Andrew publishes several websites and weblogs concerned with international management and cross-cultural negotiation involving China:
- ChinaSolved.com addresses management issues for international managers already engaged in running a China-based operation.
- ChineseNegotiation.com focuses on China-US negotiating issues.
He has also published articles in business journals such as Shanghai Business Review and the China Economic Review.  He has recently published his first book – Guanxi for the Busy American.

China 101: Chinese Negotiation. 10 Top Tips for Chinese Negotiation.

Negotiating in China isn’t a special niche for an elite group of international lawyers and diplomats any more.  China is the second largest economy in the world and is becoming a vital counterparty for many individuals and businesses that have never done cross-border deals before. If you haven’t done business with a counterparty from China yet, then it is probably only a matter of time before you or someone in your organization does.  Plenty of Westerners have had great success in China, but it requires preparation and a little research.

Chinese negotiators have an undeserved reputation for being difficult, enigmatic, and unpredictable.  They simplyhave their own approach to business.  Since the global financial crisis of 2008, however, Chinese dealmakers are more confident and secure in their own methods.  Westerners who expect Chinese negotiators to accommodate American or European notions of best practices are setting themselves up for failure.  Chinese negotiators aren’t about to abandon traditional methods like relationship-building and guanxi that have been successful for them, especially since Western standard operating procedure has been looking so shaky over the last few years.  When you negotiate in China, you are in their house – and if you don’t understand the local rules then it is your problem, not theirs.

Here are ten tips that will help Western negotiators be more successful in China.

1.  Don’t disregard guanxi.
Chinese negotiators don’t have to like you, but they have to feel that they know you and understand how you’ll behave as a partner.  In the West, successful transactions lead to relationships – in China, successful relationships lead to transactions.  You have to understand the difference.  Relationship-building rituals like banquets and boardroom meetings where you are introduced to the entire management hierarchy aren’t a prelude to serious negotiating — they are the negotiation.

2.  Guanxi and relationship-building are the traditional Chinese version of due diligence.
They care more about the kind of person you are than the assets your company controls.  Show them who you are if you want to move forward.  While it’s true that Chinese negotiators don’t like to settle details right away, they are still “on the job” during the social meetings and banquets.  To the Chinese side, understanding your character, business philosophy, risk tolerance, and commitment to China determines what kind of partner you are going to be.  If you are evasive, uncomfortable, or withholding during the initial meetings, they may consider you to be dishonest or untrustworthy.

3.  Chinese negotiations don’t end.
The Chinese side feels that they aren’t supposed to.   Westerners believe that a signed contract regulates the partnership, but Chinese feel that an understanding between honest people is the only true constant in an otherwise unpredictable business world. Traditional Chinese negotiators don’t draw a sharp distinction between relationship and negotiation, so as long as the relationship is intact then deal terms are in play.   They feel that environmental shifts and changes in relative circumstances are valid reasons for renegotiation.Plan for the post-contract negotiation in advance, because it is most certainly going to occur.

4.  They will make a play for your IP. 
Technology, processes, and know-how are considered private property in the West, but many Chinese still consider them to be intangibles that are up for grabs.  Saying they can’t have something only makes it more desirable.  Don’t expect to collect rent on last-year’s innovations.  Chinese only pay for technology once (if at all).  The best way to handle software and technology sales is to start planning significant upgrades early.  Apple keeps partners honest and stays profitable in China by perpetually selling the next version.

5.  The same people who can open doors can shut them and lock you out.
Don’t assume that you will be running the show.  If your strategy involves relying on local partners, key staff, or powerful connections to keep your business going, you are in a precarious position.  Successful negotiators are constantly building up their network and adding new connections.  Negotiating strength is a function of the size of your contact list.

Coming soon. China 101: Chinese Negotiation (part II)

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Next week, I start a series of posts themed “China 101″. The articles
in this series will cover a wide range of topics relevant to foreign
businesses in China: what you should consider when deciding on your
legal entity, tax issues, quality control, negotiation – just to
mention a few.

In order to bring these articles to you I have contacted a number of
experts in different fields, and they have crafted their articles
trying to sum up all the basic information they feel you should know
about their areas of expertise.

If you are not already a subscriber, do not forget to sign up for the
regular updates on this blog

If you have a view, or some lessons learned, from your own “China 101″
days, do share it by commenting on the series.  And if you believe you
could contribute with your own article, just drop me a line.Have a nice weekend.

 A China Joint Venture Success Story (Part II)- The Lessons I Have Learnt

Over the past 12 years of dealing with the Chinese,  I have learned three lessons which have been very useful to me.

 1. “When in China, do as the Chinese do”
The first is the BIG cross cultural issue of “when in China, do as the Chinese do”….even though it is inefficient, ineffective and sometimes humiliating for the person performing the task. It took a good 5 years for me to accept that I must only look at the result and not how it was arrived at, of any request I make; as trying to prescribe a given method invariably ended in failure and frustration for both parties.  The Chinese are particularly inclined to follow the known path and have learned, after millennia of having their heads cut off for straying from it, that it is the safe route.  This is particularly true in a JV where you really have little power to influence the day to day unless you have tremendous resources and patience to expend in imposing “your way”. We were lucky that we had been preceded (as customers) by large Japanese companies who had set up the control systems  and thoroughly trained the production  and quality staff in the making of their transformers.The  manufacturing methods therefore were already excellent when we arrived on the scene. But heaven forbid we try and change any of these methods!! So as long as the end product is good, you don’t need to know how they made it. But then lesson 2 applies.

2. Chinese culture is about form over function
The second lesson was to realize that the Chinese culture is about form over function. Probably the best example of this trait is the tradition of gift giving. If you are a frequent visitor to China you invariably end up with a trunk full of trinkets. You would expect this to stop or at least to receive different gifts when you visit the same company many times. But no, you will continue to receive the same framed Beijing Opera masks or tea sets you got last year and the year before that. No one asks you what you would like or find useful. Gift giving is a form that must be fulfilled whether the recipient likes the gift or not.   This principle of form over function applies everywhere so you must be very specific as to the end result you want or you will get what I call “ token outcomes” that meet the request but not the spirit of what you are looking for. This is particularly important to be aware of in quality control where a product can pass all the functional electrical tests you specify but no one on the line will fail the product for an obvious mechanical fault that was not on the list.  This is how Mattel gets lead in the paint used on its toys and melamine ends up in milk powder. You must make your functional expectations abundantly clear in a detailed fashion or you will get very creative surprises from people with generally the best intentions.

3. Some people will stay in the organization forever no matter how incompetent they are
You must accept that the people that are part of the organization when you start your relationship will probably be there forever no matter how incompetent they might be. Because of the Chinese habit of job changing (mainly in the younger generation), in the psyche of Chinese management, anyone who comes to work every day is worth keeping. The other reason, of course, is that many employees have some sort of political or economic connection with the company which makes them unmoveable. Their uncle may be the local tax collector or a sister is the secretary to the Chairman of the company.  My experience is coloured by that fact that our partner is an SOE and I understand that this phenomenon is particularly bad in this type of organization, but I have also seen it in private companies too. So if your engineering manager is a moron and your partner accepts that as fact, you cannot automatically expect him/her to be replaced. If you are lucky he may get a very competent assistant.

4. Listen to the ”view from the other side”
A final thought is that our Head Engineer, in our home country headquarter, played a very large role in making this relationship work as he truly had a foot in each culture and understood the assumptions and frustrations each side brought to the table.  He was always able to offer me the “view from the other side”to  consider  before making up my own mind. This was invaluable as it  gave me perspective to work things out in an acceptable manner to both sides. A diplomat in your organization is a good investment when going to China.

What is your experience?

Coming soon: “A Joint Venture Success Story (Part III)- Where To Go Now?

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 A CHINA JOINT VENTURE SUCCESS STORY

We are a custom electronic transformer manufacturer with 26 years in the business and 32 employees in our home country,  of which 18 are involved in manufacturing our low volume and highly specialized products in house (while our JV in China produces the higher volume product).  China represents 20% of our turnover and we supply to contract manufacturers.

We currently have a joint venture with a medium sized SOE where we own 35% of the shares in the company and hold one seat on the Board of three people. The joint venture company has 250 full time staff plus another 150 contract workers. Our partner is an SOE Group of 20  companies all in the electronics sector. The Group has been in the business for over 50 years and our specific company within it started making transformers and inductors for Japanese companies back in the early 1980’s.  Basically we bought into a going concern, not a start up.

Why Did Our China Experience Start?

Custom transformer manufacturing is a labour intensive process and for that reason we decided to go to China in 1999 to find a manufacturing company we could work with. Our Head Engineer was Chinese and had seen the need,  well before Management woke up to the fact,  that we were losing the competitive fight in our home market to international distributors who were already sourcing out of Asia. 

How Did We Choose Our Supplier?

At that stage we tried to draw up a list of characteristics a Chinese company would have to have in order to be able to work with us but  in the end we settled on only one:
they would have to be truthful at all times.

We then did the usual quoting, sample orders, quality checks, etc. with five possible companies and we stuck with the one which did what it said it would do, our current JV partner.

From Supplier to Joint Venture Partner

We traded for over  18 months and this gave us both  the opportunity to get to know each other as individuals and as organizations. The trust that quickly developed between our operations can be credited to my opposite number who is one of the most forthright persons I know. He had started on the production floor and risen through the ranks, through sheer ability, to become the GM. Even though he is 15 years my junior, we  developed a very close personal bond, also shared by our Head Engineer,  which permeated the whole commercial relationship. We were very lucky!

In 2000 the GM came to us with the proposal of our buying into his company to form a joint venture (JV). It meant  good tax benefits for the operation as a whole and we understood that he was looking for the prestige within the SOE Group and the technology transfer that such an arrangement would bring. We, on the other hand, had not even contemplated a JV option, but having traded with Chinese companies for two years, we had learned that you are generally given service and pricing proportional to the amount of business you bring to the table. For us the JV presented the opportunity to sit at the table and therefore insure most of our requirements were met regardless of volume while we built the business up. The due diligence and subsequent value negotiations were very easy because of the tight personal and organizational relationship previously developed and by January 2001 we were partners.

Coming soon “A China Joint Venture Success Story (part II)

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21 STEPS TO FOLLOW WHEN SOURCING FROM CHINA (PART II)
by Barbara Cisneros

Once the production has started:

13. Do Quality Control, often.
Check several times. Go to the factory, even plan some “surprise” visits, so you can confirm that things are running properly, mainly in terms of quality and delivery times.

14. Do not relax – even with established suppliers.
Check every production run. Although you may have produced the same product several times, KEEP A CLOSE EYE on every single production run. DO NOT RELAX.

15. Make sure to inspect the product in the factory once production is completed.
I always inspected the product once the order was completed. Sometimes I would inspect myself at the factory, and other times, when in doubt, I would send random samples to our headquarters lab. Only if results were satisfactory, would I give the green light.

16. Do your quality control assessment again when the goods arrive at your home premises.

On Logistics:

17. Work with a reliable company.

18. Closely monitor the shipment / logistic process.
Be on top of the shipment, if you want to avoid unwanted delays and unexpected destination charges. If you do not have an export license, my advice is to use FOB conditions.

On relationship building:

19.Trust and relationship building is important for both sides.
Of course China works somehow different, but when doing long term business mutual trust and confidence will be important for both parties.

In our case, after one year of working together, we reached payment agreements with some suppliers that did not involve advance payments. Obviously, it gives you peace of mind in that fact that your payments will be done after the goods arrive at your premises.

20. Press them, but fulfil your own commitments.
It’s very important to build also a more “personal” relationship, but if they see you do not reach the committed volumes or payment terms they will back off.

A final observation, which should probably be the first one

21.Make sure it makes sense to source from China
The way things have developed lately, make sure the prices you find in China will fulfil your expectations. For some type of products, especially those that must be made according to more strict technical specifications, it may not be in your  interests any more. Take into account that in developed areas in China (the southeast mainly), the labour costs have increased by more than 10% on average per year in the last three years, and freight costs for 2012 are growing rapidly. It may be more in your interests to manufacture in other countries, or even in your own country (unless you are planning to enter the Chinese market).

What do you think?

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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?

21 STEPS TO FOLLOW WHEN SOURCING FROM CHINA (PART I)
by Barbara Cisneros

I’ve been working as Chief Representative in China for four year, mainly in the sourcing area. Since I was specialised in the same field and type of products, my main objective was to establish long-term suppliers in order to optimise the  cost / quality / delivery times of our products.

Some of the points that I will mention below may seem obvious, but from my own experience, and what I’ve seen others (small and medium enterprises) doing, the same mistakes are repeated over and over.

These are the tips I would give to anybody who starts sourcing from China:

Before your start sourcing

1. ALWAYS visit the factory.
Do not rely on the information on the internet. Even websites like Alibaba are not reliable enough when looking for suppliers. Sometimes a supplier is classified as a Golden Supplier for more than two years and when you visit the factory there is not much behind the online presence.
In order to find certain type of products the best way is to attend specific exhibitions.

When working on OEM projects where you want a product to be developed according to your specifications:
2. Prepare/ be ready with ALL required documents / specifications from the very beginning.

3. Check the production facilities in order to confirm that they produce what you expect.

4. Clarify and agree all technical aspects
Have a first meeting in order to make sure that you clarify and agree all the technical aspects of the product. Most of the times the standards and material specifications are different in China. Make sure you agree to use the ones that are equivalent / closest to what you need.

5. Do not assume that because they work in a specific field they are familiar with foreign specifications / nomenclature.

6. Do not expect them to be proactive.
You have to confirm that they have read and studied all your specifications. Do not expect them to act in a proactive way. Most of the time, if they have doubts they will follow their normal procedures and use the most common or cheaper materials, which may not be suitable for your product.

7. ASK and CONFIRM as many times as you think is needed.
This way you will avoid future “surprises”.

8. Be prepared to be FLEXIBLE.
For some materials/standards you may not find the exact equivalent that you need. Be prepared to be FLEXIBLE, although avoiding any degradation in quality. Discuss with them in order to reach an agreement, and provide them with different solutions. Flexibility is a must when dealing with Chinese factories.

9. Changes during the manufacturing process will lead to terrible headaches, including renegotiating prices.

10. Make sure all the PACKING information is included in the initial requirements.

11.Do no trust anybody saying “Yes, I can do it”.
When starting to produce a new product in China do not trust anyone who says “Yes, I can do it” – even if they are already your suppliers. Normally small / medium factories are specialised in one type of product / technology. For example, a factory that works with certain type of forged steel will not work with cast steel, although the products may have the same usage.

12. Consider using some suppliers as “traders”.
If you do not work with very large volumes, try to group your products with only a few suppliers. Sometimes they can work as a “trader” in some of the parts you need, getting a better offer than the one you may have obtained alone.

Coming soon “21 Steps to Follow When Sourcing from China. Part II”

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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!

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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

]]> http://www.foreignentrepreneursinchina.com/2012/04/doing-business-in-china-what-do-i-need-to-know-about-guanxi/feed/ 2 http://www.foreignentrepreneursinchina.com/2012/04/human-resources-in-china-7-tips-on-how-to-retain-your-talent-outside-first-tier-cities/ http://www.foreignentrepreneursinchina.com/2012/04/human-resources-in-china-7-tips-on-how-to-retain-your-talent-outside-first-tier-cities/#comments Tue, 17 Apr 2012 09:50:13 +0000 Clara Muriel Ruano http://www.foreignentrepreneursinchina.com/?p=186 Continue reading →]]> We have heard and read a lot about the difficulties companies face trying to retain their talent in China. Things get even worse when your business needs force you to relocate your Beijing and Shanghai managers into second and third tier cities.

I recommend a very good article at Shanghai Business Review by Katrina Hamlin. It deals with what she calls “The Migrant Manager”, talent sent from main hubs into second and third tier cities, and how this is forcing employers to refine talent management strategies. (I encourage you to read the full article- you need to be subscribed but you can also register for a free trial- and it is a really good publication)

“Many companies have become resistant to hiring their staff from tier one cities to work in their tier two and three offices preferring to try the local talent. But in some places, especially in the newest business hubs, appropriate talent may be in short supply, and there is little choice but to import talent from other areas” says Vivian Ng, managing director at Morgan McKinley.

Below, you may read some of the ideas captured in the article on how to retain talent (register for a free trial if you do not subscribe already)

1.Brand relocation as a strong career move
“The senior and junior positions tend to be filled, but only a few are available to cover mid-level positions. So, for those occupying junior-level positions (in Shanghai), a move to Chengdu may turn out to be a better option. That´s a significant push factor. It´s a step up, and they know they can return (to Shanghai)..” says Andy Bentote, North and Eastern China managing director, Michael Page International.

2.Tailor the package to suit the individual’s needs and career goals.
Pay attention to employee´s personal situation and needs. Packages should include accommodation, transport allowance, return flights, flexible approach to family visits, schooling (Emma Charnock, Hong Kong and China’s regional director of Hays).

3.Make sure they feel supported by the local office
Other intangible assistance from the local office such as helping to find a school for the children who relocated with them, could also make a difference. All these help boost their confidence to stay in the city (Emma Charnock, Hong Kong and China’s regional director of Hays).

4.Keep promises you make
“While it is important to construct a package that can motivate and attract the candidate to join, it is also necessary to keep the promises (especially on the non-financial side) if you’re going to retain the candidates who have joined.” says Mr Charnock

5.Pick the right person
How then c an a recruiter assess willingness (to go away from first tier cities)? Personal connections were identified as the most significant, decisive factor. “Where they are from, where they went to university …” according to Bentote.

6.Comunication is critical. Companies need to understand the challenges their staff are facing (Laura Shen, director, RPO and talent management, China, at Hudson).

7.Conduct follow up interviews six months after the employee has moved on.
I am not sure an employee is completely honest in a traditional exit interview… But they might be honest after that break- and if, on reflection, they wish they´d stayed with us, it gives us a chance to take them back (John Crawford, HR director at Biomet’s Asian Operations).

What is your experience? Do you think it is not possible to hire your talent locally? Have you been able to retain your top talent in second and third tier cities?

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You may read more about human resources in China here:

* 3 Trends in the Chinese Labour Market
* 5 Recruitment Tips for Entrepreneurs in China
* 7 Tips on How to Recruit Managers for SMEs in China
* HR in China: “Accept what you’ve got and model them into what you expect them to be”
* Retaining your Chinese Employee
* 6 Tips on How to Retain your Chinese Talent
* China Stories: Trustworthy Employee… Please, Don’t Go!
* Top Challenge for Foreign Companies in China: Human Resources Constraints
* HR in China: Structure your Needs and Plan your Growth
* Foreign Companies: Sexy No More
* 10 Reasons Why your Chinese Employee is Leaving You
* Why are your Chinese Employees Leaving You?

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?