Michael Sinclair was recently asked at short notice to give a speech on ‘Doing Business in China’ to the Business Referral Exchange (BRX) at a breakfast meeting at HSBC, Fleet Street, London. Here is the full text:
Good morning ladies and gentlemen. I am Michael Sinclair, Marketing Director of chinaONEcall and I have been asked to give a short talk on how to do business in China.
I was asked by Malcolm [Welsh, Director of Inspired Employment and Chair of the BRX Cavendish Branch] on Tuesday evening, but I spent all of Wednesday working flat out and indeed only paused last night for Supper just as ‘The Apprentice‘ came onto television.
I mention this , not as an excuse for what I may or may not say in the next few minutes, but to point out two very significant points which I hope will be of benefit in considering the conduct of business in China. Firstly, above all be prepared, understand as best as possible the parties you are dealing with, the nature of the transaction you wish to conduct, what your expectations are at the end of the day, and do not go into negotiations or discussions with the expectation that the end of the day will be the first day or even the first month of your discussions.
The Chinese respect thoroughness and to enter into negotiations vaguely and with lots of loose ends is a much more negative approach than might otherwise apply between Western business people. Having said that, make sure you do not show your hand in full too soon. It is always essential to have something up your sleeve, either as a counterpart to a last-minute demand by your Chinese opposite number or to show that you want the best of the deal for yourself and you will not accept a compromise and will not take second best. Now this may sound common sense and no different from Western-style negotiations - to think slowly, surely and without any display of urgency - but it is a really strong tactic in negotiations because the Chinese are getting to understand the quick fire approach of the West, particularly by Americans. The Chinese will often seek some last minute change or addition, so hold back.
I mentioned two very significant points from the television last night. The second point flowing from ‘The Apprentice’ is…do not emulate Sir Alan Sugar. Sir Alan may have been hugely successful himself but his approach would kill any negotiation in China immediately. And in all seriousness be polite, be courteous, never sound over-confident because this will be taken as arrogance and your arrogance equates very often to an insult or humiliation to your Chinese opposite number.
…which brings me perhaps to the most important principle in conducting business in China. This is the principle of guanxi (pronounced gwan shee) which means “connections”. What is important is relationships, meeting the right people, respecting people, learning about their culture and understanding the differences between them and us.
You will probably have heard that business deals are concluded across the dinner table, after a sumptuous banquet and after toasting each other time and time again. You will certainly learn the word “ganbei” or “cheers”. You should know that is disrespectful to your host to leave the table hungry and an empty plate signifies hunger, so if you don’t want to struggle away from the meal bloated and sick of Chinese food (which I have always found far more appetising in China than anything in the UK or America) then leave something in your bowl.
Deals are not conducted at the reception or banquet in that way, but…relationships are cultivated and nurtured by social interaction. The Chinese want to get to know their opposite numbers first. They may in your experience appear inquisitive, perhaps even intrusive — they will ask about your family life, even how much you earn, etc… but the getting to know you and the friendship element comes before sitting down to the nitty-gritty negotiations.
In Western culture friendships often flow from and follow business discussions and not before. But in China, getting to know who you are dealing with is as important, if not more important, than learning about their business, the company and their ability to perform and meet obligations to be assumed. And its all part of the slow but sure process which you will find infuriating and frustration, and is not merely the bureaucracy of anything to do with government institutions, banks and many other organisations and individual companies in China. It is the build-up of relationships.
And on the question of bureaucracy turn off your Western mind set…The Chinese are superlative at manufacture, can beat anyone on price, are getting better at quality control (but check time and time again on this as it is still a weakness)….But to set up a company, or to hire staff (or even to advertise for them) is not always permitted until your company —and you will need a local, i.e. Chinese incorporated company —until that company is incorporated AND licensed to carry out the specified field of work. So think how you want to interact in China - whether as an outsider, through a WOFE (wholly owned foreign enterprise) or in a joint company with local Chinese, and take advice….Initially through, eg the China Britain Business Council (CBBC) or later through lawyers or accountants either based in China or here in London with experience in China. And it would do no harm to read “Doing Business in China for Dummies” and more serious heavier books or even to read our short guide “How to do Business in China“.
Above all get a feel of what is about and take a deep breath and proceed with a smile and treat difficulties as a challenge so that you can turn each challenge into an achievement; that way it will end in a triumph.
And accept that for instance the Chinese banking system belongs to the last century at best, credit cards can be nigh on useless, banks may be open in the morning for international transfers but withdrawing cash has to be done in the afternoon or vice versa, or that’s what they will tell you.
Nothing will run on time, there will be lots of unexpected obstacles in the way and that is nothing to do with the parties to any negotiations, but the involvement of the bureaucracy etc…And although so much is frustratingly slow, and the Chinese can be late for meetings, don’t you be late…That’s impolite…Just take a good book with you, or better look around and absorb the atmosphere of the restaurant or meeting room. It may give you a flavour of the people you are about to meet, but certainly do not let a wait put you off your stride. The Chinese have, or practice at having, all the time in the world. Do not lose your composure by being dismayed at a wait.
And do not leave it to chance in terms of language…Get help at the earliest opportunity whether from my Company here and in China or others, but if taking a local interpreter do check on his or her credentials, and ascertain diplomatically where his or her loyalties ultimately lie. Get agreements translated into English and try to insist on the English language prevailing…a tall order but not impossible.
And remember Chinese commercial law is very much in its infancy, and still leans towards the concept of fairness and good faith, and not always looking at the small print of the terms, so take account of social, moral and commercial norms, because that “bargain” may be less attractive when under scrutiny in a Chinese court. Also, get good advice and derive benefit from the slower approach to negotiations which will therefore appear fairer and as a consequence less open to attack. You may not be changing what you planned for, but to take your time and give the Chinese party time to mull over things will give the end contract a flavour or perception of fairness which the same contract executed in a rush will not.
Chairman Mao Zedong said in 1966:
“The individual is subordinate to the organisation. The minority is subordinate to the majority, The lower level is subordinate to the higher level.” (speeches of Mao Zedong)
The People’s Republic of China may have embraced capitalism in its industrialisation and in its desire to develop, but some of the age old principles, which are in the Chinese psyche, and predate Mao by hundreds or thousands of years, still linger on.
Therefore learn with whom you are dealing, as decision or rather deliberation by committee is still strong and healthy, and respect for the hierarchy and decisions at the top is still firmly ingrained in most companies and firms.
There are two things I would like to mention in this context. Find out who you are dealing with, to whom you are talking. This can arise at the beginning when you exchange business cards. And this is a first test of your understanding and respect for Chinese culture: present your card face up, holding it in both hands and hand it to your opposite number. When receiving back his or her card, take that in both hands and carefully study it–do not quickly shove it in your pocket as you and I may do in a British context.
Besides anything else,it would be helpful to have the card in front of you on the table as a memory jogger when trying to address people by their correct name. It is not considered an impertinence to ask a little of the person as to his or her role in the company, and in that way you may be able to establish his or her rank. You could then perhaps place the cars on the table in such a way as to remind you which of these people facing you are the decision-makers — or at least perhaps closer to the real decision-makers.
There is an important cultural difference to be aware of when making this judgement. I am a marketing director of my company. In some contexts, I might say “managing director”. Others may enjoy the label “financial director”, etc. However, that adjective “marketing”, “managing”, “financial” all qualify, and lower or diminish the title “director” to the Chinese. So in fact on my business cards you will see “Marketing Director” in English, but on the other side is written “zong cai” which just translates as director.
And let me tell you something else about my business cards. Red we all know, or thought we knew, was lucky in Chinese eyes. But not if its your name in writing, as this signifies the parting of company or death. I actually had my cards printed with the name in red and the words ‘Marketing Director’ in black until I realised the mistake I had made. Fortunately it was only the cost of a reprint, not a cultural blunder. So do try to learn the things which make the Chinese culture so different and therefore exciting.
And a little thing to remember also is that the word “no” is anathema to the Chinese. They will affirm things, they will nod politely, they will say yes, but they will go away and come back to the negotiating table the next day with in effect a negative. Learn to understand, learn to let your opposite number put forward your ideas in their own words, slowly…and you will win and they win also because they have “face” or pride or respect. Humiliation will kill any deal however promising for both sides. It is so very important to the Chinese that they have and hold “face”.
Finally, remember there are lots of superstitions and traditions going back thousands of years. So for instance the number four is unlucky as the word in Chinese sounds like the word for ‘death’. Eight on the other hand is a sign of luck. The International Olympic Committee were concerned about the heat and humidity of Beijing in August but the Chinese insisted on the Games commencing at 8 minutes past the 8th hour on the 8th day of the 8th month in year 2008.
And let me finish by saying listen, learn, be patient, be aware, be friendly and above all enjoy the opportunities out there because they will be worth it in the end.
So xie xie, zaijian. Thank you and good bye… And that leaves me with reinforcing a little point. Although you will no doubt have help with Mandarin, try to learn just a half dozen words because it shows your respect for the Chinese, your interest in their language and culture and you will not just be seen as a money-grabbing Westerner but instead as somebody to whom they can relate and ultimately warm to… And that must be good for business.
Michael Sinclair, Marketing Director, China One Call Ltd, 24th April 2008.