Observations from Doing Business in China
East meets West. The Yin and the Yang. Two complementary but equally opposing forces.
The other day my friend,who builds satellites for a living, was telling me about her frustrations with their Chinese clients. The clients would ask them to re-do and second guess their decisions and results even though they were the highest rated satellites in terms of quality. After much re-work, they have been auditing each and every step trying to negotiate each agreed upon item. Sadly this is an all too common scenario when working with China.
With China being a $11 trillion marketplace, as well as being an estimated 30% of the world’s population, and home of the 2nd largest most spoken language — ignoring these cultural differences can pose a risk for your business.
The one thing you should know:
Everything is ran like a family business in China.
Optimized around control and power. This means everything is optimized around control and power. Oftentimes all of the “hoops” they have you jump through is to prove your loyalty and respect to them as a partner. This coupled with the strong concept of “saving face” (a term best described as “protecting one’s pride” — not just your own but also the other person) means that some items are done for the sole purpose of reinforcing the control and power that translates to respect within the partnership. If there are ways you can continually prioritize these from their perspective, you will understand where those requests are coming from and will probably decrease as a result.
Trust is built through loyalty. The best way is to think about this is one of two ways: (1) If you were trying to become good friends with the Corleone family how would you go about it? (2) If you owned a family business empire, how would you go about trusting someone new? It is all built around loyalty and proving you are loyal. Loyalty goes farther than competence, like in most family businesses, and loyalty is the only way you can prove trust.
Things that are unsaid are just as important as what is said. Any family has unwritten rules, laws and practices. It is often what is unsaid that tends to be the most important. This coupled with “saving face” creates an environment where not everything is “said”. This is a common occurrence: I introduced a friend to a Chinese investor. It had been weeks of him sending follow ups and further materials post the initial meeting, without much pick up or return. I had to finally break it to him that more than likely the investor was not interested, and was just “saving face” by not responding.
It’s a zero sum game. In a population of almost 2 billion people, they know scale, even at the education level. From a young kid you are ranked. Ranking teaches you many things, but one thing is clear: there can only be one #1. This can create a belief that if someone wins, someone loses — namely you. This can cause behavior that is defensive, competitive, and execution focused. This thinking can spill into business. I spoke to one of the companies in the infamous three kingdom ring — BAT — and he said he had certainly seen some valuations in the past get driven up just so that the other company could not compete. Defensive behavior and exclusivities abound. You have to take note of the past grievances and current state of the relationships between its competitors so you don’t jump into a war.
Relationships, Relationships, Relationships. You can now see why relationships are incredibly important to ensuring this system can be supported. In fact relationships trump technology and the written word. Relationships provide the perfect verification system for building trust and loyalty, teaching the nuances of all the players, and ensuring defensibility of your strategy. I’m not sure if there is software that can replace that…
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I am the co-founder and Chief Development Officer of Kabam. I am currently in Beijing, China. These perspectives are my own and do not necessarily represent Kabam.