DOs and DON'Ts of doing business in China
Global sourcing deals can be lost by the simplest of mistakes. Don't let it happen to you!
By David Hannon with additional reporting by Emma Cohen -- Purchasing, 5/18/2006 2:00:00 AM
Successfully negotiating new supply markets is the top priority for many procurement organizations today. Some of the most promising supply deals have been crushed by the simplest faux pas or inadvertent offense. With that in mind, Purchasing recently polled a group of procurement professionals about the dos and don'ts of doing business in China.
"Don't be in a rush" was one of the major themes that came out of the survey. Procurement professionals in a variety of industries and locations said doing business in China happens at a much slower pace than it does back home.
"Make your first trip or first several trips to China with no intention of buying or negotiating anything," recommends one buyer responding to Purchasing's survey. "Wait until you better understand the business climate. Do not rush into a deal."
Communication issues are the highest hurdles for buyers looking to work with suppliers in China. Certainly, language is an issue when a U.S.-based company is doing business in China. According to Purchasing's survey, very few buyers (less than 2%) polled going to China consider themselves fluent in the language before going there. Most said they knew a few expressions in Mandarin or Cantonese and about one in five hired a translator for their first trip. But even hiring a translator can impact your deals.
"When hiring a translator, be sure they have experience in negotiating and/or doing business in China," says an international trade consultant responding to the survey. "Just because they speak the language doesn't mean they can do business and translate industry-specific terms correctly."
Another buyer responding to the survey says, "I'd recommend making arrangements to hire a graduate student from a Chinese university that speaks clear English as your translator—engineering students and MBAs are best. The student will be cheaper, more reliable than translators provided by suppliers and the student will benefit by learning from you, the foreigner."
Several survey respondents said they bring a Chinese co-worker with them on trips, even if that co-worker is not in procurement. Gus Herrera, purchasing manager at KRh Thermal Systems in Irvine, Calif., says: "Our senior mechanical engineer is Chinese and he accompanies us on all trips to China. He's there for both translation services as well as quality audits."
But communication is about more than language. According to the U.S. Commerce Department's website, www.Buyusa.gov, "Traditionally, conversations in China, even business conversations, start out with innocuous topics, to set a mood of friendliness. Eventually, the small talk might become quite direct, which is not meant to be offensive. It is quite common on short acquaintance to be asked about personal matters, including questions about your family status."
Yes means....
One of the biggest points that came out of the Purchasing survey is that when dealing with Chinese companies, "yes" does not always mean "yes." Buyers and supply chain professionals doing business in China warn that Chinese companies and suppliers may act in meetings as if they understand and agree with what is being discussed, but in truth they may not, which can create major potholes down the road. Nodding of the head does not, in fact, indicate that they can provide the products or services you're asking about—only that they are listening and following you.
"Culturally, Chinese companies and workers do not like to say no," says a buyer at U.S.-based manufacturer. And another says, "We spent months trying to get out of a supplier what we thought they agreed to in a meeting."
The solution, say most experienced buyers in China, is to get as much in writing as possible and structure meetings so there is a short review or "quiz" at the end of the meeting to confirm everything. Buyers should have some questions in mind to help determine if the supplier has, in fact, understood everything and has a firm grasp of what is needed and when.
For example, questions should not be phrased as, "Can you do this for us?" But a more effective question would be: "How will you do this for us and when will it be done?"
"Be precise and never leave anything open for interpretation because it will come back to haunt you," says one survey respondent. Several others suggested more face-to-face communication and "relationship-building" discussions are required to create partnerships in China than is typically the case in the U.S.
Know the org chart
Chinese companies are extremely hierarchical—knowing the seniority/rank of all of the players in every meeting will help buyers interpret the responses received. In meetings, all Chinese staffers typically defer to the highest manager in the room, so knowing who that is can help to understand the progression of the discussion. 
"It can be very difficult to know immediately who the real decision maker is at a Chinese company," says one experienced global sourcing manager. "You have to build relationships and work to understand the dynamics of interactions in order to understand the hierarchy."
Survey respondents also said maintaining a single point of contact at a Chinese supplier is nearly impossible because of the heavy emphasis on team tactics. Chinese companies rely much more on lateral movement of employees than U.S. firms do.
Meetings with Chinese companies tend to be very formal from conversation to customs to clothing. Buyers in the survey also point out that Chinese suppliers do not respond well to aggressive negotiation tactics like shouting, threats or ultimatums.
One global supply chain manager responding to Purchasing's survey points out: "Chinese culture takes after-work socializing very seriously, so don't turn down dinner invitations or drinks." But several others warned of eating and/or drinking too much of the wrong food, as early morning meetings can be easily sidetracked "by not knowing what is being ingested the night before" as one buyer puts it.
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Legal Tips:
Source: U.S. Commercial Service division of the Commerce Department. http://www.buyusa.gov/china/en/doingbizinchina.html |
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Tips on business etiquette in China: Personal relationships (“guanxi” in Chinese) in business are critical. “Guanxi” is deeply rooted in Chinese culture and is basically "a tool to get business" and "a way of getting things done." It often takes months, perhaps even a year or more, to establish “guanxi”. Meeting people: Upon the initial greeting of meeting someone for the first time, short handshakes are usual on first meeting followed by the Chinese greeting of "ni hao?” which translates to “How are you?" Rather than try to remember the full, two-or-three syllable Chinese name, listen for the first one (the family name). Meals: At a formal meal or banquet, you will be expected to at least sample every dish. You are not obliged to eat all of the meal given. However, if you finish a dish, chances are you will be given a refill. At meals and receptions, the host will give a toast. Often a choice of drinks, both alcoholic and non-alcoholic, will be offered. Beware the Chinese toast "gan bei", which, roughly, means "bottoms up", especially if you are drinking "mao tais" (a traditional Chinese drink). Tipping is officially forbidden, and most hotels and restaurants impose a service charge in lieu of tips. However, the practice of tipping (in private) has become more widespread in recent years because of the influx of Westerners. Source: U.S. Commercial Service http://www.buyusa.gov/china/en/visitorsguide.html The politest way out is to say "sui yi," which, roughly, means "cheers, but I will only drink a little." Be prepared to offer a toast to your host. And remember, the soup comes last in a traditional Chinese meal. |
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Social tips to establishing contact with business professionals in China:
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Payments:
Source: U.S. Commercial Service division of the Commerce Department. http://www.buyusa.gov/china/en/doingbizinchina.html |
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Visas: View guidance provided by the Chinese government here on its visa application process . |
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Language tips: On January 1, 1979, the Chinese Government officially adopted the pinyin system for spelling Chinese names and places in Roman letters. A system of Romanization invented by the Chinese, pinyin has long been widely used in China on street and commercial signs as well as in elementary Chinese textbooks as an aid in learning Chinese characters. Variations of pinyin are also used as the written forms of several minority languages. Pinyin has now replaced other conventional spellings in China’s English-language publications. The U.S. Government has also adopted the pinyin system for all names and places in China. For example, the capital of China is now spelled "Beijing " rather than "Peking." In the pinyin system, letters are pronounced much as they would be in American English with the following exceptions. For a more detailed explanation of the language, visit this site: http://www.buyusa.gov/china/en/visitorsguide.html In Chinese culture, the question “Have you eaten?” or “Where have you been?” is the equivalent to “How are you?” in North America; it's just a superficial inquiry that does not require a literal-minded, detailed answer. Make an effort to learn and use at least a few words in Chinese; your initiative will be noticed and appreciated. Make sure you know the meaning and appropriate occasions for what you say. |
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Statistics: The U.S. Commerce Department provides a trade statistics database that may be searched by industry sector or country of destination. The China State Statistical Bureau is the authoritative source of trade statistics collected by the Chinese Government. Go to the Chinese language website . Source: http://www.export.gov/china/exporting_to_china/faq.asp#bsp) |
Negotiating tips:
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Gift giving tips:
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Other articles on doing business in China:
OEMs leverage supplier fairs in China
Making China your second home market
Getting U.S.-China Business RightGetting Started in China: How U.S. Manufacturers Can Assess the Chinese MarketDon't Be Intimidated By ChinaYuan Hits Highest Level in 10 Years
China's Currency Issues Continue
Partnering seen as key to any China operations launch
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