March 2, 2011

Arthur Chin: Doing Business with China

Posted on NZ Herald - 28 February 2011

Sai's Comments:
  • A very useful read for NZ businesses wanting to do business with China and Chinese Businesses. It incorporates key principles of Chinese culture in how to conduct business relationships with business people. In fact, it usefully reduces business relationships down to one involving people, a sometime forgotten reality! Simple yet insightful I believe.

By Arthur Chin

A few key principles make for better relationships.
The globalisation of business, advances in internet technologies, New Zealand's Free Trade Agreement with China and the Closer Economic Partnership with Hong Kong are some of the key drivers for New Zealand businesses to tap into the growth of Asia.
Establishing a business in New Zealand is fairly straightforward. That may not necessarily be the case when it involves a developing market economy like China. Each city has different interpretations of guidelines, and businesses find the levels of industry and segmentation maturity in different-sized cities translate into the need for regional strategies. The challenges are compounded by language differences.
Mindsets has often been approached about issues relating to doing business in Asia. Not surprisingly, most concerns are "non-financial" issues, as everything else on the balance sheet would have been thoroughly examined during due diligence.
One of the most perplexing issues noted by Western businesspeople, including those with years of China experience, is the impact of Chinese cultural nuances in business negotiations.

Most of the feedback in this area includes concerns about the lack of a clear agenda, the inefficient negotiating process, with the need for numerous stretched-out meetings, and a lack of accountability.
With trade between the two countries poised to increase, is there a way around this?
First, let's take a step back and examine the evolution of China.
* China has one of the longest recorded histories, spanning more than 5000 years. Its trading history with the world economy, however, started largely after the introduction of the Open Door policies. This was less than four decades ago.
* While the metropolitan cities of Shanghai, Beijing and Guangzhou now boast some unique architecture, the fact remains that two-thirds of China is rural.
* The teachings of Confucius and Laozi are beliefs practised for over 2000 years and are heavily embedded in government policies and social expectations. While regulatory policies in China are frequently amended, cultural values and beliefs are difficult to influence.
With the emphasis on surviving and maintaining a livelihood in China's communal societies, Confucianism and Taoism are centred on harmony and group co-operation. As such, the means (or process) is more important than the end (the result). Translating this into business negotiations, achieving group consensus was more important as an objective and this was usually at the expense of innovation and efficiency.
The rest of the world needs to develop patience. China has come a long way in a short time and, as with any economy, growth and consolidation take time. The world needs to see China through the Chinese lens and to recognise there are layers of consumer behaviours in China.
Negotiation methods
Contrary to what many believe, business negotiation in China can be straightforward. Knowledge makes navigation easy. Likewise, familiarity with Chinese cultural nuances and their implications in business protocols is likely to lead to a more positive experience.
Mindsets recommends the PANS principles - for position, attitude, network and scope - when negotiating with the Chinese.
Position, or rank of the lead negotiator, is central in any meeting with the Chinese. Regardless of whether the lead negotiator is empowered to make the decision, a disregard for seniority suggests disrespect. In an environment where social status is highly valued, senior management who front up to meetings demonstrate sincerity and a willingness to take ownership.
Attitude is pivotal in any business environment. In establishing relationships with Chinese stakeholders, general business etiquette is not enough. There is the need to understand the social capital of face (mianzi) so negotiations can take place at the same level, without appearing patronising or awkward.
An extensive network of contacts is invaluable and not to be underestimated. Networking takes on a new meaning in China but the rationale is that the wider the network, the more likely an introduction. Confucianism advocates the concept of benevolence and loyalty toward family members first, followed by extended clan, then outsiders. As such, contacts can help open doors and in the process negotiations are more straightforward.
Scope relates to how the finer details of negotiation are approached. Research shows Westerners adopt a linear approach, where success is measured on the robustness of separate modes. This contrasts with the eastern holistic thinking, where success is measured on how well the project fits into the wider context of business and environment.
Familiarity with the scope of business, including competitors of business partners, historic links between trading nations, market intelligence and regulatory framework presents a more unified approach.
Boardroom negotiation with the Chinese may be confusing but is not a minefield. Familiarity with Chinese cultural diplomacy is a skill that showcases the rules of engagement.
By incorporating aspects of Chinese cultural values, PANS is a framework that is likely to engage the Chinese.
Arthur Chin is managing director of Mindsets, an Auckland-based cultural consultancy.