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Management Blog

Below are insights and editorials from our management staff regarding their views on doing business in China.  Please note that the below comments do not reflect the recommendations and opinions of ALL IN Consulting.  We welcome your feedback and comments on any of the below subjects, and will post your responses.

Excerpt from Stanley Chao's Book

"Selling to China: A Guide to Doing Business for Small- & Medium-Sized Companies"

by Stanley Chao

November, 2012

 

Drinking & socializing
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There are two frames of thought when it comes to socializing with the Chinese.  Some foreigners simply love the camaraderie and bonding that a night of drinking and karaoke creates.  The entertainment also serves as a welcomed distraction from the daily grind of a hectic work schedule.  Others could careless about it and just want to go in, do the work, and get out as soon as possible.  After all, business is business so cut out the entertainment nonsense and get down to the real work at hand. 
Is all this drinking, eating, and singing absolutely necessary?  Will the business relationship be affected by not attending these events?   Conventional wisdom says yes. Most experts and books about China preach that socializing creates the bond and trust in the relationship.  For the Chinese, the everlasting friendship developed over these social activities is worth more than any signed contract could ever hope for.  For MNOs and their executive management, I agree the entertainment activities are a must. The foreign MNOs are depending upon the Chinese government or state-owned company for favorable tax status or entry into a previously closed market or industry.   The large state-owned enterprises and government ministries have already pre-ordered the dishes for the banquet which sometimes takes days to prepare, and the executives have already blocked out that evening.  It would be considered rude to abruptly cancel and will most certainly affect the MNO’s Guanxi and lost of Mianzi for the Chinese.  
The situation is quite different for SMBs.  I have yet to see a situation where foreigners were refused business because they declined a dinner invitation or skipped the “bottoms up” drinking competition.  The bottom line: Money.  The Chinese will do business with you only if they can make money, not because you can sing Frank Sinatra’s “My Way” in perfect pitch. 
If all the dinners and socializing are not that important, then why do the Chinese continually ask their guests for lunch, then dinner, and then again the next day?  For one, it is impolite to not offer guests a meal.   This offer of food has probably been done for thousands of years to the point that it’s ingrained in the Chinese psyche.  The invitation is done unconsciously similar to when Americans ask, “How are you?”  Americans are not particularly interested in their guest’s health, nor are the Chinese particularly interested in dining with their guest, but they ask because it’s proper etiquette.  As I wrote in the Introduction, my grandmother, regardless of the time of day, would always ask me if I was hungry, and then run into the kitchen and make a couple of Chinese dishes.  If I saw her ten times in a day, she would ask me ten times.  This was her way of greeting me, and similarly, the way most Chinese businessmen will greet their foreign partners. 
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Other than proper etiquette different types of companies will also have other motives for socializing and entertainment.  SMBs will meet two types of companies: other privately-owned Chinese SMBs, or large state-owned enterprises.  An owner of a Chinese SMB will typically have these characteristics: usually male in his mid 40’s to early 60’s, little or no schooling relying on wit and street smarts, and an “I know everything” attitude.   These guys struggled through rough times to become the self-made millionaires that they are today relying on their intuition and survival instincts.  They are old-school, believing that business relies on Guanxi and personal relationships, not on legal contracts.   So it seems odd for this generation to be doing business with strangers.  The social events break the ice, creating a new friendship or Guanxi.   They want to know who you are, where you came from, and, most importantly, whether you are trustworthy enough to do business with.   And the only means to get to know you is to eat, drink, and sing.  In these social settings will businessmen lighten up and show their true colors. 
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The trust and bonding created over these social activities served another valuable purpose.  Because no contracts or business law existed in the past, the Chinese had to rely on trust that the other party would follow the business terms and promises.  Socializing was the only way to “read” the other party.  Can I trust him?  Will he cheat me?   No legal recourse existed so one had to use “gut instincts” to make a decision on a business partner.  As I will discuss later this is one of the reasons why contracts, especially by Chinese SMB owners, are not routinely obeyed.  Even today, the older Chinese entrepreneurs don’t relay on contracts which becomes quite troublesome for Westerners.  The Chinese sign contracts knowing that it’s a requirement by Western companies, but treat the document more as ceremonial gesture of friendship and the intent to work together.   And as friends, they expect concessions and favors as business conditions fluctuate.   
So I advise clients to examine the situation and then decide on the course of action.  If you plan to do business with this company, then yes, do eat, drink and sing.  Keep in mind, though, you go out not for yourself, but to appease the Chinese partner.  And even though it may be a social event, the entertainment is still business.  Be sociable, talkative, curious, and, most of all, make the Chinese partner like and trust you.  However, it’s not necessary to overdue the social activities; one dinner and lunch adequately fulfills your obligations, and a polite refusal will suffice.

 

 

 

 

ALL IN Consulting

Tel: (310) 544-9671

information@allinconsult.com, stanley_chao@allinconsult.com

 


ALL IN Consulting
Tel: (310) 544-9671