Doing Business in China

Doing business in China open door

Doing business in China can be highly rewarding, and new firms would be in good company. This year FDI in China has so far risen by 4.5% over 2015, bucking the global trend for falling investment flows. Two-thirds of that investment arises from foreign companies eager to establish a presence. However, like anywhere around the globe, business success can ultimately depend on understanding the cultural nuances of doing business.

Keys to Doing Business in China

China represents a unique cultural environment for doing business, with some distinct features that should be understood and embraced if a business is to successfully enter the market or trade.

Building Relationships

Personal relationships and trust are absolutely central to doing business in China, opening the door to deal-making and helping to overcome many of the difficulties associated with market entry and investment.

For the Chinese, relationship-building and the creation of trust before embarking on any business partnership is essential, and getting to know someone face to face is perceived as by far the most effective way of assessing whether they are trustworthy. This is why personal face-to-face meetings are particularly appreciated in Chinese business culture, and should be expected as a key part of developing relationships.

china doing business building relationships

This can mean that initial progress towards achieving business goals may be slow, and this should be understood from the outset. However careful investment in relationship-building will create a solid foundation for future growth.

Assume therefore that first visits to China will accomplish little more than getting to know potential business partners.

Guanxi

Possessing good guanxi (pronounced gwan shee) is what many Chinese and foreign companies credit their success to. Guanxi are one’s network of social and business connections, seen by the Chinese as deeply rooted in mutual benefits and reciprocity and therefore a distinctly two-way relationship.

The strong emphasis on personal relationships in Chinese business culture is mainly directed towards the building of guanxi in a country where centralisation and bureaucracy can imply heavy reliance on personal contacts to get things done.

guanxi doing business in chinaGuanxi places certain obligations on those involved particularly that the relationship will be productive for both sides and ongoing. Therefore if guanxi is expected to deliver, relationships should be sustained through regular contact.

The State’s Role in Business

Despite a gradual reduction of state presence in Chinese business and the swift growth of the private sector many companies in key sectors are still state-owned, and many apparently private companies have a component of state control.

This can strongly influence the manner in which a company does business, and foreign business partners should be alert to the wider business and political environment in which potential Chinese customers or partners operate.

doing business china state role

Interested companies should also note that local government and municipal officials often exercise a greater degree of power than counterparts in other countries.

Taking the time therefore to identify and build personal relationships with key officials can make doing business in China infinitely less time-consuming.

Next we go on to talk about aspects of personal business interaction when doing business in China

Business Interaction

Approaching Conversation

When making conversation it is advisable to keep to safe topics such as family and home, hobbies, Chinese culture and landscape. Do not be surprised by what in other cultures may be considered intrusive questions on marital status, age or income as these are not intended to offend and are customary within Chinese culture.

However if you don’t wish to respond remain polite while giving a non-specific answer. Discussing politics could make your Chinese contact feel uncomfortable unless you know them very well and it is wise to avoid criticising China or its government.

china doing business making conversation

It should also be remembered that the Chinese are culturally averse to saying no, as it is seen as a loss of face and a source of embarrassment.

Understand therefore that when a request cannot be fulfilled you may be told that it can be done but that it is inconvenient, difficult or under consideration. Although it may appear to be a positive response, in reality it probably implies that it can’t be done.

A final point is the significance of calmness, politeness and patience in all your business dealings and personal interactions in China. Keeping your temper and behaving with politeness and patience (while not disregarding your business judgement), even when things go wrong, will pay significant dividends and create a solid foundation for successfully doing business in China.

Meetings & Business Cards

The Chinese are highly punctual therefore expect business meetings to start on time – arriving earlier than the scheduled hour is in fact good practice. Introductions will be formal and begin with those most senior in the hierarchy.

It is customary at the beginning of business meetings in which participants may not have met before to exchange business cards upon introduction. The swapping of business cards is an important part of Chinese business interaction and they are therefore indispensable, so remember to take a good supply.

As many Chinese do not read English translating your card into Chinese on the reverse side will be taken as a sign of courtesy. These should be presented with both hands showing the Chinese side of the card and those you receive should be examined for a few moments in order to show respect. However never write on them as this will be perceived as disrespectful.

Doing business China business cards

Presentations

Using the latest sophisticated presentation technology with multiple illustrations is common among many progressive Chinese companies and to create a good impression your own presentations should follow suit. Bi-lingual presentations and handouts are critical.

Frequently Chinese companies are attracted as much by the cost-effectiveness of a particular product or service as by its quality. Any presentation should therefore contain details of how the product or service saves money.

Including any case studies of where a product or service has been employed, particularly in China or similar markets, will be positively received by Chinese audiences. Also any major clients should be emphasised.

You may find varying audience reactions to presentations ranging from applause to passivity. You may also not receive much response when eliciting questions from meeting members or inviting discussion, although younger team members are more open to asking direct questions in front of others. Chinese audiences may be more comfortable with writing questions down.

Entertainment

While in other cultures work and personal life are frequently kept separate, in China social life and furthering personal and business relationships are very intertwined. Indeed the majority of deals are closed outside of normal working hours in tea houses, karaoke bars and restaurants or more recently on the tennis court or golf course.

Nevertheless the hosting of banquets, often held at a restaurant, remains a vital part of doing business in China. Senior executives who may not have been present so far during negotiations may make an appearance at a banquet, providing an opportunity to create a positive impression and also to get a feel for how things are going.

Given the Chinese penchant for punctuality do not arrive late for a meal, and expect guests to arrive up to 15 minutes early.

Seating arrangements at a restaurant follow custom in which the host is seated facing the door and the guest of honour on the right hand side of the host. Places are then arranged according to seniority with the most junior seated with their back to the door. If you are the host any interpreters could be helpfully placed between foreign and Chinese guests and requests for friendly assistance from your guests should help solve any seating confusion.

Although it is polite to sample a little of every dish offered to you, you can discreetly leave any that do not appeal.

Doing Business China entertainment

Toasting during the meal is frequent, and table manners are a case of fitting in. When the meal is over it is usual for guests to leave directly and they are not expected to linger, indeed Chinese hosts will leave you in no doubt when the meeting is over.  Once invited to a banquet it is polite to hold one in return, with an opportune time being the evening before your departure or at the conclusion of negotiations.

However banquets are gradually being replaced by other forms of business entertainment, therefore it would be good practice to discover what other forms key contacts are interested in as this may influence how you build a relationship with them.

Gift Giving

Gift giving is common in Chinese society and is generally more symbolic than material. In business relationships gifts are used to mark appreciation for a favour or the successful completion of a business endeavour.

It is therefore good practice to arrive with small gifts for your hosts (these could be souvenirs from your region or company mementoes) and should be wrapped in red or gold colours which are traditionally seen as lucky. Presents are not generally opened in front of the gift-giver unless urged to do so.

Doing Business China gift giving

The choice of gift can be wide although clocks, cut flowers, and books should be avoided for their negative associations in Chinese culture.

According to hierarchy the most valuable gift should be given to the most senior person, while any smaller gifts can be given to other members of the team. If attending a private dinner bring a small gift for the host which should be wrapped or gift-boxed.

Face-to-Face

Key Chinese contacts will often view a personal visit to China as a sign of commitment and sincerity from the interested business. However visits by mainland Chinese or Hong Kong representatives are not seen in the same light. Therefore any teams should include a Chinese person to attend to working level contacts and a foreign representative to pay attention to the senior hierarchy.

The notion of face is deeply embedded within Chinese culture, and represents an individual’s reputation and status among one’s peers in the workplace, and among family, friends and wider society. Within the business environment face is highly visible and plays a fundamental role in internal and intra-company communications, during business negotiations and in the growth and maintenance of relationships.

Face is prized social capital, and causing loss of face could damage business negotiations and relationships. Insulting an individual or criticising them in front of others is the easiest way to cause loss of face. Making fun of a Chinese person in a good-natured way can also cause unintentional offence while treating a senior person as a subordinate will lead to damage of face. However face can be given by praising someone’s work in front of their colleagues.

Find out how to negotiate and close the deal next

Closing the Deal

When discussing and negotiating business foreigners, particularly Westerners, are rather more deadline driven than their Chinese counterparts. The pace of discussions can be frustratingly slow, allowing for internal consultation, and when a deadline looms quicken considerably and exhaust foreign visitors. Time constraints are often used strategically by Chinese negotiators, however a fast conclusion of business may lead to very short delivery dates.

Doing business China negotiating

Techniques of Negotiation

Foreigners in China have a hard time standing on equal footing in negotiations therefore having a dependable Chinese ally or colleague working with you is highly advisable. They will also be able to interpret body language, decipher where real power lies in the negotiating team and help smooth any unexpected difficulties.

The Chinese are astute negotiators and may employ a range of different negotiating tactics. Some common strategies include:

  • Control of the location and schedule. Aware of foreigners’ time constraints and unwillingness to return home empty-handed, pressure may be applied just before returning to win benefits for the Chinese side. Consider perhaps having an open return flight
  • Threats to do business with rival firms to wring concessions
  • Playing the friendship card to influence the other side into agreeing terms which may not always be to mutual benefit
  • Displays of anger, although culturally frowned upon, designed to apply pressure on foreign negotiators out of fear of losing any contract or sale
  • Attrition, in which patient Chinese negotiators can wear down their counterparts through stretching out discussions, especially after a late evening of hospitality

Counter Tactics

Always be thoroughly prepared with at least one member of the team having detailed knowledge of every aspect to be discussed. Lengthy and detailed presentations are encouraged, although sensitive commercial information should not be disclosed at this stage.

Accept that you may at some point need to cut your losses and return home. Be sure to communicate to your Chinese counterparts that no deal is better than a bad one.

Doing Business China counter tactcs

Before signing any contract go over every detail with the Chinese side to ensure that both sides have a common understanding and that duties and obligations are recognised.  Commercial law is new to China, previously reliant on personal relationships and trust, and it is not unheard of for contracts to be viewed as instantly renegotiable in any change of circumstances. Always make sure that you obtain professional legal advice from someone who understands both the Chinese language and law.

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