China continues to attract investment from many countries, particularly from U.K., Europe and the United States. There are compelling reasons for foreign investors, small and medium sized firms as well as global players, to enter the China market because of the huge growth potential in the world’s fastest growing major economy, and concerns over the unstable economic situation and slowdown in their own countries. Investors see opportunities across all industries with a growing middle class, rising incomes and increased consumer spending, and market transformation to a more open business environment.
China is an immense country with a land mass larger than the United States and comprising more than 22 provinces & 5 autonomous regions, and a population of over 1.3 billion. Its sheer size and geographic diversity, rapidly changing demographics, many different spoken languages and dialects and vastly differing economic conditions and the role of government pose a formidable challenge to anyone doing business in the country. Local ways of doing business conditioned by culture, customs and traditional practices of the various regions are very deep-rooted in China. China is steeped in history, culture and tradition, factors which greatly influence Chinese thinking, their way of life and of doing business.
The China market is complex as it is not a single uniform and homogenous market, but more an assemblage of individual markets shaped by demographics, socio-economic factors and local conditions. Doing business, say, in tier one cities like Beijing and Shanghai is very different from doing business in tier two or tier three cities. Such diversity requires flexibility, adaptability, and a practical approach.
The country is constantly changing, the markets are still evolving and its business environment is characterized by often unexpected and dramatic shifts. China is in the process of undergoing major economic restructuring as the new leadership has pledged to deepen reform. Doing business in China in such a complex and nuanced environment is unlike doing business anywhere else in the world, and presents unique challenges.
These are some of the challenges.
For the foreigner doing business in China, it is a tremendous advantage to know the Chinese language well enough to understand the nuances and subtleties of the language so as to avoid misunderstandings arising from communication. With proficiency in the language and a good understanding of Chinese culture he can confidently and successfully navigate the intricacies of business negotiations.
Chinese business culture is very different from that of the West. The successful business model that served the Westerner well in his own country, and his way of doing business at home may not be applicable in the Chinese market. Flexibility and adaptability are required to adjust to a business culture that is defined by “Chinese characteristics.”
The importance of building a network of strong personal relationships in business is common for all business people. However, Guanxi plays a far more prominent role in Chinese business culture than in the West. It takes time and patience to build Guanxi relationships in China, and the depth of guanxi relationships has a major influence on the success of doing business in China. To build guanxi, it requires deep understanding of the Chinese mindset, which is molded by its culture and the distinctive and complex history of Chinese civilization, and very patient nurturing. You need to invest time outside formal business meetings to get to know your Chinese contacts through lunches, dinners, outings and other forms of socialization. The cultivation of Guanxi relationships apply to people you have to deal with, whether in the industry, government departments and agencies, or trade organizations.
Bureaucracy and Red Tape
Companies, both foreign and domestic, are regularly confronted by a plethora of administrative laws and regulations when doing business in China. Until there is streamlining and simplification of these administrative and bureaucratic tasks, the procedure to obtain approval by authorities can be very time-consuming and frustrating. Moreover, the application and enforcement of regulatory provisions are uneven in different provinces, regions and cities.
East is East and West is West
Rudyard Kipling was only pointing out that differences exist between the East and West in their culture, thinking and way of life. Today when the world has become smaller and the marketplace global, these differences matter. But they can be bridged when people of one culture learn more about people of other cultures. The global village is a multicultural landscape, and to be successful doing business in a foreign country, it is necessary to know as much as possible about the country, its culture and people.
When in Rome, Do as the Romans Do
To succeed in business in China, you need to know the country and its people. You do so by learning about its history, culture, traditions, customs, language with all its subtleties and nuances, the way Chinese people think and act, their way of life and how they do business.
Alternatively, you can consult a professional who knows, who can help you navigate the complexities of doing business in China through their experience, insights and expert knowledge of the country, people and their way of doing business.
We, at A. Louie Associates Ltd, know.
We have more than 25 years’ experience of successfully serving clients doing business in this country.
We are glad to help and are at your service.