Let me introduce you to a potential new partner. How would you like to do business with someone who will steal your intellectual property, undermine you by booting key employees out of the country, and adjust their business to suit political agendas?
That’s pretty much the way business is done in China, a land of opportunity in this, the Year of the Horse. Only a lot of the time, even the savviest operators wind up being the horse’s ass — in a country where outsmarting the other side is a way of life.
That’s part of the reason why multinational companies like Home Depot, Best Buy, Walmart, Revlon, and Actavis have decided to leave China, in part or in whole. They’ve discovered it’s a whole different ballgame over there. The government makes life difficult, and market access for certain sectors — including banking and brokerages, not to mention Internet giants like Facebook and Twitter — faces high barriers or is completely blocked.
Not to mention that “the market” is highly fragmented, and not at all unified in tastes. Remember, there are 400 million Chinese who do not speak Mandarin.
A new consumer protection law coming on-line in March promises to create additional problems for foreign firms doing business in China. That and other hurdles are why The Economist’s most recent cover headline blared, “China Loses Its Allure.”
Despite increasing frustration, the siren call of servicing the world’s most populous market, with 1.5 billion people, will always be a lure to businesses. But doing business there is a riddle wrapped in an enigma for many companies, who fail to understand the nuances that govern the market.
Here are five things you need to know about doing business in China:
- Face is everything — The ultimate concept of Chinese culture is face. You help your Chinese associates gain face by showing attention to hierarchy, using designations, attending their meetings and events, giving gifts, and respecting the culture. You lose it by insulting someone publicly, losing your temper or not accepting an invitation. Lose face and you will lose their respect, and ultimately any chance of doing business.
- Things take time — The bureaucracy can slow down to the point where you think the deal is dead. But the Chinese operate on a different timeline, and appreciate when you show a long-term approach in your dealings.
- They think differently — In China, it’s all about the art of the subtle negotiation. If you offer them a deal, you have to leave room in your first proposal so that they can negotiate the terms down. That’s the only way they will believe they aren’t getting screwed. It’s an elaborate dance.
- The government only puts up with so much — If you question or report on government activities without official approval, expect problems. Such media outlets as the New York Times, Washington Post, Bloomberg, Al Jazeera, and Reuters have all been barred from China in the past. A CNN correspondent was assaulted by Chinese security while covering the trial of an activist.
- Your intellectual property isn’t particularly safe — Expect that your patents and trademarks are going to be duplicated. Having your product made in the country will help recoup some of the lost revenue from knock-offs. If you leave molds or other outlines in the country, you’ll never see them again. Again, remember Rule #3. It’s better to create a licensing deal that’s higher than you expect, then dial it down.