cross-cultural issues : Imports Oriental Blog

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Posts Tagged ‘cross-cultural issues’

Happy New Year!

Tomorrow is New Year’s Eve according to the Chinese lunar calender. It is also the first day of the 7 day Chinese public holiday marking the occasion. It is the time of chunyun – often called the largest annual human migration in the world -where most Chinese return home to visit with family over the holiday.

Those who do business in China know it mostly as a time of loud fireworks, red decorations, and an interruption to work. Manufacturers shut down for the holiday, and in country areas sometimes for longer (the Chinese celebrate several special days outside the official 7 day holiday).

I thought it would be fun to take a brief look at just a few of the many Chinese new year traditions that are so important to the people of this nation – traditions many of us are not overly familiar with.

Xiao Nian – a week before the new year
Xiaonian or “pre-New Year” is traditionally the time to make sacrifices to the Kitchen God – so that he will report favorably about a family’s conduct throughout the year past. Effigies and offerings are burned (it’s common to see people lighting piles of cardboard and paper items on the sidewalk around town). It also marks the beginning of a period of spring cleaning. Couplets are pasted on doorframes; houses are swept and tidied. The house will not be swept on New Year’s day so that the new good luck is not swept away.

Chu Xi – New Year’s Eve

Fireworks in Beijing

Chu xi is the new year’s eve dinner – a time for family to gather in reunion. Fireworks are set off all night but particularly at midnight. Fish is a common dish to eat, due to the phrase 年年有餘 (nián nián yǒu yú) meaning to have plenty every year, in which the last character is a homophone with fish (魚). In the north (such as Langfang/Beijing, where we live) it is customary to make jiaozi (dumplings) together after dinner, to be eaten around midnight. Many families watch (or at least have on in the background) the 4 hour New Year Gala screened on CCTV every year since 1982.

Chu Yi – New Year’s Day
On New Year’s Day it is traditional to visit the oldest members of one’s family (parents, grandparents, even great-grandparents). Children greeting their elders are often given hongbao (red envelopes containing cash gifts). It is normal to bring gifts whenever you visit someone in their home – fruits (especially mandarins but never pears), nuts, and sweets are common. Temple fairs are open and are visited throughout the new year week. Fireworks continue to be set off.

Front gate of the Ditan Park Temple Fair

Chu Er – the second day
The second day of the new year is traditionally the time for married daughters to visit their birth family (new year’s eve/day being spent with their married family).

Chu San – the third day
This is traditionally a “bad luck” day for visiting with friends and family. Perhaps this is a welcome break after several days of festivities!

Po Wu – the fifth day
In the north it is common to eat jiaozi in the morning. This is another big day for fireworks. I’m told this is because the 5th of the new year is celebrated as the birthday of the traditional god of wealth, but for most people it seems to be just the thing to do!

Ren Ri – the seventh day
Renri means “every man’s birthday” and is the day where the entire population grows a year older (this leads to differences in the calculation of age between cultures). It is also the last day of the official public holiday.

The eighth day
Back to work! This is the first work day of the new year. Many people also celebrate a family dinner on this night.

Yuan Xiao Jie – Lantern Festival
This happens on the 15th day of the new year and is the official end of Chinese new year celebrations. It is traditional to eat tangyuan - glutinous rice balls with sweet fillings cooked in a light soup. In fact, many restaurants will serve tangyuan after the meal to all customers on this day. Candles and lanterns are lit outside homes and just about anywhere. It’s common to see paper lanterns lit with candles take off into the night sky. This is also the last major day for fireworks.

Red lanterns strung up in Ditan Park

Happy New Year!

May the Year of the Rabbit be a healthy and prosperous one for you, both personally and professionally.

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Posted in : Business in China

Working well with Chinese suppliers

Tanya Crossman

Last week Renaud wrote a piece about working with Chinese suppliers I enjoyed.

He starts out by saying that when you first start working with Chinese suppliers, you may notice a need to change certain habits.

It is very important to define the product requirements in the smallest details, including the labeling and the packaging.

I’m with him here! It’s important not to make assumptions. Don’t rely upon the supplier’s “common sense”. The problem with this isn’t that your supplier is “stupid” but rather that he doesn’t know what you’re thinking. You have a clear idea in your head of what a label should look like, whether you realize it or not. It may be that you think it “obvious” what a label should look like. If you do not communicate these specifics clearly, don’t complain when the supplier goes with his own assumptions of what makes for a good label!

Labeling and packaging are aspects of production we have changed our system on over time. Originally, all product was shipped to our warehouse where we did our own quality control and per-piece inspection, before labelling and packaging every piece by hand, ensuring no mistakes. At the time, this was something our supplier could not handle to a standard which was acceptable to us. Over time, as we have trained our supplier and improved other aspects of production, we have moved more of the labeling and packaging tasks to the production factory. When punctuality, quality, quantity, and color tolerances were all happening well, we added these extra jobs.

Quality and timing are never guaranteed. Expect a very bad experience, and you might be pleasantly surprised.

If by “expect a bad situation” he means “plan for the worst” then I am in total agreement! Things go wrong. It happens. It happens when you’ve made the same product at the same factory with no problems before. It happens when you have time to recover and when you don’t. Having a contingency plan ahead of time saves time and stress when those unforeseen problems crop up. Some questions to think about:

What will I do if the product is not ready on time?
When do I need it, as opposed to when I want it?
How will I respond if product quality is unacceptable?
How do I prioritize different production values (punctuality, cost, quality…)?
What scenario would force me to cancel the order?

Monitor production closely and micro-manage the whole process.

Yes, yes, yes! Keep in regular contact with your supplier – make sure you know the specifics of what’s happening with production. This kind of micro-managing helps not because your supplier is not going to look out for you (although that can be the case on occasion) but rather that your supplier may well have a different set of values to you. He may value punctuality over quality, or price over time – whereas your values may be opposite. This shows out when things go wrong (which they inevitably do, eventually, even to the most reliable of suppliers). When a choice has to be made -such as “I can either get them done on time OR at the price/quality promised” – the supplier will do what seems best to HIM, which may not be your own preference.

If you know what’s going on at every step of production, you have a chance to step in and make those calls yourself, rather than finding out weeks later what the supplier decided to do. We have several times averted what could have been problematic issues simply by asking specific questions and letting our preferences/values be known. When production was inevitably delayed, we knew early enough to accomodate the delay, rather than promising a delivery date to our own buyers we would later find out we could not keep.

Don’t take everything they tell you for granted. Once production is under way, in 50% of cases you are not told the truth.

I don’t entirely agree here. Although there certainly are unscrupulous suppliers out there who will lie and cheat and do whatever they can to make a fast buck, these “deceptions” aren’t always so malicious in intent. Sometimes it is simply a case of different priorities, leadership styles, or manners of dealing with conflict. While it is good to assume you don’t have the whole story, let it be a healthy awareness rather than an overly suspicious nature.

Don’t promise anything beyond the next order. It is useless. Your counter-party thinks short-term and in a distributive manner (“there is a pie to share, and I want the bigger half”).

Again, I’m not in total agreement here. I absolutely believe you should never promise a future order you can’t guarantee you’ll be placing with your current supplier, longterm relationships are very beneficial. Saying you are going to place an order later won’t gain you any extra leverage with your current problems, but a history of placing regular orders will. Chinese suppliers look more at your past history than at future possibilities. While this means you have no benefit when starting out, it does mean there is benefit in sticking with an imperfect but proficient supplier rather than constantly looking for a better supplier every time. Over time, a supplier will learn your values, know what details you get upset over, and future orders (and problems) will be worked through more smoothly. (This is especially true when you work with smaller factories).

I remember working with a buyer who had set up a very strong (nearly bullet-proof) system for avoiding getting burned. . .He had a theory that once a relationship has turned sour–for whatever reason–he’d better cut his costs and stop everything right away with the supplier in question. I saw first-hand how brutally he acted against a poor supplier who had committed an involuntary mistake. . .That supplier got about 100,000 USD worth of product cancelled, and the importer lost a relatively good supplier. The bottom line is to try to understand the real situation. It is not easy, but it is far better than assuming the worse and resorting to knee-jerk reactions.

Here’s the important part – if you persevere through small/unintentional mistakes, problems that come from ignorance or bad planning rather than from malicious intent, you can train your supplier over time, improving their quality while building a relationship. Giving up at the first small sign of trouble means you’ll never realize the benefits of a long-term supplier relationship.

Do you have any long-term relationships with suppliers you cherish?
How have your supplier relationships changed over time?

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Posted in : Business in China, Export, International Business, Manufacturing

Business Risks in China

Tanya Crossman

I recently stumbled onto Thunder Post - there are some good posts on international business and I’ll take some more time to have a look around later. Right now I want to bring to your attention a post from November – an interview with Neal Beatty, Regional Director (Global Client Services) with the company Control Risks.

Overall some good and solid advice; worth reading through the whole piece if you want a more detailed advice on business risks in China (read it here).

I enjoyed the way Neal pointed to a common sense, middle-road philosophy to risk in China. To treat China as the same as everywhere else is no worse than to think China is totally different to everywhere else. Some things hold true in every market; some differences have a huge effect on business.

Everyone’s read the books on “doing business in China” and that’s a great start for people new to the country. But that’s just scratching the surface, and often seems to lead managers to over-emphasize or over-simplify a few features of operating environment… There’s also a tendency even these days to get carried away with the “China is different” concept, and lose sight of commercial and risk-management principles and processes the company applies elsewhere. China is different in many ways and understanding the differences is vital, but that doesn’t mean there’s some mysterious formula here that only a few people understand – like everywhere else, you need a well-informed, comprehensive and rigorously planned out approach to managing risk, not silver bullets.

Neal was asked about risks common to business in China. Lots has been said about the risks associated with corruption and IP, but I was pleased to see Neal highlight risks in the supply chain and HR. Knowing where all the pieces are coming from is important – it can be difficult to control the supply chain in a place where subcontracting is extremely common. As for HR, it is important to be very clear on what labor laws require – there can be local requirements separate to national regulations. Hiring foreign staff also requires a lot of precision, including which companies can legally hire a resident alien and sponsor their work permit and visa.

One of the most serious potential risks to any business in China is the tacit acceptance of the “This is China” approach to business ethics and compliance issues… By condoning “low level” corruption within the organization, there is a serious risk of it getting out of control and in the worst case putting the entire operation in jeopardy. A zero tolerance approach is certainly not easy, and requires time, effort and budget, but I would say it is the best way to operate in China, just as in other parts of the world. And it is essential that senior management lay down the law and set out the company culture towards such issues from the very start.

Neal has touched on something very important here – the importance of senior management in making this part of company culture. The topic of corruption is raised in most Imports Oriental job interviews. We talk to shortlisted candidates about the value we place on honesty and integrity, including when it comes to bribes and other ways to curry favor. Employees sent to visit suppliers on site or at a trade show are given a clear policy on what they can/cannot accept from the supplier, services they are not permitted to provide, etc. These conversations can be uncomfortable, but are part of clarifying where the line in the sand is. For example, is it okay for the supplier to buy lunch for our staff in a nice restaurant? What should our staff not do with a potential supplier, even when done in order to build up a relationship? Laying down the answers to these questions, and the reason behind the choices, BEFORE someone is in the situation makes it clear what our company’s policies and expectations are.

I don’t believe Chinese people are any different in terms of morals or bad behavior than someone from Northern Ireland. But in China, there are cultural norms that sometimes conflict with the corporate expectations. For example, the concept of a conflict of interest is not understood in the same way as in the EU /US. To many Chinese people it seems perfectly reasonable to consider engaging a supplier owned by a family member or old school classmate. After all, I trust these people far more than some random supplier that approaches me at a trade fair.

A good example of the difference between a moral issue and a cultural issue. What may seem a clear-cut case of business ethics in the US or Europe may not be seen the same way in China.

Where these three areas (political v cultural v commercial) often overlap is when doing business away from the big Tier One cities. Generally speaking, the influence of local politics on local business is more unrestrained away from the biggest cities. This can pose its own set of unique risks that can only be mitigated by a very thorough due diligence process prior to forming a business relationship in that location.

Another reason to do your research ahead of time – even if you’ve been in China for a while, a new location may have different hoops to jump through.

I don’t think any company can run “risk free”, no matter what sector or what size of operation. From the largest MNC with multiple manufacturing and distribution facilities around China, to the “one-man-band” sourcing operation, everyone will face risks. Moreover, you can never reduce risk to zero. No matter how good your risk management program, there will always be someone who does something without considering the possible outcomes and impacts thoroughly, or simply faces a problem that couldn’t be anticipated or couldn’t be prevented. And thus you need to be able to react appropriately and have contingencies in place. But a good awareness of the risks from the very beginning, along with regular (twice a year) reviews of your level of risk exposure, will go a long way to mitigating many of your operational risks.

I like that – it’s about mitigating operational risk through knowledge. Know the potential for problems, and know your current risk exposure.

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Posted in : Business Ethics, Business in China, International Business

Using “face” to resolve conflict without a confrontation

Tanya Crossman

We’ve talked about “face” and “guanxi” on the Imports Oriental blog before. Both are key cultural concepts in China. There are elements of face and guanxi in all cultures, but they are expressed differently. Understanding the Chinese expressions of face and guanxi allows you to navigate situations more smoothly, and better understand the people you encounter.

Recently I saw a friend use face to resolve a situation in the simplest manner possible. He rents a warehouse space for regular events. As few others use the space his own equipment is left out from week to week – chairs, tables, heaters, etc. One week a small gas heater was missing; a quick investigation discovered that the landlord had been “borrowing” it to heat his company office during the week, and on this particular week forgot to return it.

At this point, many people (myself included) would feel a desire to send a brusque message to the landlord, along the lines of “Keep your hands of my property! I bought it and pay for the gas that it runs on!” My friend, however, asked his assistant to pass along a simple, well-worded message: “Tell the landlord that we need our heater kept in the room for our use, but if he can’t afford a heater, we will be happy to buy one for him.”

At first glance, it may seem that my friend was being too nice – offering to buy a heater for someone who was taking and using your own without permission? Why would you do that? In reality, he never intended to do so. He was subtly using the concept of “face” to encourage the landlord to do the right thing. The landlord, who owns the entire building and more besides, obviously has enough money to buy a small gas heater. If he allowed his tenants (who own quite a number) to purchase one for him, he would lose face – it would be like saying that he is too poor to buy one for himself.

Most Chinese will avoid confrontation where possible; appealing to a person’s pride (their desire to have “face”) is one way to do that. My friend used one very smart comment to resolve a potential conflict without resorting to a confrontation.

For more on “face”, see this previous post:

Face and Business Relationships in China

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Posted in : Business Relationships, Business in China

Cultural sensitivity for international business

Tanya Crossman

There was a fantastic 3-part post on the China Law blog the other week. A new contributor, Jason Patent, gave advice based on the idea that knowing the Chinese culture is a huge help to anyone doing business here. All three posts were very well written and worthy of a careful read.

I’m going to go through the general idea of each post, with some of my own thoughts and a few quotes. If you find it interesting, do go and read Jason’s original posts.

In Part I, Jason shared a story in which an experienced businessman who had done his research blew a great opportunity in China through a lack of cultural preparation.

This is an important topic for anyone planning to do business in China, whether directly or through an intermediary. Things are DIFFERENT. Whoever is on the ground needs to be culturally aware, and whoever is managing them needs to leave space for the differences culture brings.

If you are using an intermediary for your China dealings, try to listen to their explanations of situations that come up – don’t expect it to fit in the box of business in your own culture. If you can accept that the Chinese way is not “wrong,” but simply different, it will help you be more relaxed and, in the long run, effective.

I particularly enjoyed this quote from the summing up at the end of the post:

Business is not just business, despite our American insistence to the contrary. The only way to succeed in China is with the curiosity to examine our own beliefs and practices, and the humility to see other ways of doing things as equally valid. And the good sense to spend a bit of time and money now to save, and make, much more down the line.

Part II focused on ethics, and in particular, the perception that Chinese are less ethical in business than westerners.

A favorite critique by Westerners of China is that “the Chinese are unethical.” It is claimed that Chinese deceive, don’t stick to contracts, deliberately cheat. While few would deny that China can be a frustrating place for Westerners to do business, and while unethical behavior certainly occurs in China, claims of unethical behavior are often exaggerated, and result from Westerners’ own failure to understand the different background assumptions held by the Chinese.

Jason includes a chart which compares some of the values emphasized in China/the West, and the implications of these mismatches to business. For example, we may see a person’s behavior and, misunderstanding the intention of this behavior, assume they are trying to cheat us in some way.

The rub is that we have no access to anyone else’s intentions. All we have to go on is behavior. We observe a behavior, and attribute an intention, whether it’s accurate or not. The result: we make a lot of mistakes, often assuming evil intent where intent was either good or, at worst, indifferent. Whether we like it or not, we are wired to judge those around us based only on their behaviors, while at the same time judging ourselves based mostly on our intentions. That’s a cold, hard reality — but a good one to know about.

I really enjoyed reading this discussion. As Jason himself says, it’s not new information, but it is very important to business (and life) in a cross-cultural environment. I know that, personally speaking, understanding that behavior which frustrates me may have a different intention than I would naturally ascribe to it helps me be more at peace.

Giving others the benefit of the doubt (assuming their intentions are good) and then trying to clarify the situation with careful, calm questions helps greatly. This is not just in dealing with suppliers or customers (external parties) but even within your own company. There have been several occasions in Imports Oriental where misunderstood intentions have created unnecessary tension – tension which dissolved almost immediately once there was clarification.

Part III focused on stereotypes that we carry, and how they affect our perspective. Jason lists 9 stereotypes many Westerners carry into business dealings in China.

1. The Chinese are out to cheat me.

2. The Chinese think they’re superior.

3. The Chinese lie.

4. The Chinese go back on their word.

5. The Chinese are always stalling for time.

6. The Chinese are stingy.

7. The Chinese don’t care about quality.

8. The Chinese don’t care about their environment.

9. The Chinese hate Westerners.

Jason goes through each of the 9 and gives perspective on each – how these stereotypes can come about and explaining a bit of what can be behind them. There are unethical people in every culture, but labeling all Chinese as dishonest or liars is not the solution. I’ll end with a quote from Jason’s summary:

Categories can be useful. Reasoned, informed judgment can be useful. Stereotypes have zero business value. Get savvy about your own stereotypes and re-frame them. Not only will you feel better and get along better, but your business will do better.

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Posted in : Business Ethics, Business in China, Entrepreneurs, International Business, Leadership

Insights on doing Business (and life) in China

Tanya Crossman

Foreign Entrepreneurs in China is a blog we highlighted a few weeks back in our “best blogs” post. Last week there was an interesting post featuring Kevin Lai, Asia General Manager for New Zealand multinational Actronic Technologies.

I’m the China baby of the Imports Oriental team, having spent a mere 7 years here; I was impressed by some of the insights Kevin had to share from only 3 years in China. The whole set are worth taking a look at (you can read them here) but I’ve chosen a few to highlight and add my own thoughts on.

1. Language Barrier: It’s not the Only One.
Lots of companies do not appreciate how different China is. They assume language is the barrier but there is a lot more to it. Culture, taste and behaviour add to the difficulty to interpret what is going on. And the value system is so completely different that at times you don’t know whether to react outraged or ignore a situation.

That last line really speaks to me. I still find that on occasion I have no idea what the correct response to a situation is. I know what is going on, and how I feel about it, but I don’t know how to convey my feelings appropriately. Sometimes I simply have no idea if what I am feeling has anything to do with what the other person intended to convey!

I don’t think there’s much of a shortcut to learning this stuff, but my best suggestion is to ask questions of local friends and expats who have spent more time in Chinese circles than you have. Listen to their advice and insights, even if it doesn’t seem applicable to you; sometimes it won’t make sense to you until you’re in a similar situation.

5. Statistics are Good but Don’t Let them Fool You.
Statistics may provide you with a good overview, but don’t forget they’re just an average and they hide a lot of information.

A friend of mine once said “everything you’ve ever heard about China is true….somewhere”. I still quote this as I find it very apt. China is a very big place; it’s not uniform throughout. Assuming that you know every place in China just because you know one place (and so on) is problematic. It’s good to remember that no matter how long you’ve been here, you don’t know it all.

6. Market Research & Reports: Be Ware of Polite or Aspirational Answers
Reading market reports is good, but you need to understand what you are reading. You may be asking somebody: Would you go to New Zealand? And they will say yes, but it is more their aspiration than a reality. Same goes for polite answers. Some people would be embarrassed to say no.

This point actually got me thinking on a different track. There are significant differences between the English words “will”, “want to” and “can” and their Chinese counterparts. The word yao could be translated “will” or “want to” depending on context; the same word can indicate an aspiration or a concrete plan. I think this leads to ambiguities in understanding the intent behind a person’s words, regardless of what language you’re speaking.

7. “Do It Yourself” … Not Worthy Here (for entrepreneurs)
You need to seek help in order to settle here so that you can focus on the core business. Helps is available for free. Just ask! Contact your own country’s expat networks, your Government Agencies.

A good thing for all new expats to keep in mind! People have done this before – so there’s no need to reinvent the wheel. Most expats who’ve been around a while are more than happy to share some tips. Trying to go it alone and work it all out yourself is a waste of your time and energy – and adjusting to a new place will take enough of that as it is.

10. Trust- not just an Empty Word. Once you Gain Trust lots of Doors Open.
The value of trust is not a China myth. Chinese people are very caring when it comes to their families, friends and network. They will ignore you if you are not in the circle, but once you make it, once you gain their trust and become part of their network they will start caring about you in a very personal way.

I am often surprised by the strength and shown to me by long-term Chinese acquaintances. These aren’t my close friends (that isn’t so surprising) but rather people I have known for years in a more casual way. For example, drivers I would hire to drive me back and forth between Langfang and Beijing, or a landlady I only saw often enough to pay rent, or the manager of a nail salon I visited regularly for years. In many cases I sense a difference when I am “promoted” to a closer circle, rather than being merely a client/customer etc.

As with one of my previous comments, I’m not sure there’s a shortcut here. The important thing is simply to recognize that this is how things work. It’s worth investing time in building relationships – not just in a personal context (with friendships) but with vendors, services and the like. Once that trust is built up, by virtue of continued association, things change. You can’t necessarily anticipate that change – when it will happen and what it will look like – but it will be a pleasant surprise when it happens.

12. Hire Somebody you Can Trust.
Lots of companies send people here who don’t speak the language so they’re completely relying on their Chinese employees. It’s quite common to hear stories about people hiring a local manager who initially performs really well but turns into a bad story.

This is a point that comes up over and over in discussions about China. I suspect this is true in any context where you are dependent on an employee for translation and cultural understanding. The counterpoint to needing to find people you can trust is to not be dependent on any one person. When you get in that sort of situation, either you are wrecked when that one person leaves, or keeping that person becomes such a high priority you can be blinded to other things.

14. Keeping your Employees… You may need to pay for it.
In general people like to work for big companies. It gives them status and security. So when you are part of a small/medium business you may need to pay above the average when you hire your local employees.

I agree with the principle of this – in general, people do like the status and security of working for big companies. So when you try to recruit top quality employees to a small business, you need to have something else of value to offer them. I don’t believe that need necessarily be a high salary – there are other ways to make your company attractive. Perhaps it is flexible working hours, greater access to training and personal development, or a manager who cares about them as a person.

For example, when hiring an administrative assistant for our head office in Langfang, we were interviewing several shortlisted candidates. One candidate was particularly attractive to us, but seemed put off by the salary – she had clearly expected more. The Chinese employee conducting the interview with me had a discussion with her about the other benefits of working for our company -such as insurance coverage, more personal holidays and sick leave than mandated by local labor laws, and a nice lunch provided every day. That short discussion totally changed the candidate’s attitude toward the position. I think that a particular strength of our company is that employees feel cared for as individuals, and therefore also want to care for their employers by doing their best for the company.

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Posted in : Business in China, Entrepreneurs

Best blogs about sourcing in China

Tanya Crossman

A few weeks ago Imports Oriental was named as one of the best blogs for sourcing in China on Quality Inspection Tips blog (original post here). Here’s a quote from the article:

Imports Oriental Blog – I like Danny’s angle on some unique “Chinese cultural things”, and Tanya does a great job of spotting the best content from other blogs.

Other blogs Renaud listed include Silk Road International and China Law Blog – two excellent blogs that we also read regularly, and have linked to numerous times in the past. It’s humbling to be listed in such illustrious company!

We thought we’d let you in on some other sources we look to:

Foreign Entrepreneurs in China has a somewhat specific focus, but one that resonates deeply with us, obviously! Lots of helpful hints for those starting out or growing a business in China.

Chinese Negotiation is a top notch blog with great insights into how Chinese culture affects the way business works here. We regularly read posts by Andrew that connect very well with our own experiences and/or give us new ideas.

All Roads Lead To China contains a good blend of business and personal insights for the expat businessperson in China.

And, of course,

Silk Road International
China Law Blog
and
Quality Inspection Tips

So that’s 6 of our favorites. How about you? What sources do you go to for information on business in China?

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Posted in : Business in China, Community, Entrepreneurs

In China, economic considerations aren’t the whole story

Tanya Crossman

Last week Dan Harris posted his thoughts on an article by Joseph Sternberg, Editor of the Business Asia column at The Wall Street Journal. It’s worth dropping over to read the whole post, but I wanted to highlight Dan’s main point:

Like it or not, China no longer feels terribly inclined to care much about the foreign companies in its midst and it will not hesitate to place big picture politics over economics. Those who believe otherwise are neglecting real risk.

I couldn’t agree more. To say that China’s goal in all foreign policy is to increase economic opportunities for China is to oversimplify the situation beyond sense. The Chinese government is looking out for China’s interests, yes, but those interests are not merely economic. Political stability is a high priority, and at times this will supercede the priority of economic opportunity.

Anyone doing business in China needs to pay attention to the larger political landscape; economics alone will not tell you the whole story.

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Posted in : Business in China, International Business

Perspectives on Guanxi

Tanya Crossman

China Law Blog is one of the top China business blogs around. They just started a new series, “How We Really Feel About China,” which looks like a good place to start reading if you’re not a subscriber already. Part one is about Guanxi; it’s a practical, realistic look at how guanxi does (doesn’t) work for foreigners.

Guanxi is developed with individuals, not organizations; when the individual is no longer involved, guanxi is no longer a protection against problems.

Our position is essentially that for the overwhelming majority of foreign companies doing business in China, guanxi is no substitute for needing to scrupulously abide by China’s laws.

A list of points elaborating on this is given, and then quotes from several other leading China business blogs backing up this understanding of guanxi.

No foreigner can recreate a Chinese-style guanxi network

Connections with local government officials are short-term and can be abruptly terminated.

The Chinese provider of guanxi may suddenly disappear.

A project based on guanxi gives too much power to the Chinese side of the deal.

The article is well worth reading for the discussion and quotes, different perspective on the same issue, but here’s the bottom line on guanxi from CLB:

It takes time to cultivate.

It is not a substitute for good business sense.

It does not make a bad business deal a good one.

It should not be used as a way to skirt the law.

It makes sense to have good relationships with people in China, just as it makes sense to have good relationships with people everywhere.

Guanxi does sometimes make things go more smoothly.

None of us have any real clue as to whether guanxi should or should not be capitalized when written in English.

Most who claim to have serious guanxi do not.

An even greater percentage of foreigners who claim to have serious guanxi do not.

The value of guanxi varies from industry to industry. For instance, I understand that guanxi is critical to the media business in China and to securing government contracts; it is of virtually no importance in getting your trademark or WFOE registered in China.

Guanxi – is it essential to business dealings in China?

Tanya Crossman

Andrew Hupert posted an interesting look at foreigners and guanxi recently. The concepts of face and guanxi are closely related, and for any foreigner planning to do business in China it is certainly worth taking time to try to understand the two.

Andrew starts his series on guanxi with a definition. It is a wonderfully clear explanation of a very complex concept:

‘Guanxi’ literally translates as ‘connection’ though it is often used to mean ‘relationship’ and ‘network’. When Mainlanders use the phrase among themselves, they are referring to a fluid network of cordial business obligations and debts – sort of an institutionalized version of ‘you scratch my back, I’ll scratch yours’. A person with a wide range of well-placed relationships, all of whom acknowledge their indebtedness and willingness to reciprocate, is clearly in a very advantageous position. Conversely, a person who lacks connections and is not in a position to do favors for new counter-parties is in a relatively weak situation. The worst position of all is one who owes valuable favors to a wide range of highly placed connections.

Guanxi is not just having relationships and connections – it is about those “obligations and debts”. Knowing people is of no value, guanxi wise, unless those people have a reason to (and are likely to) help you out.

When Chinese associates talk to Westerners about guanxi, it takes on a slightly different meaning. Here the emphasis is on the ability to influence members of his network. . .For a long time, guanxi was synonymous with “local knowledge” – but carried a strong implication of corruption and under-the-table inducements.

This calls to mind the image of a shady guy making things happen that shouldn’t, because of his mysterious guanxi power. Guanxi has been built up in the minds of some foreigners to something almost mystic and unattainable to the uninitiated. This isn’t accurate. Guanxi is simply a network of give-and-take – doing something to help another person, without any obvious short term gain for yourself, understanding that they are now in your debt, and will return the favor sometime in the future.

When the China economy was first opening to the world (up until the mid 2000’s), commercial laws were still haphazard, contradictory and opaque. In such a chaotic environment, a local ‘fixer’ was often required to prod bureaucrats and state managers to make a decision. . . China’s central government, however, was busily constructing what it hoped would be a strong legal system and a (relatively) transparent regulatory framework. . .

That is why Westerners in China often find themselves caught between two opposing views on the guanxi issue. On the one hand, locals still maintain it is the only way to get things done in Mainland China – and that without it foreigners will never overcome their status as rich but clueless outsiders. However, a growing community of experienced, knowledgeable international experts maintains that guanxi is an ineffective, expensive and ultimately counter-productive throwback to the ‘bad old days’ of a lawless, chaotic China where personal influence trumped laws and regulations.

I think Andrew has it right here – China has changed. While calling in favors may have been essential for getting through the endless bureaucracy in earlier years, bureaucratic processes are becoming more formalized and it is harder to skip steps with simply the say so of a well-placed friend.

Guanxi is extremely useful and powerful – as an information network. A broad, active web of plugged-in connections can alert you to people who are willing and able to help – but who have no idea how to find you and no other way of being found by you. . .As a skeleton key that will magically unlock doors, it is problematic.

Guanxi is not the solution to business problems. Knowing a person in the visa department doesn’t negate you from the responsibility to submit your visa application correctly in a timely manner. You must follow the law and complete the required steps, no matter who you know. That said, knowing a well-placed person may help you to find information you need, or get helpful advice on a situation.

In the manufacturing industry, doing your supplier a favor now will generally result in them doing you a favor later. It’s not about skipping steps but rather helping each other to better solutions.

Guanxi networks are great as information and networking resources. However, if you plan on using connections to open doors – or knock down walls – then you are going to encounter some major difficulties down the line. When you use guanxi as a shortcut in China commerce, the destination is usually business failure.

All in all, a useful article. Looking forward to the rest of the series…

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Posted in : Business Ethics, Business Relationships, Business in China

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Guanxi – is it essential to business dealings in China?

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