China Hearsay HQ

There have probably been hundreds of books and many thousands of articles written about how to do business in China, and in particular how to deal with a Chinese manufacturer or service provider in an OEM or outsourcing situation. We can’t read everything, and God knows we wouldn’t want to.

I don’t really have any sort of “Definitive Guide to China Biz” on my bookshelf, because while some are better than others, a lot of this stuff is subjective, industry specific, and dynamic. What works for one guy/firm may not work for another.

At the same time, a lot of this material is repetitive, obvious, and not at all China specific. Most of the low-quality drek is written by consultants looking for clients, writers looking to sell books, or bloggers looking for more eyeballs. I’m in that last category of course, so you should always take what I say about business with a grain of salt. Damn it, Jim, I’m a lawyer, not a business expert!

Separating the useful from the crap takes some experience, and there’s unfortunately no quick list of “Ways to Spot a China Biz Poseur.” Well, no comprehensive list anyway.

So I generally just keep an eye out for anything that sparks a specific comment, and some of the more interesting issues can be found in articles that are otherwise, well, kind of vanilla. Case in point is a brief interview I just saw over at Gizmodo of an Australian electronics guy and his experience with Chinese factories in Guangdong. The article is the usual blend of useful suggestions, cultural stereotypes, and universal advice masquerading as China-specific insider tips. Digging into this stuff is often a useful exercise in and of itself.

I found three things of interest:

1. Adding value to a relationship

The interviewee talks about his first order being rejected because he only wanted a single shipping container of television sets, which was too small an order for the factory he wanted to work with. Then he had an idea:

So they said to me, ‘Nah, no, sorry, not interested. We work on a mass scale, we can’t make profit off of one container’. So I had to find a way to add value to them, and what I did was stayed up one night and redid all their marketing material. And when I was done I emailed it to them and told them ‘The value in dealing with me isn’t the profit you make from one container, I can add value in other areas and I really want to work with you.

“They replied nearly immediately saying thank you and accepted the order. Then about a week later they emailed me and said that because of what I helped them with, they won a massive customer in America.

Advice: blah blah think outside the box blah blah add value blah. Or something to that effect.

I’m not trying to be a jerk here, and his experience is worth noting. But let’s face it, this is not really a China biz anecdote. If you are trying to make a deal with someone and the numbers don’t add up, you either walk away or change the parameters of the discussion. In this case, the foreign dude found that he had something else of value to trade on.

Why I found this interesting: file this under the category of “relationships,” but not in the usual hyper-inflated sense of importance that many people still place on business relationships in China. What I refer to is that when you deal with a factory, or any other business partner, you are dealing with other people/firms that also have needs and goals, which may go beyond cash and profit margins. If the deal was only about finding an appropriate price and quantity, we could probably just write an app for that instead of keeping human beings in the loop.

Anytime human beings are involved, so are relationships and the possibility for creativity. Is this really “thinking outside the box” or an exercise in common sense?

2. Language vs. cultural barriers

This bit gave me not one, but two things to talk about with respect to language issues:

The number one thing you have to ensure is that you have to communicate effectively. And what that means is that we’ll sometimes have conference calls with them, but their English isn’t the greatest so we’ll always follow up in an email outlining the agreements made. You want to document everything in writing – it’s how you overcome the language barrier, because everyone can use Google translate.

Advice: communication is important. OK, chief, duly noted.

Why I find this interesting: language barriers are in some ways both more important and, at the same time, less important than that quote suggests.

First, language barriers can be huge, and while judicious use of Google Translate or similar tools can save a lot of money, you better not rely on them too much. I’ve always found that the best use of translation tools is when they are used by management, who already have bilingual staff handling day-to-day matters, as a way to keep up to date on current issues, the status of a deal, etc.

For example, you better not rely on a machine translation of a Term Sheet if you’re negotiating a deal, but if you are supervising a bilingual lead negotiator, checking out translated emails once in a while to check up on status can be helpful.

Second, the bit about having conference calls with folks whose English sucks and then following up with emails sounds dangerous. Better than no emails at all I suppose (documenting everything is undeniably one of the best things you can do), but if the foreigners have little experience in this market, then there is a good chance that the details “agreed” between the parties over email may not really represent a meeting of the minds.

Why? Because these days, language barriers are much less important than cultural ones. You can’t swing a dead cat in Beijing these days without finding someone who’s bilingual, but 90% of them have no useful bilateral business experience. The negotiating parties may end up apparently agreeing on some terms, but there might be some fundamental disagreements lurking just under the surface of the relationship that won’t come up until later, usually at an inconvenient time. Language comprehension does not automatically equate to substantive comprehension.

3. When in doubt, go for a cultural mainstay.

Here’s an example of a China biz shortcut that annoys me:

One of the things they all care about and never want to do is ‘lose face’. That makes doing business with them very easy because if you document everything and then ask ‘do we have an understanding on this?’ and then later down the track something doesn’t go as planned, you can confront them with the emails and they’re always very quick to act on it. They’re very honest and they don’t want to lose face, so they will do their absolute best to keep everyone happy and to keep the relationship up.

Advice: document everything. Again, no objections with that.

Why I find this interesting: the quote has little to do with documentation and a lot more to do with lazy cultural stereotypes.

First, one should never use “they” when talking about people in another country like this. I’m not sure why, but “they don’t want to lose face” sounds vaguely racist to me.

Second, watch the stereotypes and generalizations, even nice ones like “they’re very honest,” which is downright silly. Also, “they” might in fact not want to “keep the relationship up.” Maybe the factory, after a few years, hates your guts and wants out. These generalizations about honesty and assuming that everything is happy happy with the relationship is just asking for trouble.

Is “loss of face” still an important concept in China (and other parts of Asia)? Yes, absolutely. Savvy folks will make sure that they do not put their counterparts in a position where they may lose face by making a certain business decision. However, just as the importance of “relationships” has declined generally (as a way of doing business) as Chinese firms have gained international experience, so too is the risk that “loss of face” will sink a deal. The concept just isn’t as important as it used to be.

Third, sometimes there is no need to bring in these culturally-specific concepts, particularly when general human psychology and common sense will suffice. Take the above quote as an example. Let’s say one company documents a relationship, perhaps by holding onto an email thread. Five years later, there is a dispute, and one of the parties digs out the email and says, “See here, we discussed this and you agreed to do X.”

If the other party backs down, is it because he wishes to avoid losing face? Maybe. Another explanation is that the other party made a simple mistake, you noticed the error, and the mistake will be corrected in good faith. Still another explanation is that the other guy tried to screw you over, you caught him, and it’s easier for him to admit defeat that fight a losing battle. No mystery, no cultural stereotypes, just human beings interacting with each other.

As usual, I caution everyone to read China biz advice carefully. None of the advice brought up in that Gizmodo article is bad, and some of it might prove very useful, depending on your situation. I just have a feeling that the vast majority of readers could have come up with that stuff all by themselves, even if they’ve never been to China.