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DOING BUSINESS IN
CHINA
INTRODUCTION
Negotiating and building effective relationships is vital to the
success of Westerners conducting business in China. The relationship
cultivated during the course of negotiations is often more important
than the negotiated document. In this discussion we examine the
differing cultural and organisational constraints facing Chinese
and Western managers. These constraints are evident in the divergent
attitudes to profitability, "outsiders" and group identity,
managerial autonomy, the Chinese manager's suspicions arising from
inexperience, and general negotiating styles.
A good example of divergent perceptions relates to contract documentation.
The Chinese may appear to accept a particular clause in a contract
that is imposed on them during negotiations. Often, once the document
is signed and negotiation pressure is removed, it will not be implemented.
The type of negotiation that is successful and leads to implementation
of the document is that in which both sides perceive that their
needs and fundamental interests have been recognised.
BUSINESS ENVIRONMENT
Often when many Australian and Chinese companies negotiate with
each other, each will perceive the other to be smug, arrogant, complacent,
arbitrary, and difficult to deal with. In their suspicion of each
other they are likely to be so preoccupied in their search for the
other side's hidden agenda that they do not focus on issues at hand.
One of the first tasks of negotiation is to identify and dispel
these speculations or subjective barriers.
The Western manager soon discovers a dramatic difference between
their Chinese partner's approach and his own in terms of culture,
business goals, incentive and motivation. In addition, his Chinese
negotiating partner may have limited or no decision-making power
since approval of the project may rest with another authority.
The Western manager will also discover that he is going into an
environment that is generally unfavourable for business investment.
Therefore, it is necessary for them to do some "pioneering",
that is he has to carve out a favourable micro environment within
that unfavourable macro environment to make their project succeed.
Cultural Constraints
There are cultural differences that impinge on doing business in
China.
A. Profit may be perceived as Western exploitation Many Chinese
perceive that it is immoral for a foreign businessman to make money
in China. Despite their acknowledgement that they expect a foreign
investor to make a profit, if he does make money he becomes a subject
of scandal and rumour. The Chinese will cite previous foreign domination
and their country's relative poverty to justify this view. We argue
that unless foreign businessmen make a sufficient profit in China,
the Chinese program to attract foreign investors will never work.
Although there are thousands of joint ventures with some even operating
at a profit, the amount of investment the Chinese have attracted
thus far is only a tiny percentage of their goal.
During negotiations the Chinese will want to know the Western partner's
actual cost of manufacturing or his cost of operation in order to
reduce his share to the least possible amount. Upon achieving that
goal they will feel that they've done a good job for their country
morally and for their side of the enterprise.
Unfortunately, this attitude jeopardises the success of joint venture
investment. For example, a large American manufacturer sold 50 locomotives
to China but in the end failed to make a profit from the operation.
When the Chinese approached the American company for subsequent
ventures, understandably its CEO was less than enthusiastic.
B. Group Identity
The distinction made between someone "in the group" and
someone "outside the group" often determines how a Chinese
individual behaves in his relationships with others. Different codes
of conduct may apply to relationships within his immediate group
consisting of family, friends and work unit or company and relationships
with "outsiders" including foreigners as well as other
Chinese.
C. Lack of Managerial Autonomy
Another barrier is the Chinese manager's fear that if a Western
partner is financially successful he will be criticised for being
overly generous, selling his national birthright, or accepting some
form of bribe or favour for negotiating a 'reasonable' agreement.
An example of this occurred when the CEO of a large American company
hosted a banquet for a visiting Chinese Vice-Minister and his delegation
to celebrate an agreement reached after a long week of negotiations.
The Vice-Minister was noticeably glum and when he was asked why;
he replied that he could already hear the comments that would be
made upon his return. He would be accused of bowing to pressure
and giving away more than necessary to the foreigners.
Therefore, in order to protect himself from potential criticism
the Chinese partner will attempt to impose on his Western counterpart
pre-set drafts of contracts and agreements. The Western manager
should realise that he does not have to accept these pre-drafted
documents. D. Attitude toward success and failure The Chinese manager
has different motivations and incentives from their Western counterpart.
The Chinese manager personally gains very little if his negotiations
for a joint venture with a Western company are successful. Instead
his success may increase their workload and cause potential problems
to his office. If negotiations for a joint venture fail, nothing
happens to him either. They simply has to write a report to the
authorities listing the factors involved in the failure. Therefore,
theyr are motivated by the same aims and incentives as his Western
counterpart who may benefit or suffer substantially depending upon
the joint venture's success or failure.
E. Inexperience may lead to suspicion
The Chinese manager's inexperience in international business and/or
lack of knowledge of technology and business professionalism may
lead to feelings of insecurity and vulnerability. Hence, the Chinese
manager will try to compensate for those feelings of inadequacy
by "encircling and disarming" the Westerner in order to
reduce their perceived unfair advantage. We call this the "CEO
Syndrome" where the foreigner receives special treatment and
is made to believe that he belongs to the "in-group".
She is met at the airport, taken to a luxurious hotel, wined and
dined and informed that she is receiving preferential treatment
because he is a special friend of China. In the course of this "treatment"
she is likely to agree to all sorts of grandiose schemes. And because
she is convinced that she has a special relationship with the Chinese,
it is unlikely that he will pay attention to anyone who tells her
about problems in China. Upon her return to corporate headquarters
she will assign some manager to China to implement those plans.
When that happens, the Western company is already operating at a
disadvantage because it may be impossible for the manager to implement
what the senior executive has promised.
F. Western perceptions may hamper effective negotiations
Perceptual barriers that originate with the Westerner may put them
at a disadvantage. For example, the Westerner may overcompensate
for his fear of committing a cultural blunder by not saying anything.
While it is good to have an awareness of Chinese social norms, it
is better to be direct. The Chinese are capable of discerning whether
the foreigner is acting in good faith and whether he is a person
of good will.
An understanding of cultural differences goes a long way in eliminating
these barriers to effective communication. The key to successful
negotiation lies in recognising that beneath these cultural constraints
both sides have the same fundamental needs and interests.
Basics of Negotiating
It is important to be very firm on principle, including business
ethics, issues related to profitability and corporate policy during
negotiations. This provides some guarantee of the business venture's
success and helps teach the Chinese contemporary business methods.
In terms of negotiating style, courtesy, respect and patience should
be the rule at all times. Do not listen to people who minimise problems.
Almost every project will appear to have no problems on the first
day of negotiations but issues will begin to surface during the
course of meetings. When people state that it is impossible to achieve
one's stated objectives, take a close look to determine the feasibility
of those goals. If one's company is sound, has staying power and
possesses goods or services that China needs, or if it can use China
as a manufacturing base to export to other countries, there is a
great likelihood of success if done in the right manner. Even if
it is impossible to achieve one's original objectives, it still
may be possible to craft something that is workable.
Contract Essentials
The following components are essential in a contract and should
not be compromised: 1) Method of payment and repatriation of profits.
2) A deadline for the two parties' investment contribution and the
form the investment will take (this is very important because many
joint venture partners end up with the realisation that the Chinese
are not going to put up money). 3) Guarantees for financing, supplies,
transportation facilities, quality control and access to the market
because of basic problems in the infrastructure, e.g., power shortages,
etc. It is necessary to check out each of these points independently
and obtain assurances from the people actually in charge. 4) Type
of goods and services to be produced or provided. 5) Feasibility
study including cost of production, expenses and method of dividend
distribution and exchange rate to be used. 6) Respective responsibility
of management of the two parties. 7) Provisions to recover trademark
and patents, and protection of technology after termination. 8)
Trademark and patent protection.
Tips for a Successful Project
Finding the right Chinese partner in the right location is the
key to a successful joint project. It is ideal to find someone who
is motivated by a genuine desire to accomplish something for his
country or for future generations. This powerful motive exists in
the minds of Chinese entrepreneurs, managers and progressive reformers
who approve these projects and should not be underestimated.
Establish a clear understanding with that Chinese partner about
the nature of partnerships. Each participant must work in his own
interests, but at the same time considers his partner's legitimate
interests and avoids putting him in an untenable position.
It is important to submit one's proposal to the actual approval
authority as quickly as possible. Typically, one meets with negotiators
and managers who are not the final decision-makers. Determine the
network of approval agencies and authorities that is appropriate
for your project. Then contact the key person in each of those agencies
and cultivate his understanding and acceptance of your project.
Send in the appropriate people. Professionalism is important, knowledge
of technology is good but what is more important is someone who
understands people and has good interpersonal skills.
Start small with something practical and learn how to do business
successfully in China before tackling larger projects.
Conclusion
Doing business in China is worthwhile despite the difficulties
because China is the largest undeveloped market in the world. It
is a market in which Australians have a distinct advantage because
they are liked and welcomed in China. It is a market that will take
a long time to develop but if people are there early they will gain
a tremendous advantage over others who arrive later.
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