TRADE OPPORTUNITIES IN THE CHINA MARKET

Lesson No. 1: Chinese businessmen are tough negotiators. Lesson No. 2: Remember, you are setting up business in China. If the Government becomes you partner, what the officials say usually goes. Although on paper, China offers many incentives, it pays to know which government official matters. There are two ways of getting things done in China: work from the top official down or work from the bottom up. For the well-connected businessmen, chances are they get to talk to the big guys: the governor, the provincial economic planner or even the provincial party secretary general. This method works well and good, but sometimes projects get stalled because some lower-ranked officials dont get all the details of the project and dont know or care what the fuss was all about since they probably never got to meet the top businessman. The second way is to work from the bottom up. With some encouragement and "friendship", the lower-ranked official might lead you through the bureaucratic maze himself. Lesson No. 3: The biggest mistake is for the uninitiated or unguided to persuade or lobby a project with people who dont have the authority to sign contracts. There are approximately 31 million government employees in China. Lesson No. 4: Basic courtesy is important. Remember that if the giver extends two hands when presenting something, it requires two hands to receive the item. Never toss a business card from across the negotiating table. Also, the Chinese find it discourteous when one presents his/her calling card with one hand. It doesnt hurt to stand up, approach the Chinese host to present the calling card, and nod slightly while doing it, too. This practice applies not only to presenting calling cards, but also books, gifts and other things. Lesson No. 5: Face is very important. Punctuality at appointments is one way of extending courtesy. Host should arrive ahead of guests in restaurants. Escorting a guest not just to the door, but up to the elevator or the car is a sign of respect. Even seemingly unimportant details, like who enters firstwhether its into a room, a carand who sits down first, matters as well. Usually, a guest should make a slight protest when waved in by the host, but he usually proceeds on second prodding. This might seem very trivial, but in China, every move reflects on ones personality. Lesson No. 6: Personal relationship in China is important. It is more important than any signed contract. If a friendship is terminated, the Chinese Government will likely find some loophole to end the partnership. Lesson No. 7: Loyalty to friends and handshakes are traditions that will likely never change. While signed contracts are often done and pursued in these modern times, a handshake can

still be more binding. Rules can be flexible; contracts might be changed, but friendship, never. When push comes to shove, invoking friendship can save the day. Advice from an old-timer: Dont just visit when you need something. The buildup of years of goodwill will pay off when one needs a favor, even just once. Develop a high level of trust, connections and favors can come really handy. Lesson No. 8: Everything -- exploratory meetings, contract signings, rites of passage--start and end with a banquet. But hardly anything substantial is really discussed in such formal affairs. If it were the start of a proposed project, this event would be a getting-to-know-you affair. Boasting is not uncommon. If it were a concluding affair, there would be a lot of toasting and motherhood statements. One would think it was an orchestrated event for a news release. In a Chinese banquet, there are actually very few rules. No strict table etiquette applies considering there are no dozen utensils to deal with as in formal Western table settingsonly a pair of chopsticks and a bowl. In fact, using hands is encouragedfrom eating fried pigeon, to crabs to Peking duck. But for a host, it is important to serve the guest and the guest is "required" to "protest" mildly at the gesture. Often, this practice of serving is repeated for about two to three dishes, supposedly until the guest is comfortably settled in. The host should pamper his guests. This shows sincerity and respect. Lesson No. 9: Never drink the Chinese mou tai (liquor) on an empty stomach, or you will end up throwing up on your host. Actually, one can easily decline hard drinks by just mumbling something about a kidney or liver ailment. Take tea or sodas instead. The same is true with cigarettes that are another fixture in Chinese socials or cocktails. The Chinese have become increasingly more sophisticated in their drinking taste. Instead of rice wine, brandy - which is believed to be a health tonic - is preferred nowadays. Increasingly, karaoke barssuch a hit in Taiwan and Hong Kongare mushrooming in the urban centers as well. Lesson No.10: If a businessman cant speak the language, it might be wise to learn a few songs for entertainment. If you cant speak the language nor have difficulty speaking it, remember to bring guides conversant in Putonghua or Mandarin or the local dialect, such as Fookienese when visiting Fujian Province and Cantonese when visiting Guangzhou Province. Lesson No. 11: Dont nag. If you are asking for something that is important, this is usually noted, so dont try to be makulit, and ask the same question again. Often, a statement like "we will consider it" can be more sincere than the "sure, man" or "you bet" Westerners say after every other sentence. Displeasure is never shown publicly.

Lesson No. 12: Never pressure the Chinese. They may smile and seem to agree, but they will go back to their old ways and old methods. When they smile, foreigners never think anything is amiss. They have the delusion that their projects will be done their way and everything is fine. But behind the grin, they are actually saying, "forget the deal." They uninitiated sees lots of smiles, bows and banquets and thinks that the deal would be a cinch. The businessmen can never be more wrong. Remember politeness doesnt spell agreement. Under such circumstances, they will never do things your way. The Chinese are rarely rude, especially high government officials. Open rudeness can come only from one who feels inferior. Dont shout or curse, the reaction can only be indifference. Even to Western-educated but Chinese-conscious businessmen, Chinese officials usually speak in riddles, so dont be surprised. Lesson No.14: Important advice: to catch ones attention, whisper! The paradoxical Chinese are still modest in nature. When it comes to direct compliments like "You are beautiful", they often sidestep the comment. Since the Chinese appreciate a foreigner who understands their attitude, a Westerner should also refrain from acknowledging a compliment with a simple "thank you" as you most often would. The best response is for one to instead demur.. Guanxi literally means "relationships", stands for any type of relationship. In the Chinese business world, however, it is also understood as the network of relationships among various parties that cooperate together and support one another. The Chinese businessmen mentality is very much one of "You scratch my back, Ill scratch yours." In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily. Therefore, it is an important concept to understand if one is to function effectively in Chinese society. The importance of "Guanxi" Regardless of business experiences in ones home country, in China it is the right "Guanxi" that makes all the difference in ensuring that business will be successful. By getting the right "Guanxi", the organization minimizes the risks, frustrations, and disappointments when doing business in China. Often it is acquiring the right "Guanxi" with the relevant authorities that will determine the competitive standing of an organization in the long run in China. And moreover, the inevitable risks, barriers, and set-ups youll encounter in China will be minimized when you have the right Guanxi network working for you. That is why the correct "Guanxi" is so vital to any successful business strategy in China. Although developing and nurturing the "Guanxi" in China is very demanding on time and resources, the time and money necessary to establish a strong network is well worth the investment. What your business could get in return from the favors for your partners are often more much more valuable, especially in the long run, and when youre in need. Even domestic businesses in China establish wide networks with their suppliers, retailers, banks, and local government officials. It is very common for individuals of an organization to visit the residence of their acquaintances from other organizations, bringing gifts (such as wine, cigarettes, etc.). While this practice may seem intrusive, as you spend more time learning the Chinese culture, it will become easier to understand and take part in this practice that is so central to successful Chinese commercial activity.

To start, pay close attention to your immediate Chinese network, and try to establish good "Guanxi" with them. They can indirectly link you to new acquaintances and information resources, thus helping you to develop other right "Guanxi" you need. How business is conducted The Chinese culture is distinguished from the Western culture in many ways, including how business is conducted. For example, the Chinese prefer to deal with people they know and trust. On the surface, this does not seem to be much different from doing business in the Western world. But in reality, the heavy reliance on relationship means that western companies have to make themselves known to the Chinese before any business can take place. Furthermore, this relationship is not simply between companies but also between individuals at a personal level. The relationship is not just before sales take place but it is an ongoing process. The company has to maintain the relationship if it wants to do more business with the Chinese. How relationship is established First of all, it does not have to be based on money. Treating someone with decency while others treat him/her unfairly could result in a good relationship. Second, it starts with and builds on the trustworthiness of the individual or the company. If a company promised certain things and delivered as promised, the company is showing trustworthiness and the Chinese would be more inclined to deal with them again. Third, being dependable and reliable definitely strengthens the relationship. It is like being friends, and friends can count on each other in good and tough times. A good example is related to the 1989 political instability in China. Companies that stayed found their relationship with the Chinese strengthened as they were viewed by the Chinese as friends who did not abandon the Chinese when they needed friends. Fourth, frequent contacts with each other foster understanding and emotional bonds and the Chinese often feel obligated to do business with their friends first. "Guanxi" or relationship with high rank officials are still important for doing business in China, though declining to some extent. Political and administrative interference in business have declined. More and more companies have found themselves on their own surviving without government subsidiaries. If they are not getting any help from the government they are more reluctant to be influenced by government officials. So government "Guanxi" may have less influence with these companies. Since "Guanxi" and relationship could function as an information network, companies with wide "Guanxi" and relationship networks often have much higher performance than companies with little or no relationship with the Chinese. Final Words on "Guanxi" Keep in mind that "Guanxi" can take on many forms. It does not have to be based on money. It is completely legal in their culture and not regarded as bribery in any way. So, there is no need to feel uncomfortable about it. Trustworthiness of both the company and individual is an important component. Following through on promises is a good indication of this. Treating someone with courtesy while others treat him or her unfairly is another aspect. Frequent contact fosters friendship as well. Chinese feel obligated to do business with their friends first. There are risks with this system, as well. When something goes wrong, the relationships are challenged, and friendships quickly disappear. "Guanxi" can also be very one-sided. When "Guanxi" is involved, there is a risk of obtaining an invoice of twice the amount that you bargained for.

Articles: If youre outsourcing to Chinese manufacturers for the first time, youre bound to make a few gaffes when dealing with a business culture so different from your own. Here are some rules of the road: 1. Never criticize the government. In the United States, taking verbal shots at the government is almost de rigueur in business conversation. Not so in China. While savvy Chinese are well aware that their government has problems, openly criticizing the government, or even being on the scene of criticism, is a good way to end up with innumerable troubles when its time to make the obligatory kowtows. The last thing you want is to be seen as a troublemaker, says Usha Haley, professor of International Business at the University of New Haven in Connecticut. 2. Understand the limitations. There are still many industries in China where the organization and ownership structure reflects the old communist system. The government is reluctant to restructure and privatize these firms, possibly creating unemployment. When dealing with such bureaucrats, you may need to understand the constraints under which they are working (such as the need to maintain full employment) in order to understand how to work most closely with them, according to James Mulvenon, a former China expert for the Rand Corp. 3. Dont assume the contract is final. In general, the Chinese place greater reliance upon personal connections and personal commitments than on whats written on a piece of paper. As such, terms that are discussed prior to the signing of a contract often are only distantly related to the actual terms under which the deal will move forward. After you sign the contract, there will likely be multiple requests to change the terms in order to make the deal more advantageous to the Chinese suppliers, says Brad Finn, president of Marlboro Corporation, a wholesaler that works with Chinese manufacturers. 4. Try to cultivate the younger executives. There is growing professionalism among younger Chinese executives, many of whom have earned MBA degrees from Chinese and American universities. Unlike their predecessors, such young executives are more likely to view business ethics and performance in a way that more closely reflects attitudes in the United States or Western Europe. They can help you understand whats going on in more traditional enclaves of their firm, according to Diana Matthias, a Shanghai-based senior consultant for Rouse & Co. International, a company that consults on international intellectual property rights. 5. Be sure youre speaking with the real decision-maker. Its not at all unusual for a Chinese business owner to remain in the background and let his negotiator pose as the decision-maker. This gives the real decision-maker the flexibility to deny any concessions that he doesnt like and dictate better terms using your concessions (which you

thought were mutual) as a baseline. My advice is to simply walk away from the meeting if you find out theyre playing this game, Finn says. 6. Beware of double-dipping. Local representatives frequently position themselves to get paid both by the company that they represent (meaning you), and the company with which theyre negotiating, according to Tim Wang, regional president of Novellus China, a subsidiary of semiconductor equipment-maker Novellus. But dont get too heated if you discover an apparent conflict of interest. In China, this is not considered a violation of professional ethics but a natural consequence of being in the advantageous position of being an intermediary. 7. Enjoy the inevitable banquet. When you visit China, youll likely end up attending one or more ceremonial banquets, where a wide variety of traditional dishes will be served. The host earns status by providing unusual or rare foods, which probably will not be at all like the Chinese food youre used to eating in the United States. Youll be expected to try every dish, lest you insult the host by refusing. The last time this writer was in China, the banquets included pigs ear, which tasted like rank bacon; turtlehead soup, without a visible head, thankfully; and an item listed on the menu as bonerless chicken. Bon appetit!

Golden hints for doing business in China Take all the time in the world Western business visitors are often deadline-driven and unwilling to slow down to the Chinese pace when discussing business. But in China the pace can be fast and slow simultaneously. Those involved in negotiations know how long they can drag on when the Chinese side is consulting internally or has other reasons for delay. But Chinese negotiators can move with lightning speed on other occasions. Part of this feeling is subjective. Any chess player knows how long you have to wait for the other player and yet how fast you must move yourself. Nevertheless, Chinese negotiators use time more consciously than do their Western counterparts. Separate fact from fiction Virtually everything you hear about China is true, and so is the opposite. Western thought is dominated by linear logic whereas Chinese thinking is influenced by early philosophers, who saw a paradoxical balance of opposites in all things. Where Westerners tend to look for clear alternatives (option A instead of option B), Easterners may examine ways to combine both option A and option B. This difference in approach may make a Westerner think that a Chinese negotiator is being illogical, evasive or devious, when he believes he is being quite straightforward. Build relationships

Westerners normally build transactions and, if they are successful, a relationship will ensue. However, the Chinese believe that prospective business partners should build a relationship and, if successful, commercial transactions will follow. This difference underlies many misunderstandings arising from business negotiations. Virtually all successful transactions in China result from careful cultivation of the Chinese partner by the foreign one, until a relationship of trust evolves. Cultivate guanxi The logical development of close relationships is the Chinese concept of guanxi, pronounced gwan shee. According to business analyst Tim Ambler of the London Business School, the kernel of guanxi is doing business through value-laden relationships. In a highly centralised, bureaucratic state, the use of personal contacts was the only way to get things done. Guanxi is the counterpart of a commercial legal system. Where the latter is relatively weak, as in China, the need to rely on guanxi will be strong. As long as the relationship is more valuable than the transaction, it is logical to honour it. The idea of a friendship leading to business is attractive. But Easterners who are familiar with guanxi are more cautious than Western converts. The obligations of guanxi are very real. In the wrong place, at an inappropriate time, with unsuitable people, the obligations can become a trap it is hard to escape. Take care with contracts Chinese and Westerners often approach a deal from opposite ends. To a Westerner, starting with a standard contract, altering it to fit the different circumstances, and signing the revised version, seems straightforward. Commercial law is ingrained in our thinking. But traditionally, commercial law scarcely existed in China and certainly indicated bad faith. The early appearance of a draft legal contract was seen as inappropriate or, more likely, irrelevant, because it carried no sense of commitment. The business clauses might form a useful agenda, but obligations came from relationships, not pieces of paper. Today, returning home with a signed piece of paper is a symbol of progress, but nothing more. The Chinese may be signing a contract to humour their guests. To them, a completed contract may merely be the proof that both sides have grown close enough to develop a trusting relationship. Further concessions may then be requested - a difficult prospect for the Westerner who has shaved his margin down to the bone. Mobilise local assets The challenge of learning to speak Chinese fluently, the complexities of the Chinese way of doing business, and a strong sense of national pride mean that a foreigner will only extremely rarely be accepted by Chinese interlocutors on equal terms. The solution is to find a reliable Chinese ally to work with you. An effective Chinese colleague will often be able to analyse body language at meetings, work out who in the other negotiating team holds real power - not always the boss - and help smooth out any inadvertent wrinkles. Conversely, the presence of a Westerner should be exploited to the full. Chinese interlocutors will often see a visit by a foreigner as an indication of sincerity and commitment by the Western company. Perversely, they often do not accord mainland Chinese or Hong Kong representatives the same status as a foreigner. The ideal sales team, therefore, is often a Chinese to take care of the working level contacts, and a foreigner to do honour to the higher echelons. Respect face

Face is an essential component of the Chinese national psyche. Having face means having a high status in the eyes of one's peers, and is a mark of personal dignity. The Chinese are acutely sensitive to gaining and maintaining face in all aspects of social and business life. Face is a prized commodity which can be given, lost, taken away or earned. Causing someone to lose face could ruin business prospects or even invite recrimination. The easiest way to cause someone to lose face is to insult an individual or criticise them in front of others. Westerners can unintentionally offend Chinese by making fun of them in a good-natured way. Another error can be to treat someone as a subordinate when their status in an organisation is high. Just as face can be lost, it can also be given by praising someone for good work before their colleagues. Giving face earns respect and loyalty, but praise should be used sparingly. Over-use suggests insincerity on the part of the giver. Accept the pecking order Mao Zedong's thoughts on discipline published in 1966 provide a valuable insight into structures which persist in Chinese organisations even to this day: "The individual is subordinate to the organisation. The minority is subordinate to the majority. The lower level is subordinate to the higher level." This quotation, which underlies the way China was governed for over 20 years, indicates why Chinese society and companies are very hierarchically organised, and why Chinese people seem to be more group oriented than individualistic and often do not like to take responsibility. Similarly, people are seldom willing to give an opinion before their peers as it might cause loss of face with a valued ally. Know the tricks of the trade Chinese negotiators are shrewd and use a wide variety of bargaining tactics. The following are just a few of the more common strategems: - Controlling the meeting place and schedule The Chinese know that foreigners who have travelled all the way to China will be reluctant to travel home empty-handed. Putting pressure on foreigners just before their scheduled return can often bring useful benefits to the Chinese side. - Threatening to do business elsewhere Foreign negotiators may be pressured into making concessions when the Chinese side threatens to approach rival firms if their demands are not met. - Using friendship to extract concessions Once both sides have met, the Chinese side may remind the foreigners that true friends would reach an agreement of maximum mutual benefit. Make sure that the benefit is genuinely mutual and not just one-way. - Showing anger

Despite the Confucian aversion to displays of anger, the Chinese side may put on a display of calculated anger to put pressure on the foreign party, who may be afraid of losing the contract. - Attrition Chinese negotiators are patient and can stretch out discussions in order to wear their interlocutors down. Excessive hospitality the evening before discussions can be another variation on this theme. Play the game yourself Foreign negotiators dealing with Chinese may find some of the following tactics helpful: - Be absolutely prepared At least one member of the foreign team must have a thorough knowledge of every aspect of the business deal. Be prepared to give a lengthy and detailed presentation, taking care not to release sensitive technological information before you reach full agreement. - Play off competitors If the going gets tough, you may let the Chinese side know that they are not the only game in town. Competition between Chinese producers is increasing. There may be other sources in the country for what your counterpart has to offer. - Be willing to cut your losses and go home Let the Chinese side know that failure to agree is an acceptable alternative to making a bad deal. - Cover every detail of a contract before you sign it Talk over the entire contract with the Chinese side. Be sure that your interpretations are consistent and that everyone understands their duties and obligations. - Be patient Chinese generally believe that Westerners are always in a hurry, and they may try to get you to sign an agreement before you have adequate time to review the detai