A few weeks ago, I met with Scott Markman and John Yang of the Monogram Group, a Chicago advertising, branding, and market research company.  What differentiates the Monogram Group and what led to our meeting is their China practice, which they describe as follows:

In 2007, Monogram established the first branding practice in the US dedicated to creating brands for Chinese companies in the US market.

Our clients have ranged from large industrial to consumer product companies, and they include Goldwind Wind Turbines, Donghua Chain, Dongfeng Tractors, Wensli Silk, Asianbag Dashboard Mounts and GreenShip Pots & Planters.

In addition, we have published three national tracking studies on US consumers’ attitudes towards China and Chinese brands. These studies and our branding work for Chinese companies have been covered by media outlets worldwide, including Xinhua (China’s official press agency), Wall Street Journal, AdAge Global, Industry Week, ARD German TV, Chicago Tribune, Crain’s Chicago Business, China Daily USA, The China Business Network and others.

During our meeting, the three of us talked at length about the differences in how business is done in China as compared to the United States and at one point John spoke about the differing roles that trust plays in the two countries.  I loved what he said, how he said it and I particularly loved that he was speaking as a Chinese with extensive knowledge regarding the business cultures of both countries.  Both this blog and the entire China blogosphere are frequently criticized for our Western views on China and I cop to that.  As an excuse, what can I do?  Well, what I can do is to try to pull other viewpoints into this blog.

And that is what I have done here.

I asked John to write a guest post on the differing role of trust in China business as compared to US business. The following is John’s post.

 

Everyone doing business in China or with Chinese knows “Guanxi” — relationship. There are two types of “Guanxi”: connection based and money based relationships. As an American company, we don’t want bribe our way in, so let’s put money based relationships aside.

The most important factor in connection based Guanxi is “Xinren” — trust. What makes it difficult to do business in China is not lack of Guanxi but lack of trust. Whether you are American, Chinese, German, Japanese or Russian, we all need trust to do business with each other. When we do business without trust, things fall apart. However, there is a difference between Chinese and Americans on how to build trust.

Simply speaking, trust in America is built on social and legal systems, while trust in China is built on personal relationships.

In the US, we are taught to be honest and frank with each other. Chinese are taught the same thing in school. We are not only taught to be honest but also to do what we are taught. You can’t do business or even make friends without being trustworthy. The social system in the United States rewards honest people and punishes liars and cheaters. It is in everyone’s own best interest to be honest. Moreover, it is not just maintained on a moral level, but also a legal level. We do have bad guys here in the US as well, but that’s when the legal system takes care of them. There is no market for them.

In China, people don’t trust the legal system because it can’t always protect them. They can’t trust business partners they have just met for a few times because there are so many bad guys lying and cheating every day. They can’t tell if you are one of them, or not. People doing business with each other rely on their personal faith in those who they are working with.

There are many reasons leading to today’s status quo, including the following:

  1. Broken Legal System. China is a young country when we count how many years it has operated with a free market and Western laws. The laws are incomplete. What makes it worse is ineffective execution because of bureaucracy and corruption.
  2. History and Culture. China is a society that went directly from feudalism to communism. Chinese are still highly influenced by the rules/philosophy played in wartime. According to “The Art of War” by Sun Tzu, “nothing is too deceitful in war.” These rules are still valuable in politics and military, but they create negative side effects in business, where we are not fighting but collaborating with each other for our own benefit.
  3. Bureaucracy and Corruption.Because government officials are appointed by superiors rather than elected by the citizens, they only need to work for the interests of their superiors. A high level official in Jiangsu province wrote a letter of 8 golden doctrines to his son who decided to get into politics career.
    • Rule #1: Your objective is to not to find the truth but what’s right for you. Your superior is always right.
    • Rule #2: You should not only learn how to tell a lie but be really good at it. The careers of a hooker and an official are very similar. The difference is an official is betrayed by his mouth.
  4. Materialism. The opening up and reforming brought in the free market but also materialism and money worship. It’s like the gold rush era in the 1850s in the US. When I was in elementary school, honest people were praised. By the time I went to high school, suddenly, people preferred to marry their daughter to “sharpies and liars” because they were “smarter” and more suitable for society. Their years of experience after opening up and reforming told them sharpies and liars were making more money in society and becoming managers of companies, while honest people were staying as farmers and workers.

So what should companies do in China to protect their interest and overcome the hurdles?

  1. Contracts. The number one rule to doing business in China is not to completely rely upon contracts. People break contracts all the time. That doesn’t mean you don’t need contract; you always do. You just need more than a contract.
  2. Find the Right People. You are doing business with a company, but really, you are doing business with individuals inside that company. I’m sure you can find the good guys in China. It is just much harder to find them.
  3. Build Personal Friendship beyond Business Relationship. In the US, we need to build mutual interest to do business with each other. It is also true in China. However, it is equally, if not more important, to build personal friendship.
  4. Build An Effective System. It is critical to build an effective system (rules/procedures) to avoid giving the chance for bad behavior. When I was in college, my professor told us a simple rule of trust. “If you give me 5000 RMB and want me to keep it for you, you can come at any time to get it back. If you give me 50 million RMB and want me to keep it for you, I will calculate my risk, and may take it and leave.”