Understanding Business in China

Patrick Nycum

Understanding Business in China

China Values & Cultures

Federalism

Trust

Building Trust

New Identity

Chinese CultureNeo-Confucianism

Bing fa (Art of War)

36 Strategies

Used in Business War

Chinese Communist Party Doctrine

Avoid corruption

Positive toward CCP

Fairness to all employees

Clan Culture4,000 Years of History

Absence of a sound legal framework

Relationship is more important than law

“Laws don’t rule people. People rule people”

Mao

Organization Culture

State owned enterprise

Employee orientation

Closed system

Process orientation

Parochial

Loose control

Normative

Entitlement

Soft budget

Private enterprise

Job orientation

Open system

Result orientation

Professional

Tight control

Pragmatic

Accountability

Hard budget

Federalism

Local Governments compete against each other

Local Governments provide economic protection to local businesses

Local Government and local businesses collude

Local state corporations emerge & proliferate

Bureaupreneuer

Variety of ownerships

“When you can’t fix it, discard it”

“Looking for victims”

State banks could not continue to support failing

Privatization

GuanxiIncreasingly complex relationships

Lifelong

Rich interaction on the part of members

Reciprocal obligation

Confucian rules

The quanxi relationships are useful and used

Renqing

“Human Feelings”

Favors

Human element cannot be removed from human affairs

Informal give and take

Not written down

Remembered in minute detail

Enforced with guilt

Mianzi“FACE”

Two basic types

Mianzi

Quanxi and Renqing

Lian

Faithful compliance with ritual and social norms

Gain Lian by demonstrating moral character

If lost

Cannot function properly in the community

AgreementsWritten contracts

Lack binding quality as Western business

Memorandum of duties and responsibilities

Face to Face over text

Tradition of flexibility

TrustDifficult to earn in China

Why do you want to know that?

Waigouren

Meaningless objects

To be taken advantage

Building TrustClarification of mutual contributions & benefits

Needs

Wants

Opportunities

Familiar with National Values

For non-natives of PRC, engage mediator

Cannot directly conflict

NegotiationsPeople-oriented

Price sensitive

Continuously try to bargain price

Stress

Quality

Bottom line firmly

Understand their culture but be true to your own

General Rules1. Identify the meaning of a particular negotiating

behavior

2. Adopt a people oriented approach

3. Set-up an appropriate team

4. Speak with gov’t officials when possible

5. Employ tactics when appropriate

6. Know the Chinese style but be yourself

Business Data (World Bank)

CHINA GNI per capita (US$) 2,010

Nonwage labor cost (% of salary) 44

Starting a business (rank) 135

Cost to import (US$ per container) 430

Taxes (World Bank)Paying taxes (rank) 168

Payments (number per year) 35

Time (hours per year) 872

Total tax rate (% of profit) 73.9

LaborDifficulty of hiring index (0–100) 11

Rigidity of hours index (0–100) 20

Difficulty of firing index (0–100) 40

Firing cost (weeks of salary) 91

Rigidity of employment index (0–100) 24

Conclusion

“China is moving fast and changing faster, an environment in which few Western companies are structured to compete,”

James McGregor

author of “One Billion Customers”

China bureau chief for

The Wall Street Journal