Engaging with China – Do we understand business

As many will agree, China’s rise over the last three decades has provided enormous opportunities for the global economy.  Today’s China is not only a “world factory”, but also a huge consumer market, which no one should take lightly.  Needless to say, as a small-scaled and trade-dependent economy, New Zealand has a high stake in its business relations with China.  In fact, New Zealand has much to be proud of in its economic integration with China, and the government has repeatedly reminded us that we were the first developed country in the world to sign a free trade agreement (FTA) with the Chinese.  That was over five years ago!

China has now become our largest overseas market and largest source of imports; the two-way merchandise trade has grown over fifty per cent following the New Zealand-China FTA.  To most New Zealand businesses, the real question is neither “Is China really important?” nor “Shall we engage with China?”  Indeed, we now ask more about “how”.  So how do we succeed, or sustain our success, in China?  There is certainly no simple answer.  But insights have been accumulatively yielded through both research and practice, which shall be useful to help our businesses to engage with China.

As we often observe, one of the most common pitfalls in our business engagement with China is to apply a linear and results-oriented thinking while neglecting the importance of having a personal business relationship in the first place.  Too often, our businesses assume that it is a business-to-business approach, completely on the firm level.  We have been used to the three-trip pattern for doing business with overseas customers.  On the first trip, we introduce ourselves and give a presentation; then follow up and negotiate the deal on a second trip; and on the third trip the deal is concluded and both parties celebrate the success.  Isn’t it easy and straight forward?  It seems to have worked well with our business partners in the “traditional” markets, such as the UK and Australia.

In reality, however, it is not rare that New Zealand businesses suspect their Chinese partners’ way of doing business.  At times, we hear about our business managers receiving great hospitality from their Chinese partners, which made their trip to China a “grand tour”, with intensive sightseeing, sumptuous dinners in luxuriously decorated restaurants, and receipt of exquisite presents.  These realities do not seem to have a focus on the business per se, considerably differing from the linear approach that we have been used to, which confuses many of us, especially those who first engage with China – are the Chinese serious about business?

In most cases, they are!  But obviously, they have a different approach to business.  In the West – including New Zealand, a relatively sound and sophisticated legal system, which is typically contract-based, allows business deals to happen without the need to seek personal connections or relationships.  Business is typically approached on the firm level, within a contractual framework, and relationships are gradually shaped as the business deal proceeds.  In contrast, the consideration of human relationships is so engrained in Chinese culture that it has become a key component of business practices in China.  Historically, both Confucian and Taoist teachings have emphasised the high-contextual humanness and human relationships – for more than two thousand years!  The impact of such strong belief has been evident in the role of human relationships in the Chinese way of doing business.  One example would be the notion of “mianzi”, literally “face”, which refers to the recognition by others of an individual’s social standing and position.  It is vital when doing business in China that both parties’ mianzi is consistently maintained and constantly acknowledged.  Therefore, a good mutual relationship is usually expected in China prior to a profitable business transaction, which is perfectly inferred in the Chinese maxim: “xian zuo pengyou, hou zuo shengyi (friends must be made before the deal).”

In China, it is commonly believed that the relationship lasts longer than the business itself.  Thus, it is far more important to build a good long-term relationship than negotiating for immediate benefits.  And the Chinese would appreciate if their business partners share their belief in such relationships.

As a matter of fact, we have observed that in most cases New Zealand businesses respond with genuine offers to host the prospective China customers in New Zealand   Given their belief in the benefit of having a mutual relationship before business deals, the Chinese are just as interested to understand the New Zealand part of the business relationship as we are to understand theirs.  We have found that these offers are often accepted and can progress the relationship in a meaningful way.  Often, even if the business deal eventually does not happen, the Chinese would still emphasise that “shengyi bu cheng renyi zai (friendship lasts in spite of the business)”, expecting the relationship to remain and follow on.

Research has established that the Chinese approach to business frequently involves processes of creating, strengthening, and capitalising business relationships for both current and future benefits.  This should contribute to explaining why our time spent on sightseeing, dining, and networking with the Chinese, especially at initial stages of our engagement, is actually worthwhile.  It is through these personal interactions that our Chinese partners increase their goodwill trust in us, which in turn facilitates, to some extent, the subsequent business processes.  It is not to say that we must do it, but we believe it helps improve our business engagement with China, if we depart from the linear thinking and approach both business and personal relationships.

Henry Shi (The University of Auckland Business School)
Arran Boote (William Buck)