Doing Business in China the Streetsmart Way
John, you're living and working in Shanghai. What's the feel or the vibe of the city right now?
Well the vibe in Shanghai is incredible and especially this year since the World Expo 2010 is in Shanghai. It's going to be happening over a 180-day period starting May 1st to the end of November, 2010. So things are even more vibrant than they would normally be and I would argue that Shanghai is possibly the most vibrant city in the world today, even if you compare it to Dubai, for example. Shanghai continues to grow at a massive pace and an important thing for people to remember is that Shanghai is representative of what China wants to do all across the country. This is something that China is aspiring to. There are certain cities that are close behind Shanghai, but China on the whole is not where Shanghai is today.
You've written a book called China Streetmart. What do you mean by streetsmart in this context?
The classic definition of streetsmart is having the knowledge to survive in a hostile urban environment. So I changed "hostile" for "China" and the ability to survive in a Chinese environment. Really understanding how China works is pretty much what Streetsmart is all about. It's the practical knowledge that's learnt on the street and the way we find that out is by constantly interviewing the best minds of the top executives at all levels of business, trying to find out what it takes to be successful. The good news is it comes down to some very basic, easy to understand, practical, common sense approaches.
It's interesting that you say common sense because most people would argue that common sense in Canada, for example, may not be common sense in Shanghai.
When I say that the biggest secret to doing business in China is there is no secret–it's really common sense, some people get a little defensive because they've heard so many stories about the complexity of China and Chinese culture. Here is where common sense starts: common sense dictates that if you're going to do business in a local environment you'd better understand how that local environment works. Canadians are successful in Canada, for example, in part because they grew up in Canada and they understand how Canadians think. The same principle and logic applies to China and if you're going to be effective in China, you need to start understanding how local Chinese think and act. This is when people start to get a little off track and say "Do I need to understand Confucian culture? Do I need to understand the Chinese language? Do I need to understand all the very complex dimensions of China?" The easy answer is "Yes, it would help," but it is not absolutely necessary. The key thing to remember is everyday, people in China want to make business just like you do. There are face issues obviously; there are relationship issues and they are different in degree not in kind.
Although common sense does apply, some of the issues you just mentioned are important to know about. One of the biggest is Guanxi which is often misunderstood and misinterpreted. Can you give me a simple explanation of what Guanxi is and how it works?
It is very much misinterpreted and here's the confusing thing: I would argue that it's often misinterpreted by the local Chinese. How can local Chinese misunderstand their own culture, their own practices? Here's the reason why: the Cultural Revolution, which is a very important aspect of recent Chinese history. The only way of things got done through that very difficult period was based on who you knew. What eventually happened was these things became very much, what I'll call it tit-for-tat. Guanxi, in its traditional sense, is a very strong relationship base but the thing that makes Chinese Guanxi a little bit more complicated is that it does take into account certain Confucian principles. It's not just the fact that I have a relationship with you; is the relationship based on who I am in relation to who you are? Am I younger than you? Am I older than you? Am I more experienced? Am I less experienced? Do I have more money? Do I have more power? All these factors, in a very Confucian way, play into how your relationships can work harmoniously.
People who come in and simply think "Well, I scratch your back and you scratch mine," are missing some of the subtleties which really influence how the relationship works. The other thing that I want to stress is that people who believe that only Chinese or people of Asian culture understand this type of relationship are absolutely wrong. I have met many many foreigners over the years that eventually get this whole simple principle because a lot of Guanxi principles are similar to what we used to have a hundred years ago in the West: saying after you when you go through a door; don't talk back to your elders.
That's a very good point – Guanxi might be unique to China, but a similar form of Guanxi could be found in other countries in Asia, Africa or South America . . .
. . . as well as the in the West. Quite frankly, business relationships that do well have to go back to a successful relationship because no contract is ever going to really fully protect you. There has to be an element of respect and ultimately trust in anything you do. In Asian culture the trust aspect and the respect aspect is perhaps held higher than the legal aspect. After having lived here as long as I have and seeing how things work, this has a lot of merit quite frankly. Things go back to a very practical aspect–if they trust you, they can do business with you.
When you talk about building and maintaining trust I think of a lot of social activities; wining and dining, getting to know each other before actually getting down to doing business. Is that still the case in modern China?
Well let's go back to the principle of why you would wine and dine somebody or spend time with them. The whole purpose is to learn who they are. It's one of the methods of how you give trust but it's not the only method. So taking somebody out to dinner does not necessarily amount to building a relationship. You can get off a plane and not necessarily ever take somebody out, but if you treat them with the proper respect and give them the attention that they demand, you can develop a great relationship which would surpass taking somebody out to dinner fifty times but not showing them the proper gratitude and respect. Taking someone out for dinner can help but only here if you are actually trying to bring better understanding on both sides.
By now, anyone working or wanting to do business in China is familiar with the concept of saving face and giving face. What it sounds like you're saying is that it doesn't necessarily have to be more complicated than being polite and having a little common sense.
What you've outlined are some of the things that people would start to get a little nervous about and help create the air of mystery about China. Here is a simple, practical way that can help most people in the West understand these things: read the book How to Win Friends and Influence People by Dale Carnegie, written in the 1930's. Now it doesn't quite fit in with Chinese culture however, I would argue that if you follow the principles in his book, you would easily be more effective in China.
I've often heard stories of how negotiating with the Chinese can be very tough, very difficult, and sometimes, when you think the deal is done, you wind up going back to square one. What advice would you have for a Westerner who might have heard these horror stories and be very apprehensive about negotiating with his Chinese counterpart?
When you negotiate with Chinese partners, one must understand that there are different concepts and styles of negotiation. In the West they typically use a linear negotiation pattern; you line up all your issues, tackle them one by one, and when you get to the end you know you've got a deal.
In China, and it's not just in China–many other places in the world are like this they use more of a holistic style of negotiations. They believe all the parts that need to be resolved are all interlinked and it's not until you resolve all of the pieces that the deal is done. It can seem confusing and frustrating to a lot of foreigners. They might have 20 points, resolve 19 of them and because the 20th point is not resolved, all of the sudden the 1st, 7th and 13th point come into play. They don't understand why they come into play because they think they've agreed on all those issues already. Once again, it comes down to a fundamental holistic belief that different points are all interlinked. And it's not to say one is better than the other; the key to being effective when you're negotiating is to understand the style of negotiation, to adapt, and to come up with strategies to work effectively with them.
When negotiating, I suppose the spirit of compromise goes a long way in establishing trust?
The spirit of compromise comes down to the principles of trust. You might think you're giving up a lot, but if the other side doesn't believe you're giving up a lot, then the reality is that the value of what you're giving up is not being appreciated. This is why it really pays to take time to understand the other side and their needs. Be comfortable and understand their need to know you are really giving up something.
One of the typical ways in which the Chinese will do this is to test you. That's why I say you can't really go in saying "I'm giving you as much as I can," because they'll say "We'll take that but we want more." What you need to do is to push back and say there's no way to give more. Then they may actually think they found your limits. What happened in the 80's, for example, is that so many foreign companies anxious to get their foot in the door accepted bad deals and what that said to the local Chinese is "I can push these people as far as I want."
I always tell people that when they're negotiating in China, always be prepared to walk away. However, when you walk away, never close the door. You can never be sure that somebody might not come back through that door. That's why sometimes it's worthwhile to use an intermediary when you're in the negotiation process because it's the intermediary that allows the Chinese side to save face and walk back in the door and resume negotiations.
If I'm a Canadian manager and I'm supervising local staff, what do I need to be mindful of from an intercultural perspective? I'm thinking of management styles, hierarchy, feedback and so on.
Obviously that's the million dollar question and that would be hard to summarize in this particular setting because to be an effective manager in a Chinese context, there are cultural things that you would certainly need to be aware of, such as the need to give face, the need to be less direct and to really try to be open-minded. I always go back to one of my favourite teachers, Stephen Covey, who wrote the book The 7 Habits of Highly Effective People. Step number five is Seek First to Understand, Then to be Understood. That is a very simple principle that we can all learn by and which would today be very, very effective in China. If you really take the time to understand how the local people think, what their needs are, and how they like to present themselves, you will be a far more effective manager. I've observed hundreds of very successful people from all over the world and that is a common trait they all share.