Learn everything you need to know about the Chinese business culture. From handling your first introduction with a Chinese business partner to dealing with local eating and drinking customs. This article will provide you with the must-knows and offers a peek into what it’s like to do business in China.
Cultural differences and consumer trust
Most differences in business between China and the West can be related to dissimilarities in cultures, but certain characteristics can be attributed to China’s regulatory system and current ‘zeitgeist’. For instance, present day consumers are often wary of Chinese brands because of the many scandals local companies have been involved in (remember the milk-powder accident that caused several deaths in 2008?). This mistrust towards local companies has gravely impacted the way business is conducted and still plays an important role in dealing with Chinese companies and consumers.
Companies are simply having a hard time gaining consumer trust. That, in combination with a relatively weak legal system (or enforcement thereof), has created an environment in which personal networks – or Guanxi – still play an important role. Being aware of this is vital for foreign companies operating in China, because they will have to deal with similar issues when marketing their products to the Chinese consumer. However, before we delve deeper into building networks or Guanxi, let’s first take a look at some practical know-how that will help you leave a good first impression with your Chinese counterparts.
Handing out business cards & the concept of face
When doing business in China there are a few things that stand out. The following information will help you understand China’s culture a bit more and enables you to leave a good first impression.
Handing out and receiving business cards: during a first introduction each party first hands out their business cards. This means you might hand out 10 business cards during a simple first factory visit. Hence, it’s important that you bring plenty of business cards with you and make sure that when you accept business cards from others to use both hands. Also, when you receive someone else’s business card, take a long and hard look at it before putting it away. This is sign of respect and will be appreciated. Tip: have a business card with your Chinese name and company name on it as well.
The concept of face: ‘face’ is taken very seriously in China and losing face should be avoided during all times. Face is a concept that is relatively easy to understand even for westerners- for everyone has it. When equated to Western values, face is similar to the notion of reputation and applies to both personal and business relationships. Most Chinese will do whatever they can to avoid looking bad in public (i.e. lose face) and that often manifests itself in an unwillingness to openly admit to any wrongdoing, no matter how small or insignificant the error might have been.
Hence, don’t try to point fingers at someone’s wrongdoing directly. He or she will most likely deny it, and when that happens, understand that “lies” or denial are often a way to save face and are not commonly considered to be lies in China. Instead, look for a way to solve the problem without letting the other person lose face, since that will not benefit anyone involved.
Developing business relationships
In China you don’t do business with a company, you develop relationships with people. Building a strong relationship is just as important as writing a good contract, especially if you cannot always depend on a strong legal system to protect your interests. These types of relationships are often referred to as guanxi in China, which can be loosely translated into interpersonal relationships or your network.
Learn more about guanxi by reading our in-depth article on what Guanxi really is. However, building up these relationships –or guanxi- frequently involves drinking, eating and entertainment (often in the form of Karaoke).
A few years ago I attended a dinner in Hangzhou, a city not far away from Shanghai, and asked a Chinese business owner why drinking is such a big part of forming business relationships. To which he answered “Well, it’s simple: a man shows his true colors when he’s had a few drinks and besides, it’s a whole lot easier and faster to bond when you’re having drinks together.” Therefore, don’t be surprised after a factory visit to be treated to a beautiful dinner and more alcohol than you can possibly take in. Which brings us to our next point..
Eating, drinking and the art of gift-giving
Impress your host with your knowledge of the Chinese culture. From drinking or ganbei-ing Chinese wine to presenting presents to your business associates.
The rules of drinking: A question you will often hear is “How many bottles of X can you drink?”. Indeed, the more you can drink, the more respect or face you will receive in China. However, there is only one important rule that you should remember: don’t refuse a drink that is offered to you unless you have a valid reason. In case you do not want to drink anymore, you can simply swap the drink with a non-alcoholic liquid or quietly dispose of its content. But not accepting a drink (without a proper excuse) is considered to be rude.
TIP: If you want to impress your host, simply grab your drink and toast with him, making sure that while you are clinking glasses, your glass is slightly lower than his. This is a sign of respect and is much appreciated (and you’ll pleasantly surprise your host with your knowledge about the Chinese drinking culture!). Toasts and counter-toasts will normally continue to be made throughout the dinner. At large settings, it is customary for the guests of honor and host to visit each table (or be visited by each table) for a personal toast. Keep in mind that business is normally not discussed while enjoying lunch or dinner.
Dining: The eating arrangement is one of the most important parts of Chinese dining etiquette. Usually your host will assign a seat to you. This is often to his left-hand side (the Nr.2 position in the hierarchy). Being a good host is very important in China, therefore don’t be surprised to be treated to some of the best local delicacies. Also, don’t forget to compliment your host on the selection of foods he or she arranged, for it will give him/her face and it shows you are able to appreciate local Chinese food.
Gift giving: the art of gift giving is a much-disputed –yet very common- component of doing business in China. Just like when you visit a person’s home and are expected to carry along some fruits or drinks for your host, it’s quite customary to present gifts to your business partners. Often times you will be offered simple yet thoughtful gifts. For example, some time ago we had a first meeting with the second largest producer of heat exchangers in China. After a successful tour through their facilities and an extensive lunch, we were ready to drive back to Shanghai. At that moment we were presented with 5 boxes of local alcohol (baijiu) and 10 boxes of kiwis as a present to us for taking the time to visit them.
Especially gifting local specialties and delicacies do well in China, such as alcohol (e.g. wine) and foods from your country. Do not give clocks or shoes as a present, they both represent the ending of a relationship. And although there have been many scandals related to gift giving, particularly expensive gifts that were offered to officials in order to obtain contracts or permits, in most cases gift giving is merely a gesture to show goodwill and used to develop relationships.
TIP: don’t present gifts until AFTER business negotiations are done.
Negotiating tactics and contracts
Chinese are trained negotiators and its part of the daily life in China. However, it is also an aspect that many foreigners have difficulties with. So, if you are on a tight schedule with strict deadlines, the negotiation process can be rather stressful. Although there can be much said about negotiation tactics and contracts, we will only briefly discuss it here and elaborate further on it in a follow-up post.
A deal is never set in stone: After many delays from the Chinese party you finally signed the contract. Now you’re done, right? Well, in China you’re never really done. Keeping in contact with the Chinese party and maintaining good relations with them is of crucial importance. Expect alterations to be made to the initial contract and new negotiations on product pricing. Whereas in the West a signed deal usually implies a mutual agreement, in China it simply means you have reached another stepping stone in your relationship. Therefore, make sure to stay in contact with your Chinese supplier and if possible, try to develop good relationships with the people you are conducting business with.
Patience is key: Many comparisons have been made between Chinese negotiating tactics and one of China’s most well-known books on strategy: the Art of War by Lao Tze. One such strategy will sound very familiar to people who have done business here: the art of stalling and tiring your ‘enemy’ out. They know perfectly well you are on a tight schedule and need to close the deal before you leave again. Which is something they can use in their advantage. Hence, be prepared to spend more time negotiating than initially expected.
Have a negotiation strategy: Your Chinese counterpart will have a negotiation strategy, so should you. Know what you want before you start and do your research on the company. Being prepared will help you reach your goals faster.
Chinese legal system: Having a solid bilingual contract written in both Chinese and English will help protect your interests in case problems occur. Even though China’s regulatory system might not be as strong as in most developed countries, it is quickly improving and having a good contract will put you in a better position.
What are your experiences with doing business in China?
Latest posts by Duco van Breemen (see all)
- INFOGRAPHIC: Chinese water pollution - 9th December 2015
- Exhibiting at a Chinese trade fair: 3 things to keep in mind - 16th September 2015
- Food and business scandals in China give rise to foreign brands - 26th June 2015