Tips for doing business in China
China is the new frontier when it comes to business and investments. A ten trillion dollar economy growing at 7 percent annually, China is changing the face of the global economy and has become a major influence in the way business owners contemplate expansion in Asian markets. China is a unique place with a unique culture that needs to be taken into account when doing business there.
China’s economy is characterized by highly competitive industries that are packed with hundreds sometimes thousands of businesses, each one usually subsidized by local governments. This is not likely to change any time soon, so it’s incredibly important to do a proper competitive analysis before expanding into China. If you don’t differentiate yourself, you may find that your business simply can’t compete in the market.
Most say that China’s culture is collectivist, and this is true to an extent. There is a group that are to be trusted, the in-group, and everyone else is the out-group. Usually, the in-group will consist of family, friends, and organizations, and it’s here that you will often find the behaviors and attitudes of a collectivist culture. However, in the out-group, zero-sum competition is the norm, and there is no such thing as a win-win scenario. As a result, a Chinese business partner may re-open negotiations if you agree too easily since it seems as if they could have gotten a better deal.
It’s also good to remember that for the Chinese do not trust someone in the out group until they have shown themselves to be trustworthy. It’s very common to take an opportunistic approach when dealing with people outside the in-group. China still has an unreliable legal system that can make enforcing contracts difficult, and so it’s important to take measures to protect yourself should something happen that could threaten your business.
It’s important to remember that Chinese society and companies are very hierarchical. Only the executives at the very top can make decisions. If your business partner is not one of those people, they will have to get approval from those that are. Also, because of a high level of mistrust, delegation becomes very difficult if not impossible. Also make sure that a representative is at the level as their Chinese counterpart. Not only in company title but age and education.
Finally, the government of China is decentralized. While Beijing has the power to enact and enforce policy, local governments are often left to their own devices. As such, an endorsement from the national government may not help you when dealing with local governments.
These are all things to keep in mind when doing business in China. China is rapidly growing and so there are many opportunities to be had. However, with great reward also comes great risk. Make sure to prepare yourself accordingly.