CHINA, or tips for how to start Your business in this country? 

   

Short introduction 

     During the most of Chinese history emperors disliked merchants: they were seen as being unproductive, as they were not working the land, and the land was the primary source of income, as being somewhat disruptive: they could be richer than the officials and gain political power by using their economic power. However, the state depended upon merchants for the income. 

     But is there a law against being rich?

     Yes, some of the laws were really designed to control excessive displays of wealth: for instance, when people had huge graves, mausoleums after they died and it was a grand event in sending the person off to the afterlife – this kind of over-consumption was restricted by law.   

     This kind of idea is also related to the Confucian value of not displaying your wealth too openly or too excessively. Very interesting, but tourists in Shanghai can find the ad warning them against merchants – people who might be trying to sell you something that’s not worth as much as they say.

One of the major issues confronting the Chinese government today is a huge disparity in wealth between the rich and the poor in China: over 1 million millionaires and simultaneously huge areas of poor people…

  

Government and Business 

       Some people think of China’s economy today as a market economy. However, China still engages in five-year economic planning cycles. These cycles, the ideas, the goals are centrally planned. Almost all of the top 50 Chinese companies are state-owned enterprises where more than 50% of the company’s value is owned by the government.

      But! These plans are no longer called plans. From 2006, they’re called guidelines. These guidelines are important for people who want to do business in China, because these give good ideas as to the kind of areas that you could invest in and areas you might want to avoid investing in.

If you want to criticize the country, just be careful: there is the rising sense of nationalism, that in its turn has an impact of what you say about China. 

     Many business people today are participating in the political process by joining the Communist Party – mainly in order to gain access to other officials for advancing their business interests: this fact is ironic, as the Communist Party traditionally has been the party that opposes capitalism and now it welcomes entrepreneurs (people who were once labeled as capitalist roaders).

     Many of the state-owned enterprises have a member of the Communist Party who plays a role in ensuring the political correctness of people in the organization. So, the influence of the Communist Party can be seen right down into work unit.

     There are 8 other political parties in China (as well as the Communist Party) the role of which is small but they have been participating right from the beginning of the history of the Communist Party ruling in China. 

      Levels of government in China:

•          The National Government of China (National People’s Congress that meets once a year, the State Council, the Central Committee and the Office of the President). 

•          The provincial governments (in some countries it is called the state level of government): are made of 23 provinces, a number of autonomous regions and large cities called municipal-level cities. 
•      The local governments (cities, smaller cities and other prefectures).

      This tells us that the levels of government make the bureaucracy very complex in China. 

      So, if you are a businessperson in China and you want to get any paperwork processed, it is an extraordinarily difficult process. You do not know at which level of government you need to operate and you do not know who has responsibility for what. And in fact, many of the people at these different levels of government also are not sure: they operate in areas they believe that they are responsible for, but on paper that may not be the case. So how on Earth do you negotiate the government in China?

      Anyway, there are many companies operating in China which can give you advice on this, they are usually locally-based, sometimes foreign-owned. But they will be able to advise you and guide you through the maze of the Chinese bureaucracy. 

      There is something like 36 to 46 million bureaucrats in China – that’s more than the population of Australia many times. It is important to remember that with regards to this number of bureaucrats there are many people who are wanting to have a piece of your business. So, it is best to work with an established consultancy company that is experienced in helping you to navigate through the Chinese bureaucracy. 

      Of course, you may be thinking at this point that business in China is too hard to do. Then the advice is to go to China first of all and look for work. And after you have worked in the country for a few years, you may have acquired enough knowledge to then move on and establish your business. 

Strategic thinking in China 

     “The Art of War” – a book by Sun Tzu or Sun Wu (a military genius, a military general during the Warring States Period around 500 BC), where he gave instructions to people on how to defeat the enemy, and people have used these lessons to apply to business today.

       This book can be found in the most shops around the world in the business section: there are a number of strategies as to how you can deal with your competition when you are conducting business. 

       Some of the strategies, presented in the book, are focused on creating a positional advantage: rather than just work with the existing constraints, you should do what you can to create a favourable situation (for instance, simply to arrive early, perhaps, for an appointment).

      Another thing is to gain business intelligence (to find out what your opposition is doing) – in order to have the knowledge advantage.

      And one more important is to provide better logistics than your opposition. 

      Two main stratagems from “The Art of War”:

       “Make a sound in the East but attack in the West”: do that signaling but plan to do something else that is different. Give a signal by all means to your opposition, and the opposition will then develop strategies in order to counter what you are about to release, but you will work on “another side of the issue”.  

       “To feign madness, but to keep your balance”: to deceive your business opposition. For example, when you are drinking with your Chinese partners, you yourself remain as though you are a little bit drunk, a little bit mad, but in fact you are still sharp and aware of what is going on.

 Problems of Going Global 

      Chinese companies have very low brand awareness: the clothes you may be wearing right now have been manufactured in China, but you do not know the brands.

      One example of a successful Chinese global brand is Lenovo – a relatively successful merger between Chinese company and a part of American company (in 2004, IBM’s personal computing division was sold to Lenovo Holdings). 

     Chimerica? China and America: there is increasing interdependence of China and America.

These two countries rely on each other to some extent for their growth (in the case of China), and the economic recovery (in the case of the US). America is increasingly relying on cheap economic goods as part of its economic recovery. Moreover, China is a country that now has great savings, and is investing in US Treasury bonds. Now it is the largest investor in US Treasury bonds in the world. 

     The so-called ethnocentrism restricts the outlook and the view of many Chinese people: in the mind of the many Chinese people China is the center of the World (and the World should be coming to them to do business with, not they should be going out) and other countries have to pay allegiance to China. Many of the countries (Japan etc.) did this for many years, somehow like: “Please, do not invade us”. 

     Furthermore, the following factors tend to restrict the development of global Chinese companies:

•          Authoritarian leadership – when companies go overseas they need good leaders in order to adapt to different new markets etc.
•           Centralism – restricts the abilities of companies to operate in a much broader geographic location. It is difficult for Chinese companies to achieve the decentralization that is needed for global operations. 
•           Micromanagement – a manager should always look over the shoulder of the employee to make sure that they are fulfilling their responsibilities. It leads to the huge headaches for managers, but does not operate particularly well in the context of global companies.

     Meanwhile, there are some countries that are afraid of a few aspects of Chinese business:

•           The envolvement of Chinese military in some companies: the company called Huawei was suspected (without really being proven) of using some of its technology to spy on other companies (operations). 
•           The general fear of Chinese espionage (as mentioned before, business intelligence is important to the development of Chinese business strategy).
•          The ambitions of China to be a superpower (some countries are made nervous because of China increases its power as it modernizes its military: China is developing a blue-water navy with an aircraft carrier and probably other weapons that will increase its power in the world).

Business in Hong Kong and in Taiwan  

Hong Kong 

     Hong Kong – is a place where the law is followed a little bit more closely, which is less corrupt, and it has been the starting place for some businesses for them to launch into greater China. 

    Hong Kong was handed back to the Chinese government in 1977 after the occupation by Great Britain during 1800.

    Since this handover, it has been found that in fact, China has become a little bit more like Hong Kong, rather than Hong Kong has become more like China (a number of laws were developed by the UK that helped business to thrive and flourish in Hong Kong).

    Hong Kong cultural identity is very strong, Hong Kong people to some extent resist some of the incursions of China into what they see as their sovereignty.

    There is the great tradition of the rule of law here: the commercial laws and the system of business operation are much more advanced in Hong Kong compared to across the border in the People’s Republic of China.  

    Very interesting fact: the world’s first independent commission against corruption was started in Hong Kong in 1974 and has actually been the model for many other independent commissions against corruption around the world. 

Taiwan  

     Through the history of Taiwan – the small island off the coast of Mainland China – the country started to develop itself as an independent nation (earlier it was under Chinese and Japanese rule – so, there are still many aspects of Japanese life in Taiwan today). 

     Below, you will see the three types of companies that operate in Taiwan:

•          The large family owned or privately owned conglomerates (a number of related industries that are all owned by the same family or group of private individuals).
•           Small and medium enterprises (with up to 299 employees) – they have been the backbone of the Taiwanese economy. They have been successful in operating not just in Taiwan, but have moved abroad.
•           Companies operating on the world’s stage: Acer, HTC, Taiwan Semiconductor (the world’s largest producer of semiconductors). These companies are organized very much on the Western model.

Future Trends about doing business in China 

     The number of tourists from China is increasing dramatically. In fact, in Australia today the largest source country of overseas tourists is China.

     The demand for overseas education is growing rapidly in China as well: amongst the new rich in China today, their desire is to educate their children overseas.  

     But the rising wages are causing some problems, however because labour costs of manufacturing are now cheaper in Mexico than in many of China’s southern cities.

    There is growing wealth, a growing middle class in China, and all of these things spell opportunity for businesses that want to invest in China. There is also the growing importance and growing wealth in a number of Western and inner cities of China (not only in the coastal ones). 

     As China is investing more money into research and development, the protection of intellectual property rights and the protection of one’s property and investments – these three areas are developing rapidly. So, if you are planning to do business in China, it is wise to get an updated perspective on these particular areas. China is developing them as a result of the increasing economic integration with the rest of the world. 

     And finally, one of the trends in doing business in China is that the Chinese government is trying to promote the yen as an alternative global trading currency.

     Therefore, this means that China is moving more to international standards of accounting and financial responsibility, and this will develop more and more over the years to come. 

15 first steps to Asian countries 

1.     Junzi – the ideal of Confucian life

     There are many characteristics of Junzi. Junzi does more and speaks less. A Junzi is loyal, obedient and knowledgeable. Junzi disciplines himself. Junzi can live with poverty.

The Junzi is able to moderate his desires. So, a business leader would rather respond as: “Where? Where?” to the high praise regarding his achievements (but not like: “Thank You very much”).

     The ideal of Confucian life is a Junzi.

2.      “Karoshi” – death by overwork 

     In Japan the emphasis on the hard work is a good value, usually people have long working hours: they start working very early in the morning and are not leaving until the boss leaves.

     “Karoshi” – death by overwork - is caused by long hours, high work demands, demands on perfection in the outcomes of Your work.

     In Japan “Karoshi” is an occupational sudden death. The major medical causes of “Karoshi” deaths are heart attack and stroke due to stress and a starvation diet. 

3.     No tissue paper relationships 

     It is important in many Eastern countries, especially in Japan, to build strong group relationships, not such as when people only ask You: “How are You?”, but they do not really want to know it.

     Situation: Chinese company invited its fellow from Australia to the restaurant before the deal. While all of them were waiting for their meals, the Australian fellow pulled out a contract and started to discuss the contract. All the Chinese colleagues were immediately disengaging with the process: this person wanted to get to the points, to explain the details of the relationship he was proposing, but Chinese people were waiting to order their meals, as they wanted to, first of all, form a human relationship before starting to talk about a relationship that was enshrined in a written contract.

So, that business relationship has not been built...

     And that is one of the important things that You need to understand in doing business in Asia: the relationships, the people are more important than the actual words that are written on the page.

4.     Just Japanese 

     The Japanese organization looks towards the long-term success. Toyota Motor company, for instance, has a 50-year plan. Not a 5-year planning cycle, as in the most of the European companies. 

5.     Professional promotion in Japan 

     Earlier people were promoted according to their age: the older You become, the higher position You have (and!!! it did not depend on Your results). Today promotion is based on Your merits, performance. 

6.     No bribery in Indonesia 

     You should share what You have earned with Your community, and the most important is that property should not be acquired by bribery. Anyway, if You do acquire it, the right way is more important than being wealthy in itself: this is one of the main principles of Islam (the large majority of the country are Muslims). 

7.     “The women hold up half the sky” 

     This saying (by Mao Zedong) means the change in the attitude towards women. But this was not entirely successful and there is still their discrimination in China.

     Traditionally, in Asia women were discriminated. And there is the emphasis on the authority of the husband over the wife in Confucianism – so, some people have taken that fact and applied it to the general society.

     But in some societies of Asia there has been a maternalistic style of leadership: for example, there is a matriarchal society in Sumatra in Indonesia called the Minangkabau, where inheritance etc. is down through the mother’s rather than the farther’s line.

The Philippines is often regarded as a matriarchal society: in general women tend to hold the finances of the family there. 

   By the way, Liu Yandong is the second vice premier of the People’s Republic of China and she is the highest ranking politician in China today. 

8.     “Kumasta ka” – “Mabuti”! 

     “How are You” – “I am fine” (in the Philippines)…

     If You are going to spend some time in Asia and do business there, it is wise to try to learn the language, but in many cases English speakers don’t make the effort.

But we cannot rely on English when doing international business all the time. Learning a few words of another language can help break the ice.

     However, the first language of many people in Asia is not the national language. So, for example, in Indonesia You’ll find that many people learn their own local dialect before they learn Bahasa Indonesia.

     In Malaysia, many people are not very fluent in Bahasa Malaysia, Bahasa Melayu, because their origin may be Chinese, and they may learn Cantonese, or Hokkien as their first language.

     By the way, the country with the highest number of English learners in the world is China. The USA is the country with the most number of English speakers, followed by India and Pakistan.

9.     High context – low context 

     In many Western countries the words have more impact than the context. We can compare it on the business card exchange example: in Japan, for instance, what You DO (not just comment) with the card is very important and is the way of showing Your respect. When You receive the card, You should receive it with two hands, look at it, perhaps make some comments, don’t put the card into Your back pocket and sit on it. If You realize that the person is of a higher status than You, You may bow the second time and do it a little lower. 

10.     The importance of space 

     There is a famous story in Saudi Arabia, of how the US embassy held there a party: so, as the Saudi diplomat would talk to American, the American would take one step back. The Saudi diplomat would take one step forward, until finally, the American diplomat hit the wall.

     So, when someone entered the room for this party, they found that all of the diplomats, the American diplomats, were lined up around the walls.

     In Saudi Arabia personal space is quite small, and people are very comfortable talking quite close to you face to face, and vice versa: Americans tend to have much wider personal space. 

11.     “Giri” – a strong sense of indeptedness in Japan 

     “When once I helped someone at the bus stop who just needed money to get to the bus one day, I found on my letter box the next day a box of biscuits…” 

12.     Guanxi – a relationship 

     This is the special way of relationship founding, when You trust others completely. It is difficult, but effective way of business development.

And that is one of the important things that You need to understand in doing business in Asia: the relationships, the people are more important than the actual words that are written on the page. People from Asia are more interested in building long-term relationships, to know You as a WHOLE person.

   

13.     Golf 

     Golf has been becoming more important in Asia during the recent years, it is also assumed as an important part of doing business in Asia. 

     It is especially important in Japan, less so – in Malaysia, Korea and China.

     It is a good way to relax (together) and make (business) relationships. Many companies pay for their employees to be members of golf clubs, believing that it gives access to high-level executives.

     It is an opportunity to give and receive the face: if You are a hot-shot golfer, You might not play Your best ability if You are playing with someone who in fact wants to make a business deal with You. 

14.     “Genbei” – dry cup! 

     To drink the whole cup until it’s dry? But what happens if you are drunk and want to stop drinking? One technique is to pretend to be asleep and to be gone. Then people won’t necessarily bother you.

     In fact, this system of drinking applies more to the older generation. You’ll find that some people who are intellectuals or managers or people in the high tech industries might not necessarily drink so much.

    If you are a woman – you don’t necessarily feel the same pressure as your drinking male colleagues.

     “Strategic drinking” – to take You contacts out for a drink to turn them into potential customers and friends. It can help people to relax, to feel more comfortable with another person. It is not just a one off event, it is something that usually takes place over a few nights, meetings and becomes a regular activity. Drinking helps to build the sense of togetherness, the sense of being one.

     Drinking helps to pick up information from the people that you are drinking with, so many of the Chinese business partners must believe that drinking reveals the true self.

     It is but not easy to give the answer to the question of what to do if you are allergic to drink or your religious beliefs dictate you that you cannot drink. However, it is important to participate in the process, if possible.

     Drinking is often accompanied by food (full meal, not just peanuts etc.).

“If you don’t eat something of each of the dishes, you will insult the people who have cooked the food for you”. It is important that you try everything if you can. Of course, there may be some dietary restrictions and you may have to explain why you can’t take certain food.

     When a drinking party you should not sit and drink by yourself: you should wait for a host to fill your glass (the level of filling will be the same for everyone), then that person will propose a toast, at the end of the toast there will be “Gan bei” – and all drink together.

     Three levels of drunkenness:

     “Han” – being slightly tipsy, still being in control of your thoughts and movements;

     “Mi” – a little bit intoxicated, starting to get a bit fuzzy, but still in control of your motor functions;

     “Zui” – when a person is really drunk. 

     Normally, during business drinking parties you must at least be leaving with a sense of han. 

15.     Smoking? 

     In Asia people tend to smoke a lot more than in many countries. In China and Indonesia you may find a little bit hard to cope with the amount of smoke in the room, if you are not used to it.

     The same kind of rules that apply in the West with regards to asking people not to smoke will not necessarily apply in the Asian context.