We bring you Eight Golden Rules to Survive the Chinese Business Scene. The best way to learn about China is to be physically present and experience first-hand outside of luxury cars. Store visits and learning on the ground by checking up on the private residences are the best activities to learn about China. Travelling to third tier cities can give you a better overview picture of China.
Secondly, one must be sensitive to industrial changes. Common factor for business losses is that overseas firms are too obsessed with market share growth and abandon other competitive traits. For example, there were 20 or more foreign brewers in mid 90s for the beer sector. Each planned to capture 15% of the market. However, lack of differentiation made them compete head to head with 600 plus local brewers, heavily reliant on government subsidies. Twenty years on, same issue is still present. Other industries have similar traits to the beer sector, all facing overcapacity, highly fragmented, heavily subsidized by local government and foreigner willingly absorbing strategic investment losses.
The third key rule is to take it slow. Many liked to rush things. A CEO once wanted its operations to commence within 6 months. Being too fast can cause headaches later on due to lack of planning. Attention should be focused on looking for the suitable local partner. One must be patient or risk losing out on the negotiation tables with the Chinese partner.
The fourth rule is to understand that Chinese society work in groups. The trait is reinforced by Geert Hofstede's groundbreaking research on Chinese culture. Chinese may appear individualistic to outsiders and directly conflicts with the research. This is because Chinese appear collectivist among close family members, friends and clan. They co-operate within the circle and all other outsiders must compete fairly. It is extremely difficult to attain self-organized cooperation, as highlighted by Sun Yat Sen's observation for China. Chinese counterpart will also reluctant to agree to a win-win outcome. Negotiations may be re-open anytime even an agreement seems settled. They may argue that they have not bargained well and hard enough.
In China, mistrust as well as opportunism are widespread. One must understand this fifth rule well. Either you trust wholeheartedly at first meeting or trust only after gathering enough evidence. Chinese will only trust after cross examining a potential partner. China will use its position to gain upper advantage of groups outside their clan. There is no legal mechanism for such checks and balance. Chinese are usually skeptical of outside clan members. There may be issue on enforcing contractual agreements and signed letters, and one must always have countermeasures such as withholding cash until goods are delivered and examined for completeness.
The sixth rule is that trust takes a long time to foster due to interpersonal nature of trust. It is a great defense to foster close relationships in personal of business dealings. Building personal contacts is a must for business, and takes time and patience. One must attend sporting or dinner events. Drinking alcohol is part of the role. Smart experienced negotiators often dispose the alcohol from their glass to water glasses and wet towels available in restaurants.
The seventh rule is be ready to encounter any unusual behavior that may be common in China but not in western countries. Chinese often go beyond conventional negotiation tactics. For instance, they may threaten to use political links to block the distribution rights for the western companies' products. Another case involved Chinese party getting western guests drink excessively to prevent effective negotiations. Always be on alert as well as standby defense measures. Learn to drink well or delegate drinking to team members.
The final rule is that Chinese society is very hierarchical. Decision flows from top to down approach. There is little delegation and supervisory control is high. Middle level managers have little power in decision making and their role usually functions as passing orders and execution of orders.