Modern Day Marco Polos Accessing China
As developing economies throughout the world are feeling the pinch from Argentina’s default on its debt, China continues to grow. China’s industrial production grew by 12.8 percent in the 12 months to July. Five years ago, the country withstood the Asian currency crisis that battered the so-called Tiger economies of South East Asia. In fact, many credit China’s ability to defend its currency for stopping the contagion and facilitating the country’s acceptance into the World Trade Organization.
China has surpassed Canada as the world’s seventh largest economy. How much longer before we’ll be talking about a G9?
As a place to do business, China has clearly arrived. Yet for companies new to the market, it is important to realize that China still lacks the transparency that we are accustomed to in the West and there are significant peculiarities that define its business culture. And there is no more formidable aspect of Chinese business culture than “Guan xi.”
Guan xi, meaning “personal relationship,” is the foundation of all business dealings with Chinese partners. You must earn the trust and respect of your potential business partner. If the relationship is there, business will follow. As a result, there is usually no substitute for meeting face-to-face, especially over formal lunch or dinner functions. Nurturing Guan xi is particularly important with well-established businesses and state-run enterprises. Interestingly though, the younger class of entrepreneurs is showing signs of being more flexible and initial formalities are sometimes bypassed in the interest of getting right to business.
Compared to business experiences you may have had in other countries, having a proper appreciation of Guan xi means that you should be prepared to invest more time and effort in the exploratory stage of any new Chinese business venture. Spend the time to identify and get to know the right partner. Visit the country several times before confirming business relationship. Invite your partners to visit you in North America. Even if they don’t accept, it’s the formality of the invitation that counts.
Depending on the scale of your potential business it’s also important to nurture Guan xi with government officials. This may not be obvious to North American business people, but government connections can be an invaluable help in sourcing and finding opportunities. Chinese bureaucracy is well structured to welcome Western business, as central, provincial and major municipal governments have foreign affairs departments dedicated to international trade. The China Council for the Promotion of International Trade (CCPIT) is a good starting point.
Our company’s relationships with various government officials have grown over the years to the point where we now organize annual trade missions to China. Smaller in scale than government-led missions, we typically bring about 20 North American businesses to several major Chinese commercial centers, and with the assistance of local economic development agencies, set up highly targeted initial meetings with potential business partners.
| Chinese bureaucracy is well structured to welcome Western business, as central, provincial and major municipal governments have foreign affairs departments dedicated to international trade. | ||
The experience of many mission participants attests to the importance of Guan xi and of another key piece of advice: keep an open mind and be prepared to respond to some opportunities, even if they sound unconventional. SR Instruments of Tonawanda, NY joined the 2000 mission in the hopes of opening a new market for their various lines of precision medical and navigational scales. In the end, this goal didn’t materialize, but the trip was very fruitful nonetheless. Within three months, SR had established co-production relationship with a vendor in Beijing and today has additional arrangements with facilities in Shanghai and Wuxi, researching, developing and manufacturing components for new products.
SR’s success in sourcing boils down to the company’s receptiveness to new ideas and its understanding of the role of Guan xi. During the Beijing leg of the trade mission, SR’s marketing manager, Teresa Eyring, was introduced to a high-level official in Beijing’s Economic Development bureaucracy and maintained regular contact with him upon her return home. When the gentleman decided to retire, SR retained him in the capacity of business advisor to communicate with the company’s Beijing manufacturer and explore opportunities with potential new partners.
Having eyes and ears like this in China is extremely beneficial for liaison and problem solving. Ms. Eyring still travels to China about twice a year to nurture relationships, but her business advisor facilitates the daily legwork. Communication of quality and service expectations is the key, as Chinese partners tend to be very conscientious when these are understood.
When evaluating potential partners, many of the same criteria that guide business decisions in North America apply. Capabilities, staffing, expertise, resources and company culture are important considerations when determining whether there is an ideal fit between organizations. Site visits can be of great value in scoping out potential business partners, and if this isn’t feasible, having local advisors conduct the investigative work makes definite sense.
China is not without its economic challenges. Inefficiency in remaining state-owned enterprises, particularly the banking sector, rural unemployment and an increasing government debtload are serious issues facing Chinese leadership. But I firmly believe that the early mover will be in the best position as the market grows and matures. The basic rules of relationships and patience are simple, but first you must be committed to the effort and be open to new opportunities that arise.
Mike Scott is President and C.E.O. of PBB Global Logistics, a provider of integrated supply chain solutions. He will be leading PBB’s third trade mission to China in November 2002.