Every Western company with an intelligent leadership team wants to get a foothold in China. However, only a select few are able to develop the long-term relationships that drive success. What gets the better of these ambitious entrepreneurs are misconceptions of doing business with Chinese locals. A common one that bothers me is when I hear Americans say: “You can’t trust the Chinese”. In my own experience, this is not only unfounded, but is a show of flat-out racism.
There are people of every religion, race and culture that you can and cannot trust. The percentage of those who can help you scale your company, versus ones who will bleed your resources dry, is the same in the US as it is in China. Years after moving to China as a naïve 24-year old entrepreneur, I now fly in and out of Shanghai to oversee operations of BRIC Language Systems. Along the way I’ve met plenty of people I can trust and count several Chinese nationals as my best friends and most trusted business partners.
I recently spoke with Aussie entrepreneur James Wakefield, Managing Director at custom menswear Institchu. Their made-to-measure suits have generated an average growth rate of 116% year-on-year since inception. A key factor in their outstanding numbers? High-quality manufacturers in China.
Similar to the issue of trust, James points out a common deterrent for foreigners wanting to do business in the country. “The biggest misconception is that everyone will try to take advantage of you and look after their own interests ahead of yours. This couldn’t be further from the truth. We’ve loved doing business in China, as our partners are exactly that—our partners,” says James.
Another pitfall people fall into is believing that their business relationships are governed by contracts, as they are in the West. In China, business is governed by personal relationships. I’ve never signed a contract with a business vendor in China but had true partners. I’ve seen plenty of companies seek out the perceived safety net of a contract only to find out that when push came to shove, their contracts were worthless, they had no true partners and ultimately they lost a lot of money.
I asked James about relationships and he agreed saying, “it’s about the face-to-face relationships we are building with the factory owner and the staff that we work with on a daily basis.” According to the Aussie founder, “most business is done over a glass of whisky and a simple handshake.”
Institchu initially had its suits manufactured in Thailand, but found that as the volumes increased, the quality became inconsistent. They then looked to factories in mainland China. Along with co-founder Robin McGowan, the entrepreneurs researched high caliber Italian fabric resellers, and asked them who they were shipping the largest volume of their top-quality fabrics to. James says that, from there, it was just a matter of arranging a face-to-face meeting with the factory owner, but not without the help of an English-speaking Chinese university student who worked as their translator!
Here are a few tips for international entrepreneurs who want to create meaningful connections and conduct business effectively in China.
Guanxi: Build it and use it.
Guanxi in its most basic form is your network. It includes family, friends, business associates and government officials. Guanxi is who you know and how you use those relationships in the form of reciprocal favors. The larger the favor they ask of you, the more they owe in return and vice versa. Failing to reciprocate is not an option. This results in a loss of “face”.
When your guanxi is strong, you have a network that can make the impossible possible.
Face: give it, earn it, keep it.
Simply put, this is respect, honor, reputation and prestige all wrapped into one cultural construct. Like respect, face can be given, earned and lost. However, the concept of “face” carries much deeper meaning in China. For example, when “face” is lost in China, it is far harder to regain than in America. In the US, it’s almost a daily occurrence that a business person, politician, celebrity or athlete does something terribly embarrassing that results in a loss of face. A few days go by and they’re forgiven, and the transgression is forgotten. This does not happen in China.
Learn Mandarin and study the culture.
Even a little bit goes a long way. Knowing a few simple phrases will endear you to your business partners, colleagues, and friends. It shows that you respect the people and their culture. Becoming fluent in Mandarin will open up doors and help you build guanxi.
Bite the bullet.
Eat the food, no matter how weird. Drink the baijiu, and sing karaoke until the sun comes up! Good rapport with people you work with, from senior management to the staff, is always a plus. “My top secret tip for achieving this is hot pot followed by karaoke!” shares James.
Become a member.
Amcham China is a great place to meet other expats that can expand your network and help you build guanxi. Membership is open to both locals and expats working for US companies. Attending networking events gives you an opportunity to meet friends and potential business partners. These are the people that can help you avoid the pitfalls made by many expat entrepreneurs.
Know how to navigate business holidays.
James notes: “Do not underestimate Chinese New Year!” He says further that, “the whole of China essentially shuts down for 2 weeks. When the factories return, there is always a big backlog and delays. This is further exacerbated by the fact that many factories face a dilemma where around 30% of workers do not return from their hometowns.”
Shanghai Hongqiao Railway Station 3 days before Chinese New Year 2017
With these in mind, you have a better chance at cultivating stronger relationships and de-risking your venture, or any of its components, in China.