How to win a business assignment in China
by: Erika Visser, Associate Partner of Hofstede Insights
The most important things to know about winning business in China:
- Foreigner investors should aim to build long lasting relationships and establish trust first before entering into any business negotiations in China.
- China is a hierarchical society and decision-making is managed top-down by key decision-makers. In order to be successful, foreign investors need to identify key decision-makers and invest time and patience building rapport with them.
- Decision-making is not a quick process as each layer of the hierarchy needs to be consulted with the final decision coming from the top. Patience is key!
- Due to the hierarchical nature of China and a strong Confucian influence, showing respect to the different layers of society is key. The most senior/older Chinese are at the top of the pyramid and they should be treated with the greatest respect or given face. Any actions that can cause a loss of face should be avoided.
- Reliable third-party connections are useful in identifying suitable business partners, navigating political landscapes and translating nonverbal communication.
China as a Family culture has a high PDI, low IDV, low UAI and high MAS score thus a hierarchical, collectivist country with masculine values. The expanding luxury product market is a result of both high PDI and high MAS scores, with the need for Chinese people to show their status. It is important to gain a deeper insight into each country in Asia that foreign investors are interested in exploring and the impact of the combination of cultural dimension. All countries in Asia are not the same!
Build relationships and trust first
Trust is an essential part of doing business in China and the Chinese aim to build relationships prior to conducting business. Only once a trusting relationship has been established can business dealings follow. One way that the Chinese will try to build trust is to ask personal questions or questions that could be deemed as irrelevant or impolite i.e. what is your age, what is your income, how much do you pay for your house rental etc. These questions are part of the process to get to know you, to see whether you can be trusted and to gauge where foreigners fit in the hierarchy / social ranking. Foreigners should not get offended by these types of personal questions and try to find a polite way to answer or deflect if they are not able to provide a response.
Some complaints from foreigners when doing business with Chinese are that Chinese business partners lack transparency, they can be unpredictable and opportunistic or they can have an aggressive approach when negotiating business deals. Trust plays an indispensable role as it can help to bridge these gaps in the long-term.
In the west, trust can be divided into trust from the head or from the heart, it is unlikely that these two are mixed as emotions are best left out of business. On the other hand the Chinese word for trust ‘xin-ren’ refers to both trust from the heart (xin) and assessing reliability and capability (ren) or trust from the head. For the Chinese mixing the two is quite common and thus when having a personal trusting relationship with colleagues (trust from the heart), business relations can easily be established (trust from the head) and not vice versa. In China it is important to know when to build which type of trust.
Due to the changing economic landscape, China is opening up to more and more foreign investors and thus it is important for Chinese business partners to initially assess foreign investors capability and relative status (trust from the head), however it is important not to neglect xin (trust from the heart). Ways to build trust from the heart is to challenge your cultural assumptions, try not to stereotype Chinese businessmen and to get to know your business colleagues outside of the business environment.
The Role of Guanxi
Guanxi is an important part of Chinese business culture and has to do with the intricate networks and connections between parties and favours that are exchanged within these networks. Guanxi according to Park & Luo (2001) is 1) transferable between individuals in guanxi networks, outsiders can ‘plug’ into this network via third-parties in the guanxi networks or individual guanxi can be transferred to company networks 2) reciprocal and depends on status 3) intangible and relies on trust and commitment between parties 4) designed for practical rather than affectionate exchanges. Guanxi can be broken down into three main types; family, helper and business guanxi as per table 1 below:
|Type||Family Guanxi Qinren||Helper Guanxi Shuren||Business Guanxi Shengren|
|Definition||Special familial relationships||Based on social interactions through a certain degree of reciprocal networking activities with familiar persons||Finding business solutions through personal connections|
Exchanging of feelings and emotional needs
Exchange of resources and materials
Exchange mutual interests
Exchange mutual interests
|Base||Mostly blood base, some social base||Social base||Through intermediaries|
|Strength||The strongest and closest compared to the strength of other ties||Medium strong and unstable ties||The strength of business guanxi ties varies according to existence of other bases between individuals|
|Core values||Affection, obligation, empathy||Trust, credibility||Power, influence|
|Purpose||Mutually dependent||To get things done||Acquire resources|
|Exchange||Love & affection||Favours||Money & power|
|Relations||'Zijaren'/members of your family||'Shouren'/familiar person||'Shengren'/stranger|
|Time||Long-term or permanent||Varies or one-off||Temporary|
Summary Table 1. Reference: Fan, Y. (2002, October). Questioning guanxi: definition, classification and implications. International Business Review , 11 (5), pp. 543-561.
The above diagram illustrates the strongest to weakest forms of guanxi form the core (strongest) to the periphery (weakest). Business guanxi can be depicted as the most unstable type of guanxi, however it can vary depending on other family/social ties. Guanxi can be maintained through frequent visits and ongoing communication, by giving favours and through extending invitations to dinners or other forms of entertainment i.e. karaoke. Harmony should always be maintained by avoiding conflict, repaying favours etc.
Negotiate at a high level in a hierarchical culture
China is a hierarchical country and decisions are made top-down. When negotiating with Chinese business counterparts, all decisions will have to be run by the key-decision makers. This can be a time consuming process requiring not only the skill to identify the key stakeholders but also to build rapport with these stakeholders to help speed up the process. Either way it takes time and a lot of patience! The Chinese word for negotiation is ‘tan pan’ which refers to ‘discuss’ and to ‘judge’. It is a dynamic process based on trusting relationships and it takes into account practical aspects of the negotiation and the context rather than just focusing on contract-based absolutes. Foreign negotiators should thus resist the urge to approach negotiations as a short-term task-based activity and invest time in building long-term trusting relationships.
Understand and acknowledge the hierarchy by giving ‘face’
Face (mianzi) represents a person’s reputation and feelings of prestige at work, at home or within other social circles. Face plays an important role in building and maintaining strong relationships in China and it is essential to understand this concept in order to be successful in any business dealings through understanding the hierarchy within Chinese corporations. In China it is important to know the role that each employee plays in the company (where they sit in the hierarchy). Foreign investors should strive to give face and be careful not to cause their Chinese counterparts to lose face. Face can be given through using the correct titles, by using words, giving gifts or invitations to dinners or entertainment etc. Face can also be lost through criticizing or challenging your Chinese business counterpart, showing anger or frustration etc.
The use of reliable third party connections
Guanxi is based on mutual trust and respect and when doing business in China. Business is conducted with a person or group of people and not a company. Foreign investors should adjust their focus from being task-orientated to relationship-oriented. If foreign investors do not have any ‘guanxi’ i.e. if they are not part of any of these intricate networks in China they can make use of a reliable third party connection/intermediary with relevant connections to help them make connections with suitable business partners (business guanxi). Chinese hires or consultants can help to play this role of a third party go-between especially when working with government officials or when working in highly regulated industries like health care. Third parties can help to navigate the political, regulatory and cultural landscapes and help to resolve disputes, however foreigners should not be overly reliant on third-parties and try to establish their own connections/build multiple networks.
Communication in China is implicit
China has a strict hierarchy and Chinese people are relationship-orientated and thus behavioural norms are implicit and form part of a bigger context. In high-context communication understanding the background is important as it will not be highlighted or spelled out for outsiders. High-context communication relies on the receiver to interpret the message where low-context communication relies on the sender to send a clear message. In China it is common for the high-context sender to send a message that could most likely be interpreted incorrectly by the low-context receiver for example saying ‘yes’ could have multiple meanings in different settings; ‘yes I have heard you’ or ‘yes I understand’ or ‘yes I agree’ and these different meanings can have different outcomes when it comes to business negotiations. Third party connections can help to culturally translate these subtle/implicit messages or foreigners can try to rephrase questions to try to gauge what the intended message is, comparing responses never forcing Chinese to give a direct answer as this will cause them to lose face.
Short Case Studies
Market Research Case Study - Starbucks' Entry into China (Reference: The Balance)
Starbucks conducted market research to enable a deeper understanding of the Chinese markets, and the way that capitalism functions in the People's Republic of China (PRC). China contains a number of distinct regionally-based markets, a factor that makes market research crucial to launching new stores and franchises in China. A deep understanding of intellectual property right laws is critical to successful market entry in emerging markets. Starbucks articulated an entry strategy that would address the dominant Chinese markets and that was designed to be as inoffensive with respect to the Chinese culture as possible. Instead of taking the conventional approach with advertising and promotions which could have been seen by potential Chinese consumers as attacking their culture of drinking tea they positioned stores in high-traffic and high visibility locations.
Moreover, Starbucks very deliberately began to bridge the gap between the tea drinking culture and the coffee drinking culture by introducing beverages in the Chinese stores that included local tea-based ingredients. Market research supported the development of Starbucks' competitive internationalization strategy. The overarching competitive strategy was to create an aspirational brand. Prospective Starbucks customers in China could look forward to what Starbucks refers to as The Third Place experience. The Starbucks experience conveys status that is highly appealing to those aspiring to Western standards or to climbing the ladder in their own culture. Market research indicates that brand consistency is important to Starbucks' customers. When Starbucks opens a new store in an emerging market like China, the best baristas are sent for the launch and to conduct training of the baristas who will carry on when once the launch has completed. The middle class in China has rapidly accepted Western standards as an acceptable standard of the bourgeois class. Moreover, Chinese consumers accept purchases of luxury goods as a means to pursuing quality lifestyles. Under the influence of Communism, the Chinese considered conspicuous consumption to be decadent or indicative of a lack of a nationalistic orientation. Capitalism in the PRC supports the status conscious population that manifests its interest in keeping up with the Jones' through excessive luxury consumption. The organization and structure of Starbucks' global operations was informed by market research. The organizational strategies employed by Starbucks were derived from Starbucks' experiences in other emerging markets supported an early recognition that China is not one homogeneous market. The organizational strategies employed by Starbucks addressed the many Chinese markets.
Western brands have an advantage over local Chinese brands because of a commonly accepted reputation for consistently higher quality products and services, a factor that establishes the Western brands as premium brands in the minds of consumers. When Western brands attempt to increase market share by cutting prices, they erode the very competitive strategy that gives them an edge in consumer perceptions. Starbucks marketing strategy in China was based on customization in response to diverse Chinese consumer target segmentation. Starbucks created extensive consumer taste profile analyses that are sufficiently agile to enable them to change with the market and to create an attractive East meets West product mix. Moreover, the localization effort is sufficiently flexible to permit each store to have the flexibility to choose from a wide beverage portfolio.
Building Effective Business Relationships in China (Reference: MIT Sloan Management Review)
A global automotive company entered the mainland China market following what it thought were the rules. Executives knew gifts were an important personal gesture and integral to Chinese business etiquette. They also knew that success in Chinese business culture was as much about whom you know as what you know. To make the right connections, the company sponsored events and hosted lavish dinner parties to cultivate personal ties, including the all-important guanxi (commonly defined as personal connections between people doing business). Several years later, the company faced the fact that its efforts were producing minimal results. As they tried to discover why, executives learned that despite all their efforts, the company had actually acquired a bad reputation among potential Chinese industry partners. The potential partners had come to view the company as a seeker of short-term transactional opportunities wrapped in expensive entertainment. The Chinese executives the company had carefully courted socially now viewed it as a source of free entertainment — a perk they came to expect with every interaction. Even worse, the potential Chinese partners had developed the impression that the company had few compelling business propositions to offer since it didn’t seem to be focused on doing business. Although the company knew the people it needed to know, like many other companies eager to gain a foothold in China, it had failed in its efforts to build critical relationships —and as a result, its business initiatives failed too.
References & Links