Doing business in China as everybody knows now is difficult. However, Chinese business lawyers always provide helpful tips to set one up and sustain it. Here are few more tips:
- Do Your Homework– When China operations get into trouble, a lack of preparation is a common theme. Very true. I hate to say this, but in my experience, foreign companies that get in trouble in China are usually at fault for not having better prepared.
- Beware of Industrial Dynamics– A typical cause of losses in China is that foreign companies are so focused on market growth rates that they neglect the basics of competitive analysis. Some business experts expected these issues to disappear over time, but many years later, the basic situation has not changed. Many Chinese industries suffer from overcapacity, high levels of fragmentation, subsidized local competition, and foreigners willing to absorb losses from their investments. This also talks about the overall need to prepare.
- Take your time– Most of the firms aspire to start quickly. Time pressure can create problems in the long run. It tends to result in faulty planning and analysis. It shifts the attention from finding the right partner to finding any partner, irrespective of partner fit. Moreover, it weakens your hand in negotiations. Unfortunately, your Chinese counterpart will use your time constraints against you, and you will walk have to close a losing deal. There is a direct correlation between speed and quantity of mistakes. Again though, this fits into the overall need to prepare.
- Collectivist Society– Chinese society is collectivist. Individuals identify each other within a group consisting of family, clan, and friends. Within that group, cooperation is the criterion. Outside it, zero-sum competition is common. Zero-sum competition means that your Chinese counterpart may not believe in win-win solutions. For example, their tendency to re-open negotiations just as everything seems settled, especially if one seemed too ready to agree with the negotiated terms; one’s counterpart may interpret this as an indication that s/he has not bargained hard enough. Absolutely true, and foreign firms that ignore this do so at their peril.
- Mistrust and Opportunism is Rampant– There are two opposite ways of extending trust. One is to trust until given reason not to; the other is not to trust until there is enough evidence of trustworthiness. China takes the second approach. The zero-sum competition already mentioned-above creates an incentive to take advantage of people outside the in-group. As a consequence, the Chinese tend to mistrust people outside their in-group. Foreign companies doing business in China should not be afraid to show a lack of trust.
- Trust Takes Time to Build– A common safeguard against opportunism is to build relationships of trust with persons who matter for your business. Building friendship takes time and therefore you should avoid rushing into business. Besides numerous invitations to sports and other events, one key element in building trust is long dinners during which everything but business is discussed. You have to learn to drink intelligently. A majority of business with China gets done without these sorts of personal relationships these days.
- Behavior Does Not Necessarily Coincide– Chinese negotiators occasionally push the envelope with their Western counterparts. For instance, the representatives of a big western company were negotiating the distribution rights for one of their products. Their Chinese counterparts proposal by threatening to use their political connections to prevent distribution of their products if they did not receive the rights. Moreover, some Chinese business owners got their western guests drunk to prevent them from being effective in negotiations the following morning. These sort of acts sometimes take place. However, smart companies generally have little problem in dealing with them.
- Chinese Maintains Hierarchical– Company decisions are usually arrived at in a top-down manner, with only the very top of the pyramid involved in decision-making. Supervisory control at each level is very high which also puts pressure on foreign parties. If the counterpart is not part of that group, s/he is typically not authorized to make major decisions.
- Government in China is Decentralized– Contrary to common belief Beijing directs little of what happens throughout the country, especially in far-flung regions. Conditions generally vary by location. Additionally, it is crucial to involve the local government to negotiate with the central government. Even if you have agreement from Beijing, if the local government wants to thwart you, it will. Generally, you want to be sure that both the applicable local government and Beijing have agreed on your China business plans.
- See the Large Picture– Small and medium-sized enterprises have contributed the most in the growth of Chinese business scenario since 1978. If so, fierce competitive battles seem likely for the future, and easy access to state money for these firms means the playing field will not be level. Government may be on your side as long as your technology is needed. Bear this in mind when selecting a partner for cooperation or considering market entry.
This list is a useful one when it comes to doing business in China. In fact, remembering these points will definitely help the foreign company owner to steer clear of situations which will land him in soup.