Five Principles For Doing Business In China
China Business Service
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Doing business in China means that business people will come into increasingly frequent contact with Chinese business people and officials. It’s quite essential for investors to know some principles for doing business in China.
Doing Business In China – Principle 1. Gaining Trust
Never underestimate the importance of existing connections. In the business process, you need to be dealing with a Chinese person of influence. If that person feels you are trustworthy enough, and if they can get their network of contacts to trust you, there is a chance you will succeed. Asians want to do business with people they trust. But there is no real trust unless a person is in their circle. At first, they don’t know if you will be a good partner. Show respect by keeping some distance. Focus on building the relationship before talking business. Do not go for big profit on your first contract.
A common safeguard against opportunism is to build relationships of trust with persons who matter for your business. Unlike in the West, the creation of personal friendship is a prerequisite of doing business. Building friendship takes time, which is another reason to avoid rushing into things.
Doing Business In China – Principle 2. Value Chinese Business Culture
It’s also important for business people to value Chinese business culture while doing business in China. When doing business in China, the ability to navigate cross-cultural issues is just as important as the goods and services you bring to the marketplace.
China is a world away from America or Europe, and more than a world away when it comes to doing business there. In America, contracts, deals and other arrangements are fairly transparent between businesses working together. However, it’s not the same situation in China.
There are a lot to know if you decide to do business in China. And make sure you know how to fully value Chinese business culture.
Doing Business In China – Principle 3. Take Your Time
Many companies want to get on the ground quickly. In one case, the CEO told his head of strategy to get China operations going within six months. Time pressure of this sort can create problems later on. It tends to result in sloppy planning and analysis. It shifts the attention from finding the right partner to finding any partner, regardless of partner fit. Moreover, it weakens your hand in negotiations. Your Chinese counterpart will know how to use your time constraints against you, and you will walk away with a worse deal.
Doing Business In China – Principle 4. Be Conscious of the Large Picture
Most of the growth in China since 1978 has come from private small and medium-sized enterprises. Today, they make up about 65 percent of Chinese GDP. Moving forward, policy-makers are keen for China to produce its own large multi-national enterprises, and government is re-asserting its role as the key orchestrator of these initiatives. A group of about 100 state-owned enterprises – those under the tutelage of the State-owned Assets Supervision and Administration Commission – is being groomed toward that end. Government ownership – or at least partial control – and support also appear in many of the new industries being put together under apparently local and private initiative.
You should know whether any of these targeted firms are active in your industry. If so, fierce competitive battles seem likely for the future, and easy access to state money for these firms means the playing field will not be level. Government may be on your side as long as your technology is needed. Keep this in mind when selecting a partner for cooperation or considering market entry.
Doing Business In China – Principle 5. Recognize the Importance of Chinese Government
Conventional wisdom holds that China’s governmental structure is highly centralized, with all key decisions made in Beijing. In reality, Beijing directs little of what happens throughout the country, especially in far-flung regions. To be sure, if Beijing truly wants something to happen, it will. At the same time, Beijing recognizes that decentralization of power plays an important role in taking economic reforms forward. By running things in a slightly different way, the thousands of localities throughout China constitute a large population of local experiments collecting information about what works. From these experiments, the central government can select suitable future policies.
Expect conditions to vary by location. In addition, to the extent you need to negotiate with government, it is also crucial to involve the local government.
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