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China is
booming! That’s the story you seem to see everywhere you
look. Indeed, this year, China has emerged as the world’s
second largest economy with an average annual economic
growth of 10% over the past 30 years. Seeing numbers like
these can make foreign companies salivate at the chance to
tap into China’s growing market. However, Chinese business
culture is unlike it is anywhere else in the world and to
thrive in this market, foreign companies need to have an
understanding of the major practical challenges they will
have to face if they want to succeed here.
With over a decade of assisting foreign companies,
especially small and medium size enterprises (SMEs), market
and sell their products, technologies, and services in
China, US-Pacific Rim International, Inc. (USPRI) has come
to understand what the major problems are for these kinds of
companies when operating or growing their businesses here.
Below we offer what we consider the five biggest practical
challenges for foreign SMEs in this market and how to
address them.
1) Red Tape
In China, many administrative and bureaucratic tasks that
have been simplified in the West can still be quite
time-consuming. Everything from opening a bank account, to
registering your company, to gaining product approval, can
drag on for months. The lack of a strong rule of law and an
inconsistent application of regulations means that such
processes are not always designed for your company’s
convenience.
In addition, many procedures that would be handled
electronically in the West require reams of paperwork which
need to be filled in and stamped by hand. The time required
to complete these efforts can be unexpectedly lengthy. We
know of many foreign companies that hire 1-2 full-time
staffers in China, hoping they will lead their marketing and
sales efforts, only to find that their employees spend more
than half of their time completing administrative tasks.
To be successful in China, your company will also need a
full-time administrative team in place which can handle all
of your company’s paperwork in China. This support will free
up time for your sales staff to focus exclusively on
promoting your company’s products, without having to spend
time getting approvals from offices all over town.
2) Communications
Cultural misunderstandings arising from miscommunication are
one of the biggest challenges which foreign companies face
in China. Although there are an increasing number of Chinese
people highly proficient in English, it is uncommon to find
someone who understands the subtleties of the language and
possesses a strong enough understanding of both Chinese and
western culture to navigate delicate business negotiations.
USPRI has witnessed numerous instances where heads of
foreign companies make a trip to China, have several
productive meetings, and return home with strong business
prospects. While communication between the foreign and
Chinese companies goes smoothly at first, things start to
break down as business issues get more complex and the
Chinese side has difficulty explaining to the foreign
company business practices that are unique to China in a way
that is understandable to a western audience.
What started as a promising prospect for both sides often
breaks down due to misunderstandings. To avoid such
problems, it is important to have an international team in
place which can bridge Chinese and western cultural
differences.
3) Human Resources
Year in and year out, western companies in China rate human
resources as among the biggest challenges of doing business
here. While western employees tend to delegate
responsibility and have flexible lines of authority, Chinese
workers are accustomed to a more hierarchical structure in
which each person has a clearly defined role. Such
differences can often lead to tensions between western
managers who are used to employees who take their own
initiative, and Chinese staff who have been trained from a
young age to always follow instructions from the top.
It will be important for your company to have a clear set of
procedures regarding incentives for outstanding work and
punitive measures for substandard performance. In addition,
regardless of the size of the company, you should divide
employees into small teams which each have a clear leader
who oversees the group and reports directly to his or her
superior. To best motivate your Chinese employees, it will
be necessary to closely monitor their work while also
encouraging them to be creative and take risks.
4) Business Culture
You’re not in Kansas anymore. To succeed in China, your
company must realize that it cannot take the same business
model, which may have served you well in your own country,
and simply apply it to the Chinese market. You will need to
be flexible and adjust to a country that practices business
according to “Chinese characteristics” deeply related to is
traditions. Due to these differences, many business
practices in China do not always conform to commonly
accepted international standards.
Without a presence and close supervision in China, it will
be difficult for your company to ensure its best interests
are being advanced by its agents and employees. To adjust to
these cultural differences, it is important to be humble and
to learn from the new culture you are dealing with so you
can have the cultural sophistication to grasp the
complexities of this market.
5) Relationships (Guanxi)
One Chinese word you will hear constantly while doing
business in China is guanxi. Translated into English, the
word means, roughly, relationship. The importance of
building strong relationships in business is not a novel
concept for western businesses. However, in China, guanxi
plays a far more important role than it does in the West.
While in the other parts of the world, you may be able
broker a deal just through formal business meetings; in
China it is necessary to spend time getting to know your
Chinese counterparts outside the boardroom during tea
sessions and dinner banquets.
In order to develop such relationships, it is important to
have the patience to build them. Due to the necessary time
commitment, deals may take three to five times longer to
complete in China than they do in the West. For your company
to succeed in China it is important to spend time
cultivating relationships with counterpart businesses,
government agencies, and trade organizations.
Anthony Goh is president and Matthew Sullivan serves as the
firm’s director of business development and communications
of US-Pacific Rim International, Inc.
"This article was originally published in
Business Insider"
www.us-pacific-rim.net
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