Archive for International Trade

The Power Struggle and Patriotism.

Posted in Business Culture in China, Cultural Observations., Doing Business with tags , , , , , on December 13, 2013 by Ben Brown

There is a constant theme that runs through acquisitions and joint venture projects, both successful and failed.

Mutual distrust / disrespect.

Beyond cultural differences, this can put a serious twist into your plans for a new business.

Many, many times, I’ve heard people say “We’re all interested in making a profit. Nothing else beyond that should matter. The bottom line is the bottom line. They are just as interested in making a profit as we are!”

This is all true, but it is inaccurate and too broad.

Everyone wants to make a profit, but how to go about doing that is often the challenge.

I’ve seen it over and over again with western acquisitions of Chinese companies, Chinese acquisitions of western companies, and joint venture agreements.

I don’t respect your opinion, and you don’t respect mine.

Both sides feel they know the best way of doing things, and both sides feel the other side is throwing a wrench directly into their plans. Both sides feel the other side doesn’t understand “how things are done here / in the world / at my company / in our corporate culture.

The biggest challenge, I think, right from the beginning of any merger, cooperative agreement, acquisition or even manufacturing contract, is to sort this out as clearly as possible. It is of utmost importance to get communication lines as open and blunt as humanly possible so that all parties can be clear on where they stand. In international environments, buy-in becomes even more important. Finding ways to develop mutual respect, an understanding of all the complexities the other side sees that you don’t, and a level of trust in your counterpart that they have something to contribute to this whole plan is vital, and regularly ignored.

Before you enter China, or go into a manufacturing agreement, or get in any other way involved in global business, do yourself a favor and learn as much as you can about that country’s business culture. Talk to not just me, but to a few people. Talk to anyone who is willing to give you their opinions. And like medical advice, get two opinions. At least. I’ve had people tell me it is impossible to open a business in China without bribing, gifts, and hazy books. I’ve had people tell me they’ve done just fine here cleanly. And I’ve heard every story in between.

But before you even get that far, make sure you can get your partner to agree with you, respect you, and trust you. And while you’re doing it, take a little time to realize you need to do the exact same thing. A perfect example would be this:

As Americans, most of us are very opinionated about the subject of politics. We are also very passionate about our country and the freedoms it affords us. We love the USA. Sometimes our version of love is constant, scathing criticism, but it is still a form of love. Possibly the deepest form of love.

We come to a country like China, with a completely different political alignment, and many of us naturally assume the businessmen and women we’re here to work with are oppressed and suffering under the thumb of their overbearing government, OR that they’re a part of that government and just looking for another handout.

In 99% of all cases, this is not true. This is a stereotype created in part by the news (liberal and conservative alike). It’s not a conspiracy. It’s just that news reports in the US will focus on what we as Americans consider valuable.

China’s value systems are different from our own. Every time somebody goes nuts in the US and guns down people, I hear about it from confused but patriotic taxi drivers. It took me a number of years (and international incidents between our two countries) before it finally dawned on me that most of the Chinese people I deal with on a daily basis love their government. Look where their grandparents were 4 decades ago. Now look where this country is now. Complaining about the social construct and government structure in China to someone who now owns their own home and car and has a good job will sound ludicrous to most of them. Sure, some of them would like more freedoms, but so would most of my American friends. And so would I. That doesn’t mean we’re not patriotic.

I am a passionate, blue-blooded (whatever that means) American. I love my country. I am somewhat conservative fiscally but very liberal socially. I love middle-of-the-road politics where we all reach across the isle and get along. I am bound to have some sort of divisive opinion no matter which social clan I find myself interacting with. But I love my country.

Start your conversations with a Chinese businessperson assuming the same is true for them and it’ll come across in your conversations and your actions. They will notice it. They will respect the gesture, and they will in most cases reciprocate.

The Meeting Dynamic.

Posted in Business Culture in China, Cultural Observations., Doing Business with tags , , , , , , , on December 13, 2013 by Ben Brown

There is an interesting phenomenon in Chinese business meetings that always ruffles the feathers of my background in operations management, specifically as it relates to efficiency.

China has more of one thing than anywhere else in the world: People. It has always been a large country.

China likes to show off its people. Over the years I’ve been party to many meetings in China.

In the West, a high-level business meeting between two parties will include, generally, people who need to be there. Maybe there will be one person who is there to learn, but everyone else has some sort of role.

Chinese meetings are different. There will often be five, six or more people representing each company at a meeting where really, only three or at most four people will do any talking. Some of the others at the meeting may be there to advise the leaders afterwards. Generally though, there are a lot of people there who are really just ‘filler’. Sometimes I’ve gotten to be there as an adviser. Occasionally I’ve been one of the guys doing the talking. Most of the time, I take notes nobody will ever ask me about and discreetly look up the occasional Chinese word or phrase I didn’t understand. It’s a good opportunity to write down tasks I might need to take care of by the end of the day.

It’s important to show a lot of people at these meetings to either display that you are powerful, or to show respect to a government organization that might be unhappy to be greeted with only two or three people representing the business.

It’s just another example of how many cultural differences there are between doing business here and conducting the same transaction in the west.

In North America specifically, we strive to eliminate cultural aspects of doing business and make everything about the agreement on the table. People can say any crazy thing they want in a meeting, as long as it ends with a clearly-stated contract that delineates every last item of business loophole free.

In China, I get many compliments on how much I’ve learned about Chinese culture and how well I handle situations. Still, I make about two cultural mistakes during a good week. I’m usually given a bit of leeway because I’m a foreigner, which I appreciate greatly. This culture is very complex. I’ve seen locals that make more mistakes than I do. Sea Turtles returning from ten or more years abroad bring a refreshing sense of openness to a lot of meetings, but many also find themselves stumbling to re-balance after being gone for so long. There are simply a lot of rules to remember.

Awhile back, at a previous company, I had the privilege of attending a meeting between a Chinese company and an American company. They had formed a joint venture. The Americans were visiting Chongqing. One of them noted to me that when the Chinese had come to the US, they brought six people over. The Americans on this trip consisted of the Managing Director and the project manager.

The Chinese side had 10 people.

But the real difference was the power dynamic. On the Chinese side, the guy that did 99% of the talking was the leader. Everyone else sat quietly for the most part. The organization on a whole was obviously very top-down. On the US side, there were lots of side-bar discussions going on between the two lonely guys sitting there and they would interrupt each other as they tried to clarify points to the Chinese counterparts.

This reflects a difference not just in presentation but in cultural approach, collective vs. individual decision-making processes, and separation of authority. I’m an American. Personally, I prefer the collective approach to doing business. I like to be able to make my input in meetings. I like to speak up without being asked to. It takes a great deal of restraint for me to remain silent as complicated discussions take place. In fact, I’ve made it a habit since arriving in China to make sure I’ve saved up enough free cash from any new job so that I can afford six months of unemployment before I start saying much in meetings. This usually also forces me to get established somewhere so that my comments don’t come off as abrasive. It also takes a lot of effort to not be overbearing. As Americans, one of our favorite pastimes in a business environment is to tell people what we think. Especially if we completely disagree with an approach being taken by leadership. In China, it’s not possible to raise your voice and express opinions without being first asked to do so. It’s even more inappropriate to say something contradictory to the leadership.

The irony, of course, is that western businessmen coming to China to conduct business may think everything is going just fine at first. This is because it’s also generally not considered appropriate to tell anyone that they’re stepping on cultural toes.

A few years ago when I was living in the States, I regularly heard businessmen coming back from some of their first trips to China say “I don’t know why everyone talks about the culture being so different over there. I went over and had no problems. Business is business. Just get the deal done and you’ll be fine.”

When I would bump into them again a year later, the story would be different. It would be a lot of “My Chinese counterpart is destroying our business because he’s not listening to me, he’s not doing what I told him to do, blah blah…” If I’m feeling like having an argument, I tell the person that maybe, just maybe, they should learn to communicate a little better from a culturally-competent perspective so that they can actually move forward instead of simply barking orders and complaining that everything is being done improperly. Most of the time, though, I wait for the other shoe to drop. I ask them how their last trip to China was aside from the meeting. Their responses are usually negative. They complain about a lot of things being different. Basically, they’re starting to notice that the culture is totally different from their own, and they’re trying to change things.

That’s absolutely impossible.

The only thing that can be changed is you. Changing the way you deliver the message can make the message itself more digestible to the guy sitting across form you with nine silent subordinates. When I’m in China, I have the benefit of seeing the differences between the culture I’m in and the culture I came from. I’ve lived here long enough to have my eyes opened a bit. It’s my responsibility to see those differences and adapt my approach to everything so that it fits into my counterpart’s cultural comfort zone.

Entering China’s Domestic Market.

Posted in Business Culture in China, Doing Business with tags , , , , , , on December 11, 2013 by Ben Brown

Yesterday I posted a section on when to enter China’s market. Today I’m going to post an overview on how to do it.

There are a number of ways one can get into this market. You can form a partnership with someone over here who will help you set up shop and sell your wares, you can find a local PR company to help you display your brand appropriately, you can start your own independent shop and go it alone, you can find a distributor and simply export your product to someone who will put it on shelves for you, you can find an exporter in your home country who has experience sending products similar to yours over to China, or you can even find some people who will start out just selling your stuff on taobao.com (picture the giant child of ebay and amazon).

The steps to market entry in China are similar to what they would be in any other market:

1. Market research. Know what the market looks like. Is there competition locally? Is there competition from abroad already? Is there a demand for your product? What is the potential size of your customer base here? What do the demographics of your customer base look like? (Chengdu is famous for people relaxing with a hot beverage. Starbucks, to a foreigner, looked like an easy slam dunk in this market). Does another product different from yours exist that replaces the need for your product? (Chengdu has a lot of tea houses. It’s famous for it. I’m pretty sure the number of Starbucks drinkers is affected by this). Does the customer have any need for your product? (Nobody in China, except for the few “Sea Turtles” who got their degrees in the west, feels a dire need to start their day with a cup of joe). Will customers need to be taught to use your product? (The only way to increase dairy sales in China is to actually convince people to start eating western food at home from time to time).

2. Market entry vehicle. How are you going to get here? Should you go it alone and open your shop? Should you find a professional retailer? Should you go with a distributor? An exporter from your home territory?

3. Branding strategy. How are you going to present your brand in this market? Should you do things largely the same? (McDonald’s) Or should you completely change around your product design and presentation to meet the needs of your new market demographic? (KFC’s menu is at least 50% different from its menu selections in the States). Are you a luxury item in China where you’re a commodity in the US? (Harley Davidson) How are you going to market yourself? Traditionally? Online? Guerrilla? What will hit your target market most effectively?

4. Pricing. You may be manufacturing your goods in China already. This doesn’t mean you need to pass the savings on to your customer. If you price your goods too low it is possible they will be perceived as “for the lower-income buyer” when you’re targeting your product to a higher, more visible and savvy customer. The customer you’re chasing may not pay $50USD for a pair of shoes if the other shoes targeting your customers are selling for $250USD, even if you could easily make a profit at that level. Ironically, if you hit the luxury market or semi-luxury market here you’ll sell more of your product than you could at a much lower price, because at $50USD per

5. Find the process. How are you going to enter? What steps do you need to take? How much are you willing to risk up front?

6. Find the people. Who are you going to partner with? How will you develop a relationship and monitor progression of your business?

7. Pull the trigger.

Depending on your business, these may not be all of the steps. Different actions needd to be taken for different businesses. I also haven’t gotten into the regulatory side of things, since that varies drastically by what you’re selling and how you’re selling it. But basically, the structure and process are similar to anywhere else. Is there a market? What does it look like? How do I get in? How do I sell? Can I make a profit? Who do I work with? What are the taxes? Are there any major road blocks that will prevent this from happening?

The next post will be on high level business meetings in Private Chinese corporations.

When should you enter China’s domestic market? (NOW! You might already be too late…)

Posted in Business Culture in China, Doing Business, Macroeconomics with tags , , , , on December 10, 2013 by Ben Brown

Natooke

Here’s what’s going on in China in one quick list of 11 items:

1. New guy in charge.
2. Export manufacturing cycle ending (they already make everything).
3. Need to develop stronger middle class.
4. Production costs increasing.
5. RMB steadily revaluing.
6. Service industry growing fast.
7. Consumers increasingly more savvy.
8. Local brands are weak.
9. Government hungry to add jobs and keep growth steady.
10. Economy still too small to support new graduates at stable, 2% GDP growth.
11. Major policy changes required (and being implemented) to attempt item 3.

Deng Xiaoping once said (I paraphrase heavily here): Poverty is not socialism, to be rich is glorious, some people will get rich first.

The rest of the country has been waiting, increasingly impatiently, to get rich second. China’s next phase of development needs to happen between now and 2024 to continue growing as fast as possible, which will keep the populous satisfied. It will need to focus on a new growth cycle.

In the 80s China worked on bringing farmers and the rural class out of abject poverty. They succeeded to a large scale. In the 90s and the past decade the country focused on FDI, and bringing technology and industry in. In the next decade they will start the painful, complicated process of staying away from the middle income trap. If they are successful, we will see a stable rise in middle-class incomes along with an increasingly higher-value RMB. Suddenly, foreign brands will be available to a higher percentage of people, and anyone who has either established brand recognition or is able to create a great marketing campaign will be able to take advantage of a rapidly growing market.

Developing markets are a lot like blue-ocean strategy opportunities. If you can get a brand in the door and make it popular, you’ll be able to enjoy a quickly-increasing market size. In China, all the conditions are primed. Especially as the interior continues to develop and play catch-up with the coastal cities. To a certain extent, this is what the US has been waiting for. For decades we’ve been buying things imported from China. In the next decade, we may finally be able to start exporting products to China, or to an increasing extent begin manufacturing them there for domestic sale in addition to shipping them back across the Pacific. There are plenty of investors here waiting for the chance to promote US brands in China, and that number too will grow.

Developing Business Relationships. And Bribing in China.

Posted in Business Culture in China, Cultural Observations. with tags , , , , , on December 8, 2013 by Ben Brown

ben hot pot

Every self-respecting follower of Chinese culture and business has to, at some point, post an article on networking, or “guanxi”.

Ironically, there isn’t a word in Chinese for “Networking” that I’ve been able to find thus far.

Building guanxi means creating close personal relationships with business partners so that you may work together on a higher level of mutually-beneficial trust.

In the US, when we want to do a business deal, we find the best candidates available, approach them with our plan, sit down for a few meetings to discuss terms, hammer out a contract and sign it. Then we begin working together.

This system of doing things exists in China as well, but only as a last-ditch option. Usually, you want to develop a relationship with somebody before they will listen to you. This is because, in Chinese culture and business, strong bonds are formed in the most inner circle of friends. Outside of that circle, there are 1.3 billion “other” people that you cannot trust.

I know of businessmen who lived in China for 20 years and said “You can’t get involved in bribing people. Once you open that door it just gets bigger, and increasing amounts of money are expected to flow through it”. I’ve also met businessmen who lived in China for 20 years and said “You must bribe people if you’re going to do any successful business in China”.

China is a country of contradiction. Both statements above are 100% true. How is this possible?

Those in the “can’t bribe” camp were either in very very large companies that easily created guanxi through possession of a huge brand name or technology that nearly everyone in China wanted to get their hands on. Or they have and use lawyers to walk the razor’s edge of what’s acceptable according to their own country’s laws. Most of the “must bribe” camp ends up represented by smaller businesses who refrain from entering the country out of a negative view of how things operate over here. They also don’t have any guanxi. There are no people willing to help them out based on a strong sense of mutual trust.

There is also “the third possibility”. Western companies entering China form partnerships, or hire consulting firms or advisers, that smooth over issues with local entities. In some cases, these companies artfully explain to the western firm that they will take care of everything. Sometimes this involves leveraging their guanxi to get a small business through the process. Some of the things that transpire may or may not be above board by western standards. But the western company has no idea what’s going on other than the consulting firm has handled all registration efforts with the local government.

So what if you need to develop guanxi quickly?

I have a friend in China, a successful artist. He’s married to a former Olympic diver. About eight months ago his wife held a party for all of her old diving friends. This included a power couple: the husband is now an actor and former Olympic diver. His wife is a famous singer.

My friend, at one point, made a bet for a lot of money over a drinking game common in China. I’ve seen him lose this game a few times, but never for money unless he intended to. The case was the same here. He last a LOT of money. I watched him do it. But when I got home that night and thought about it, I realized the chances of a guy who spent half of his adult life training to be an Olympian probably didn’t spend much time in karaoke bars playing drinking games. It was highly unlikely that he just waltzed in to the evening with the honed skill level required to beat my friend. It was even less likely that my friend would bet that much money unless he expected to lose it.

My friend was, essentially, giving the superstar a gift that would ensure he wouldn’t be forgotten. Later, I assume the superstar referred other wealthy friends to my artist friend to buy paintings for their new office building or home.

Was this a bribe? Or was it an investment? If this happened between a company and a government official I think most westerners would call it a bribe. I think most Chinese people would call it “The way things are here”.

I’m not coming down one way or the other on the subject of bribing. I’m just trying to give my readers a clear understanding of how it works over here. This is what the terrain is like if you decide you’d like to enter this market.

But there is a point in business culture in China where guanxi and building it through bribes will come up. There are also cases where it is never needed. The picture in this blog is me with a group of my oldest friends in China. I’ve never bribed any of these guys, and they’ve never bribed me. This is my inner circle. When I decide to do business in China, I talk to these guys first. They are artists, lawyers, finance gurus and media experts. They are well-established and well-connected. All of them, at one point throughout China’s development, have had to make business deals that would definitely be marked down in the “bribe” category by western standards. I’ve known them since the 90s. We are friends, but that’s where we’ll do business as well. Because we can trust each other.

The single best tool one needs to enter the Chinese market, especially as a small business, is an understanding of the culture. If you want to sign manufacturing agreements for export or enter the domestic retail market, or do business in or with China in any way, you need to understand the culture or you need to find an employee or a business partner or adviser who does. You need to find a way to navigate the terrain without crossing any legal lines in your own country while simultaneously navigating a complicated culture where gifts are the norm between businesses. Dave Howard, owner of Howard Communications Ltd., prompted me to re-write much of this blog because he pointed out that small businesses have less leverage than large corporations due to the lack of lawyers, money and power. I agree with him on this point. My original intention, which was not conveyed, was to point out that small businesses are often afraid to enter the market due to their perception that they’ll be required to take unscrupulous or illegal action to be successful. This is not usually true.

Even large businesses, however, will be more successful if they learn about the culture before plunking themselves down in China. As someone who speaks the language and has been traveling to this country since 1994, I can attest to the complexity of doing business here and the utter importance of knowing as much as possible about how to navigate the landscape from both the western legal perspective and the Chinese cultural structure. A melding of the two is necessary to achieve success.

The Big Emperor Complex.

Posted in Business Culture in China, Doing Business with tags , , , , on December 5, 2013 by Ben Brown

Most people who have followed China’s social and economic rocket-like progression from a third-world, planned economy in 1979 to what it is today have heard of the Little Emperors. These are the the sole children of the one child policy era. They have two sets of doting grandparents and one set of parents who all want the best for their kids. These elders bring new meaning to the American phrase “Helicopter Parent”.

But I’m not writing today about the little emperors. I’m writing about the big ones.

China’s businesses are a complex web of management hierarchy that can (and in my case have) made a foreign professional dizzy. Like in the rest of the culture, there are nuanced rules that go back thousands of years.

I now work in a medium-sized, privately-owned Chinese company. I’ve been here for little over a year. I have spent this time working as hard as they will let me, but also observing closely and carefully what is going on around me. I’ve taken the 19 years of Chinese cultural and historical study under my belt and applied it, along with a master’s in international business and 12 years of western corporate experience, to what I see here. I’ve soaked in events from the perspective of a foreign observer plunked down in the middle of business meetings where, in most cases, I am able to convince people through my language and actions that they can relax and speak freely amongst one another as if there was no foreigner sitting in the room.

What I’ve discovered has astounded me. I have uncovered depth, color, strategy and politics that probably only scratch the surface of what’s really going on. There is a lot to cover. It will take months of postings for me to get everything from the past year online for your perusal. During that time I will learn more. And I will attempt to share everything I feel is pertinent.

The Big Emperors are the CEOs. The companies they own and manage could be any size, but they are the biggest fish in their pond, lake or ocean, and they expect, as social mores here dictate, to be treated as royalty.

In looking at the development of Chinese business culture and structure, one cannot simply look at the last 34 years since the doors opened. That’s not what corporate culture in China is predicated upon. It bears striking resemblance to the legacy of Chairman Mao, who, for all of his anti-Imperialist dogma, embraced and worked ardently to build a cult of personality similar to that of the emperors who preceded him.

The top dogs in China’s businesses are treated like Little Emperors. But since that title is already taken by the CEO’s only child, we have to give him (in most cases it’s a Him and not a Her) the title of “Big Emperor”.

Our company’s big emperor rules the roost with heavily consolidated power, a personal driver, two secretaries, and a gang of employees following him around wherever he goes. So far that sounds a lot like any company on Wall Street. But the difference is in level of reverence. The Emperor in China’s history was top dog under heaven, and his right to rule was bestowed upon him by celestial endowment. CEOs in China who have managed to get through the political morass and succeeded in carving out their piece of the pie feel it is their right to be in charge. They treat their employees very much like property, berating them when the mood strikes, and paying them complements as they please. We are called at any time of the day or night and told where to be, sometimes within minutes of answering the phone. If we are out of town on a Sunday and we hold lower positions close to the CEO, we could be chastised or even fined for not first asking permission to be out of town.

We are, after all, employed at the mercy of our ruler.

I am not writing any of this sarcastically or in any way negatively. This is me being objective as possible in my very subjective analysis of one company in China. My friends, coworkers and wife weigh in regularly on my comments about what I’ve learned working here, so I know I work at a relatively conservative company by Chinese standards. But they’ve also told me that when a Chinese executive gets to the top of his or her own company, he or she sees authoritarian-style rule, power consolidation, and worship from subordinates as part of the executive package. Considering the absolute cut-throat nature of business in China, there are underlying reasons behind some of this. A CEO has to be in charge and hold a lot of power close out of the very real danger they might lose it to someone else.

But it has caused me to re-think everything I know about culture in China, and contradicted a lot of what I learned in graduate school.

My CEO loves golf. Therefore the company has a hand-selected team of employees comprised of quick risers, executive management and Chinese-speaking foreigners (in this case….only me) who are required to attend the driving range in their spare time and practice golfing for free. Since I enjoyed golfing in the States I begged for the chance to join the team.

My first trip with the CEO for an 18-hole round of golf occurred in Chengdu about eight months ago, when the former CEO (now President and GM) of a Canadian company we had just acquired was in town on business. Things went much as they normally do on a golf course.

The second time was a few months later, during a trip to Canada for our first board meeting there. My CEO, the Canadian GM and I hit the links again. A few times during the round my CEO drove his golf cart right up to his ball and got out to hit, even though we were both still behind him. This is a rather severe violation of golf etiquette. I was surprised, because the CEO golfs every weekend. He should know better.

A few days later we got up early and headed to the course for another round before an afternoon flight back to China. This time it was the CEO, an old friend of his from High School who now lives in Canada, and me. I quickly realized we were not playing by the same rules as before.

The CEO didn’t even bother to wait for me. He played the round pretty much as if he was alone on the course. He chatted with his friend and with me, but he never waited for me to hit. In fact, he looked at me rather disapprovingly whenever I did anything that risked holding him up. His friend, who was not a very skilled golfer, had paid for all three of us to play a round on this very expensive course. He started out hitting the ball a few times, but only actually putted on two or three holes. Usually he picked his ball up after hitting it once or twice on each hole, saying “I don’t want to hold you up, Mr. President”. I, however, was trying to get a round in. So I continued to drive as quickly to my ball as the cart would take me and whack at it with no practice swings as soon as I got there just to keep up with the CEO.

Eventually the friend rode with me in my cart for a few holes and admonished that I should just be picking up my ball and deferring to the CEO. I should also be trying to not hold him up but make every attempt to hit the ball weakly and not as accurately as him. Furthermore, I should tell a few more jokes and make myself the butt of his if I can find a way to do it. “He’s under a lot of pressure. This is his way of relaxing. You’re not here to have your fun. You’re here to assist him in having his.”

I still played every hole, but I stopped going to look for badly hit balls, and sometimes had to rather comically throw a ball ahead of me as I approached an OB marker, jump from the golf cart, club in hand, and whack hurriedly at my ball.

After that round I started to see that the idolization of our CEO happens at every level, and trickles down as well. Heads of departments are treated like generals in the imperial court, and if they don’t like you a promotion will never come. So people agonize over pleasing as many people above them as possible.

I get away with a lot, because I’m a foreigner. If I tried to insist I be treated like everyone else I probably wouldn’t last long here, because I make a lot of cultural mistakes on a daily basis. Thankfully, most of them are minor these days. I’ve already committed all the big ones. But at the same time I get rewarded for saying and doing the right things. And when those compliments come, I don’t ever forget them.

This is all very formulaic, to be honest. For example, the last trip to Canada we met with a high-level Toronto head of the Canadian operations for a Chinese bank. As we were on the elevator to the lobby after the meeting, I commented on how nice their office was. The banker then said, in Classic Chinese self-deprecating form, that it was too bare. The walls lacked artwork and they still had a lot of work to do.

I commented that with such a great space selection on the 28th floor overlooking all of Toronto and Lake Ontario, the banker had negated need for fancy artwork on the walls.

The CEO and the banker laughed and lavished me with compliments on my understanding of Chinese cultural appropriateness.

A couple of weeks ago I ran into a similar situation at a dinner with a government official who, during the course of conversation with me decided to claim that western eating utensils were more refined than holding two pieces of wood together. I knew immediately the appropriate response was to state he was decidedly right (disagreement is a skill I have yet to master…too complicated and delicate an act to tell someone of higher rank that they are wrong), but that chop sticks carried with them more culture and tradition.

Wading through a career that involves regular work with Chinese executives is difficult. If I could narrow this long post down to one sentence, it would be this: To deal effectively with Chinese executives, it’s probably best to read about Chinese emperors.

China’s Domestic Economy.

Posted in Business Culture in China, Macroeconomics with tags , , , , , on July 5, 2011 by Ben Brown

Chongqing Tree Economic Growth
I know this is going to sound a bit repetitive to the few who have read most of this blog, but China’s domestic growth and economic strengthening is the key to its future viability as a world economic power.

Macro-economic studies, to me, are fascinating in that while the answers to a country’s problems are not always simple, the actions that need to be taken to solve potential challenges to growth are usually quite common and should not be theoretically difficult to implement.

China has boomed since about 1993 or 1994 as a direct result of initiatives implemented by the government to attract foreign direct investment and create jobs through an economy focused on becoming the world’s manufacturer. One of the truly amazing aspects of China’s growth is the speed with which it has accomplished this goal.

All economies, from the world’s largest by population to the world’s smallest, go through stages. China cannot continually grow its GDP at 8-12% annually by simply being the world’s manufacturer. There is a point at which export-focused manufacturing will slow. Once a country is making a large percentage of the world’s mid- to lower-value goods, it will need to have other parts of its economy growing in order to have any hope of sustaining GDP growth at a pace sufficient to continue employing its workforce.

I’m not pretending to tackle all of China’s challenges in one blog. I should probably change the title of this entry to something a little more pin-pointed, like “The role of Chongqing in China’s domestic growth strategy”. I posted about a year ago that China needs to create an environment highly conducive to entrepreneurial start-ups and small businesses. I still believe this to be true. It is one of the main drivers of domestic growth in all developed countries.

Chongqing, and the rest of China, need to create two main things:

1. A stable social support network (health care, social security programs) so that its people will not hoard all of their savings for retirement at a point in their lives when their spending should be supporting the domestic economy.

2. An open economy where people with dreams of starting a small business have access to financial products so they can succeed or fail at their endeavors. This would mean modeling domestic economic policy after the most successful models out there and tailoring them to China’s specific growth needs. A great way to do this is to analyze the IMF’s annual report on ease of doing business in countries across the globe. Where is China ranked low in comparison to the rest of the world’s growing economies? How can it revise its policies so that those rankings increase? This is just one example of how China can really benefit from macro-economic policy.

In the 1980s, according to Huang, Ya Sheng (Capitalism with Chinese Characteristics), China allowed small credit cooperatives in an effort to provide financing for rural start-ups. It needs, in my opinion, to allow for this again. Either that or the big banks in China might want to start focusing a portion of their available funds on start-ups. At the same time China’s central government should direct the local governments to crack down more on intellectual property enforcement. Because of its entry into the WTO, China already has IP regulations in place. It’s part of the requirements for joining the organization. But it hasn’t been enforcing them. This puts a damper on Chinese ingenuity and new technological advancements.

There are a lot of other factors, I know, but that’s my point about macro-economics. In my opinion the answers to any country’s growth challenges, especially if it’s not currently in trouble, are fairly simple. It is the implementation of these changes that can potentially dampen fast-growing economies.

Please feel free to comment on any of my postings. I learn a lot from the feedback.

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