Category Archives: 2 Getting Started in China

China: Is It All About Who You Know?

Last week I wrote a post recommending a book about guanxi. Everybody talks about guanxi and there is a good reason for it:

Guanxi is one of many important China business skills and concepts. Mastering guanxi does not guarantee success, but if you cannot build relationships, you will fail in China.

Excerpt from “Guanxi for the Busy American” by Andrew Hupert

 

Today I will not be sharing a “business case study” but a personal story written by a reader. Ella Reynders is Lecturer Intercultural Communication – IBC at Karel de Grote Hogeschool. I would like to thank Ella Reynders for her contribution and taking the time to write her story.

When I first  read her email I felt what she was telling me goes beyond the personal level and is a constant feature in business relationships: who you know and how you behave is crucial.  So, I thought I should share it in this blog.

This is Ms Ella Reynders personal guanxi experience and the lesson she learnt:

“In China it is more about who you know and how you behave than about what you know”

The beginning of her story: the perfect resumé.
“I graduated from the University of Ghent in the late eighties. My academic knowledge was vast. I had majored in modern and classical Chinese, had learned over 10000 characters, could easily read Buddhist texts and knew all the important facts there are about Chinese and Asian history. Feeling that I still needed to perfect the language – I could not speak it or understand anything Chinese people said – I packed my bags and went off to Taiwan.

Although I could have gotten a scholarship to continue studying in the People’s Republic, I decided Taiwan was the better option. In the PRC contact between Chinese and foreigners was ‘discouraged’ so I did not see the sense in going there.
In Taiwan I quickly got myself set up: found a job teaching English, a school to study Chinese and a nice apartment. After a year of having taught English I felt ready to enter the job market for a more serious job related to my diploma.
My boyfriend, on the other hand, had come to Taiwan without any prior knowledge of the language, did not really study a lot of Chinese and lived like a bohemian. “

Reality hits: it´s all about who you know
Although my qualifications were a lot better than his, he turned out to be the one who landed a job with a trading company. All my efforts failed. Nobody wanted me. I just continued teaching English and also did some work as a model. I felt very frustrated not being able to put my brain and knowledge to good use and kept on trying to find a job. I went to foreign companies such as Philips, several airlines, smaller businesses, etc. Nothing worked out.
They were so polite as to grant me an interview during which they told me how impressed they were with my Chinese and my diploma’s. Every time I returned home feeling that this time I would get a job. Alas they did not get back to me. I called after a few weeks but the contact person was never available. I was told they would pass him the message.
I learned the hard way.
Why did my boyfriend, the hippie, get a good job and I did not?

He had an aunt with a company there and she had many connections (guanxi) and I did not.

How can you make things worse?: Acting aggressively does not help. Not in a Chinese culture environment
Another year went by and I was still teaching English and modeling. My frustration grew and I found it very impolite they had never contacted me again. So I gathered all my numbers and started making angry phone calls telling them they should let me know why they had not gotten back to me, why some people with less qualifications got the jobs I was clearly the better choice for. I thought this would get them into gear. Little did I know this really killed all my chances. One of the many things they had never taught me at university.

The “Epiphany”: the importance of succesful intercultural communication
I started to read up on Chinese social culture and learned how people deal with and relate to each other. It was a revelation. I re-evaluated the things I had done and not done and came to the conclusion I had done everything against the Chinese etiquette and no matter how suitable I may have been for the jobs, I had behaved as a rude foreigner and therefore had lost the opportunity to get a job.
Back in Europe I started teaching Chinese and worked for several companies and universities as a cross-cultural trainer. I still do this until this day and I like it very much. I do inform people about the do’s and don’ts and have seen a lot of successes sprouting from this. It is a very rewarding job.

In China it is more about who you know, how you behave than about what you know.

Note from Foreign Entrepreneurs in China: Ella´s experience goes back to the early nineties. Things have been changing in since the mid 2000s, with better regulation and a more professional approach to business. But the truth is that, in China, who you know really matters.

What do you think?

Doing Business In China: What Do I Need To Know About Guanxi?

If you are considering doing business in China, you will surely soon hear the word guanxi (关系 ). And if you are already doing business in China, I bet you have already used this word yourself.

I´ve just read “Guanxi for the Busy American” by Andrew Hupert. Whether you are American or not, this book will provide you with all you need to know about guanxi. It is insightful and an easy read.

I especially like how he demystifies some damaging myths like:
-Guanxi is a euphemism for corruption.

-Guanxi is the only key to success in China

-If you have guanxi, you don’t have to worry about laws, regulations, bureaucrats, etc.

Enjoy the reading!

Subscribe to this blog:


 

You may also be interested in the following articles about “Doing Business in China”:

* 7 Top Tips for Entrepreneurs Starting Business in China
* The Entrepreneurs Dilemma: How Much Money do I Invest…?
* The Entrepreneurs Dilemma (II): How do I navigate through a founding shortfall in China?
* China Stories: Choosing the Wrong Company Formation Agent could Kill your Business!
* Seeing is Believing… and I mean it!
* Doing Business in China: 14 Insights Gained on the Ground

China: Foreign Women in Business

Mark Andrews, a journalist based in Shanghai, got in touch with me a couple of months back when he was researching to write a couple of articles about doing business in China. I got an email from him this week to let me know one of his articles had been published in March and a second one is scheduled for April.

The first article he wrote is entitled “Women in Business. How they´re building success” and has been published in Laowai magazine.
I read so much about obstacles and challenges we encounter when doing business in China that I thought it would be nice to highlight a few positive messages that the entrepreneur women in Mr Andrew´s article send out. And I find very inspirational reading about small businesses´ success:

Brigitte Elie of ecoBibi: “I think my business would not be where it is today if I was in any other country. China has allowed me to maximize my creativity; I can think of an idea for a new product in the morning and the prototype is done before noon!”

Heather Kaye of FINCH: “This is a very female empowered scene. You can get just about anything here so any idea you have, now is the time to put it in motion”

And a useful tip from Ms. Kaye: “You need to plan to have enough money to last two years. That’s the time it takes to establish a brand here”

Enjoy the read. Have you also made true your business dream in China?

10 Tips for Doing Business in China

Anne-Laure Monfret, author of “Saving Face in China: A First-Hand Guide For Any Traveler To China” published last month an article entitled “10 tips for doing business in China” at That´s Shanghai.
I reproduce here the ones that I´ve often heard from business people with substantial China experience:

3. Resist the temptation to jump in if your Chinese counterpart remains silent.
Silence is the true friend that never betrays.

4. Make an effort to speak a little bit of Chinese.
Learn to use and understand the basic Chinese survival vocabulary.

She also includes the following tips under “speaking a bit of Chinese”:
a) Don’t say an abrupt “no” to your Chinese staff or counterpart, but instead say “I will consider it.”

b) Usually understand “mei wenti, no problem” is “you wenti, there is a problem,” and “yes” is “yes, you are the boss,” not necessarily “yes, I agree with you.”

c) If you don’t want to say “yes” or “no,” which may cause a loss of face, simply answer “maybe.”

d) Make sure that what you say is not completely misunderstood: state, ask your listener to restate, ask information questions rather than yes-no questions, confirm, clarify, check.

e) Try to understand everything. It’s just impossible. Accept that sometimes there are things you cannot explain. Instead, just move on and keep your eye on the ball.

I would personally group them under “Effective Communication” rather than speaking Chinese, as it is all about what your Chinese contact really means and about the potential cultural inadequacy of some of our own comments/reactions.

6. Adopt a positive attitude.

7. Spend time giving face. You can be sure it will be returned one day.

9. Don’t think for a minute you can do it all by yourself.

10. Make your negative remarks and comments in private, one-to-one, discreetly, not publicly, behind the scenes, internally, away from eyes and ears, when there’s no one around… have I emphasized that enough?
This is the number one rule in China!

You may read the rest of her tips here.

Would you like to add yours?


 

The Power of Networking in China

I have started writing articles about China for Business Blogs, a New Zealand business blogging community. In my last post entitled “The Power of Networking in China” I share the stories of two real estate companies that came to China looking for investors. The results were dramatically different for each of them.

The main lesson learnt in this post: the company that leveraged its Chinese networks had an extremely successful China experience. Read how they did it here.

Would you like to share your own stories?

Doing Business in China: 14 Insights Gained on the Ground

Last week I met with Kevin Lai, Asia General Manager for Actronic Technologies (a New Zealand multinational that successfully markets electronic weighing equipment around the world). We talked at length about the insights he has gained since he arrived to China three years ago. Here is a summary of what we discussed:

1. Language Barrier: It’s not the Only One.
Lots of companies do not appreciate how different China is. They assume language is the barrier but there is a lot more to it. Culture, taste and behaviour add to the difficulty to interpret what is going on. And the value system is so completely different that at times you don’t know whether to react outraged or ignore a situation.

2. Understand Value System, Culture, Taste…It will Help You Navigate in China
This is obviously a consequence of the previous insight. You really should devote some time to gaining some insights about culture, taste or value system or you will just feel lost.

3. Plan in Advance
Often companies land here without too much preparation or without a first-hand in-market assessment. You need to understand the market (or at least try to), talk to a few potential partners and customers, assess the resources you will need and plan accordingly.

4. High Price Sensitivity…Not Always.
This market is very surprising. Sometimes money expenditure is far from rational. People earning just 3000 RMB per month will be saving in order to buy a real LV bag (not a fake like lots of foreigners here do!). So if the perceived value is high or if it satisfies a highly valued need (like status) price sensitivity is low.
Another surprising example of price not playing an important role comes from the B2B context. Sometimes your product may be cheaper and better (Western approach of value proposition) and still not be good enough.  The decision maker may continue buying from his friend, simply because he is in the circle of trust.

5. Statistics are Good but Don’t Let them Fool You.
Statistics may provide you with a good overview, but don’t forget they’re just an average and they hide a lot of information. As I explained when I talked about price sensitivity, average wage may be low, but there are lots of high ticket items that those low wages will be buying.

6. Market Research & Reports: Be Ware of Polite or Aspirational Answers
Reading market reports is good, but you need to understand what you are reading. You may be asking somebody: Would you go to New Zealand? And they will say yes, but it is more their aspiration than a reality. Same goes for polite answers. Some people would be embarrassed to say no.

7. “Do It Yourself” … Not Worthy Here (for entrepreneurs)
This is a very challenging market and the DIY approach is a bit of a waste of time and resources. You need to seek help in order to settle here so that you can focus on the core business. Helps is available for free. Just ask!  Contact your own country’s expat networks, your Government Agencies. In my case, many fellow Kiwi companies and NZTE were only too eager to help.

8. One-Man Show: It just doesn’t make sense
Lots of companies send somebody here and do not give them resources. Overheads are most of the cost of setting here, and those don’t change if you recruit some good local employees. It helps the company representatives focus on the business and relieves them from the huge burden of Chinese administrative requirements.

9. Educating your Head Office Back Home.
One of the things I underestimated is how much education you need to do back home. It is very difficult for people who have never been to China to understand what is going on here (in general and with customers). I do recommend devoting time to “educating” your head office. I’ve realized how much it helps if they come to China twice a year and see things by themselves. If you really want to market your product here you really need to understand the local people perspective and to have everybody on board.

10. Trust- not just an Empty Word. Once you Gain Trust lots of Doors Open.
The value of trust is not a China myth. Chinese people are very caring when it comes to their families, friends and network. They will ignore you if you are not in the circle, but once you make it, once you gain their trust and become part of their network they will start caring about you in a very personal way. It does not matter where you are from, they want to know how you are doing, if you have any issues… you become part of the circle.

11. Secure your first Customer.
This market is really tough, so if you are able get your first customer before you start all the set up here, things will be a lot easier.  Your first customer gives you an early win to boost confidence.  More importantly, it enables you to fine tune your market strategy, work out the logistics, and better understand the China market

12. Hire Somebody you Can Trust.
Lots of companies send people here who don’t speak the language so they’re completely relying on their Chinese employees. It’s quite common to hear stories about people hiring a local manager who initially performs really well but turns into a bad story. Power is tempting, and a lot of people can’t resist the temptation to divert money or other perks to their personal benefit because they feel nobody will find out. I mentioned already the different value system. It is just a reality.

13. Your Clients and their clients really value your expertise. They are eager to learn.
I often do sales calls with our distributor’s sales force. I play the role of the overseas expert and that really helps them in their visits.

14. Keeping your Employees… You may need to pay for it.
In general people like to work for big companies. It gives them status and security. So when you are part of a small/medium business you may need to pay above the average when you hire your local employees.

China Stories: Choosing the Wrong Company Formation Agent could Kill your Business!

Last week I had lunch with Andrea, who set up what was initially proving to be a successful business and saw it dying due to the wrong agent choice.

Andrea (and her business partner) learnt today’s tip the hard way… And she was kind enough to share it with us so that “beginner entrepreneurs” (as she describes herself at that time) don’t fall into the same trap.

Tip: Make sure you choose the right company formation agent.
- Get references that confirm their good work (or hire a reputed firm)
- Ensure they know your industry well

Story: “Go Nuts Healthy Gourmet Snack Bar” was an organic/healthy snack bar selling “Go Nuts” branded pre-packed products and in-store prepared food (sandwiches, granola/nut assortments, salads…). It was set to be quite a successful business. It quickly got a loyal clientele thanks to a unique offering and a good location (Jing An district in Shanghai).

But “Go Nuts” was also the best case study I’ve heard of how things can go absolutely wrong if you chose the wrong agent…. Not once, but TWICE!

1st Agent: It all started wrong. First agent was identified through a local expat magazine in Shanghai, City Weekend…. To cut the story short, the guy took the money and did nothing… Andrea describes him as an “impostor”.

2nd Agent: Here things went well… initially, but after 3 months operating the shop the local authorities came in for an inspection and were sorry to inform that “they needed to close the shop because the business scope did not allow them to run that type of activity”.
It turned out the business license only allowed them to sell pre-packed food & beverages. Most of their business was coming from the in-store prepared food. When they confronted their Chinese (first one was foreign) company formation agent the guy said:
“It is not my mistake, it is yours, because you chose me to do this job and I have never done food & beverage”
As you have already imagined the agent only gave them this piece of information after their shop had been closed with a 200.000 RMB fine.

As young entrepreneurs without a strong financial support their cash was gone (spent on licenses, rental, perishable food stock that went wasted, fines …). They felt there was too much uncertainty ahead (would they get the right agent, would the licenses be granted,…) and decided to close the shop.

So a few lessons learnt for the future:

1. Make sure you choose the right company formation agent.
- Get references that confirm their good work (or hire a reputed firm)
- Ensure they know your industry well

2. You MUST know what your license documents say… so be sure to have an English translation (even if you can’t use it for legal purposes). And please, get a good translation …don’t ask your neighbor or a friend to read it to you! Get the document from your agent or get a professional translator to do it.

Seeing is Believing…. And I mean it!

Let’s admit it, a lot of the China stories we hear around are actually funny … Once the entrepreneurs that have gone through them stop being mad, they make quite entertaining stories to tell over dinner. So, today I will share a “tip” and a comic story to illustrate it.

Tip of the day: If something does not sound right, it probably isn’t. So go and check it with your own eyes (or somebody’s you trust).

Story:
Story Setting: Entrepreneur’s very first shipment arrives. All excitement. Lamb racks arrive from New Zealand and will be showcased at a very high profile event… in 3 weeks time. All good, they just have to travel extra 10 km to the chef.

Conversation with the custom clearance agent:
Day 1. “Yes, they’re here. We are repacking them from 100kg packs into 10kg packs, so they’re easy to move.
Day 2. “They’re coming, they’re coming…”
….
Day 19. “They’re coming, they’re coming…”

So, entrepreneur thinks “That’s it.  I’ve had enough, surely I can go there and if I yell and scream I will be able to get my chops.” And as he is driving down in the van, he rings the warehouse company and says “I’m coming up”.
- Oh, sorry, they’re not here. They’re somewhere else.
- Where are them? ‘Cause I’m coming over.

At the second warehouse …Another surprise. No chops to be seen … in fact, freezers full of pineapple juice… and it seems they have been full of pineapple juice for months. People at this warehouse mention to him:
- Ah, no, no, this is the busiest time of the year for pineapples and the fridges are always full of pineapple juice. We could not possibly hold lamb here!!!!

So what had happened to the chops? Well, there is a happy ending because they did not disappear but:
- They had never been repacked, as this entrepreneur had been told from day 1.
- They had been sitting in a freezer in a 3rd warehouse during the whole time…
And it was only when he actually got on a van a started creating pressure that all this was discovered.

Not that unusual, is it?

Getting Hold of the Consumers in China: Education and Networking

This was meant to be a longer post titled “Starting Up a Wine Business in China” based on Ruby Red Fine Wine experience. I even wrote the draft but realized, while reading it yesterday, that the one thing that really impressed me about them was getting lost in the middle of all the information… So I’ve decided to cut it short and focus on why I decided to write about them: their absolute obsession with educating and networking with the consumer.

It works for them. 40% of their business comes from private customers. There are two reasons why this number is impressive:

1) their entire retail infrastructure is their cellar in Shanghai and their website…

2) their business is not small, as they also cover more than 40 cities around China through distributors.

So, let me quote one of the founding partners, Kylie Bisman, on the story of how they started up their adventure selling wine to the Chinese consumer:

“Before we even had a wine cellar, before we even had stock, Simon [Simon Zhou- co-founder] was running tastings. We were buying wine from other wine importers and running tastings. Simon was out every night, networking… We found a little café close to where our cellar is now, and we were running tastings out of this café… Simon was always on the phone ringing people and organizing more tastings….”

And they have kept the education & networking obsession alive:

“We’ve run thousands of tasting events since we started. Some of those run publicly and are announced in our website, but we also run a lot of corporate events for Chinese companies (banks, technology companies, companies that see wine tastings as a nice team building exercise with a fun and educational twist for their staff). Afterwards, we keep in touch with these people. We email our offers and news updates to them”

Who has a similar experience?

The Entrepreneur’s Dilemma (II) : How do I navigate through a funding shortfall in China while I increase my capital?

In my last post we discussed what I called the “Entrepreneur’s Dilemma”: determining the optimal capital for the business in China and the debt limit implications (you can read the article here).

German Torrado, from Orienta7, explained to us some of the tools he could be using to navigate through a potential funding shortfall while his company increases capital to the right level for a new business situation.

These are his suggestions (which may or may not work for you depending on your business structure and your relationship with your stakeholders):

1.- Use your SUPPLIERS as a FINANCE TOOL: negotiating with your suppliers can be a good source of extra cash flow:

  • negotiate extended payment terms
  • get credit- guarantee this credit through HK

2.- Use your CUSTOMERS as a FINANCE TOOL:

  • promote exports of some product or service; the cash will arrive to China as an income so it won’t affect your debt limit…

3.- “OPTIMIZE” Salary Structure: if your business has a big number of expat employees this may make sense…:

  • can you organize part of the payments from HK or your home country?

“These ideas may entail some adjustments and a lot of paperwork, but they may help you during a cash flow shortfall….” Mr Torrado explains

I’m sure there are lots of other ideas out there… what are your tips for entrepreneurs in this same situation?