Background To Business in China

At the beginning of the 21st century, the People's Republic of China finds
itself in the midst of social, economic and cultural transition (some might
even say turmoil). The old certainties, which epitomized the iron-tight
grip of the Communist Party during the reign of Mao Zedong, have long
since been replaced by the more liberal but unclear policies instituted by
Mao's great reforming successor, Deng Xiaoping and continued by
subsequent regimes. The pursuit of profit is no longer 'counter-
revolutionary' and business people have long since ceased being viewed
as enemies of the people. Yet the Communist Party is still in power and
shows little appetite for any of the political reform so much clamored for
by the West. Deng himself best described this seemingly paradoxical
situation (rampant capitalism in the midst of a communist country) in two
oft-quoted maxims: 'It doesn't matter whether a cat is black or white
so long as it catches mice.' and 'To get rich is glorious.' Thus in the
new order of the PRC, what business rules apply? How do you re-invent
a business culture in a country where commerce was outlawed for over
thirty years? Where does a country find the rules by which to play? The
answer is, of course, to fall back on traditional cultural drivers and in
China, that means a return to Confucian values (see below.) This does not
imply that modern business systems and approaches are ignored - more
that they are given a Confucian twist to enable them to lie happily
alongside the mainstream Chinese worldview.
And new contradictions continue to emerge - a burgeoning middle class
brings a massive new internal consumer market and both local and
international companies struggle with the best ways to capitalize on that
new market. The growing middle class wants higher wages, which puts
strain on China's traditional cost-advantages which could impact on its
balance of payments surpluses in the coming years.
The increased expectations of the growing middle-classes put pressure on
the government to continue to effectively manage the growth of the
economy. The latest 5 Year Plan has identified seven Strategic Industries,
which it wishes to concentrate on, and these 7 industries (including
alternative energy, biotechnology, new-generation information
technology, high-end equipment manufacturing, alternative-fuel cars and
eco-friendly technology) will receive central investment to the tune of
$1.5 trillion.


Business Culture in China

Whilst the tradional Moaist approaces are long gone, and understanding
of past approaches can be helpful when dealing with the new China
which has emerged. Under the Communist regime the most important
structure to which an individual was linked was his or her work group or
dan wei. In the past, the dan wei guaranteed workers security throughout
their lives in a 'cradle to grave' arrangement and the dan wei mentality
still lingers on in large measure. It was extremely risky for a worker to
leave the security of the dan wei as this meant the automatic forfeit of the
rights and privileges associated with membership - and those were such
basics as food, accommodation and medical assistance. In order to
maintain the security blanket afforded by the dan wei and at the same
time take advantage of the new opportunities arising in the 'new order',
many people have taken on two jobs until new opportunities are viable
enough to risk losing the traditional support mechanisms. Many
overseas companies who set up operations in the PRC do so in the form
of a joint-venture with a Chinese organisation and there certainly seem to
be manifold benefits to be accrued from doing so. Probably the biggest
benefit from the joint-venture approach is that it helps the overseas entity
to establish relations - via the Chinese part of the venture - into a complex
network of Chinese relationships. Guanxi, or personal connections, are
the all-important weapon in all business situations in the PRC. As has
often been said, 'In China, if you don't have Guanxi, you don't have
anything.' Forming a joint-venture company would seem to be the
quickest and most effective way of developing good quality relationships
in a country such as China. This, however, puts enormous pressure on an
overseas company to ensure they have selected the 'right' joint-venture
partner. It is a mistake to rush this process or to fall-in with the first
potential partner who comes along. Think out of the box. Product
compatibility may be less important than connections; cost may be less
important than access to a skilled workforce. As would be expected in
a Confucian society, operational structures, chains of command,
management style etc. tend to be hierarchical and the introduction of
more matrix-oriented approaches are bound to lead to conflict with local
expectations. Never undersestimate how important it is to understand,
and work with, a Chinese hierarchy. Trying to circumvent the hierarchy
will almost always slow a process down rather than speeding it up.









Working Practices in China


In Confucian philosophy, all relationships are deemed to be unequal.
Ethical behaviour demands that these inequalities are respected. Thus, the
older person should automatically receive respect from the younger, the
senior from the subordinate. This Confucian approach should be seen as
the cornerstone of all management thinking and issues such as
empowerment and open access to all information are viewed by the
Chinese as, at best, bizarre Western notions. (It should be borne in
mind that many people in China - as well as in many other Asian
countries - see the lack of observance of hierarchical values as the root
cause of the 'problems of the West.' These problems include the twin
Western diseases of moral degeneration and the anarchic idea that an
individual is more important than the group to which they
belong.) Thus, in China, management style tends towards the directive,
with the senior manager giving instructions to their direct reports who in
turn pass on the instructions down the line. It is not expected that
subordinates will question the decisions of superiors - that would be to
show disrespect and be the direct cause of loss of face (mianzi) for all
concerned. The manager should be seen as a type of father figure who
expects and receives loyalty and obedience from colleagues. In return, the
manager is expected to take an holistic interest in the well-being of those
colleagues. It is a mutually beneficial two-way relationship. Senior
managers will often have close relations to the Communist Party and
many business decisions are likely to be scrutinised by the party which is
often the unseen force behind many situations.
It is often said that China has a lack of good-quality, experienced
managers - this is typical of a rapidly growing and modernising economy
- and that the good managers who are available are very expensive (even
by Western standards.) This places enormous emphasis on any
company's recruitment and retention policies - you have to be able to
recruit the best and then keep them.




















Business Etiquettes in China

Guanxi, or personal relationships are of vital importance
when doing business in China. Do not underestimate the
importance of the relationship building process.

People are comfortable building relationships with honorable
people who show respect to those to whom respect is due.

As all relationships are unequal it is important, if you wish to
appear honorable, to show respect to age, seniority and
educational background.

Managers tend to be directive, which reflects basic
Confucian concepts of the hierarchical nature of society.

In return for loyalty, the boss is expected to show
consideration and interest in all aspects of a subordinates'
life.

There are often close relationships between senior
management of a company and local party officials.

It is important that you do not make people 'lose face' in front
of their group. Always respect seniority and do not openly
disagree with people.

Do as many favors for people as possible - debts must
always be repaid.

Business cards should be formally exchanged at the
beginning of meetings. Treat the business card with great
respect, as the card is the man.

Meetings are often long and seemingly without clear
objectives. Very often the meeting is an exercise in
relationship building and the aim of the meeting is to move
the relationship, rather than any specific business task,
forward.

It can take several, very long meetings before any tangible
progress is made. Patience is essential if you wish to
capitalise on the situation.

The Chinese are very interested in long-term commitment.
Build long-term goals and objectives into your proposals.

Do not be too direct. Strive for diplomacy, consensus and
harmony. Remember that this takes time to achieve.

Do not assume comprehension. It is often useful to go over
the same point several times from different angles in order to
aid comprehension.

It is difficult for the Chinese to say 'no' directly. Anything
other than a direct 'yes' could mean 'no'. Be circumspect and
reflect on seeming agreements reached. Has an agreement
actually been reached?

It is difficult to read body language as, by western standards,
it is somewhat muted in China. Be very alive to any changes
of posture, animation etc.

Gift giving is an everyday part of Chinese business culture.
Giving and receiving gifts helps to cement relationships.
Take gifts with you when visiting and put some thought and
effort into the gift selection process.

Always wrap gifts before giving them. Gifts are rarely opened
in front of the giver.

The Chinese are an intensely patriotic race. Do not make
disparaging remarks about China, the political situation,
human rights etc.

Entertaining is very important in the relationship building
process. If entertaining, do it well. If being entertained at a
banquet, take you lead from your hosts - they will enjoy
taking you through the process.