About tips on doing business with China

China’s business culture is very different than how business is conducted anywhere else, with the world is still trying to figure out what Chinese culture means and the ingredients for business success in China. With the recent visit of the Israeli PM to China, newspapers were full of articles about China and the Chinese culture, some of them including tips for the PM on how he should approach China.

One of the more intriguing articles I read was in Haaretz’s TheMarker, quoting 10 business tips professor Larry Franklin had for Olmert with "Things Olmert should know about China". I’ve heard about Franklin before, and in a positive context. Here’s a little about Larry Franklin from an article interviewing him (bold not in original text) :

Look Before You Leap

Larry Franklin, former head of investments at Hutchison Whampoa, has broad experience in the Chinese market. He has spent 25 years analyzing operations in China, and he currently works as an adjunct professor at the business school of The Hong Kong University of Science and Technology. Franklin insists that there are many portals for entering the Chinese market but there are only three fundamental recipes.

“First, the fundamental thing is to know local preferences. A product that sells well in your market may not be necessary or appealing in this society. Second, you have to adjust your product to the local market. Occasionally, this affects your packaging, quality, formula and pricing.” Franklin cites the case of Procter & Gamble, the multinational company, which tried to sell shampoo and detergent in China. P&G discovered that the Chinese were willing to pay a little more for “Rejoice” shampoo, but they were not as positive about Tide detergent. “Third, be flexible. You have to be flexible in your plans, and understand the local way of doing business,” he adds.

“The Chinese culture and way of doing business are very different. So it is very important to rely on a local managerial team. More and more executives are convinced that you have to adjust to the characteristics of the country rather than try to change them,” notes a report by Arthur D. Little. The report advises companies to cultivate “guanxi” (relationships). It highlights the fact that many companies have created a department of governmental relations.

Good points made, and I’m not sure those are any different than trying to enter any other market, maybe except for the short note about "guanxi". Is doing business in China really different than doing business anywhere else new that you don’t know much about? moreover, is there such a thing as a "Chinese business culture" that’s true all China? seems like you’ll have to try and figure it out on your own with a final tip from Larry that I especially agree with :

For Franklin, the secret of success is the entry plan. Where to locate, how much money to spend, and how large a factory you need. My advice is to start on a modest scale. “Begin with about $5 million dollars. Make the mistakes that you need to make. Learn about Chinese culture, day by day, before you invest hundreds of millions,” he advises.

Beyond that, he emphasizes that China is not homogenous. Each province has different levels of buying power, different tastes, and different customs. A Roland Berger study warns that China’s development is creating a social gap between the coast and the interior of the country. China’s cities are also advancing much more rapidly than its towns. Urban residents enjoy three times as much buying power. In addition, 89% of all foreign investment is concentrated in the country’s Eastern provinces.

In a previous post titled "How to succeed doing business in China" with similar bulleted lists I noted :

"Personally, while I think that while there is some value in those lists this is the wrong approach for doing business in China. Those tips limit the understanding of the Chinese culture complexities to mere stereotypes which might result in doing more harm than good."

Which is why I was curious about the 10 business tips TheMarker quoted from Franklin on doing business in China, which sounded so much like the obvious list from "How to succeed doing business in China". Here’s a very quick translation from Hebrew :

1. Present your business card with both hands. You must study your Chinese college’s business card while saying "ho ho" and under no circumstances should you ever stash it in your back pocket.
2. When addressing a formal representative, it is expected that you address him with one rank higher than he actually is.
3. Timetable is strict. Lunch is at 12:30, dinner at 18:30. Don’t refuse an invitation. You don’t have to finish all the food on the plate, but it is expected that you at least taste everything. The Chinese love to drink, so join them.
4. Chinese businessmen love Kareoke (KTV). You could say no, but  it’s a wonderful opportunity for getting to know each other. If you don’t speak Mandarin well, bring a Kareoke CD with English songs that you enjoy.
5. Never joke about the Chinese government, Taiwan, [...] or about China having more boys than girls. Want to have small talk? talk about food, family, cars and ice-cream. The Chinese would always prefer Chocolate ice-cream (fiLi – ?!).
6. The power centers in China are – the civilian clergy, the communist party and the army. When negotiating and signing deals, have members of those power centers be present and involved.
7. Employment comes before profit. Better to offer more jobs than offer better deals.
8. Keep the negotiations in harmony with the other side, and control your emotions. It is advisable to know the word "Guanxi" which most westerns think means "bribe" but actually talks about mutual commitment towards each other with in the business relationship.
9. Same bed, different dreams (see interview above).
10. In telecommunications, farming, security, IT and health industries the Chinese want the highest quality that would allow the Chinese market to evolve.

I guess those tips might help you to stay out of trouble, as long as you understand that those are general guidelines that might not work all the time. I would summarize with a "now that you know it’s complicated – be sensitive and understanding towards the difficulties that might arise", but Franklin has different final point to add:

To conclude - there’s a common belief that if you make a tactical mistake with the Chinese due to cultural  differences, then it means you’ve probably lost your chances for doing business together. That’s not true. The Chinese understand that you’re not Chinese and that you’re not totally familiar with their ways, so that they will be very pleased with any effort that you make to understand their culture. They have a lot of tolerance towards what they affectionately call "foreign daemons" or "big nose". Foreigners amuse them.

Which leads me directly to an important point about cross-cultural interactions and doing business with people of a different culture which some of my professors likes to repeat – in China you know you’re different so you prepare yourself and take any behavior in that context, but the big problem is between cultures that you think are close (for example – US and Israel) – both sides assuming more and are less culturally sensitive towards each other. Since all cultures are different – that’s when cultural misunderstanding really hit hard.