Excerpt from Stanley Chao's Book
"Selling to China: A Guide to Doing Business for Small- & Medium-Sized Companies"
by Stanley Chao
Drinking & socializing
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.
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.
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.