Some business practices have changed drastically in China; others die hard. Here's how to build lasting, lucrative relationships in the world's second-largest economy.
Every day Chinese and American entrepreneurs grow closer: Trade regulations are relaxing, foreign business ownership laws are enforced more reliably, and the Internet has made finding overseas suppliers cheap and fast.
Yet for every success story, it seems, there are cautionary tales of deals gone awry. On January 9, ABC News reported that more than 100 China-based companies have been delisted from American stock exchanges for perpetrating investment scams. Then there are the more common stories of American businesses contracting with Chinese companies, only to get shoddy products or unresponsive partners.
How can you take advantage of lower costs and the prospect of over 1 billion new consumers while minimizing risk? Three experts share the best ways to partner in China.
Start small and tough. Use a small, low-risk project to set a high bar for quality and timing, says Arie Lewin, professor of International Business and strategy at Fuqua School of Business at Duke University. It’s fine and wise to hedge bets further by hiring two or three suppliers to serve similar functions and mandate outside quality control, adds Andrew Hupert, a consultant and author of The Fragile Bridge: Conflict Management in Chinese Business. The key is to be transparent about it at the outset. Let partners know they’re not alone, and must meet certain standards. Otherwise, unexpectedly introducing new quality requirements or shifting orders to other suppliers later on can damage the relationship.
Get everything in writing. Ten years ago, the typical entrepreneur would not have had a written contract with their Chinese suppliers, says Daniel P. Harris, a lawyer at Seattle-based Harris & Moure and editor of chinalawblog.com. The business community, especially in developed areas like Shanghai and Shenzen, are now accustomed to them. “Today it’s foolish not to have a written contract,” says Harris. Make sure it’s spelled out in both English and Chinese, and clearly states the product specifications, the quality requirements, the trade secrets policy, and so forth.
Realize a contract is just the beginning of the conversation. To an American, negotiation ends when the contract is signed. “Traditional Chinese negotiators don’t feel that way,” says Hupert. “A contract is seen as a written record of a meeting of the minds between two specific people at a certain time, under a particular set of business conditions.” In other words, it’s an exercise meant to help the two sides understand the dynamics and expectations of the relationship—not to determine a hard and fast set of deliverables. When conditions change, your partners will expect flexibility and understanding.
Don’t let them get away with things—even if you let them get away with things. Even if you plan to let one bad shipment slide, it’s important to let the partner know you noticed. “Let them know you know what’s going on,” says Harris. “And if it happens again, you’ll need a new agreement on that.”
Get to know them—and their friends. At the end of the day, relationships trump everything else. Historically, Chinese society kept few written business records, says Lewin, so people grew accustomed to depending on family and a few trusted outsiders instead.
“There’s an old joke in China,” says Hupert. “If your partner doesn’t have a picture of your family on their computer, then you’re just a transaction. And that doesn’t count for much.”
Reach out to local government officials, and make them aware of you and how you’re helping their economy, says Lewin. “If you’re creating employment, they’re very interested.” By gaining importance as a community member, you gain importance as a business partner, too. That’s good advice for someone on any unfamiliar terrain.