Over the past nine years, we have worked with clients to navigate China’s dynamic and challenging business environment. A recurring theme that is more compelling than any one single legal issue is that non-Chinese economic actors must realign the framework within which they approach and engage their Chinese counterparts.
Business fundamentals (e.g., cost-benefit analysis, risk analysis) remain the same and must be considered, but soft issues must be adjusted for the China context. We set out some key examples.
Face and Guanxi
In basic terms, Face is showing respect to your counterpart (even if respect is not yet earned) while Guanxi is a relationship that can be harnessed for benefit. Critically, neither replaces underlying business fundamentals, and both can play a vital role in realizing commercial goals.
For Face, consider how your counterpart wants to be treated before his peers – his number one priority is to not lose respect, and his second priority is to build respect. Tread softly and mimic and study your China environment while you learn relevant cultural values and how to build (and not undermine) your counterpart’s Face.
Consider that Guanxi is heavily relied upon to achieve commercial goals and is based on balance; for what you take you must give, and for what is offered something is expected. How can you and your Chinese counterpart know that the other will honor this fundamental principle? When you both have sufficient history together to develop this mutual understanding, then the establishment of Guanxi begins. Do not confuse a few shared meals and back-slapping with Guanxi.
Beware of a counterpart’s claim to a solution via Guanxi with a third party – is the claim reliable? Additionally, consider that the more that market forces operate in China, the more that certain commercial objectives can be realized without Guanxi.
Miscommunication
While most Western cultures rely on low context communications (i.e., information is conveyed verbally and literally), China is a high context communication culture (i.e., information is also conveyed non-verbally). This difference can be the cause of significant miscommunication between Western and Chinese counterparts.
A case study which exemplifies such miscommunication involves a client that desperately needed a used 70-ton engine to scavenge parts to service another engine. After the contract was signed and deposit paid, the seller abruptly indicated that the sale was off. The client, panic-stricken, immediately engaged in several days of aggressive, direct and legalistic communication with the seller. Following several days of unsuccessful communication, the client was nearly out of time and options. A nuanced, high context, face-to-face discussion with the seller brought the transaction back on track. Simply, the seller wanted to renegotiate the purchase price due to unexpected transportation costs, an increase of five percent.
As seen from this case study, more time and iterations may be needed to absorb sensitive and crucial issues, to minimize misunderstanding and to recognize relevant cues. Additionally, foreign managers should avoid the urge to overcome a sense of being in the dark by speaking more and more. If you do, the result is that more time is spent talking than listening, at a time when the opposite should occur.
Managing Remotely vs. Locally
Often, promises made to (or imagined by) foreign managers lead such managers to overestimate their ability to manage matters remotely. An example we have seen several times is a joint venture company (or a joint commercial relationship) in which the foreign investor (or foreign commercial partner) visits their domestic counterpart for only a few days every so often. The foreign party will hear what they want to hear and may (prematurely) offer trust. Overeager, the foreign party will then invest considerable resources, only to discover later on that there is a gap between expectations and deliverables.
The foreign manager must expend resources over time to develop mutual understanding and realistic expectations for remote management.
Patience
In every module discussed above, as well as others not raised here, a key element to realizing commercial objectives is the patience and time needed to learn and understand how to successfully pursue objectives in the China-context.
Often, visiting managers impose artificial deadlines (e.g., return flight, board mandates, quarterly targets) that inhibit patience. In addition, the ability to be patient can be reduced by a non-Chinese manager’s unwillingness to realign business strategy and attitude for this particular environment, in part because their existing model has brought success in other jurisdictions.
Conclusion
The key take-away is that to find success in China, you must realign the framework with which you approach your Chinese counterparts. We have given a few key examples above, but this list is not exhaustive. As you enter and operate in China’s market, start small and grow organically. Develop your new framework and, once developed, use your framework to go further.
©2012 All content of this article is the property and copyright of China Solutions Inc and may not be reproduced in any format without prior express written permission. The content of this article is intended to provide a general guide to the subject matter and should not be treated as a substitute for specific advice concerning individual situations. Readers should seek legal advice before taking any action with respect to the matters discussed herein.
Click here to subscribe to CS Alerts.
Comments are closed.