The importance of “Saving Face”

Having spent many years in Asia, I quickly learned the importance of maintaining “face” when dealing with Asian businessmen. This becomes important when engaging in negotiations (for example). You must always allow the other participant to have a little wiggle room [even after submitting their best offer]. Even tough the new offer may be only minimally better, it should allow the Chinese participant (whether customer, partner or other) to have the final say and maintain face.

Interesting read : Wikipedia 

Working with imperfect information

It’s no secret that information does not flow freely in China and local culture dictates that negative information should be suppressed as much as possible. 

The National Bureau of Statistics publishes a giant manual called the China Statistical Yearbook. It contains all kinds of goodies for interested parties from the amount of residential floor space built to the amount of cargo carried by Chinese shippers. All wonderful and interesting stuff… 

Foreign statistical experts I have spoken to question the validity of the information contained therein. They state the pressure on local officials to constantly show improving performance thus the motivation to “inflate or deflate” the published numbers. The delta from reality is sometimes small and other times extremely large. There is no way to tell for sure.

It is believed that a better source of information is the World Bank and Asian Development Bank reports.

Conclusion

Even with all of it’s pitfalls, China is still the land of possibility and most business’ will choose to embark on the path of the Dragon. Remember to measure twice and cut once. Spend as much time as you need at the start of your endeavor to ensure it ends up the way you want. 

... continuation 

Intellectual Property

The previous paragraph highlighted the difference between laws “on the books” and the extent to which business people are willing to bend them for profit. As a foreign company entering into the Chinese market, you should be thinking about how you will protect your Intellectual Property. 

A common example of this is that of Will-Burt. Will-Burt is a company that manufactures and sells Night-Scan telescoping masts for police or military use. They entered the Chinese market and sales boomed. Then all of a sudden, the sales stopped. It seems a local company had reverse engineered their products and was selling perfect replica fakes. They went as far as printing Will-Burt’s name on the counterfeit products and presenting them at a local Chinese trade show. The irony is that its prime customers are law enforcement and military who seemed to be choosing the cheaper counterfeits. 

Because of international pressure, the Chinese government is trying to fight IP theft and counterfeiting but it is an uphill battle. There are well entrenched officials and powerful Chinese business leaders who like things just the way they are. As a company entering the Chinese market, it is important to understand that you may have to spend buckets of money to defend and safeguard your corporate IP assets. 

When in Rome, do like the romans

Anytime you are dealing with a foreign entity (partner or customers), it is important to learn as much about their local customs as possible. In North America, when I hand someone a business card, they likely take it with one hand and shove it into a pocket. In Asia (particularly in China), the custom is to accept someone’s business card with 2 hands, then read it carefully and present a genuine compliment related to it, the business or the neighborhood the business it located in. 

There are also topics that will be cheerfully welcome and others that will be shunned (like Taiwan, Tiananmen Square, Tibet, Japan, etc). It is important to work with a local contact who can provide guidance and support as it relates to this section. 

Many western educated Chinese are now returning home and taking  prominent business positions in local companies. You will find it much easier to work with these younger Chinese managers as they are more likely to accept your western ways.

... to be continued

If you have spend any time at a multinational company, the one topic that comes up is how to benefit from the rise of the dragon (aka China). 

Over the next couple of entries, I will provide some information about China that I hope you will find useful. 

The socialist impact

Although it is easy to overlook China’s socialist political system, it is important to understand that it influences every aspect of their business style. As an example, they have very little creditor protection. They would never allow a big capitalism company to throw poor helpless citizens out of their homes because of missed payments. This is one of many such examples where companies are disadvantaged because of the ingrained policies and beliefs. 

A police state does not equal a lawful state

It is important to understand that most of China is in a state of lawlessness. Corruption is rampant and businesses routinely ignore laws. One of the most obvious examples is software piracy. Although China has software anti-piracy laws, they are rarely enforced. 

In a partnership setting, I warn companies to be cautious when dealing with Chinese businessmen. It is common for them to use the complicated Chinese legal system and culture to their advantage (eating the investment without giving you anything in return). To be clear, partnering with a local entity means you get know-how and contacts very quickly and this can be a huge strategic advantage. It is important to be extremely careful when conducting your pre-deal due diligence before entering into the agreement.

... to be continued