Talk to any business person who has done business with China and one word is certain to crop up and divide opinion every time ‘guanxi’. We don’t have a direct translation in English but in its broadest context it means ‘developing personal connections’. The power of guanxi is underestimated by so many businesses I speak with. In the UK we are lucky; we have a solid legal structure and business conventions that near enough everyone sticks to. This means we can parachute into a meeting, flick over our business card and start talking numbers. In China it is not so easy. Business is built around personal relationship. People would rather trade with their friends because they know what to expect. They are cautious about making business deals with new comers because the conventions we are privileged to enjoy in the UK, that of the hand shake and signing of deals, doesn’t carry much weight. In China, the best business is done between friends.

To read the full article by Paragon Law MD, Thalej Vasishta, please click here

With the overriding focus on the eurozone, some positive news from China had less impact than might normally have been expected. Data showed that the country experienced its biggest fall in inflation since early 2009. This looked enough to allow authorities to ease both monetary and fiscal policy – a good move for encouraging growth, which currently stands at 9.1%. So, with China doing well in relative terms to the eurozone, where is the aid that was suggested some weeks ago? According to independent sources in the Chinese government, it is tied up in a political deadlock after Europe spurned all of Beijing’s demands. According to the sources, Beijing wanted either more influence in the International Monetary Fund, market economy status in the World Trade Organisation, or the lifting of a European arms embargo. With this political impasse, a circa $100 billon cash injection for the eurozone looks unlikely. Of course, China will have to weigh up the fact that without a stable eurozone it may lose its biggest trading partner.

 

St James’ Place

Thalej Vasishta, Managing Director of the Paragon Group has launched Paragon Law and assisted other businesses with market entry into China, provides 5 quick tips on dealing with Chinese counterparts;

 

1. Cultivate “guan xi”.
To make things happen in China, you have to know people. “Knowing” is what the Chinese mean by “guan xi” or “connections.” When you cultivate “guan xi” with Chinese people, they will often do anything to please you including important introductions to people they know. However, if you start trying to do business before people get to know you and feel comfortable with you, it is unlikely you will be successful. 

 

2. Make friends first, do business later.
The Chinese enjoy small talk and pleasantries. The importance of hosting and budgeting for dinners and lunches where a relationship can be developed should not be underestimated. They want to learn more about you and start to build a long term relationship before conducting business. This is why it takes longer to get things done there. Therefore, initial meetings rarely produce direct results. 

 

3. Introduce your team to the Chinese personally.
The Chinese people are conditioned by centuries of history to obey their political leaders the way they obey their parents. If you’re the only person who travels to China but you need your wider team to help out with operations, introduce them formally to your Chinese contact, especially in person. It is this that forms the basis of trust. 

 

4. “Yes” does not literally mean affirmative.
Chinese people have a habit of saying “yes” to show that they’re paying attention or that they’re following what you say. In this context, the word “yes” doesn’t mean that they agree with what you say or with your terms. 

 

5. Recruit a good interpreter
Decision makers will tend to be of the older generation and rarely speak English. It is key for any meeting you use an interpreter who is both good and you feel comfortable with. Therefore spend time selecting and getting to know an interpreter.

 

It’s obvious the top entrepreneurs and investors understand that India and China are the future of our global economy. Do you?

One of India’s wealthiest business leaders, Anil Ambani, invests $325 million in Steven Spielberg’s movie studio DreamWorks – something unimaginable just five years ago. In turn, Warren Buffett invests $230 million for a 10% stake in Chinese electric car manufacturer BYD, the same investor who shunned technology investments earlier this decade. It’s obvious the top entrepreneurs and investors understand that India and China are the future of our global economy. Do you?
With over 1 billion people moving into the middle class, effectively increasing the global market for products and services by 50% over the next decade, can your firm afford to ignore the single largest market opportunity in the history of business? It’s time you consider “going east” as part of your 2011 strategic plan. And it’s as critical for small to mid-size firms to make the move as it is for top investors and large corporations.

MADE IT IN CHINA
Two entrepreneurs helping others make the leap are Graham Jeal and Simon Cann, authors of a new book series entitled Made It In…. Graham, a British-born entrepreneur who has been building companies in China since 2001, is the former president of the Entrepreneurs’ Organization (EO) chapter in China. Cann, a prolifi c writer, has been a management consultant to companies spanning the music, entertainment, and broadcast industries.
I met Graham and Simon on my last trip to China and was impressed by their enthusiasm and initiative to encourage others to leave the comfort zone of their own markets and venture out into some of the leading business hotspots around the globe.
In their first book, Made It In China, they feature specifi c lessons learned from nine entrepreneurs including Graham, who have built manufacturing plants, launched internet businesses, started hotels and restaurants, and created large sales organizations within China. One of the entrepreneurs was even the first foreign participant on China’s equivalent of “The Apprentice.” In all cases, these entrepreneurs left their home countries and built businesses in a culture different from the own – and their stories are both inspirational and instructive.

In all cases, these entrepreneurs left their home countries and built businesses in a culture different from the own – and their stories are both inspirational and instructive.

Other countries in the series include Vietnam, Russia, and Kazakhstan with more in the works. I encourage you to go to their website www.MadeItIn.com to learn more.

COMING WITH QUALITY
Another must read book for growth firms wanting to dominate their industry is Hermann Simon’s Hidden Champions of the 21st Century. I was speaking with Hermann Simon upon his recent return from China. He brought news that Chinese firms are focused on building competing quality products that will challenge even Germany’s lead in many export areas – and that they are building factories in Germany and the U.S. and other parts of the world. They want to get “in our backyards” before we get in theirs! And with over $2 trillion in surplus cash vs. a projected U.S. 2011 $14 trillion deficit, they have the financial muscle to do it.
No longer will the “Made in China” label mean low cost or low quality. Their entrepreneurs are hungry to learn from the best and bring their business models, products, and services to other countries.
India is aiming for the same upgrade to their brand. Seen primarily as a cheap supplier of back office functions, they are building global brands and bringing their products, like the $2500 Nano car, to the developed world. And with one of the youngest populations in the world, India is well poised to incubate entrepreneurs that will be hungry to get into other markets. Again, it will be crucial for established businesses to plan their India strategy for next year and beyond.

WHOLLY OWNED SUBSIDIARIES
Hermann Simon notes, based on his research of the world’s top mid-market companies, that they almost always set-up wholly owned subsidiaries vs. licensing or joint venture relationships. It’s been critical for these fi rms to control their brands and have their own people “on the ground” in other countries. And they tended to expand into one or two diff erent countries each year, with many now having operations in over 50 countries.

When these “hidden champions” are asked which countries they’re focused on for the next decade, it is India and China.

When these “hidden champions” are asked which countries they’re focused on for the next decade, it is India and China. And while it might be too late for manufacturers outside these countries to make inroads as quickly, the customer service models and cultures of the west will not be easy to imitate by the eastern entrepreneurs. This is the distinct advantage, plus a long history of good management practices, that entrepreneurs in the west have as they pursue these eastern markets.

Read the two books mentioned above and make 2011 the year you focus on the east.

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