There are numerous ways to leverage the meteoric rise of China. The three most common ways are starting up a business in China, selling your product or service into the Chinese market or sourcing products from China and then distributing them through your channels. Regardless of the level of engagement you choose, here are eight points that you should keep in mind.
1) The Government is Everywhere
There is a widespread misconception that the government focuses only on large state-owned enterprises – known as SOEs. In reality, the government is everywhere from Alibaba down to a small business in a fourth-tier city. In September 2019, Bloomberg reported that the government of one of China's top tech hubs in Hangzhou was dispatching government officials to 100 companies to facilitate communications and expedite projects. It is important to understand the motivations of the state. Its principal priority is social stability. Economic and financial prosperity go hand in hand with social stability. The government wants to ensure that private companies like Alibaba, the beverage giant Hangzhou Wahaha and automaker Zhejiang Geely do not start cutting jobs as the Chinese economic growth starts to decline. Government officials will also be looking to check that Communist party units are working well within the companies. Strategically, the government is more interested in some sectors than others. Oil and gas, railway transport, media, healthcare and 5G technology are examples of sectors in which they have a strategic interest because they are sectors that are directly related to social stability. This level of involvement also exists in smaller urban areas. Local governments are interested in all businesses, from small to medium to large. When you enter into a business transaction with a Chinese company, you are also indirectly dealing with the local government.
2) There is a Difference between Population and Market
China has a huge population but that does not mean that it is a huge market for you. Only a small fraction of the population may be potential clients or consumers. In an extreme example, there may be no market at all for what you want to sell. Take peanut butter for example. It is the perfect vegan snack. According to data from Statista, U.S. consumption was close to $2 billion in 2019 resulting in an average per capita revenue of $6.04. Chinese consumption was $7 million or per capita revenue of $0.01 and there is no indication that this consumption is going to take off any time soon. So if you have dreams of becoming a peanut butter billionaire in China, you may need to cool your guns and recalibrate your plans.
3) Take Your Time
Adopting the Anglo Saxon approach of getting straight to the point is not going to fly in China. Doing business in China is like distilling a single malt whiskey. If you rush, you are going to bugger it up with sloppy planning and analysis. One of the single most important factors is finding the right local partner. If you are in a rush, the chances are that you will either find the wrong partner or no partner at all. It is debatable which is worse – similar to sex, what is worse? Bad sex or no sex. The Chinese are masters in patience and the long haul. This is deeply rooted in the Confucian thinking that "it does not matter how slowly you go so long as you do not stop." If your Chinese counterparts sense that you are in a rush, they will find a way to use your impatience against you and you will walk away with a worse deal or no deal.
Trust is a valuable currency in China and is the cornerstone of doing business. This is not the case in the West. You will need to build personal friendships and this takes time. There are two ways in which trust is formed. The first is trusting someone until they give you a reason not to. The second is not to trust until there is enough evidence to trust. China works on the latter basis, and hence the importance of time and patience.
Friendships in China are built in social settings where everything but business is discussed. The copious consumption of alcohol in long dinners is the modus operandi. This means that you need to work on your drinking fitness or at least master the skill of surreptitiously disposing of the alcohol in all places other than your throat. There are a few tips on the drinking side. Firstly, heavy drinking can be delegated to one of the team members. He takes one for the team and leaves the rest of the team fit to resume the negotiations the following day. Another trick is to include female delegates who are not required to imbibe the same industrial quantities as their male colleagues. Note that the drink of choice in China is Bai Jiu which also happens to be the most widely sold spirit in the world. It sold 10.8 billion liters in 2018 which is more than whiskey, vodka, gin, rum, and tequila combined. It is distilled from fermented sorghum, punches alcohol by volume between 28 and 65% and can kick you harder than a menstruating swamp mule.
4) Lack of Information
When Deng Xiaopeng opened China up for business, he made the analogy of "crossing the river by feeling the stones". You would be mistaken in thinking that the entry into China is via a wide smooth bridge. You need to feel your way because you are dealing with a country that does not play by the same rules as the West. In business, decisions need to be made without the same volume of information that is typical in the West. You need to gingerly feel every stone, assess if it is solid or not, and then step to the next. This can be disconcerting for many entrepreneurs.
In China, there is always a story behind the story. Nothing is what it appears on the surface which means you need to ask a lot of questions. You need to probe and prod until you get to the bottom of things. It is dangerous to take things at face value. Also, there may be a person behind the person with whom you are dealing. You need to find who that person is because it is the motivations of that person that is going to determine the direction and velocity of the deal. This is a cultural issue and boils down to the insider/outsider syndrome. If you are an insider you are shown certain things. If you are an outsider, you are shown another view. Even within the insider and outsider syndrome, there are levels.
5) Be a Student of History
There is great value in understanding the history of the country and the background of the company with whom you are doing business. The history of China is easy to find. It is the history of the company and the people with whom you are doing business in that company that is harder to ascertain. Einstein said that he had no special talent, he was only very curious. When it comes to China, you need to be exceptionally curious. It is not advisable to assume anything. You need to ask lots of questions. For example, find out about the history of the company with whom you are doing business. When did they start, who are the founders and the financial backers and what are their business motivations?
6) There are many Chinas
China is an exceptionally complex place with many different nuances. The business culture in Shanghai is very different from the culture in tier 2 and 3 cities like Xiamen and Huzhou. If you take someone from Beijing to help close a deal in Xiamen, do not assume that the latter is going to embrace the former as a brother and comrade because they share the same passport. The person from the tier 2 city might have an inherent dislike and distrust of people from Beijing and treat them like a foreigner, or even worse than a foreigner. You need to remember that all business in China is local. This, however, does not only apply to geography. It also applies to sectors. Business culture is not the same in all sectors. There are marked differences in sectors such as consumer, electronics, energy, and transport.
7) Flat Organizational Structures are Rare in China
Decision making is focused at the top of the organigram. You may successfully strike up a friendship with a mid to upper-level manager, but they may have minimal influence in the making of decisions. It is feasible that their job is simply to execute the orders from the top. Status is typically defined by formal position, age, and education. Also, be mindful of the fact that top managers are not typically inclined to delegate decision-making powers down to the lowly minions.
8) Ageist and Sexist
If you are young and female, you will have an exceptionally difficult time breaking into the Chinese market. China placed an important premium on older men that have displayed a solid track record in business over the years. The rabid sexism should come as no surprise. China has a history of female infanticide that goes back 2,000 years. This was deeply rooted in the patriarchal nature of Chinese culture. Parents preferred to have sons that would support them in their twilight years. It has to be said that female infanticide is extremely rare in China today, but its history points to a deeply rooted sexism that existed and prevails in China.
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