Doing Business in China Guide

Business Culture

Relationship Building

The challenges associated with building relationships and trust with local business partners, clients and customers, and with government officials can be a challenging aspect of doing business in China. While establishing a business presence in China has become more straightforward in recent years the problems associated with identifying key contacts in partner, client and government organisations, establishing mutually beneficial and trustful working relationships with them, and developing meaningful channels of communication have now become more pronounced.

All of this does make it difficult for some firms, especially smaller ones, to build their business in China. Again, an awareness of the particular conditions offered by individual regional cities will be needed if companies are to successfully build the relationships and contacts required to effectively transfer their business model there.

Building relationships is by some distance the best way to overcome many of the obstacles to doing business in China. In a highly competitive business environment, it is more important than ever for us to understand the business culture of our target markets. Understanding business culture helps us understand, anticipate and respond to unexpected behaviour. It also enables us to behave in an acceptable way and avoid misunderstandings. As the Chinese saying goes: ru jing sui su – “When you enter a region, follow its customs”.

However, knowledge of business culture – especially in a country as vast as China, where sub-cultures and practices differ from place to place and where every Chinese person is an individual shaped by different experiences – must be exercised with caution. A little knowledge is dangerous. But do not worry if you find the complexities of Chinese business culture daunting.

Just behaving modestly, patiently and politely, while not suspending one’s business judgement, is certain to provide a good foundation for successful business in China. 

In China, getting to know someone face-to-face is often regarded as the only way of finding out whether a person is trustworthy. In general, the Chinese set great store on building personal relationships before entering into a business partnership, often saying, “Let’s first become friends, then do business”.

You can expect your first, and possibly your second, visit to China to achieve nothing other than getting to know several possible candidates for business partnerships. This may seem a slow and costly way of getting started, but it is worth remembering that taking time to cultivate personal connections as the Chinese do is an excellent opportunity to get to know the people you will be working with. Introductions via a trusted intermediary can play a valuable role in opening doors, but there are no short cuts to relationship building.

You will undoubtedly encounter delays and frustrations when doing business in China. Keeping your temper (equated in Chinese terms with maintaining “face”), even when things go wrong, can pay disproportionate dividends. If you are not sure what to do in any given situation, it is best to err on the side of patience and politeness. Do not be afraid to ask a Chinese colleague for advice on how to handle matters.

Understanding and being responsive to the demands, requirements and perspectives of clients and government agencies are fundamental to business success in China. You will need to be patient, committed and flexible when dedicating managerial time and resources to China – and persistence, resilience, realism, and attention to detail best describe the managerial traits required!

Westerners normally build transactions and, if they are successful, a relationship will ensue. However, the Chinese believe that prospective business partners should build a relationship and, if successful, commercial transactions will follow.

This difference underlies many misunderstandings arising from business negotiations. Virtually all successful transactions in China result from careful cultivation of the Chinese partner by the foreign one, until a relationship of trust evolves.

 

Guanxi

Both Chinese and foreign companies will often attribute their business success to having good guanxi.

The objective of developing close relationships is to build what the Chinese call guanxi (pronounced gwan shee), which are essentially social or business connections based on mutual interest and benefit.

In a centralised and bureaucratic state, reliance on personal contacts is often seen as the only way to get things done. And in a place like China where the legal system is still relatively weak, the need to rely on guanxi remains strong.

In business, guanxi must be regarded as a two-way relationship. We are all familiar with the expression “You scratch my back, and I’ll scratch yours”. But in guanxi, the obligation does not cease with the second scratch, and the other side will have expectations that the relationship will continue. It is not about making fair-weather friends. If you expect guanxi to deliver, relationships must be maintained through regular contact.

Both Chinese and foreign companies will often attribute their business success to having good guanxi. But the obligations of guanxi are very real. In the wrong place, at an inappropriate time, with unsuitable people, the obligations can become a trap which is hard to escape.

 

The role of the State

It is easy to underestimate the role that the State continues to play in Chinese business. Despite the rapid expansion of the private sector, many large Chinese businesses in strategic sectors remain state-owned and, in addition, apparently private firms also often turn out to have an element of state control. The state factor can have a significant influence on the way a company does business, so you should make yourself aware of the wider political (in both the small and large “p” senses of the word) milieu that your Chinese partner or customer operates in. This knowledge will give you a greater understanding of where the Chinese side is “coming from”.

On a related point, government officials such as city mayors and party secretaries in China often wield far more power than their counterparts in the UK do. Good personal relationships are key to successful business in China, and taking the time to get to know key officials is likely to make doing business much smoother. However, a change of local government officials might affect the incentives or agreements offered by the previous administration. Officials are also occasionally arrested for corruption. Having said that, most government officials – particularly in the lesser-known parts of China – are really pleased to see interest from the UK.

 

Making conversation

Most people should be addressed by a title and their last name. You can address people by professional titles such as “General Manager Wang” or “Director Zhao” or, alternatively, if a person does not have a professional title, use Mr, Madame or Miss, plus the last name.

• Stick to safe subjects such as hobbies, family, your hometown, the Chinese landscape and Chinese culture. The Chinese often ask apparently intrusive questions about your age, income or marital status. These questions are not meant to offend, but if you don’t want to answer, remain polite and give an unspecific response.

• Avoid talking politics unless you know the person very well. Chinese people are more nervous having political debates openly. In any case, do not criticise China or Chinese leaders. Do not refer to Hong Kong as if it was still run by another administration or Taiwan or Tibet as a separate entity.

• It is fine to tell jokes in informal situations, but they are best avoided when speaking to a group. Also, be aware that cross-cultural jokes are hard to find, and often the point of a joke will be lost in translation.

• The Chinese do not like to say no. Doing so causes embarrassment and loss of face. If a request cannot be met, you might be told that it is inconvenient or under consideration. Alternatively, you might be told “Yes, but it will be difficult”. This might seem like a positive response, but in reality means “No” or “probably not”.

• Gestures in conversation can have different meanings in China. Nodding means “I hear what you are saying”, not necessarily “I agree with you”. Laughing can be from embarrassment rather than because something is funny.

 

Entertainment

Work and social life tend to remain separate in the West, whereas much of a Chinese person’s social life will be used to further personal and business relationships. In China some three-quarters of business deals are sealed outside of working hours. Tea houses, Karaoke bars and restaurants can all be locations where discussions and deals are made.

Banquets have traditionally been an essential part of doing business in China, although the practice varies depending on where you are and who you are dealing with. Very senior people who have not previously made an appearance may be present at a banquet. They may be key to the approval of the business in hand but be too senior to be involved in the actual negotiations. The banquet is an opportunity to impress them and get a feel for how things are going.

• Most Chinese are unenthusiastic about Western food, and prefer Chinese food. Typical official entertainment for a foreign visitor will take the form of a banquet with several courses, often consisting of exotic delicacies not usually eaten in the West – or in China, for that matter!

• If you are the host at a Chinese restaurant, at the customary round table, your seat should face the door, with the Chinese guest of honour on your right. Guests are seated further away from the host in descending order of seniority, with the most junior having their back to the door. Thought should be given to placing interpreters between guests who cannot speak each other’s languages. If in doubt about the placement of your guests, a friendly invitation for assistance when they arrive often solves the problem.

• It is traditional (but now less common) for the host to serve food to the guest. If you are the host and offer a guest a second helping, do not automatically take no for an answer. They may just be being polite.

• It is polite to try a little of each dish if it is offered to you. Otherwise, you can discreetly leave any dishes that do not appeal to you – if you finish them you are likely to be given further helpings! 

• Frequent toasts, to good health, Sino-British friendship and so on are standard. Locally-produced wines or baijiu (a strong spirit) are the usual drinks for toasts. However, many people in China have a low capacity for alcohol. If you host a meal, plenty of soft drinks should be available.

• Never arrive late for a Chinese meal. It is common for people to arrive up to 15 minutes early. They also tend to leave en-masse as soon as the last dish has been eaten. Chinese hosts make it quite clear when the meeting is over and you will not be expected to linger.

• The Chinese eat earlier than we do. Lunch is served from 11.30am onwards, and dinner from about 6.00pm. Most official banquets run from 6.00pm to 8.00pm.

• Table manners are a matter of fitting in. If in doubt, follow your host’s example. One gaffe to avoid – do not leave your chopsticks pointing into the bowl, as this resembles an offering of incense to the ancestors or the funerary flags on a recently dug grave. Place them horizontally on the rest provided.

• If you are invited to a banquet, it is polite to reciprocate. A good time to have a return banquet is on the eve of your departure or at the conclusion of the business in hand. Many senior officials in southern China are moving away from the typical banquet scenario and are now more likely to be found playing tennis (with a top coach) or golf. Find out what form of entertainment your key contacts prefer, as this can help you decide how best to build your relationship with them.

 

Gifts

The Chinese like to give gifts, which are used to express friendship, the successful conclusion of an endeavour or appreciation for a favour done. Often, the symbolic value of the gift is of more importance than the material value.

It is a good idea to bring along small gifts for your hosts (souvenirs from your region, books, pens, ties, or a memento of your company). Wrap them in a colour traditionally regarded as lucky, such as gold or red. It is not customary to open presents in front of the giver, unless encouraged to do so.

There are few rules on what gifts not to give, but the Chinese expression for “To give a clock” sounds like the phrase for “To attend to a dying parent”, so clocks are not popular gifts. Similarly, cut flowers are associated with funerals.

Gift giving is influenced by hierarchy. The most senior person should receive the most valuable gift. If other gifts are also given, they can be smaller and given to other members of the Chinese team.

 

Meetings

When arranging a meeting it is advisable to provide the Chinese company in advance with details of the objectives of the meeting, names and ranks of participants and specific areas of interest. Otherwise, it is likely that the Chinese side will issue a long and general report which is unlikely to provide you with the information you require.

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  Business meetings start on time and it is good practice to arrive at the location early. Formal introductions are standard and it is usual to be introduced to the most senior person first, followed by the rest of the group in descending order of seniority.

• There may be people from several organisations present at the business meeting. If it is not immediately apparent who is the most senior person in the room, it is a good idea to try to discover this by asking about the relative roles of those present in the organisation and then to address remarks to that person. Another pointer is that the person opposite you at the meeting table will normally be the most senior Chinese person present.

• Business cards are essential. At the beginning of meetings where those present have not met before, it is customary to exchange business cards when being introduced. It’s advisable to take a good supply.

• It is a sign of courtesy to have your card translated into Chinese, in Simplified or Traditional  text as appropriate for the audience. Many Chinese do not read English.

• Present your card with both hands with the Chinese side face up. Spend a few seconds examining the cards you receive. This shows respect for the card’s owner. However, whatever you do, don’t write on the card, as this shows disrespect to the owner.

• When exchanging business cards, greeting your Chinese counterparts with simple phrases such as “Ni Hao” (hello), “Zao Shang Hao” (Good morning) and “Xia Wu Hao” (Good afternoon) can help to break the ice.

• Chinese green tea is normally offered at business meetings. This is usually served boiling hot in a porcelain mug with a lid. To avoid the tea leaves, which will sink eventually, blow them out of the way or push them out of the way with the lid. The cup will be refilled periodically, but there is no need to take more than a couple of sips.

 

Presentations

• Sophisticated PowerPoint and video presentations with multiple illustrations are the norm for many forward-looking Chinese companies, and it is advisable to take the same approach to create a good impression. Dual-language presentations and hand-outs in Chinese are essential.

• Chinese audiences are often more interested in the cost-effectiveness of the product rather than the product itself. Therefore it is vital during the presentation to show how your product can save money.

• Chinese audiences also like to see case studies of operational projects using your product, preferably in China or a neighbouring country where conditions are similar. Client lists featuring major players will create good reference points for the Chinese side.

• Audience reactions vary. The Chinese applaud themselves when they have spoken, as well as clapping in response to others. But do not be put off if your audience is extremely passive. Throwing questions to the audience, inviting group discussion and asking for questions may not elicit much reaction, although younger participants are often more willing to ask questions. Often, audiences are happier writing down their questions rather than asking them in front of others.

 

Deal Making

Historically, China has witnessed foreign deal making which was not in the interests of the Chinese people. The period in the 19th century where foreign powers forced open the Chinese market and occupied Chinese territory is still referred to as the “Hundred Years of Shame”. No wonder then, that China can be suspicious of foreign intent. China’s recent re-emergence as an economic power is accompanied by a great sense of national pride, and a desire to be treated on equal terms. At the same time, international issues and how they are reported in the Chinese press can influence the mood of everyday interactions with foreigners in China. Foreign technology and know-how are highly respected, but the starting point for today’s deal making can occasionally carry some historical, political or cultural baggage.

Western business visitors are often deadline-driven and unwilling to slow down to the Chinese pace when discussing business. But in China the pace can be fast and slow simultaneously. Those involved in negotiations know how long they can drag on when the Chinese side is consulting internally or has other reasons for delay.

But Chinese negotiators can move with lightning speed on other occasions and exhaust Western business visitors and local partners in consecutive midnight meetings when a deadline is looming. Chinese negotiators use time constraints more strategically than their Western counterparts, who should be aware that speedy conclusion of business can result in extremely tight equipment/service delivery dates.

Another different approach to doing business is that in a buying decision Westerners tend to look for clear alternatives, while Easterners may examine ways to combine both options. For example, a Chinese panel may feel that a supplier who combines claims of best quality with a low price may either raise the price during the contract or fail to implement the contract. They will therefore often prefer to choose a supplier whose price is neither the cheapest nor the most expensive. In addition, a Chinese panel may avoid awarding each supplier more than one contract, in order to minimise dependence on a single supplier. Such an approach may make a Westerner think that a Chinese negotiator is being illogical, evasive or devious, when he himself believes he is being quite straightforward.

 

Negotiating Techniques

Mobilise local assets
The challenge of learning to speak Chinese fluently, the complexities of the Chinese way of doing business, and a strong sense of national pride mean that a foreigner will only extremely rarely be accepted by Chinese interlocutors on equal terms. The solution is to find a reliable Chinese ally to work with you. An effective Chinese colleague will often be able to analyse body language at meetings, work out who in the other negotiating team holds real power (not always the boss), and help smooth out any inadvertent wrinkles.

Face to face
Face is an essential component of the Chinese national psyche. Having face means having a high status in the eyes of one’s peers, and is a mark of personal dignity. The Chinese are acutely sensitive to gaining and maintaining face in all aspects of social and business life.

Face is a prized commodity, which can be given, lost, taken away or earned.

Causing someone to lose face could ruin business prospects or even invite recrimination. The easiest way to cause someone to lose face is to insult an individual or criticise them in front of others.

Westerners can unintentionally offend Chinese people by making fun of them in a good-natured way. Another error can be to treat someone as a subordinate when their status in an organisation is high. Just as face can be lost, it can also be given by praising someone for good work before their colleagues.

Giving face earns respect and loyalty. But praise should be used sparingly. Over-use suggests insincerity on the part of the giver.

Conversely, the presence of a Westerner should be exploited to the full. Chinese interlocutors will often see a visit by a foreigner as an indication of sincerity and commitment by the Western company.  Perversely, they often do not accord mainland Chinese or Hong Kong representatives the same status as a foreigner. The ideal sales team, therefore, is often a Chinese to take care of the working level contacts and a foreigner to do honour to the higher echelons.

The pecking order
Mao Zedong’s thoughts on discipline, published in 1966, provide a valuable insight into structures which persist in Chinese organisations even to this day: “The individual is subordinate to the organisation. The minority is subordinate to the majority. The lower level is subordinate to the higher level.” This quotation, which conforms with long-standing traditional social values, indicates why Chinese society and companies are very hierarchically organised, and why Chinese people seem to be more group-oriented than individualistic and often do not like to take responsibility. Similarly, people are seldom willing to give an opinion before their peers as it might cause loss of face with a valued ally.

Tricks of the trade
Chinese negotiators are shrewd and use a wide variety of bargaining tactics. The following are just a few of the more common stratagems:

• Controlling the meeting place and schedule – The Chinese know that foreigners who have travelled all the way to China will be reluctant to journey home empty-handed. Putting pressure on foreigners just before their scheduled return can often bring useful benefits to the Chinese side.

• Threatening to do business elsewhere – Foreign negotiators may be pressured into making concessions when the Chinese side threatens to approach rival firms if their demands are not met.

• Using friendship to extract concessions – Once both sides have met, the Chinese side may remind the foreigners that true friends would reach an agreement of maximum mutual benefit. Make sure that the benefit is genuinely mutual and not just one-way.

• Showing anger – Despite the Confucian aversion to displays of anger, the Chinese side may put on a display of calculated anger to put pressure on the foreign party, who may be afraid of losing the contract.

• Attrition – Chinese negotiators are patient and can stretch out discussions in order to wear their interlocutors down. Excessive hospitality the evening before discussions can be another variation on this theme.

Counterplay
Here are some useful tactics that may help foreign negotiators dealing with the Chinese:

• Be absolutely prepared – At least one member of the foreign team must have a thorough knowledge of every aspect of the business deal. Be prepared to give a lengthy and detailed presentation, taking care not to release sensitive technological information before you reach full agreement.

• Be willing to cut your losses and go home – Let the Chinese side know that failure to agree is an acceptable alternative to making a bad deal.

• Cover every detail of a contract before you sign it – Talk over the entire contract with the Chinese side. Be sure that your interpretations are consistent and that everyone understands their duties and obligations. Make sure that you get professional legal advice from someone who understands the law (and the language) under which the contract was written.

• Be patient – It is generally believed in China that Westerners are always in a hurry, and the Chinese party may try to get you to sign an agreement before you have had adequate time to review the details. Possibly consider having an Open Return flight.

• Contracts – Chinese and Westerners often approach a deal from opposite ends. To a Westerner, starting with a standard contract, altering it to fit the different circumstances, and signing the revised version, seems straightforward. Commercial law is ingrained in our thinking. But traditionally, commercial law scarcely existed in China and certainly indicated bad faith. The early appearance of a draft legal contract was seen as inappropriate or, more likely, irrelevant, because it carried no sense of commitment. The business clauses might form a useful agenda. But obligations came from relationships, not pieces of paper.

Nowadays, business contracts are accepted as the norm. But returning home with a signed piece of paper is not the end of the matter. It is not unknown for the Chinese side to view a contract as a snapshot of an agreement that was made at a particular time, and under particular circumstances. Further concessions may then be requested – a difficult prospect for the Westerner who has shaved his margin down to the bone.

 

The concept of 'Hosting'

The Chinese take the concept of being host (and you being in the role of a guest) very seriously. Companies doing business in China are often treated to a wide range of assistance, including hotels, transport, meals and evening entertainment. Chinese companies can often lean on an extensive network of relationships to provide these without incurring direct costs, or at a substantial discount.

Inviting the Chinese side for a return visit to your company in the UK will demonstrate your intent to reciprocate the hospitality of the Chinese side, and will also strengthen the relationship. However, when they are visiting the UK Chinese companies expect the same assistance, and most UK companies do not have the budget to handle two weeks of all-in travel for contacts they have never done business with and are not sure they ever will do business with. Therefore, it is best to be cautious about the extent to which hospitality is expected. Don’t be rude, but do take the trouble to explain that things are different in the UK.

However, showing you care is not expensive. Making sure your visitors are greeted at the airport and making an effort to see them off when they leave is seen as basic hospitality in China. Organising some sightseeing or shopping for your guests and treating them to a meal in a good Chinese restaurant will also be well received.

The Future

China is seemingly the most important engine of economic growth worldwide. As China has risen to become the world’s second largest economy and largest exporter, and its economy gradually moves away from a reliance on exports towards the opening of its own domestic market, with over 1.4 billion consumers and large potential markets across the country, China has numerous new opportunities for UK companies of all sizes.

Product quality, technology innovation, marketing and branding are all key strengths that British businesses have as their main competitive advantages versus Chinese competition. But China is a highly segmented market, not only demographically but also with respect to regions and city tiers – consumer buying attitudes, behaviour and motivations differ widely.

Therefore provided UK companies consider developing segmented market strategies beyond just the major cities like Beijing, Shanghai and Guangzhou, can carry out due diligence and take the time and trouble to fully understand Chinese culture, then – together with the help and support offered from the CBBC and UKTI – there is no reason why they cannot achieve real success in China, for the mutual benefit and mutual gain of both societies. The rewards are well-worth the effort!

See the Resources section of this guide to find out how the CBBC and UKTI can help you succeed in China.

 

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Source - UKTI

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