Stanley Chao, managing director at All In Consult, contributed this article to BusinessNewsDaily's Expert Voices: Op-Ed & Insights.
The conventional wisdom that only large corporations can do business in China is a thing of the past. Small and midsize businesses today enjoy the same opportunities in China once granted only to large, multinational conglomerates. Below are some main points to remember when doing business with the Chinese.
Don't be fooled by all the hocus-pocus that consultants or books about China teach foreigners about doing business in China. It's just a bunch of gimmicks to make money or make foreigners think China is vastly different from the West. Indeed, China is different. It has its small quirks and variations. But in the end, you need to apply the same basic business principles to China that make you successful in your home country.
Foreigners tend to use Western standards — education, family background and financial status — to judge whether a Chinese counterpart is trustworthy and a viable potential partner. Making an accurate judgment is virtually impossible given the vast cultural and language rifts between Chinese and Westerners. Trusting your Chinese business partners can lead to disastrous results. The Chinese, especially those of the Mao Generation, will eat you alive.
The translator is the most important person on your China business trip. A bad translator will ruin any trip. Never hire translators from a Chinese newspaper's classified advertisements or use your Chinese counterpart's English-speaking employees. An excellent translator will have these characteristics:
- Lived and worked in China
- Astute knowledge of your business
- Some working experience in basic business functions (accounting, marketing, operations, etc.)
- The ability to direct a meeting toward your goals
- A keen sense of the macro issues and topics you want to accomplish
- A knack for reading between the lines
China's legal system has made vast improvements over the past 20 years. Unfortunately, the laws are still vague, continually changing and difficult to enforce. China still has a generation or two to go to before they will be able to catch up to the West. The Chinese view contracts as a goodwill gesture or a showing of cooperation, not as a firm commitment. They have no qualms about changing terms at a later date. You must seek other means of protection.
Even though Chinese contracts are far from foolproof, you still need to have something in writing. When creating a basic Chinese contract, follow this general advice:
- Use both English and Chinese languages.
- Include an arbitration clause so if a suit is filed you don't have to go through the Chinese court system.
- Keep the contract period short, preferably less than 12 months.
- Highlight the main issues — price, product specifications, sales quotas and schedules — in a summary page.
The Chinese will haggle everything to death. It's part of their culture. When your Chinese counterparts are haggling, it's a good sign. It shows you are close to a deal. It's a bad sign when they are quiet and unresponsive. This indicates that terms are too far apart. Chinese businesspeople will try to push difficult issues to the end of the negotiation process. Rather, bring them to the forefront and get the hard stuff resolved first.
The views expressed are those of the author and do not necessarily reflect the views of the publisher.