Region: China - The Management of Difference

2002

Angela Chang

Its continued steady growth, imminent WTO entry, the development of its western provinces as well as the 2008 Beijing Olympics ensure that China remains today a lure to foreign direct investment and business.

Yet significant challenges still face western companies wishing to drive successful business outcomes in China. Even though structural reforms have been widely implemented and many more modern thinking, well-educated senior Chinese managers and leaders are in key positions, the Chinese still, understandably, operate under their own local norms on their own territory.

Business people interviewed in a recent study by Carolyn Blackman lack China preparedness have no intellectual understanding of difference and consequently cannot get out of their own cultural ‘skin’. They tend to resort to ‘cultural projections’ that are not helpful to productive business relations, using terms such as ‘secretive society’, and ‘they don’t show their emotions’, that recall late 18th century descriptions of the Chinese, when there was a lack of Western research and analysis on China. This is not the case today.

What preparation did these executives and their organisations undergo? What kind of strategic planning was undertaken? Were they prepared for the differences in business culture and environment and how did they plan to manage these differences? How did they hope to drive business in China without such informed preparation?

To be unprepared for specific differences in business practices, norms and environment is to deny that China has an entirely different social context and history. This in turn impacts on the ‘thinking about’ and the conduct of business and work. The early management of ‘business culture’ - that is, the particular differences in business norms and practices and contexts - needs to be placed at the core of our China strategic planning and preparation if risks are to be well managed.

Yet how do we prepare for business with China and how can we define China readiness?

The first half of the key is prior intellectual understanding. Initial and ongoing executive ‘China’ development for decision-makers and those involved in business in China, is necessary to develop a common understanding of the issues involved in specific business in China. China decision-making thus becomes better able to respond to specific needs, issues and contexts.

The second half of the key is the ongoing systematic management of project specific differences. This requires specific skills which can be developed over time. Firstly, our immediate project may be to negotiate with our potential Chinese customer on price. Readiness for the specific differences in negotiation practices is a prerequisite to the management of difference in this project. The Chinese political norm of ‘control’ may be used to advantage as a business and negotiation strategy. Our having a favourable bargaining position from the outset, is critical to good outcomes. At the same time, the foundation to relatively smooth negotiations in China rests on the key stakeholder relationships and agendas. It is essential that negotiators and executives appreciate Chinese relationship norms and have highly developed interpersonal and communication skills.

An initial relationship audit and analysis of tangible and intangible relative mutual benefit, as part of an overall context analysis, will determine the relative positions of each side and what work needs to be done and where.

’Price’ will be controlled by using the adversarial competitiveness of the potential western suppliers. Better deals will be extracted from each supplier who is trying to win the contract. Importantly any internal competitiveness or disunity within a western consortium needs to be dealt with and laid to rest early.

Secondly, the Chinese world view is highly strategic and heavily influenced by the ancient Sun Zi’s Bing Fa or Strategies of War. Rational, problem-solving, democratic, and open strategies, though highly desirable in global terms, have not fared well in the face of China’s different world-views. Australian business executives and negotiators need to be prepared for and alert to these seemingly irrational but highly tactical ploys. They need to have an array of equally tactical responses (that fit in with core values).

A negotiation practice that many readers may relate to, for example, is to deflect to a minor detail and spend considerable time and energy arguing on this. The hope is that we will be frustrated, confused and fed up enough to then give in on a crucial item coming up. This tactic is very effective on the unprepared and not only confuses the western supplier but also controls time to advantage.

Thirdly, negotiating teams need to be extremely well prepared to match the Chinese. Information and intelligence about the potential suppliers’ business and technology is often meticulously collected and recorded, following Sun Zi’s maxims.

If foreign negotiators are not equally well prepared and fail to understand the Chinese negotiation practices in play, the specific business culture and environment, the history of the relationship, and the details of previous negotiations, they risk immediately losing a good deal of control. (Restructuring in Western organisations often leads to a loss of continuity of China expertise).

For projects in China, considered management of project specific differences best occurs in a team workshop format facilitated by an experienced consultant who specialises in managing difference for business with China. This is part of essential ‘China readiness’ planning which in turn is part of a well researched and informed China strategy.

WATCHPOINT: Australians seeking to negotiate sectoral free trade agreements in China will need a high level of ‘China knowledge’.

 

About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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