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Posts Tagged ‘ethics’

Business Risks in China

Tanya Crossman

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

Cultural sensitivity for international business

Tanya Crossman

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

Guanxi – is it essential to business dealings in China?

Tanya Crossman

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

The Compromise Tests: when Gray becomes Black – part 2


Danny Coyle

Danny Coyle

Doing business in China invariably means running into some tough ethical dilemmas. There is often no clear line between black and white, and wading through shades of gray is difficult.

In the first part of this article we looked at two tests I use to help me make these difficult decisions. In this part we consider two more.

Test #3: The Children Test

If your kids were in the exact same situation you are in, what would you counsel them to do?  Since most parents want their kids to grow up as outstanding members of society, we usually teach our kids to do the right thing.

Another side to this test is whether my kids would approve of my decision. If my kids knew everything about the decision I am making, would they be proud to have me as their dad?  My kids are so much more important than making money; I will not compromise my image in their minds.  As in the newspaper test, they may not understand the situation fully – my decisions may appear hurtful to them at times – but this test reminds me to be a person my kids will be proud of in the long run.

Test #4: The Company Name Test

In this test, I picture the name of our company in polished silver, hanging on a wall for the world to see.  I then ask myself: will this decision tarnish or polish our company name?

Ethical and moral decisions have a polarizing effect – they are on the black side or the white; they tarnish or polish. A hundred small smudges will tarnish our company name just as surely as a single large-scale error in judgment will. The situation I find myself in today may be forgotten next year, but every decision has lasting effects. Each decision I make impacts the reputation and standing of our company.

The bottom line of all these tests is to take a long-term view of the situation. There is more at stake than what you see on the table in front of you. Each decision you make has follow on effects. My decisions affect who I am becoming. My decisions affect the direction and the character of our company.

The question is: what do you want to be known for?

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Posted in : Business Ethics, Business in China

The Compromise Tests: when Gray becomes Black

Danny Coyle

Danny Coyle

Doing business in China means things are rarely black or white; there is a lot of gray.  There are issues to do with business registrations, taxation (where and how much), customers wanting to rip off other customers, cheating suppliers, kickbacks – and the list goes on. These situations often have many layers to them, further complicating already-difficult decisions.

You can’t do business in China without stumbling across this question: where does gray become black?  When does something that is not technically wrong cross the line into something that is definitely not right?

I have a few tools that I use in these situations, to help me navigate the path of integrity.

There are four tests I apply to difficult ethical dilemmas I face. I have included two below, and in the next part of this article, we’ll look at two more.

Test #1:  The Friend Test

Seek counsel from wise friends who will encourage you to do the right thing.  A friend often sees your situation with much more clarity than you can yourself.  In the thick of a tough decision the reality of the situation can be hard to see.  For me, this often feels like guns lining the ridge of a canyon I can’t find my way out of.  A friend standing outside the canyon observes the whole situation from a different vantage point.  This person will give great advice that you would never have thought of.

Test #2: The Newspaper Test

Imagine that the full story (with all the minor influencing details) were written in the newspaper for the whole world to read.  Everyone who read the newspaper would understand all the gory details.  Would you be embarrassed about the decision that you’re making?  If the answer is yes, don’t do it.

Often we deal with angry responses to the decisions we make. Integrity is not, however, based on the opinions of others. This test helps you distinguish between the right decision and a decision that simply looks right to those on the outside. Make the decision you would not be embarrassed about were all the details to come out.

What do you think? What are some tests you use when facing the gray zone?

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Posted in : Business Ethics, Business in China

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