Winning in China requires time, commitment, and knowledge. Conducting business as usual is not how to accomplish objectives. Authors Alan Refkin and Scott D. Cray enjoy success conducting business in China because they know that the rules there

Doing the China Tango

How to Dance Around Common Pitfalls in Chinese Business RelationshipsBy Alan Refkin Scott Cray

iUniverse, Inc.

Copyright © 2012 Alan Refkin and Scott Cray
All right reserved.
ISBN: 978-1-4759-1679-9

Contents

Preface......................................................................................xiAcknowledgments..............................................................................xvIntroduction.................................................................................xviiChapter 1. Why Relationships Count...........................................................1Chapter 2. Golf, Outings, and Gifts..........................................................11Chapter 3. The Importance of Face and Guanxi.................................................20Chapter 4. The Shark-Infested Waters of Chinese Business.....................................25Chapter 5. Navigating the Manufacturing Minefield............................................36Chapter 6. Understanding the Mysterious Chinese CEO..........................................46Chapter 7. The CFO Is the Glue Within the Company............................................57Chapter 8. Why Is a Chinese Board of Directors So Powerless?.................................63Chapter 9. The Odd Couple: US and Chinese Business Partners..................................73Chapter 10. Due Diligence: Look Before You Leap..............................................85Chapter 11. The Chinese Business Plan: A Twilight Zone.......................................100Chapter 12. Corporate Transparency: Behind the Silk Screen...................................106Chapter 13. Shadow Banking...................................................................113Chapter 14. The Government Calls the Shots...................................................122Chapter 15. What Makes Chinese Contracts Different?..........................................136Chapter 16. Putting It Together and Conducting Business in China.............................143Appendix A: Blogger's E-Mail Regarding Due Diligence Report and Response.....................151Appendix B: A Typical Chinese Business Plan..................................................155Appendix C: A Typical US Business Plan for a Chinese Company.................................161Appendix D: The Ceremonial Contract..........................................................169Endnotes.....................................................................................173Bibliography.................................................................................183

Chapter One

Why Relationships Count

In one form or another, we've been working with Chinese companies since 2003. During that time, we've received more than our fair share of scars, shark attacks, and attempted assassinations (figuratively speaking, of course) from Chinese companies. As we attempted to ascertain the reasons for our near demise, we understood that we had entered the shark-infested waters of Chinese business with a steak attached to our waists. We didn't understand Chinese companies, their culture, their "actual" tax structure, their government relationships, or any of the myriad of social-business complexities that make China the unique business environment it is. Therefore, in most cases, the outcome of our business venture was predetermined before we even entered the water. We were doomed before we got started.

Gradually, though, we learned from our failures. We took the time to better understand Chinese culture, and our efforts soon began to pay lucrative dividends in the form of new business ventures with Chinese companies. The most important thing, we realized, was that being successful in China means being successful at establishing both a business and a personal relationship with your Chinese counterpart and others involved in your business transaction.

First and foremost, the Chinese want a business relationship with you. And they only have one reason to form this business relationship: to make money. If it's going to make them money, they're all for it. But speed dating doesn't work with a Chinese company. If you think you're going to walk in and give the chief executive officer a presentation and then push a contract in front of him for immediate signature, it's not going to happen. Short of writing a check on the spot, which is genetically impossible for any Chinese businessperson to turn down, the Chinese want a relationship. And, moreover, so should you.

Probably the most common reason why deals unravel in China is the lack of a personal relationship with the Chinese CEO. And by relationship, we don't mean the occasional phone call or periodic visit to the company. We mean having frequent interaction with the CEO to the point of where he feels that he has both a personal and a business relationship with you and your company. He isn't going to differentiate between the two. To the Chinese, you and the company are one, and when he's doing business with the company, he's doing business with you.

In the United States, as in many other countries, there's a separation between personal and business. We often feel that, upon leaving the office, we're on personal time. That's not to say that we don't take phone calls at home or may on occasion work from home. But in our minds, when we cross the portal of the front door and enter our house, we've left the office. In China, they never mentally leave the office. To the people you're working with at the Chinese company, business is their life, and they live it 24/7. It's the way they've been brought up. It's the way they've been trained. It's part of their culture. When we've phoned a Chinese businessperson or government official on weekends or late at night, we've never experienced even the slightest bit of irritation on their part. They expect us to contact them at any time if we have an issue. And they'll expect the same of you.

Having a strong working and, by extension, personal relationship with a Chinese businessperson is difficult. It will require effort on your part because, outwardly, he'll give an appearance of friendship and closeness, but that's often a veneer. To establish a personal and business relationship will take both time and understanding.

A Difference in Cultures

In explaining why it's so difficult to establish both a personal and business relationship, you have to first be aware of the cultural differences between Chinese and Americans. The Chinese are a collectivist, rather than an individualist, society. Relationships, harmony, and consensus are extremely important to the Chinese businessperson.

In contrast, Americans are more transactional and less relationship driven. Not that we don't have strong business relationships-we obviously do. But most of our business relationships aren't what the Chinese would consider relationships. They would consider many of our business relationships as affiliations or associations, believing that the only thing that matters to us is the individualistic attainment of success. This is what your counterpart believes when he's sitting across the negotiating table from you.

He also believes that you're under constant pressure to be individually successful or else you'll be replaced by someone equally as driven toward individual achievement. Overcoming this impression of an American businessperson is necessary if you're going to form a lasting business relationship with the Chinese. Your counterpart is looking for a relationship from you that will combine both the...