Understanding cultural difference is the key in building lasting relationships with your business partners abroad.  China has a long and rich history and culture that has built a business environment that is markedly different than U.S. business culture:

1.  Relationship-based versus transaction-based

Relationships come before economics in China whereas in the U.S. economics generally take a front row seat to relationships. Chinese people do business with people they know and trust.

Rather than getting into business discussion immediately once you meet, take time and get to know your potential partners abroad; invest now for payoff later. Once trust has been built, Chinese business people will gladly share their thoughts with you and will give you honest feedback. One way to build the trust and rapport is to hang out outside the office hour, for instance, invite them to lunch or dinner.

2.  Face to face interactions versus doing business without meeting in person

Most of Chinese business activities and deals are made through face-to-face interactions. To successfully launch in China, you will need to visit China and build relationships with your partners through frequent face-to-face interactions. To accommodate Chinese business culture norms, many American companies have opened offices and hired locals in China to facilitate business in this foreign market. Other American companies form partnerships with local companies to bypass the need to establish a branch or office abroad.

3.  Negotiations: prepare to haggle

There is a huge difference in the way negotiations take place in the U.S versus China. Chinese people tend to haggle and to believe that there is room for negotiation on every deal. U.S companies need to make a padded proposal. Always start with a reasonable proposal regardless and expect multiple rounds of negotiations.

4.  Entertaining is a part of business

In China, entertaining (hosting) is an integral part of the business culture. In most instances, inviting potential partners or employees to dinner is appropriate and considered an informal meeting. A dinner with potential business partners may be used as a way to build trust and deepen a relationship. It may be used as a way to solicit feedback that you may be unable to obtain during the standard workday or in the typical work setting. A dinner or other social outing is also an appropriate way to follow up with deals informally agreed upon.

5.  Communication style

Chinese people tend to be quiet and reserved in business settings while Americans tend to be outspoken and eloquent. This cultural difference may make it challenging for U.S. companies to obtain the information they seek such as concerns, feedback, outright rejections, etc. Many times it may take a series of formal and informal meetings to reach your desired goal.

6.  Closing a deal

Unlike in the U.S., in China the signing of a contract does not mean immediate business.  After a contract is signed, understand that this is the beginning of the arrangement; follow up with your new partner and look for actions.  Actions taken on the Chinese company’s or partner’s parts indicated commitment.  Do not hesitate to suggest specific actions such as having a detailed discussion on next steps or suggesting a trial purchase order.

7.  Gifting

Exchanging gifts has a long history in Chinese social and business culture. The good gifts include something representing the city or state you are from or things with your company logo. Gifts do not have to be expensive. It is something special that this person may not have. When you present a gift to an individual, it should be done privately. You should state that this gift is a gesture of friendship rather than business. When you gift to an organization, it should be presented to the leader of the organization. Gifts to avoid include scissors, clocks, handkerchiefs and others with negative meanings in China. Please run your gift ideas by several Chinese friends, family members, or co-workers before sending them to your current or potential business partners.

** The above content is prepared by Casey Xiao-Morris at Leverage China, LLC, a specialist in China market entry service. Contact casey@xiao-morris.com for any inquiries you may have.

China is a complex market to understand especially when it comes to laws and regulations. The first barrier for Western companies looking to sell in China is to pass the initial product registration prior to exporting to China. For many western business people, trying to understand the rules and the application procedures is extremely confusing and often slows down their entry into the Chinese marketplace. Rather than explaining what the initial product registration entails, I will share the following tips to help Western companies overcome the barrier more quickly.

Why is the import registration so confusing?

1. The Chinese regulations are ambiguous and conflicting. For instance, dietary supplements have different definitions in the U.S. than they do in China. In the U.S. this refers usually only to vitamins or minerals while in China it can be anything from vitamins, herbs, amino acids or other specialty nutrients. In fact, there is no definitive list of how an ingredient might be classified – food, dietary supplement, TCM (traditional Chinese medicine) or drug. Approvals are made on a case-by-case basis and rely heavily on how the registration paperwork is filled out.

2. Overbearing rules and procedures. Although many major authoritative bodies such as the State of Food and Drug Administration and the Certification and Accreditation Administration have published a good deal of English information online, the lengthy application process and truckload of required paperwork have made many western business people cringe. Furthermore, there is not a quick way to estimate the cost associated with the application.

How do you deal with the initial registration and certification?

1. Find out first if your product is regulated and which agency oversees your product. There is a chance that your product is regulated by the Chinese government. You want to find out right away if your product is required to have any import registration and certifications. I have referenced major agencies overseeing a large variety of products and industries at the end of this article.

2. Outsource to a specialist that can make your life easier.

As I mentioned early, the Chinese import rules and procedures in your industry can be overbearing and confusing. You may consider outsourcing the task to an expert who deals with these issues on a regular basis. There are two types of specialists that can help you; 1) import regulatory requirement consulting services that do nothing but dealing with the government agencies and application paperwork, 2) specialty logistics companies such as import and export custom brokerage houses that specialize in clearing these type of goods and take care of the entire process for you.

3. Your distributor/importer in China should be able to help you with regulatory requirements. Say for instance that you are a premium packaged food manufacturer in the U.S.; it is likely that the distributor you are seeking in China has had experience representing foreign products in your category. They have likely dealt with all sorts of import regulatory requirements in the past. With their support, you may find that overbearing import registration and certification compliances can be accomplished.

References

State of Food and Drug Administration – regulates the imported medical device registration, drug/health food registration, pharmaceutical packaging

Certification and Accreditation Administration – regulates a large group of products, for example, Electrical wires and cables, Circuit switches, electric devices for protection or connection, Low-voltage Electrical Apparatus, Low power motors, Electric tools, Welding machines, Household and similar electrical appliances and more

State Administration of Radio Film and Television – regulates the network access license and CAS/SMS certificate for television and radio broadcasting products

China Railways Product Certification Center – regulates the CRCC certificate for railway and locomotive products

Ministry of Industry and Information Technology – regulates a lot of electronic information products, the network access license for telecommunication products, SRRC license for radio frequency (RF) and satellite products.

Ministry of Public Security – regulates the sales permit of computer information system security hardware and software products.

China Certification Center for Fire Products – regulates the pattern approvals of other fire products, like fire extinguishing agent, fire extinguisher, fire-proof door, fire hydrant, fire nozzle, fire coupling, fire emergency lamp, gas detect & alarm equipment and fire-proof materials, etc.

** The article is prepared by Leverage China, LLC, an import and export consulting firm specializing in China market entry services.

What business lessons can you pick up from this image?

To understand and do business with China it’s extremely important to understand the lessons learned from the World Expo in Shanghai.

Here’s a quick glance at some of the lessons you should try to lookout for when visiting the Expo:

1. From the architecture, one can get an understanding of Chinese mentality. The China Pavilion architecture, aptly placed in the key place of the park, shows the mentality of “Middle Kingdom” with it’s centrally pointing tops, as if it were a backwards pyramid which rested solely on the heart of China. The giant building is an homage to traditional Chinese architecture with a “modern” twist. Read about the architect’s vision here: http://www.expo2010.cn/expo/expo_english/documents/
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2. With torrents and torrents of people lining up outside each pavilion waiting to get in and get tickets it’s easy to recognize the differences between the way different countries operate their pavilion.  Obviously, the Chinese one is a major attraction to all Chinese and foreigners, so expect packed crowds. Notice the differences in service from each country.
3. With regards to the shows. It’s easy to see what Chinese people find interesting is definitely different from what the foreigners might find interesting. In fact, Chinese people are so used to seeing masterful performances by Chinese acrobats, or blazing speed demonstrations of Kung Fu by professionals raised to train to perfection from as young as 8 or 9, that certain kinds of demonstrations leave Chinese feeling quite unimpressed. Yet, ironically enough, the easiest steps in a Salsa dance show, or a Tango demonstration, will leave Chinese people breathless. Observe the differences and keep them in mind next time you want to impress your Chinese business partners.
4. Notice the positioning of the buildings. A lot of thought has gone into the exact locations of each of the pavilions. This can help understand the love of face and of giving face that Chinese people practice.

Anyways, there are countless more lessons to be learned. Which ones did you learn from the Expo?

Google recently posted on their blog that they are considering pulling out of the China market and closing down google.cn.

The gist of the story, if you still haven’t heard of it, basically, they recently suffered cyber attacks from super high-tech hackers, on top of the recent conflicts they’ve been having with Chinese writers with Google Books, not to mention June’s 2009 incident where Google was shut down for a couple of hours due to “porn” being shown through Google results.

Anyways, now Google seems to be completely fed up and willing to walk away from their China operations, which have been rumored to generate around $300 million dollars in revenue in 2009 http://www.nytimes.com/2010/01/15/world/asia/15google.html

Others argue that even though Google’s market share is so low, only around 30 some percent, the Chinese Internet market is huge and growing amazingly fast, so future profits would be too big for Google to leave behind. Google has commented that this isn’t a PR campaign, nor are they considering pulling out because of profits being low or not having enough market share,  but they claim that they are actually doing it because they no longer want to continue censoring their results.

Ultimately, in the west, Google is mistakenly seen as a hero for standing up to a country whose Government and culture we understand very little about and due to that often fear, and show a lot of disrespect towards. Which sets the way very nicely for Google in the future with their plans of “world domination.” All jokes aside, what’s interesting is the show of differences and similarities between both Chinese and American culture.

I’ve read countless of comments praising Google for not willing to follow Chinese law, or for no longer willing to cooperate with what they think to be an “evil” government. On the other side, I’ve heard from Chinese people who feel that they don’t need Google, nor any westerner who thinks himself so righteous and all-mighty to quickly criticize the Chinese way of life and the Chinese government. Keep in mind that western studies held in China have determined the government’s approval rating to be around 70-75%. Some other Chinese think they can do fine and well on their own without a foreign company trying to dictate them how they should do things.

Whether or not Google leaves remains to be seen. What’s a bit scary is the technology that was developed to pull off hacking into Google, Yahoo, and other large corporations. McCafee released a statement in their blog make sure you read up on it, because this truly marks the beginning of a new kind of war looming around if we don’t change our behavior and all start working together as a global community.

So what will it mean for China and the world if Google does leave?

Ultimately, the Chinese government won’t mind much. They will let Google go, but they will try to create new policies to make sure other Multi-national companies do not feel afraid of doing business there. This might pave way for new policies protecting technology companies, since right now China has a huge initiative to encourage technology developments, technological schools, such as the countless software colleges now recruiting foreign talents, etc,  they will make sure that investment is safe.

Furthermore, the Chinese government will probably crack down on these free-for-all proxies that have been a flock of illegal activity to show the world that they are moving forward to responsible development and show the world they would be a suitable country for leadership. Hackers will just end up using Proxies on other countries in the world where policying of the Internet isn’t as strict, and we will continue to battle cyber-espionage, and cyber-wars for years to come.

I’m pretty sure that business will go on as usual. Critics of China will continue to criticize instead of learning to understand the culture better, and China will continue it’s economic trends.

As for the gaps left behind by Google, Baidu will probably increase their share up to 70%, the rest of the people whom had been won over from Baidu to Google will find alterior means of search, which will lead the way to Bing gaining a larger share, probably around 5-10% by 2011.

I expect a larger number of Chinese will learn how to access resources outside of China, or what they call “jumping the [Great] fire-wall,” so they can get unfiltered results from Google.com, and the internet. But I don’t think that will create any instability from within China.

-Edit – 1/16/2010

Inside Story with a word from Google Inc.

Iphone in China can succeed. Here's how...

So Iphone entered China early September. And thus far, no more than a few thousand sales have been registered. Where did Apple go wrong?

The problem isn’t due to the Iphone’s popularity, as there is a huge demand for Iphone’s in China. One can see black-market Iphones all over the place, which sell for anywhere from 4000 RMB to 6000RMB (about $600 to $875 dollars).  It also isn’t the fact that there aren’t enough cell phone users. A China news agency report printed early May 2009 showed that after introduction of 3G technology, mobile users grew to a total of 670 million people. That’s almost twice the population of the U.S.. Also, it isn’t that people don’t want a new phone since they already have one, most people I met there change their phones on a frequent basis. So, shouldn’t Iphone be making a huge blast in China?

A recent Forbes article by Shaun Rein on why Apple is Failing in China outlines some interesting  points. Here are some of my observations and commentary to his article:

1. Apple entered the market assuming China is the same as the U.S.
   • Anyone who’s been in China knows how easy it is to get a pre-paid phone number and keep that as long as one wishes. Iphone is making Chinese consumers lock in to an expensive phone plan without realizing that model, although it works for the U.S., has never been popular in China. Chinese like to change phone numbers quickly and easily, although most don’t. And imiting their “options” isn’t going to win over any new customers, considering they can get a black market iphone for around the same price that doesn’t do that.
2. Apple didn’t understand consumer spending
   • Chinese usually prefer to buy cheaper plans, although they will go all out on getting a phone. They prefer texting over calls, etc. So by having them lock into expensive call plans, they are turning off customers. No pun intended.
3. Apple didn’t understand the competitive marketplace and partnered up incorrectly
   • Partnering up with a telecom (Unicom) that sells to a least wealthy consumer and has lower number registered users was a mistake.
   • Most people believe this company to have worst signal, and most people don’t want to change carriers, let alone change phone numbers.
4. Apple took too long to enter China
   • If you are not in China quickly, then the black market for your products will start becoming the main market and it’ll be harder to get back in when u decide to.

So what can Apple do? They are locked into a contract with Unicom, but have to make the best of it.

• Spend time doing more market research to understand what people want out of a phone.
• Find a way to address needs, such as: being able to keep existing phone numbers, working with Unicom to change the people’s perceptions of their service (ie providing better coverage, affordability, etc)
• Reach out to other businesses and educating them on the power of developing great apps.
• Chinese people don’t want “convenience” through the internet, as much as Americans. They are more interested in developing connections, playing games, and keeping informed, learning English, etc etc . So Apple should develop free apps that work as English dictionaries, news feeds, as well as reviews of restaurants, entertainment, and others. (those would attract the cosmopolitan crowds at least)

The lesson here is find good partners, do your due diligence, and plenty of market research, or partner up with people who understand the market.

Every entrepreneur contemplating entering the Chinese market should be well informed. After taking a few “Chinese Culture” classes, one may learn of such cultural intricacies as Not giving clocks/watches as gifts, or not giving pears as gifts, etc.

But besides these what does it take to be succesful at doing Business in China? Many people who have been doing business in China for a short-while might think it involves Heavy Drinking of White Spirit Wine (aka Bai Jiu, aka, white petrol), and spending countless nights at KTVs with new prospects.

While, it is true that is one of the most direct ways to build a “relationship” with new clients, westerners make the mistake of thinking “we’ll drink with them tonight, and tomorrow we’ll sign the deal.” I see this kind of mentality over and over, in every deal and every consultation I give.

In this website, I will try to illustrate to those interested in China the proper way of doing business. You will learn what works, what doesn’t, what has already been tried and why did it succeed/fail, and what hasn’t been tried yet.

My goal is that I will be able to help as many of you as possible, and hopefully, when you have taken my advice and gotten some level of success, but aren’t sure where to turn to next, you will come to me for further help.

So suscribe to the RSS, and keep up to date with all the latest findings.

Straight from Beijing, this is MarcP Goodman.