7 Deadly Perceptions About Doing Business with China

“We’re really wasting time,” says Janet Carmosky, CEO of the China Business Network. Carmosky knows what it’s like to be busy. When not running the China Business Network, a resource geared towards international professionals doing business with China; advising major corporations on their China strategies; or speaking at conferences, she writes about China for publications like the Economist and the Harvard Business Review.

Carmosky, in other words, is a connoisseur of the elusive place where American culture meets Chinese. It’s quite a feat, considering that the two cultures contain a significant number of diametrically opposed attributes.

For example, definitions of time. The Chinese define time cyclically, while Americans have a linear definition that goes hand-in-hand with always being in a hurry. If we’re in a hurry anyway, how can Carmosky claim we’re wasting time?

“China is running rings around us economically,” she explains in an interview with Business Pundit. “Yet we continue to think they’re suffering from some sort of malnourished form of capitalism. We think they need our business. That’s just not true.” These myths, along with several others, are causing Americans trouble, not only in their business dealings with the Chinese, but in a globally competitive economy as well.

Carmosky wants to get “as many American businesspeople through China 101 as quickly and effectively as possible.” Being terrified of a culture, then masking those feelings in a sense of superiority—as Carmosky claims we do with China—isn’t conducive to successful business and economic relations.

Business Pundit interviewed Carmosky to uncover seven deadly sins around doing business with China. These sins have less to do with specific behaviors (such as talking about politics in a group, which is a big no-no) than with perceptions. Cleansing erroneous assumptions, however, and the smaller details will come into place more easily. Here’s what Carmosky had to share, in her words:

Perception #1: Assuming Chinese Do Business the Same Way Americans Do

Though both parties deal in US dollars, Americans and Chinese have vastly different business cultures. While America is transaction-oriented, China is relationship-oriented. There’s a chasm between these two styles of interaction. (ed. The comparison between Chinese, Indian, and American styles of conducting business (below) illustrates the differences between us.)

The United States: Transactions Define Everything

Americans are transaction-oriented. We like to walk in the door, figure out a deal, sign the contract, do the deal, and get out. We then use these transactions as building blocks towards developing some kind of a relationship. The building blocks are the transactions.

The transaction is we’re buying, you’re selling, it’s all very arm’s length.

India: Projects Make Results
Indians are project-oriented. It’s a little bit of a longer view than a transaction, because in a project, there are more details and teamwork involved. A project involves doing the task together—unlike an arm’s-length transaction—but there’s a defined beginning, middle, and end. The Indians are *very* good at this.

China: We Know Where You Live Capitalism

The Chinese are neither transaction-oriented nor project-oriented. They are relationship-oriented.

Chinese only use the people they know, like, and respect. To them, a transaction is not really business. This is part of the reason we have quality problems. To them, shipping a container of widgets for a letter of credit is not a relationship, even if you’ve been doing it for 16 years.

Before they do a transaction or project with you, they want to know who you are. They have to figure out whether they respect you and like you before starting. They’re not comfortable doing a project or transaction first.

Their form of capitalism is “we know where you live” capitalism.
Traditionally, they’d lend you money to start your factory because they know everyone in your clan or village. In the modern area, they’ll lend you money because you’re following certain directives. Everyone has to follow government directives. If the state tells lenders that have to lend to wind power, and you have a wind farm, they’ll lend to you. If anything goes wrong, they know where you live.

Perception #2: Assuming a Contract Will Get You Respect from China

Chinese are concerned with being in a business relationship that is based on mutual respect, realism, and flexibility, and that can evolve over time.

From a Chinese point of view, if situations change during the course of your business relationship, naturally you’re not going to be bound to the initial agreement. That would be rigid and unrealistic, so they don’t respect that point of view. They believe that if you’re going to be business partners, it’s not about the rule of law, it’s about the relationship.

For example, if I’m a going to contract a cotton business with you as a supplier, and the price of cotton quintuples during the term of the contract, and I’m losing my shirt abiding by the contract terms, then, from a Chinese point of view, you’re driving me out of business by keeping me bound to the contract.

As a Chinese, I would want a relationship where I go back to you and informally renegotiate the terms of the relationship. For example, I would say “listen, the price of cotton has quintupled. We have to get out of this business completely; we’re going bankrupt here. I know we’re in a relationship with you where we have to supply you cotton for the next five years. So how about I find you some cotton from Turkey and Vietnam, and you and I both take some of that margin that we were initially going to take from the cotton field, and we invest it in a joint venture to process it. Wouldn’t that be better for both of us?”

If you’re impatient and short-term in that kind of situation, you won’t win their respect. They’ll think you’re using them by forcing them to sell products for you at low cost and almost no margin. Then they might say that “if it’s going to be that way, then I’m going to steal your intellectual property.” What’s so one-sided about that? They’re just treating you the same way.

Perception #3: Assuming Chinese are Unethical Because They Don’t Respect Contracts

The misconception about doing business in China is that they don’t respect contracts and that makes them unethical.
What it really makes them is practitioners of “we know where you live” capitalism, which quite frankly they’ve done really well with. China’s been the most powerful, wealthy, and technologically advanced nation in the world a couple of times. And they invented capitalism. They’re not suffering from some sort of malnourished form of capitalism compared to how Americans do it.

Their form of capitalism is entirely relationship-based. Our form of capitalism is so impersonal. It’s “other peoples’ money” (OPM), and it’s all about performance forecasts, transparency, etc. It’s not about realism. The attitude isn’t “Hey honestly, I respect you, you respect me, I’m a good businessman in my part of the world, you’re a good businessman in yours, let’s get together and make sure that this works for both of us.” It’s more about “I’m sorry, you missed your numbers, you’re screwed.” If you think about it that way, you see why respecting contracts makes more sense in a transaction-based economy.

Perception #4: Thinking Chinese Need American Business

A major misconception Americans operate on is the assumption that the Chinese need something we have. This is decreasingly true. Americans know it in their guts, but they do not want to say it.

They will hire me to go in and be a corporate trainer. I will say: “What are your objectives?” They will answer that “We don’t want to inadvertently offend the Chinese.” Well, in that case, I think you better start figuring out how the make them respect you.

Right now, we think that being a big American brand, like Johnson & Johnson, will make them move heaven and earth for you. They won’t. They’ll take your purchase order if they need it, but American clients typically are not the #1 account for Chinese firms.

Even if you’re a big American company, they haven’t necessarily heard of you. If they have, they don’t necessarily have any innate desire to do business with you. Your purchase volumes might be smaller than what they really want. Your demands for diversifying the product line (we’re a mature economy with a lot of customization) might be a serious pain in the butt for them. We think they’re going to want our business, and it’s just often not the case.

The Chinese can do business with the British, the Dutch, the French, the Japanese, the Italians, the Taiwanese, the South Africans, the Yemeni, and 20,000 Chinese companies who are doing something similar to you. Back home, you’re probably dealing with, at most, a couple hundred competitors. In China, you’re dealing with global competition, a couple thousand competitors.


Perception #5: Treating Chinese Our Way, and Assuming They Will Adapt

The dollar is in the can right now. As a businessperson, you have to really figure out the laws that the Chinese are in. Treat them as a valued customer. Sell them on the idea that you are an asset that they should be doing business with. If we want to play the game, we need to focus less on what we want from them, and more on what we have to offer, what we have that will add value to their professional lives.

Right now, the mindset is more aloof. We assume they want to have our business. That really needs to change. We need to start with an open approach that acknowledges that these people don’t have to do business with us. They don’t need us.

Past that point, you can be as American as you want. We’re always going to want contracts to be respected, and the Chinese know that. They are working very hard at moving their whole economy and society to something that’s more respectful of the rule of law. We’re doing a great service to the Chinese nation as a whole by showing an example of how the rule of law is implemented. We need to keep doing that. We can be ourselves, just a little more open-minded and respectful.

Instead, Learn About “We Know Where You Live” Capitalism

Know that Chinese are not going to respect me unless you spend some time showing them who you are and who your company is. They’re perfectly happy to shoot you a container of widgets or a letter of credit, but if you want a real relationship, you need to show them who you are, as an individual.

The Chinese do not separate their personal and professional lives, because it’s “we know where you live” capitalism. How would they know where you live if they’ve never eaten at your house for dinner? My Chinese friends and I will call each other and talk about business anytime of day or night, literally at 2 o’clock in the morning. The time of day doesn’t matter. You could call and say hey, I’m out at the disco, let’s talk about this business aspect.

Being in a relationship means sharing more information with them, involving them in product development, giving them better terms, helping them finance their raw materials, and who knows what else. If you’re their real partner, and give them what they need to grow their business, they will stick with you.

Perception #6: Thinking All You Need is One China Guy

Another important misconception is that if you have a China guy, you’re fine. This is why it won’t work: Picture a bridge. At one end of the bridge, you have a really effective local guide to New York City. At the other end you have a really effective local guide to Shanghai. Each guide is really good at his or her locality, but going across the bridge, they might get lost.

Then there are people like me, who stand in the middle. I can kind of reach both ends, but I’m not an expert guide to either place.

If you’re serious about doing business in China
, you don’t just need a single China guy, or a single expert who stands in the middle of the bridge. You need a whole team. I’m talking about legal, tax, and commercial due diligence people, marketing strategists, HR specialists, Chinese local counsel (foreign lawyers are not allowed to practice law in China), and good government affairs people.

It takes a whole network. If you underestimate the role of the Chinese government in creating demand and fostering enterprise growth, you are dead in the water. If you underestimate the importance of the regulatory regime in China, for example, getting your permits, licenses, and operating documents in order, you are dead in the water. I don’t think corporate America really knows that yet.

Perception #7: Thinking We Don’t Have to Worry About China Yet

Many corporate headquarters don’t seem to realize that there is such a thing as Chinese business culture, but individuals are bumping up against it every day. A lot of employees in corporate America have realized how important success in working with Chinese colleagues is for their professional development. If you work for Proctor & Gamble, Motorola, Johnson & Johnson, or Black & Decker, chances are, some percentage of headquarters personnel are carrying out communications with China every day.

There is growing awareness on an individual and executional level in America that Chinese are different from us, they are worthy of our respect, and we’re not dancing in the way they’re dancing, so we have to try to get along.

Parting Words

If you want to do business with China, you have to earn their respect. Do this by being open, flexible, realistic, having a sense of humor, and being a human being rather than a corporate functionary. Be someone they want to have a relationship with, not just the mercenary of a transaction. You have to prove to them that there’s some advantage in working with you. Don’t just take for granted that there’s some built-in incentive.

That’s all it takes, the mindset of acknowledging that they’re really important to us. We need to put in a little effort to try and meet them. Maybe we’re not capable of meeting them halfway right now, but they’re all speaking English. They’re all doing business in US dollars. If you think about it, they’re meeting us more than halfway.

And I don’t know whether that’s necessarily permanent.

Read more by and about Janet Carmosky at the China Business Network.

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Comments

  1. Mike's Gravatar Comment by Mike on August 26th, 2008 at 11:26 am

    Perception #8 It is possible to develop these relationships with out having to drink bai jiu. This simply isn’t possible. It is imperative that you learn to drink this and buy many rounds for your guests. LOL

  2. Francis Koh's Gravatar Comment by Francis Koh on August 27th, 2008 at 8:26 pm

    China is not a homogeneous country and therefore customs and cultures vary from one region to another. Drinking bai jiu may get closer in one region, in another it’s Johnny Walker. But the guiding principle applies always – Sharing of good time is the key to building cloer relationship. Discretion keeps you around longer and will earn you respect. Balance and harmony sustains relationships.

  3. Murphy Wlaschin's Gravatar Comment by Murphy Wlaschin on August 29th, 2008 at 10:14 am

    Impressive article! We do NO business in China but I think the points you make are applicable to many Eastern cultures. As Americans we need to get over the old way of thinking we are “it” and move forward with the realization that we live in a global community whether we like it or not…I will file this information away and (hopefully) remember to access it when the time is right.

  4. Bill Peterson's Gravatar Comment by Bill Peterson on September 2nd, 2008 at 4:10 pm

    I found the article to be rooted in the China “mystique” as a way of excusing their unethical business practices. I dealt for many years with partners who would steal ideas and IP without the slightest thought of a “relationship.” True enough, internal business is built upon relationships, but when a company the size of Foxconn (Hon Hai) distributes the book “Agenda” to all of its managers…that tells you that they know they cannot compete using their internal, feudal, antiquated rules.

  5. Joey Finoke's Gravatar Comment by Joey Finoke on March 31st, 2009 at 8:34 am

    Chinese are sneaky. Dont do business with them, you will never really get a ‘deal’ and no matter what hoops you jump through they will never respect you (not that respect means anything in business anymore). Better off doing business with non-communist 3rd world nations for our cheap plastic goods and all important computer chips we use to keep this country safe. Greedy business people are the true downfall of our country (USA). Greed is the real reason we are in this situation. Business people have no sense of pride in their country, they only want to make cash. Shame on all of you.

  6. bronty's Gravatar Comment by bronty on March 28th, 2010 at 12:34 pm

    In general, most of the overall interest towards China from businesses in the ‘West’ comes from the frankly tacky goal of making money. In this, individuals get blinded by (or shut themselves off to) all ethical consideration. While China is massive and very interesting (and potentially excellent) market, there are many, ethical considerations. Take it from me, as someone who has led multinational businesses with operations in diverse parts of the world, including a significant parts in China. Do not enter or expand in China based solely on urgency. Spend all the time you need researching before making the ‘go / no-go’ decision. Above all, anticipate scenarios where ethical issues could arise, and work though what your responses will be. Will you pass on information about individuals to the Chinese government? Under what circumstances? Could there be a chance this individual will be tortured for doing yoga or for reading a book on democracy? Understand that a mother being horribly tortured by government officials in front of her children is uncommon in China but does happen. Know where you and your company stand on such issues.

  7. The Father's Gravatar Comment by The Father on April 21st, 2010 at 6:52 am

    There really just people who have to work harder for the past 40 years and as a result can do it more effectively.

    In America we have had it easy for the past 40 years and this is changing back to having to work for it.

    They are really no different than us or any other people on this earth. Some like relationships, some like to get done, some like to talk, some like to work, some are lazy, some are criminals, some are ethical, some have morals and others do not.

    Business people still go for the the old get rich quick scheme and there playing with someone who can get rich quicker.

    Why can’t anybody understand any of this.

  8. samuel welsh's Gravatar Comment by samuel welsh on March 10th, 2012 at 3:35 am

    interesting but china is a slave country
    we will loose long term greed is what conects business between china and the west.
    make mates exchange culture,teach english ,anything else will pass away quickily as the hack our brands.

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