By George Brown and David Hartman
In 1975, Paul Simon released a song titled “50 Ways to Leave Your Lover,” which, despite the promise of the title, offered only five such possibilities within the lyrics. We consider this to be a solid example of literary license (rather than outright deception) and will therefore follow his practice and offer five suggestions for succeeding in China.
Enjoy the Pack, Jack.
Unlike the one-to-one business transactions common in Western markets, those in China often deal with a pack of organizations, including national and regional government agencies. As a result, we’ve seen business decisions influenced by the potential impact on local employment or some other metric important to the mayor or other government officials. Universities, design institutes and trade associations also are participants, and their roles differ markedly from those of their Western counterparts. For example, the China Valve Industry Association investigates valve companies, participates in the technical verification of foreign valves and helps project investors choose valves.
A client working in the commercial vehicles market recalls a meeting to negotiate a partnership with a Chinese firm where the prospective partner brought along executives from a Chinese company that was similar to the U.S. firm. Instead of saying, “No way,” the U.S. firm recognized that different rules applied. It is began to rethink its business model to include the Chinese firm in the relationship.
Be prepared for not only numbers, but also surprises when you negotiate business transactions in China. Be creative in crafting a solution that creates a win for your organization and other players.
You Are the Man, Stan.
Personal business relationships count for more in China than in most other markets. One experienced executive responsible for his company strategic accounts described his message to his team as follows:
You are our company point person with your assigned accounts, but it about the company, not about you….You can think of yourself as the conductor of the orchestra, but always remember that it the orchestra that makes the music.
Our research into strategic relationships, described in our 2006 book, “Best-in-Class Behaviors in Business-to-Business Relationships,” clearly shows implementation and innovation are the foundations for long-term success. It takes companywide efforts to sustain higher-level relationships for long-term success.
An executive described how his company hit a “speed bump” in Chicago when it replaced an expatriot who had been working with two strategic accounts with a highly ranked professional. He explained:
One of the major customers said they were insulted that we would make such a change, particularly without consulting them in advance. It was clear that they believed that they had a say, a major say, in our personnel decisions. The second customer wasn t as explicit, but we saw that their orders started to decline and learned that they were now splitting orders between our firm and one of our competitors. This was clearly fallout from the personnel actions we had taken.
The personal element in business relationships cannot be underestimated in China. Selecting individuals and managing change requires a new level of skill.
Learn to Deploy, Roy.
Firms must improve their processes to move at “China speed” or face a serious competitive disadvantage. Consider China amazing pace of economic development. The country economy has grown at a double-digit pace for 20 years, with the country income about eight times higher now than it was two decades ago. Hundreds of millions of consumers have had the opportunity to buy cell phones, DVD players, color televisions, cars and condominiums for the first time. The number of passenger vehicles in China climbed to more than 60 million in 2010 from about 4 million in 2000.
While about 10 percent of China population had an income of more than $10,000 in 2000, 60 percent have incomes exceeding that level today. Firms that aren t able to quickly meet growing demand from a more prosperous consumer base will fall by the wayside.
Speed is important in China because markets are fluid with tastes shifting quickly. New entrants to each income strata create new markets with no prior purchase patterns. New technologies or fashions can experience overnight sales gains, and new entrants from China or abroad can quickly gain market share with the right product and sales campaign.
China ability to swarm a task with skilled labor has shortened research and development processes. Many Chinese firms continue to bring products to market with minimal testing, knowing they have sufficient service labor to address issues as they arise.
As an executive from a major automotive parts supplier reported, China moves so fast that it required a totally new set of internal management systems. Our reporting relationships had to be streamlined.” The supplier’s chief executive recognized the difference first hand when he visited an original equipment manufacturer in China and learned he would need to deliver samples in one-fourth of the time the company was used to. “In short, the market is simply too volatile and competitive for the type of planning, both by OEMs and suppliers, that we are accustomed to, the executive said.
When preparing for success in China, rethink processes and systems to speed up and be competitive in this market.
Stay on the Bus, Gus.
Stability is a key success factor in China, where contracts are not reliably enforceable, so interests are protected through strong relationships. Rules often aren’t put in writing and are frequently unpredictable in application, so a strong relationship extends to officials as well as to customers. If a firm changes its players, the odds are good that the Chinese will think that contracts and rules are open to change as well.
Distributors of commercial and industrial large equipment report that relationships are the most important factor in doing business in China, often accounting for 80 percent of the bidding process.
The City is Key, Lee.
China’s diverse marketplace is reminiscent of the European market of several decades ago. The eastern part of China, including Beijing/Tianjin, the Shanghai area, and Guangdong Providence, is the most developed region with the highest incomes and the greatest concentration of global firms in operation. Incomes and the business mix vary widely across the rest of China with rapid changes taking place due to government incentives and a western migration spurred by increasing costs in the coastal regions.
It’s important to focus on the unique characteristics of China’s regional markets. As one executive related, his construction products firm had won significant work in Beijing leading up to the Olympics but was surprised when it tried to expand to other cities. Its technology wasn’t accepted in the first new market it approached, likely because it was considered a threat to existing businesses. In addition, the government was the customer and the standards were lower than those in Beijing, with price being the more important factor.
Widespread differences in rules, competitors and customers exist across China cities and regions. To avoid disappointment, companies should plan for a reasonable start-up period during which they can develop relationships and learn the customs.
In sum, China markets offer some of the best opportunities for growth in the world, but achieving success there remains a challenge due to the rapid pace of change. Be ready for it, and enjoy the ride.
George F. Brown Jr. is the chief executive officer and co-founder of Blue Canyon Partners Inc., a strategy consulting firm that works with leading business suppliers on growth strategy. Along with Atlee Valentine Pope, he is also the author of “CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs” published by Greenleaf Book Group Press of Austin, Texas. See www.CoDestinyBook.com for more details.
David G. Hartman is Blue Canyon Partners China Practice Director. He has previously served on the faculty of Harvard University and as executive director of the National Bureau of Economic Research. He has been an active participant in China markets for more than 20 years, speaks Mandarin, and resides in Beijing.