Executive Insights
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Doing Business in China
Things go better with feng shui
BEIJING — Don’t be fooled by the burgeoning glass-and-steel business districts of Beijing and Shanghai — doing business in these cities is not the same as in New York or Paris.
Chinese and expatriate business executives working in China agree that it takes major mental adjustments to manage successful business ventures in the New China.
“Business in China is only 30 years old,” advises Peter Trampe, business development director for ISS Facility Services in Beijing. Today’s commercial enterprise arises out of the policy-driven efforts of the government to modernize China after 30 years of isolation under Mao Tse-tung.
Paul Lien, general manager of PCI Executive Search in Beijing, agrees with Trampe’s assessment — but he adds that the culture surrounding the conduct of business in China is more than 3,000 years old. The underlying traditions of business in China grow from thousands of years of Buddhist and Confucian teachings that emphasize humility, social harmony and patience and that are frequently at odds with the individualism of fast-paced Western business culture, Lien explains.
CHINA FAST FACTS
Each year China graduates seven million English speaking students from its universities, more than from all US universities.
China is the world’s second largest auto producer, according to the International Association of Motor Vehicle Manufacturers.
China is the world’s third largest auto buyer and is expected to assume the number-one spot soon.
China was the world’s fourth largest economy in 2008, according to the IMF, the World Bank and the CIA World Fact Book.
China is the world’s second largest consumer of luxury goods, after Japan and ahead of the United States, according to the World Luxury Association. Consumption is concentrated in the under-30 age group.
China alone accounted for nearly three-quarters of the growth in world primary energy consumption in 2008, according the BP Statistical Review of World Energy/2009.
China’s economic output has quadrupled since 1978 and continues to grow at a rate of more than eight per cent per year.
Over thousands of years, China has accounted for roughly 25 per cent of global economic activity. Economists say this output dropped dramatically during the years 1949 to 1980, but China is now moving toward reclaiming its traditional share of the world economy.
China’s total population is roughly 1.25 billion people.
Trampe, a Danish national who speaks fluent Mandarin, lists a lengthy succession of factors that influence the conduct of business in China.
First, he says, Westerners must understand that Chinese tend to be loyal to individuals —mentors, patrons and bosses whom they trust — but not necessarily to companies. As a result, the departure of a respected manager from a company can lead to the loss of several other employees.
“If Mr. Wang leaves, 14 other people might go with him,” Trampe says.
Two related concepts, he says, are guanxi, the exchange of personal favours that builds business relationships, and ‘face’ or respect.
The personal loyalties on which business is based are built up slowly and carefully, through the exchange of personal favours that establish increasing trust. Trust comes before important business and trust takes time, so business takes time and cannot be rushed, he says. Guanxi is a process that evolves, one step at a time.
The danger, he points out, is that guanxi can and frequently does blur the line between legitimate business and corruption and Westerners must be on guard to maintain standards. As another Westerner puts it, “Good guanxi, you make business; bad guanxi, you go nowhere.”
Face or respect is important in every culture, but vital in China, where trust and personal connections are at the core of business. Westerners must therefore not get impatient with the slow pace of business in China or with unfamiliar customs. Any show of temper may insult your new partner, causing a loss of face that will damage vital personal relationships. Temper also results in loss of face for the angry Westerner, whether he knows it or not, and makes him less respected.
Trampe says it’s also important to understand the Chinese view of contracts, which tends to be situational. “In the West, we see a contract as setting out rights and obligations of parties to an agreement. In China they view a contract as a list of expected rights and obligations, unless the situation changes.” And because business is only 30 years old, contract law has fewer precedents and tends to draw on local custom.
Based as it is, on tradition, face and respect for rank, Chinese business culture tends to be hierarchical and communication runs one way, from top to bottom. Trampe says this means employees will be very reluctant to ask questions of their managers. It also implies that the imposition of matrix organizational structures is usually doomed to failure and empowerment of employees only works with younger people — who will also have to trust their managers before they take ‘ownership’ in a project.
Hierarchies aside, Lien says, it’s important to understand that Chinese senior executives will tend to seek consensus within their own organizations before completing any business agreement. Expecting to discuss business terms and receive immediate agreement is usually unrealistic. Lien says this means Westerners should avoid pressing Chinese partners for a decision, quickly or otherwise. Negotiations simply take as long as they take.
“You have to live longer than your negotiating counterpart,” he says with a smile.
Christoph Aniel, CEO of Mondial Assistance in Beijing, says his time in China has taught him to be aware of body language. This, he says, is because Buddhist/Confucian traditions emphasize social harmony and frown on direct confrontation. When Chinese disagree, they will tend to avoid saying so directly.
“They won’t say ‘no,’ and when they say ‘yes’ it may simply be a commitment to continue talking,” Aniel says. Chinese negotiators will also be reluctant to say they don’t like some aspect of a proposal, because this might give offense. Instead they will prefer to go on talking around the issue in hopes of achieving understanding of the problem.
He uses a chart to show the differences between Chinese and Western Culture:
| Chinese Culture |
Western Culture |
| group oriented |
oriented to the individual |
| relationship driven |
goal driven |
| conflict averse |
inclined to address points of conflict |
| seeks harmony, avoids confrontation |
seeks immediate resolution of issues |
| communication is top down |
communication is multi-directional |
| ‘no’ terminates negotiations |
‘no’ means ‘make me another offer’ |
| ‘yes’ enables negotiations to continue |
‘yes’ is an agreement to close the deal |
Aniel recommends four steps to making business work in China:
- Learn to speak the language;
- Create team spirit among employees and be part of the team;
- Be clear on goals and processes and always follow up on expected actions; and,
- Be patient, it’s China and Chinese ways will prevail.
Giuseppe Milito, of Stones International Executive Search in Hong Kong, has become a feng shui (‘fung shway’) master as part of his effort to connect with Chinese culture. Feng shui is the art of seeking harmony with the universe and one’s surrounding environment and Milito says it can play an important but often invisible role in business dealings. He recalls one executive balked at signing a contract with an eager new employer until it was discovered that, according to feng shui, the proposed starting date was inauspicious. A new starting date was proposed and the agreement proceeded without further delay.
Morgan Chang, managing director of PCI in Beijing, Shanghai and Taipei, says all these factors are important to business in China. But there’s one more dynamic that must be understood and that’s the character of Generation Y, born in 1980 to 1990.
China’s one-child policy means that the upcoming generation of workers and business leaders has its own distinctive character. It means that Chinese families have concentrated all the resources of parents and grandparents on one child. Gen-Y people therefore tend to be well educated, bilingual, very determined, confident and optimistic. And they are the primary force that has made China the world’s second largest consumer of luxury goods.
“All of them can speak English quite well,” Chang says, noting that more English speaking students graduate Chinese universities each year than are graduated from all the universities in the United States.
Neil Morrison, of Stones International in Hong Kong, says the Chinese business method has plenty to recommend it.
“There is a lot the West can learn from the East,” Morrison says after many years in Hong Kong. “The West can learn from China in terms of values and trust, as well as about work ethic and willingness to learn. China has become an economic super power in the space of less than 30 years, so they must be doing many things right.”
All speakers addressed the 2009 Global Conference of IIC Partners, Executive Search Worldwide, which was held in Beijing Oct. 7-9. PCI Executive Search and Stones International are member firms of IIC Partners, which is the world’s eighth leading search group by revenue. |
