Local Governments.

One of the most fascinating aspects of China’s government structure at present is the misperception that the Chinese Central Party (CCP) controls the actions of the provinces. Not so.

The central party can insert itself into any situation whenever it deems action necessary, but for the most part local governments rule their own region. Their primarily duty to the CCP comes in the form of tax payments. This causes an interesting dilemma for Multi-Nationals (MNCs) entering the domestic market in China. How does a company smoothly transition, keep pace with its competitors and save time, money and energy in the process.

While China’s regulatory environment and business practices are internationalizing just as quickly as it rose to prominence on the global scene, getting through to local governments proves difficult on a number of levels. First, Americans regularly misperceive Chinese culture and business practices. When we travel to China to do business, we don’t plan to meet our Chinese counterpart until Monday morning at 9am, so we can talk business. Second, the Chinese misperceive American culture and business practices. If we schedule a Monday morning 9am meeting, they hope we’ll get in the Friday before so they can spend the entire weekend with us: not only to act as a tour guide, but to talk about our personal lives, our professional lives, our family history, our love or distaste for American food, Harley Davidson, Yao Ming, Kobe Bryant, and why we enjoy such a confusing game as football.

This is just one differing viewpoint an executive will experience upon exiting the airport in Chongqing. Probably there will be a private car waiting for him. Likely it will contain high-ranking people, and almost certainly they will already have an entire weekend planned out down to the minute.

When entering a foreign market like China to negotiate opening domestic operations, a lot of things need to happen for a smooth transition to occur. The most important is what will appear to the Americans to be handholding. We’ll feel like we’re walking them through every minute aspect of how we, and the rest of the western world, do business. We’ll wonder how they built a successful operation without understanding basic tenets of contract negotiations. We’ll begin to develop a suspicion of them, because we’ll mistake their silence as lack of understanding or subversive manuevers.

In reality, they will also feel like handholders. They’ll feel like they’re waiting for us to understand what they mean, they’ll be confused when we don’t react to their silence, they’ll wonder why we insist on discussing minute details on contracts when we haven’t spent any time getting to know them. In China, as in all places, first impressions are important. In China, as in all places, the desired first impression will be different.

America thrives on the image of the powerful, self-assured businessman. We tend to flaunt in a style that screams machismo: Expensive shoes, flashy tie, deliberate eye contact. We approach quickly with an outstretched hand and a smile that glows from a face that says “I’m in charge here”. We’re a culture born of independence, entreprenuership and revolution. We are focused and professional.

China thrives on a near perfect mirror image. For the most part, they don’t flaunt. although they’ll have expensive shoes and flashy ties, there will be little machismo. The hard edge doesn’t exist. They won’t be direct, deliberate or appear nearly as self-assured. They draw from a culture born of a long history of patience, humbility, and selflessness. This is not to say their culture lacks ego or ambition. The opposite is true: China is filled with ambitious, deliberate, powerful professionals who work hard to rise to the top. The difference lies in how they project themselves.

A few years back a friend of mine got married in China. He brought his parents over to meet his future in-laws. His father is a Greek immigrant restaurant owner in Minneapolis. His father in-law is a Chengdu businessman. The father in-law hosted the first dinner at a very affluent Chinese restaurant. He ordered a large amount of traditional Sichuanese cuisine.

Towards the end of the meal, my friend’s father noticed many of the plates still had some food on them. Because in Greece it’s considered insulting to the chef to leave food on the plate, he started finishing everything. What he didn’t know was that in China, eating all the food on the table implies the host did not order enough. The father in-law noticed that the food was about to run out and immediately ordered more. This happened more than once, until my friend noticed what was going on and quietly told his father to stop eating, explaining why.

Both these men were fascinated with the other’s culture and committed to forming a close relationship to please their children. Both were well-educated entreprenuers. Both almost instantly became suspicious of one another over a dinner that was intended to strengthen a bond between them.

When entering a market like Xi’An or Chongqing, the local government representatives you meet will not understand western culture as clearly as a leader in Beijing, Shanghai or Guangzhou. They will want to impress their foreign hosts and will ask a lot of questions. But they’ll do everything from the perspective of their culture, not ours. What they consider as the royal treatment might come across as the opposit to an American. Understanding Chinese culture isn’t imperative to doing business in China, but it’s a highly effective tool and makes the process smoother for both parties. If we’re going to China to negotiate, we have to learn how the process works for them and how they respond to disagreements over terms. We can’t expect them to understand our culture when we’re in their country. The disconnect is too severe. We have to connect with them on their terms. We have to be patient. We have to ask questions we might not normally ask. If we get done discussing a key aspect of our proposed business contract and they respond with silence, this might not be agreeance. It is most likely the opposite, but they won’t tell you this because they don’t place as much importance on the contract.

Local governments will act much the same. Dinners will probably be scheduled. They will be more receptive to discussing the terms of a favorable contract to set up operations in their area, and more responsive to a westerner’s requests, if someone high up in the company is willing to put in face time eating and possibly singing karaoke with them. Bribes are not requested nearly as often as they are suspected. Officials might even ask for a bribe from a westerner because they think that’s how business is done in other parts of the world. Saying no will not kill the deal. However, listening is a vital skill in having a social evening with a local government representative. The official may mention something about his son needing English tutoring or a company he’s involved with having trouble getting ahead. Offering to connect them with a tutor or proposing a course on effective western management will move the whole negotiating process much closer to a mutually beneficial completion in a timely fashion. Failing to catch these signs will do the opposite.

Basically, when entering a tier II city to negotiate preliminary plans to acquire a local manufacturing business and start up operations, it’s best to keep the profile lower key than normal. Arrive a few days or even a week early. Meet with the locals. Plan on spending a lot of time with them. Tell them you’re fascinated with their culture and want to learn more. Be very clear when discussing terms of agreements and try to find ways to help them that may ingratiate you to them. Down the road, this will help more than a firmly structure contract.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: