MT In China: When in China ...

Western firms must now move deep into the country to do business. A fair grasp of local attitudes ensures mutual respect. Dan Slater talks to some wise old hands.

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Last Updated: 31 Aug 2010

With its high ceilings, tiled floors and airy spaciousness, the Hong Kong Foreign Correspondents' Club is a good place to meet Peter Batey, former private secretary to Edward Heath and founder of two successful consultancies. The Oxford-educated Batey is casually dressed in a Hong Kong rugby sevens shirt and seems to be nursing a hangover, but he's happy to talk about his 20 years' experience on the mainland over several cups of the club's excellent coffee.

In fact, Batey points out, the FCC is now little but a nostalgic relic, although with good facilities and devoted staff. Its role as a key listening post for the latest developments in China is long gone. 'Hong Kong has become much more than an entrepot for China. The city is an Asian regional headquarters.'

He is clearly right. Anyone coming to Hong Kong these days will soon notice that the number of people, even locals, speaking Mandarin or dealing directly with China, is surprisingly small. Hong Kong has prospered, but it has done so because it is now just as convenient for accessing Indonesia, Bangkok and Kuala Lumpur as it was 10 years ago for China.

The relevance for British managers with a China ticket is that they can no longer expect to thrive simply by staying put and enjoying the convenience and comforts of the former colony. Just as Batey did at the start of his career, they have to grit their teeth and make a move. But where to?

The choice is not as daunting as it might seem. China is vast, but foreign managers tend to cluster in either Shanghai or Beijing, rather than spread evenly across all 30 provinces. A small number of expats are also to be found in the pretty seaside city of Qingdao, and deep in China's interior at Chengdu.

Shanghai attracts the professional managers who have been sent out to administer specific technical tasks - engineers, technicians, financial executives, trainers and senior managers. Beijing, in contrast, draws senior but disposable staff (often warhorses on the point of retiring) who play an important role in lobbying the Chinese government. The capital also attracts seasoned diplomats, students of Chinese culture and journalists. The difference in flavour between these two great commercial cities is vast, with the Beijing expats looking down their noses at the non-Mandarin speaking philistines in Shanghai.

But Hong Kong remains a convenient stepping-stone for many Brits. David Hands was there for real-estate firm Jones Lang Lasalle (JLL) for several years before being sent to Beijing with a brief to boost the company's business on the mainland.

He says he's fortunate to have a good Chinese partner, with which JLL has set up joint ventures that enable the firm to piggyback on the licences owned by the Chinese partner. Compelling foreign firms to partner with Chinese companies by denying them a standalone licence is common practice, the main purpose being to force the transfer of capital, technology and management know-how to the Chinese partner. These arranged marriages often end unhappily, and not just because of the Chinese partner's failings. But new regulations now make it easier for foreigners to go it alone.

'There are a huge number of opportunities in China, but it's crucial to sort the wheat from the chaff, and you need to work on efficiency to do that,' says Hands. 'For example, we had problems with time management in the early stages. Imagine trying to set up a meeting where everybody is turning up at different times, and where nobody has thought to specify an agenda for the meeting. Or there will be three multi-hour meetings for a client who barely gives us any business. It was tough to make people understand the importance of breaking down costs versus benefits.'

On the plus side, Hands sees a burgeoning international consciousness in Beijing, and - slowly - clients are according a value to the advice that JLL can provide. For although the Chinese are accustomed to paying for goods, paying for services comes as a culture shock. 'You have to learn to go step by step and give a little. You can't turn up at someone's office and say: "Pay me a large amount of money in advance." And you have to really show them where you can add value to their operations. Fortunately, they are keen to learn,' he adds.

Other problems occur during negotiations, often because foreigners don't understand the hierarchy. 'You may think you are dealing with the top guy, and he's asking you for a discount. You give him one. But then you meet up with another five managers in gradually ascending order and they all ask for discounts. So beware!'

Many of the issues relating to management in China are, unsurprisingly, essentially the same as in the UK. Take the issue of prestige and authority. Every UK manager will quickly spot the rank of a colleague by symbols such as the car he drives, his clothing brands and the layout out of his office. It's slightly different in China. A senior manager, especially in the state sector, will often be dressed drably - to put it mildly. Cheap clothing is important in a culture plagued by corruption: dressing down diverts attention from any ill-gotten gains. But the head honcho still wants to assert his authority - and one way he does that is by having an entourage of flunkies. 'I learnt early on that if I didn't reciprocate by going to meetings with one or more assistants, people would just take me less seriously,' says Hands.

Another aspect of Chinese life that newly arrived Westerners find hard to handle is the astonishing lack of courtesy. And that culture extends even to the attitude towards professionals like bankers and lawyers. Says a private banker: 'They basically think they own you, in the same way that they own a car or luxury watch after they have paid for them.'

Staff need to be introduced gently to the different incentives that exist in Western firms. 'In Chinese companies, the staff relationship to the boss is more important than the staff relationship to the company,' says another manager. 'That's why you'll find staff cleaning their boss' cars on the weekend. We have to teach staff that this will not earn them promotion, however tempting it is for us (Western bosses) to exploit them in this way.'

Explains Anthony Couse, MD and head of markets at JLL's Shanghai office: 'The way to get round this problem is to have a transparent and structured grading and assessment process, so that staff can challenge a non-promotion in the event that they have annoyed a Chinese manager for personal reasons.'

Adam Williams, author of the Chinese historical novel Palace of Heavenly Pleasures as well as a chief representative of the Hong Kong trading group Jardine Matheson in Beijing, advises finding allies within the Chinese bureaucracy. 'When you're negotiating with the government, you need to find somebody who feels you can help him personally benefit from the deal. Once your interests are aligned, he can then guide you through the maze.'

Williams believes that Westerners don't understand how to maintain relationships in the East. 'It's not a matter of getting somebody's name card and going out for a drink. In China, you have to earn that person's gratitude and trust, and you do that by doing them favours. The bigger the favour, the more they will help you professionally as well as privately.'

With connections going back two generations in his family, Williams understands China in a more profound way than most. He warns that the country is not simply turning into an ersatz Western nation, despite the new roads, imposing skyscrapers and legions of junkfood shops. 'In fact, China is going backwards in many ways. As the emotional and intellectual steel straitjacket that the Communist Party imposed on China is peeled off, some strong and irrational emotions are emerging.'

He cites church-going and the growth in ancient superstitions as examples. Indeed, one of the most extraordinary aspects of China's 19th-century history is how the Chinese became more irrational and anti-scientific as they came into closer contact with the West.

Remember that footage of a young student confronting the tanks on Tiananmen Square in 1989? It's probably the most extraordinary sequence of photos to come out of a public demonstration. And it reflects the two dark passions of China: the wild, emotional side, represented by Taoism, confronting the awesome certainties of the Confucian state.

So when dealing with individual Chinese, remember that they - like you - are multi-dimensional. They often come across as buttoned-up and ritualistic, but if you scratch a bit, you could well find a sentimentalist who will be delighted to gulp down Chinese spirits with you under the blossoming plum trees of Beijing's Western Hills. And by the end of the bottle, you might you have done some good business into the bargain.

GETTING ON WELL IN CHINA

BE VIGILANT Carry out your market research and due diligence thoroughly. Skimp at the beginning and it will return to haunt you later on.

WORK HARD TO BUILD RELATIONSHIPS Make friends with your business partners and colleagues. It will pay huge dividends in the long run.

BUILD COMMON INTERESTS Invest in the long-term needs of your Chinese partners. They need to see that you share the same goals.

GO LOCAL Once you've got a Chinese location, recruit local staff and work closely with them. They are your eyes and ears in your new market.

BE PATIENT Allow lots of time for your venture to become financially successful.

Source: Ting Zhang, China Business Solutions, www.chinabusinesssolutions.com

CHINESE PUZZLE

Pros and cons of the three main routes to market

REPRESENTATIVE OFFICE
FOR
- Lower set-up cost (no capital investment required)
- Shorter set-up period (1-2 months)
- Flexibility to exit
- Full control

AGAINST
- Restricted scope of business activities (eg, no formal sales function
allowed)
- More rigid labour regulations (ie, must use government HR agents)
- Not tax-efficient

JOINT VENTURE
FOR
- Immediate access to local knowledge, government relationship and
management talents
- Able to leverage established domestic brands, marketing and
distribution channels

AGAINST
- Significant set-up costs (minimum foreign contribution US$100,000)
- Differences in management styles and company culture
- Potential conflicts of interest with the Chinese partner

WHOLLY OWNED FOREIGN ENTERPRISE
FOR
- Full control over management and operation
- More flexibility in company strategic issues
- Easier to repatriate profits
- Better protection of IPR

AGAINST
- Higher registration capital required (eg, minimum US$140,000)
- Longer time to gain access to local knowledge, contacts and market

Source: Ting Zhang, China Business Solutions www.chinabusinesssolutions.com.

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