Doing business in China can be a challenge. But for those that persist, China creates an amazing business opportunity.
I have been doing business in China for quite some time and want to share my insights (thanks Tero).
I hope they help you to have a rewarding experience in China as well.
“Let China sleep, for when she awakes, she will shake the world.” — Napoleon
You can read the complete guide about doing business in China or go directly to one of the chapters
- China today facts
- China cultural differences
- Challenges of doing business in China
- How to do business in China: tips & tricks
The first thing you have to realize when you do business in China is it’s size. It’s huge!
I want to share with you some amazing facts and figures about China and its economy. They will help you better understand the phenomenal growth and the related opportunities and threats.
#1 NUMBER: 25 – 25 – 25
The Chinese government aims to have 25 cities with 25 million inhabitants by 2025.
#2 NUMBER: 100?
If you included the GDP per capita in the equation, the Chinese have one of the highest life expectancy rates in the world.
#3 Number: 437 million
That’s the amount of Chinese that will be 60 or above by 2050 – about 31 percent of the population.
#4 Number: 79%
According to the American Chamber of Commerce, 79 percent of all foreign companies in China make money. The number is higher than ever.
#5 Number: 1 billion
Everyone is investing in China. 10 years ago, you would have a red carpet treatment in Shanghai with a 1 million Euro investment. Today, you need at least 1 billion to get noticed.
#6 Number: 65 million
That’s the number of vacant apartments today in China. That’s a serious real estate bubble. By the way: want to know how they calculated the number? The electricity power bureau counted all apartments not using any electricity in a six month time period.
#7 Number: 13%+
Chinese labor is not as cheap (anymore) as you might think. Labor costs inflate at a staggering rate of 13 percent per year. The upside is the increase in local buying power, reducing the export dependency. Finding buyers remains a major challenge, especially when the Western economy would continue to stagnate or even reduce.
#8 Number: 13 years
During the cultural revolution (1959 – 1972), education came to a standstill.
#9 Number: 45+
Very few people in the talent pool are over 45 years old due to the educational standstill I mentioned in the previous point. It’s one of the reasons why you see so many young executives.
#10 Number: 118 – 100
It’s not so easy to find your ideal wife in China, with a ratio of 1,18 men for each woman.
#11 Number: 1900
China was the largest economical player for the last 5000 years. They only lost their number 1 position at the start of the 20th century. In other words, they know how to lead; they have been doing it forever. No need to ask yourself if they would be able to do it again. The only questions that’s left is when they take over economical world leadership.
#12 Number: 300 – 400 MIO
The estimated amount of Chinese there would be more on this planet if they would not have created the ‘1 child’-policy.
“It doesn’t matter if a cat is black or white, so long as it catches mice.”
Personal interaction is crucial when doing business. But what if your counterpart speaks another language, has been raised with other values, works in a business environment that is re-inventing itself and is bound by social rules that don’t apply in the West?
How do you go about personal interaction in such a situation?
Well, the first and most important thing is to be aware of the differences and start embracing them.
The list you will read here is by far complete, but it will give you the some basic insights into doing business with a Chinese counterpart and hopefully inspire you to dig deeper in the Chinese way of doing business.
1. Understand Confucius. He was a great thinker who lived in China (551-479 BC). Even today, much of his ideas still influence the current business thinking in China. For example, the importance of hierarchy he promoted finds its way into the way negotiations should be done – between two individuals from the same level, like two sales managers with the same rank.
Take some time to find out more about Confucius. It will help you to frame some Chinese habits that might seem strange to you at first sight.
2. Practice ‘Mianzi’. It’s crucial to enhance someone’s reputation – saving face – and not to cause any harm. Chinese are much more sensitive to what other people think of them. This impacts for example crucial performance processes like coaching.
3. Build ‘Guanxi’. Or ‘connections’. Or expressed differently: ‘Who do you know and what are they willing to do for you’. It’s crucial to know that Chinese are very generous for people inside their network, not at all for those outside.
4. Less privacy. In general, privacy has not the same importance for a Chinese person. During a business dinner you can expect questions like: “How much money do you make?” or “What did your father die of?”. Don’t be offended. These questions are a way to show interest.
5. My child, a dragon. As you probably know, China has a one child policy – each couple can have only one kid, unless you pay a government service fee or the first child is a girl. When surveys polls try to find out what Chinese find important, the answer is always: pursue a better life for my children – I want my child to be a dragon.
6. Hand shake. In the West, we like a firm handshake, but Chinese people who have not been exposed to this Western habit can be offended. Aim safe and don’t overdo it unless you know for sure that your counterpart is familiar with the custom.
7. Business card basics. It’s smart to have a double sided business card with all information in Chinese on one side. Make sure the Chinese side is facing up. Always hand a card with your two hands. If you receive a business card, look at it for 2-3 second to show interest.
8. Use official names and title. Imagine you meet the mayor from Shanghai, you should address him the following way: “Good to meet you, Wang Mayor” . And as Mark Kolars points out in a reaction on this mini guide on LinkedIn, knowing (and using) a few basic Mandarin words will go a long way and impresses most Chinese business partners.
9. The ideal host. If you invite people to a restaurant, make sure you arrive early to greet everyone.
10. Arrive as a group. When you are invited by a potential business partner, your host would like to give proper respect to the most senior person from the party. Avoid embarrassment, for example: the CEO got hold up for 5 minutes to take an important phone call and walks in at the end of the introduction ceremony.
11. Round table. The most senior person sits to the right of the host, the second most senior to his right. And so on…
12. Gifts. Bringing a gift is a smart thing to do. Be carefull however what you take or the potential smart idea can turn against you; there are some gifts that are considered offensive, like an image of a turtle or a green hat. Handicrafts are always a safe bet.
“Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.”
— Sun Tzu (544 BC – 496 BC), Chinese Military Commander and Author
Doing business in China requires you to tackle some specific strategy challenges.
#1. Illegal Copycats
Once you are somewhat successful, you can be sure someone will illegally try to copy your product. Some copy attempts will be very amateurish and won’t cost you much business – think about examples like Hike (Nike) or Noklia (Nokia); others will be much more professional. The 1 million dollar question is: ‘Can you do something about the illegal copycats?’
Although you cannot expect miracles from this action, make sure you protect your Intellectual Property (IP) in China. The rules and regulations are different than in the West, so make sure you go through the motion together with a Chinese IP specialist.
#2. Price Fights
Similar to copycats, but on the legal side, Chinese are masters in detecting opportunities and will move quickly and strongly into a market space when you have proven the sales potential for them. As they won’t be able to copy your technology or brand at the start, they will almost always go for a price fight – a fight that you cannot win.
Solution? Think hard about your price premium and make sure you educate your (potential) customers about the extra value they will get when buying your product. To achieve this, you need a solid sales and marketing (brand premium) strategy and execution. Your product alone will not cut it.
#3. Lack of Information
Chinese business moves at the speed of light – so also their decision taking. And it’s something we are not used to. When people ask me – I’m Belgian – why it takes so long to choose a government and why it seems we do fine even without it, I always say — partly as a joke — “In China they take more decisions in 1 hour, than the Belgian Government does in a year. So it takes some time before their absence is noticed.”
The different decision speed can take you by surprise – especially as the information flow is not always transparent. If you don’t watch out, you will always be catching up. It might even get you in trouble, as some laws change overnight.
So put your ear to the ground or, even better, get yourself some local, well networked, ears to get crucial information fast.
#4. Doing business in China: don’t underestimate the size of the Country
China is the 3th largest country in the world. Only Russia and Canada do better. Therefore, a one size fits all won’t work. You need to segment the market and prioritize, if not for the different customers needs it’s needed to pace yourself to avoid overstretching.
Also, make sure you take the size of the country into the equation when you take strategic decisions on location. You might be tempted to launch production in the West of China, as labor costs are among the lowest of the whole country. But Western China is a long way from the coast.
Think about the total cost of the supply chain, including transportation and ability of your suppliers to follow and serve you.
#5. Chinese companies going global
If you believe that your competitive battle will be fought out in China – far away from your headquarters – I wish you good luck. You might not have seen any Chinese competitors in your industry on your home turf, but that will change in the next decade. The Chinese are well aware that the European and US market is a pretty tough crowded space that demands a different approach compared to China.
Behind the scenes many Chinese players are trying and testing – an approach they master very well – in smaller markets in Africa. Weather through acquisition or with own local operations, they are building capabilities to attack and concur the more difficult markets. And once they have the expansion capability mastered, they will move to Europe and the US. Use the same approach and learn about your future competitors in their home country and get ready for the competitive battle in your home country.
“He who learns but does not think is lost,
he who thinks but does not learn is in great danger”
— Confusius, China’s most famous teacher, philosopher, and political theorist, 551-479 BC
Doing business in China: people challenges
People drive your business to success. They make the PowerPoint come alive; transform paper into practice. But that does not happen by itself. You will encounter quite a few people challenges when you move your business into China.
Here’s a list of 5 people challenges you will most probably have toe-tackle when doing business in China.
1. Headquarters asks too much
For many executives, China is the promised land; the goose with the golden eggs that has to secure their next bonus. In order to reach the double digit figures they promised to the board, they push local operations to the limit, or over the limit.
Make sure the team in China is more than an unknown group of individuals who have to deliver aggressive growth figures presented in a budget report.
2. Language and cultural barriers not taken into account
I don’t have to tell you China is a different world. However, many people seem to forget this. In fact, one of the most common mistakes when negotiating in China is to rely on the clients’ negotiator. And that’s strange, because we all know on which side (s)he will be. And even if (s)he would be neutral, (s)he does not know your product, your strategy differentiators nor is (s)he aware of your negotiation ambition.
So spend the extra money — and time — to find yourself a top level translator who knows your product, your needs and, most importantly, your negotiation strategy.
3. Doing business in China will require solving recruitment issues
There are not enough managers in China — demand is higher than supply. And managers know and exploit this simple fact.
Here’s an interesting real-life story I heard during my last visit to Shanghai. It illustrates the way Chinese managers look at job hopping. A candidate for a manager position arrives at the recruiters office and starts apologizing. It takes a moment for the Western recruiter to get the point, as the message is so different from the Western way of thinking. The Chinese candidate was looking for all kinds of excuses for the fact that he has been employed by his current employer for 8 years– 4 times longer than the current norm in China.
People will come and go — that’s the market trend. However, you have to see how you can move beyond the salary to attract (and if possible retain a bid longer) people. If not, it will only become a bidding war.
Think how you can make your organization more attractive to Chinese candidates. A solid brand name and international exposure will help. These two elements are valued highly by Chinese managers, as they look great on their CV and improve their current (prestige towards friend and family) and future value.
4. Teamwork is not a state of mind
For the average Chinese worker, teamwork is not a priority. From childhood on, Chinese have been competing for everything they do. There were always others to claim the same spot, so they had to fight to secure their space. And so it became a habit, deeply engraved in their personal DNA. So when you tell Chinese to work as team, they will probably say ‘ye’s but think ‘no’ as teamwork is not part of their DNA.
As a leader, you have to be aware and understand the ‘why’ behind the fact that Chinese don’t favor teamwork. In order to create change, you will have to promote and push teamwork relentlessly. But it will be quite a challenge to change a habit engraved in the DNA since kindergarten.
5. Human Resources not yet mature
The HR concept as we know it in the West is rather new in China. Few choose Human Resources as their career goal. The traditional HR-view — ‘keep the personnel files together for external reporting’ — is still predominant. Furthermore, due to the limited employer loyalty, most Chinese executives see investing in people as a waste of money.
I believe Western companies have an opportunity here to stand out and be different. In the short run, especially a solid, hip professional employer branding approach can help attract local top talent.
“People who say it cannot be done should not interrupt those who are doing it”
— Old Chinese proverb
In this final chapter, I want to bring several ideas together and offer you 8 practical tips for doing business in China:
Tip 1. Design a clear strategy
Don’t go to China just because you have heard that the market there is growing faster than in the West. If you only want to go to China for the GDP growth, stay at home! You will only end up in a price fight that you are sure to lose. Doing business in China requires a clear strategy!
Tip 2. Have an edge
When you design that clear strategy, go and look for a competitive edge other than costs as you cannot win a cost battle. Aim for extra value that determines a higher price. (But this does not mean that you can charge whatever you want).
If you have an edge, come equipped with solid data that easily proves that your product is better than the cost leader’s offer. Your word alone will not do.
Tip 3. Doing business in China requires a lot of ‘trying’
Things in China move quickly, probably too quickly for your regular strategy planning and budgeting process. If you follow the regular route, your local competitors will have simultaneously tried and tested three approaches by the time you have finished putting your PowerPoint presentation together. And while two of them might have failed, the third probably worked.
And even if it didn’t, your Chinese competitors will have gained valuable customer insights and won new execution capabilities while you were discussing those PowerPoint presentations with expensive consultants thousands of miles away.
Remember, incubation is a crucial innovation step. When the speed of change is high, as it is in China, you need to get in the game and take some controlled risks. Just make sure you only turn to the next phase if you are sure there is a customer need that you can fulfill, with a solid margin for a reasonable amount of time.
Tip 4. Don’t do it all yourself
Building capabilities takes time – a luxury you don’t have in China. Try to find a local partner or buy a local company. Sure, you will encounter the typical issues, but you will also gain those much-needed capabilities faster than when you follow the ‘do-it-yourself’ route.
Tip 5. It’s not only about the product
When you build your price premium, look beyond your product. Many Western (and even local) companies that are successful in China today attribute their success to a strong marketing and sales focus. Many industries are still in the early stages and there is a strong requirement to create the need and educate the buyer about quality.
How? Develop a strong sales story (easier when you have a strong brand), one that inspires people, is easy to remember and sexy to others.
Tip 6. But don’t forget the product
There’s a high probability that the customer needs for your product or service in China are different to those in other regions. Don’t be foolish and think they will adapt their needs to suit your product – sales and marketing can only go a certain way. Get out there and capture local needs.
Let me give you an example: on the flight home from Shanghai, I had an interesting conversation about consumer insights with Rolf Specht from Mercedes-Benz, my neighbor on the plane. He said: “As most Chinese businessmen have a driver, they have specific needs for the working environment in the back of the car. We find it crucial to find out exactly what they need so we can adapt our cars accordingly”.
My tip: if you have already a presence in China, make your local team responsible for collecting consumer insights. They probably need some educating as they might not be used to capturing market and customer intelligence in a structured way. Make sure you keep the process light. A copy and paste from the process in your home market will not work.
Tip 7. Doing business in China: don’t send your B-team
Doing business in China is challenging. It’s a tough market. It’s big, it’s unfamiliar and it’s changing at lightning speed. You need the right people to cope with this. You want your best leaders on the ground, not your B-team. Put your money where your mouth is and assign your best people to grow your business in China.
Tip 8. Doing business in China: headquarters, what is your role?
“When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” — Confucius
You need to look beyond potential gain and be prepared to be in it for the long-term. There’s more to it than securing your next bonus. Manage stress, avoid copying and pasting processes and… keep it simple.
Remember: if every department in every region asks for KPI’s and forms from the China team in order to be the ideal business partner, when is the real work going to take place?
Doing business in China can be a real adventure. But a very rewarding experience. I hope the guide ‘Doing Business in China‘ provide you with some new insights about the cultural differences and how to go about them.
Good luck with your Chinese adventure!