinese professionals tend to be reactive and will blindly follow directions even when they know the method employed is ineffective or counter-productive. Six months later when it turns out this was the wrong thing to do, your Chinese managers will tell you they knew this all along, but that they were just following your orders because “you’re the boss, and you said to do it.”
  5. Do not rely on guanxiI am convinced that our clients who never use the word “guanxi” have a ten times higher China success rate than those who do. This is not because having good relationships in China is not important — it most emphatically is. Rather, it is because having good business relationships is important everywhere, not just in China, and those who use the word guanxi seem to use it as an excuse for abandoning common business sense. As in, “Why did you send them $500,000 without a written contract?” Answer: “Guanxi.” If you are planning to set up a long-term operation in China, you should cultivate important connections and a network of useful connections, just as you would do in Amsterdam, Chicago, Sydney, or anywhere else. But if you are buying a container of stuffed animals or bathroom fixtures, your time would be better spent inspecting the goods and negotiating solid sales agreements. Do not let talk about guanxi divert you from taking appropriate precautions and insisting on adequate protection

If you are at least mindful of the above five principles your chances of success will go up.

What do you think? What else?

  • On the Corner

    Amen!! and just the tip of the iceberg ~

  • Robert Walsh

    #6. Never forget to carry your own toilet paper when traveling. In other words, never assume that something is naturally understood as international business practice, as a matter of course.

  • ollumi

    Couldn’t agree more, be ever vigilant of the growing bush industry of expat targeting “consultants” who were “successful” within a year and are now very eager to share the secrets of their brilliant success story with you.

    Companies also used to make the mistake of hiring someone from HK or Singapore or even Malaysia to direct operations here – and end up getting the worst of three worlds: someone who’s looking out for his own interests at all times, does not have any kind of real grasp of on-the-ground environment, and doesn’t have a clue about the standards of the home office.

  • Tim

    I was just speaking to a journalist the other day about a comment I made that China is not easy and that not everyone belongs here. She asked if this attitude was a result of the current economic climate. My response was no, that this was always the true; it’s surprising in a rather obvious way, how after decades of aggregate business experience in China, so many new entrants still believe they are special and ignore the combined experience of those before them.

    They should hand out these five points on the plane with the arrival form.

  • Anneis1030

    Agree to all except #2. Starting a business in any places with unfamiliarity of local game rules is extremely frustrating and difficult. Rules varies from time to time and place to place. It is always safer to count in some extra time for those unexpected curveballs to ensure things get done before deadline.

    Chinese companies have their own tempo, so have companies in the U.S. and any other countries. As a matter of fact, most people in China do not take vacations. Yet I do believe sometimes you need patience while dealing with companies in China. Not because they are slow but they seem like taking the edge off things, which can be very annoying for someone trying to figure out and follow the new game rule.