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Overcoming Trade Difficulties In China

Monday 16 October, 2006
Australian companies have experienced mixed results dealing with China, as they come to terms with the language, cultural, business and political hurdles that exist. This article explains why, and how to improve your own chances of a successful trading relationship with this country.

China's emergence into the world's market is an extraordinary example of positive global development that Australian companies quite rightly do not want to pass up. Yet traditional trade relationship building tactics, such as visiting trade shows, is not the right way to build trust or win business in China.

One reason is that this is just not the way business is done in China.

Another is that Australian businesses usually try to portray themselves as a "rock" of stability, credibility and competence in a turbulent market.

Yet China is like a river moving very quickly to the coast and it is no use being a rock in that river, as the river will pass you by. The way you conduct business in Australia is not the way it works over there. Things are radically different and you must become a branch in the river that is China if you want to do business properly with them. Allow the river to wash over you and learn how they do things discreetly... over dinner, not across a board room table.

The need to become part of the river becomes more urgent the further upstream you venture, as the further you get into China, the starker the differences become in the business culture. You will also experience marked differences in everyday things like service, accommodation, food and the necessities of everyday life.

It can be very hurtful to your business prospects to demonstrate discomfort with this kind of issue in public, so bring what you need and smile politely. The power of a smile in China is the very best way to make friends and influence people. Just like us, the Chinese love their family, good food, a nice car and holidays. So why then focus on their differences when we share so many similarities?

You cannot place enough emphasis on the chain of trust that must be developed between foreign entrants and Chinese parties. In the Western world, this chain of trust between potential partners or suppliers is usually built through their respective Chambers of Commerce or industry association. The latter easily confirms the good reputation and standing of each company that implies a chain of trust and validation which provides each party with a level of comfort.

Building a chain of trust in China does not recognise these western conventions. Instead, other means are required to build trust.

One of these means is a formal introduction, which are very important and generally confused with one party meeting another.

A Chinese introduction is far more complex and involves a formal process of meeting the Chinese community and businesses. You will need advisors to provide advice on the place and timing of the event. Food and drink for your initial meetings should be chosen by someone who understands the protocol and importance of the introduction. All stakeholders should be invited, including your potential business partners, competitors, local government, police and military officials to show to everyone present that you have the right connections.

All of these parties will be looking to see who you have made connections with. Involving them all can get you on the fast track towards operating efficiently and profitably in China. Ignoring the protocols of, and necessity for, a proper introduction can be a setback.

Some of that protocol means you should not discuss politics or even make comparisons with Australia.

Stay relaxed, move around and smile, smile, smile! This introduction provides proof of your connections. Listen to the advice of your hosts carefully and take notes when applicable. Consider questions for some time before answering, as if it is a good question and requires careful consideration. Never answer abruptly or quickly as you maybe would here.

You should always be discreet and avoid any conversations that you would not want to disclose to the Chinese when making phone calls to the family or partners back home. The same applies in meeting rooms, hotels and business premises.

If you wish to ask questions, go for a walk with your potential partners in the many parks or busy roads. If you feel it is all too much, go to Hong Kong for a night to break the cycle. Monitor yourself and staff to stay positive, tight-lipped and keep your opinions to yourselves.

Trade shows?

It is traditional for Australian companies to make a first foray into China is by attending a Chinese trade fair. These are the equivalent of a blind date. You would need to firstly question why a Chinese company would want to be at a trade fair in the first place, as they are very expensive to participate in. One likely scenario is that the company's attendance has been requested by the Chinese Government!

Such companies are often enormous, which raises the issue of economy of scale. Many foreign companies seem elated to enter into discussions with major companies in China. But in our experience, this is not the ideal scenario.

Instead, would-be Australian exporters should try to join forces with similar sized groups in China to ensure their partners have a similar culture. This also alleviates the problem of large Chinese companies wanting to share the financial and political risks equally, which, given the scale of many Chinese corporations, is very hard for smaller organisations to match.

Experienced trade professionals offer a better way in   

Three options to an exporting strategy include the less expensive but also less rewarding option of appointing an agent or distributor.

You could also consider the possibility of setting up a branch office for those who understand the costs involved in setting up such an infrastructure in China, but the reward is in the total control of your company. This process involves going through the maze of licensing rules of China.

The third option, a joint venture, is quite common in China. It requires finding a local partner that has infrastructure and local networks already in place. In certain industry sectors, the only option is for foreign companies to operate in joint ventures with a local partner. The foreign counterpart can then concentrate on what it does best, its products or technology.

Finding a suitable match is not an easy process. 

The advantages of joint venturing include risk and investment sharing, although this also means profit sharing. A joint venture also gives you options in the future; you may want to extend your arrangement, sell your share if it does not become viable for you, or even buy the partner out.

Choose your market well

Another issue to consider in China is how to treat its markets. To understand the sheer size of a city, or even a company in China, Shanghai has some 3000 buildings exceeding twenty storeys. Melbourne has possibly 100!

Yet Shanghai provides the best entry point for corporate companies as it is the financial heart of the country. With 750,000 foreigners working and living in Shanghai, the population of 11 million has learnt the ways of the West and is insatiable for western products and services. This makes the city an excellent spot to test market Australian products.

Beijing, however, is a better base for a company with ambitions to operate across China. So, you should choose your location and partners after very careful consideration. If you are doing business in ShenZhen, the old Canton close to Hong Kong, do not expect to be welcomed in Shanghai or Beijing. Be loyal. You should not give Chinese parties a reason to mistrust your, or your staff's, actions. Remember that when you leave, your representative in China is the face of the company. They reflect on you directly and should wherever possible be local people. Employing a Shanghai manager for Beijing is definitely not recommended.

Governance and legals

China has joined the World Trade Organisation (WTO) by complying with many new international standards in law and accounting. This has produced a high level of transparency in all aspects of business dealings. China values its membership of the WTO and has placed many checks and balances now to counter fraudulent and corrupt activities.

Yet as with any international dealings, caution is advised.

Proper planning is always key to any success in trade. Do your research on the market in China, analyse your competitors and think about your logistics and sales. Obtain advice from targeted industry agencies. Be patient - a quality you will need when dealing with China.

Attend conferences and networking events and learn about the Chinese culture. And if you come across issues or have not had the right people to help you, appoint an export consultant to handle the whole process.

Author Credits

Stephen Cameron, ChinaSource Business Services. ChinaSource is an independent research-driven consultancy agency that uses specialist resources to deliver integrated business solutions to companies involved in Import and Export trade with China. In today's global economy, expanding your operations in China can help you and your company achieve strategic business objectives. ChinaSource knows the market and what it takes for your company to achieve its business goals in China. Our expert, hands-on team can assist you with product entry, including supplier and manufacturer sourcing, import and export, sales, marketing, distribution, business strategies, company formation, due diligence, establishing key executive and government relations and much more. Email: info@chinasource.com.au or visit http://www.chinasource.com.au/ This article first appeared in ‘Export Magazine' (lift out section of ‘My Business magazine')
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