Knowing that the 2011 growth plans of many companies depend on succeeding in China, we have identified several factors that firms must recognize if these plans are to yield the desired results. The first of these is somewhat discouraging: Success won’t come quickly.
Even though economic growth is galloping in China, and many firms have had to learn to adapt to the so-called "China speed" in product development, relationship building in the country does not occur overnight. It takes only a little time to sign a meaningless joint venture agreement with some Chinese organization, but it takes much longer to build a relationship in China that delivers on sales and profits. Far too many firms have failed to stay the course, and therefore failed to benefit from the China opportunity. If your plans involve new starts in China in 2011, it is wise counsel to communicate that the results will come in later years.
There are three other lessons we recommend that firms include in their China growth plans. All of them require a willingness to embrace new ways of operating as part of the strategy of doing business in this exciting new market. Here are the factors you need to consider when pushing a growth strategy in the country:
Business relationships have a significant personal dimension.
One firm we worked with sent a succession of increasing senior executives to meetings in China, but the reaction of the Chinese firm it was courting was that the foreign firm wasn’t serious because not one of these top managers ever returned a second time. Another firm that was involved in discussions with a Chinese firm completed an acquisition that from western perspectives could have been considered a solid asset to the proposed relationship. The Chinese firm considered this a distraction and found the new people in the room totally confusing. To develop relationships in China, continuity and consistency are important. The executives that are to be involved in developing these relationships must stay the course.
China’s economy, while changing rapidly, is inherently local.
The supplier or distributor that will be the best partner in Beijing is unlikely to be the one most likely to be successful in Chengdu, and vice versa. Because relationship is everything, the concept of a strong national firm is, at most, an emerging one, more likely to be a widespread reality in 2021 than 2011. Thus, finding partners is a task that must be implemented on a local basis, many times over, in order to reach all of China’s markets. This doesn’t mean that each prospective partner won’t argue for a national, exclusive relationship. In reality, partners are unlikely to be able to deliver successes beyond the local markets in which they are strongly positioned in terms of relationships.
Cultivate a third party, typically local government officials.
Western businesses need to be prepared for the other parties that will inevitably be at the table in relationships with Chinese firms. Some years ago, we hosted a Chinese delegation to the US. During the visit, several days were devoted to meetings with a US firm, focusing on a significant joint venture initiative that seemed to be a solid one for both firms. On the final day of the meeting, we watched with great pleasure as the discussions moved forward, and there were solid interactions over dinner. All the signs seemed to be totally encouraging. After the dinner, to our dismay, we heard the senior delegate lament the waste of time that had taken place. When we asked why he felt that way, his response was that "The mayor didn’t come to the dinner."
In China, the involvement of key government officials is a prerequisite to anything of consequence being done. In the US, we would rarely think of that as relevant. But the lesson from this example is one that must be remembered in developing relationships in China. There are critical third parties that must be included in the relationship, if it is to flourish. Government is the most obvious example, including both national and regional branches, but in many instances, the key third parties that must be embraced include universities, design institutes, and other such organizations.
The importance of cultivating the right relationships must be understood and addressed by those firms that see their growth in future years including a significant level of success in China. The opportunity is clearly there, but it will challenge many firms to realize it. Focusing on the realities of Co-Destiny relationships in China will be a key step in the process of meeting the challenge. (See: Targeting China's Shifting Landscape.)
— George F. Brown Jr. is the CEO and co-founder of Blue Canyon Partners Inc., a strategy consulting firm working with leading business suppliers on growth strategy. He co-wrote this article with David G. Hartman, the China Practice Director at Blue Canyon Partners. Hartman was a former faculty member with Harvard University and previously executive director of the National Bureau of Economic Research. He has been an active participant in China’s markets for over 20 years, speaks Mandarin, and resides in Beijing.
This is a very interesting article and one many executives should read. While many executives feel they have all the tools necessary to do business, many fail to invest the time researching the cultural differences that are necessary to do business. Americans are so used to quick and impersonal business deals. Many cultures, including China and Japan, take their business relationships very personal. Without proper knowledge many deals could fail. It's a shame to lose business by not being thorough and knowing your customers.
This is a very interesting article and a good insight into the way Chinese companies do business. Thanks for the analysis.
It is interesting that Chinese companies put so much weight into personal relationships and ensuring loyalty and cooperation among top level management. I think this is a good model to adopt in and out of china.
Thanks for the detailed analysis of the factors. You have touched upon factors which many would tend to overlook, like "having a significant personal dimension helps".
What is more surprising to me is the absence of strong national firm. Any particular reason for this, or is it that government laws are such that it doesn't allow any single entity to dominate the national scenario ?
It is very interesting to see the conflict of cultures and the diversity in the approach of potential business partners coming into play in this article. The differences in approaches and understaning of the prospective business partners being the determining factor in breaking the deal.
The complexity of cultures and human relationships comes into play in many developing economies and with the people doing business in these regions. This cultural differences has to be factored into the approach and discussions with the partners. Obviously the Chinese culture plays a lot of emphasis on authority or authority figures to give legitimacy to a business transaction. It is also a form of security for the Chinese to have the involvement of a regional or national authority, or an institution of repute to guarantee that the business transaction is foolproof.
Unlike in the US where there is a separation of State, Public, and Private business; China and many other developing economies place value on government involvement especially with a foreign entity. The governement entity is seen as assuring quality and giving validity to the transation.
Relationships in these places also is the foundation of trust and business alliance. Initiation of relationships with foreigners within developing countries including China is conducted cautiously. Then, the consistency of contact and cultivation of the relationship with the same set of people assures the potential business partner that the relationship is serious, legitimate, and could potentially thrive because of the personal involvement and commitment of the same executives. it is very confusing at best and suspicious at worst when the contacs are frequently changing. It signals chaos to the Chinese and unreliable persons that cannot keep a consistent relationship.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.