Ten insights into doing business in China

Ten insights into doing business in China

I recently attended a China Business Training course hosted by NZTE, with two modules focusing on China readiness and market entry. Here are 10 takeaways from the day.

Read the NZ Inc China Strategyand China’s 2011-2015 five-year plan.

Target cities. It’s common knowledge now that you don’t just talk about China as a whole market. It is made up of a number of cities all with different characteristics. Beijing is known for tradition, government, large universities and tourism, Shanghai as a modern, trendy, financial capital and Guangzhou as the main port of South China, Cantonese dominated, great food. It is likely that your competitors are already in these three cities so why not target a second tier city, for example Ningbo (lots of New Zealand interest in this city), Qingdao (has a port), Wuhan or Shenzhen? Many of them still have tens of millions of consumers. Your first entry should be a pilot in one of these smaller cities or regions.

Companies who fail in China try to cut corners, hire and overpay an unqualified local to run their China operations at arm's reach.

China ismodernising not westernising. China is not a developing economy, it is a re-emerging economy. In the 1800s China produced 25 percent of the world’s industry output. The rise of communism and wars had a detrimental effect on the economy. However, now it is re-remerging at a rapid pace and will soon overtake the US as the largest economy. While you still might consider China as being a communist nation it is more accurate to described it as ‘socialism with Chinese characteristics’.

Reported statistics about annual incomes in the Western world often don’t reflect the truth. This is typically because job classifications or titles can be quite different or the full income is not reported. GMs can earn well over $300k. In addition, annual incomes are rapidly increasing for the lower end of the spectrum. The minimum wage is rising at 15 percent per year (more than inflation and economic growth). This is driving the movement of the poor into the middle class. They save 40 percent of their disposable income.

‘It depends’ is the answer to most situations. While there are rules, it is the ‘rule of man’ that dictates whether they are implemented or not. Contracts are regarded more as guidelines rather than a legally binding document. Terms are frequently changed following signing. It is not about right or wrong, just good and bad outcomes. Relationships are the basis of business.

Buy a flash pen. Hierarchy and status are critical to relationships in China. Sometimes its not what you’re saying that is important. Your might need to change your title for China business (executive, director, vice president, global are favourably viewed. Everyone is a manager in China), upgrade your phone, buy a flash pen just for trips to China and be aware of seating (back to door = low in hierarchy).

Never cause someone tolose face. This requires a lot of self control and awareness of what you are saying. Simply asking someone "do you understand?" can have negative implications. Never put a senior person on the spot in front of their colleagues. If something is difficult in your business with your Chinese partner, something may have gone wrong with the relationship, and they will not tell you. Focus on solving the problem not asserting blame.

Negotiations and communications. Take people outside of the business and share your life to build trust. Chinese are more likely to have a more open discussion about the business details over dinner. Several meetings rather than one are favoured. Decisions are unlikely to be reached in the meeting. Bring gifts. Both companies need to win at the same time.

Packaging. Half of luxury goods are purchased as gifts. Chinese pay premiums for top in class packaging. Colours, letters, numbers, brand name are all important. Some wine actually retails for four times the normal price due to packaging.

Graeme Fielder is  business development manager at the New Zealand Institute for Plant & Food Research. This post originally appeared on his blog.