The One Difference between Success and Failure with China
China is world’s largest economy and has more middle class consumers than the entire population of the United States. Yet despite the unparalleled business opportunities in China, the majority of Western businesses that go there fail within two years. What is the secret of the minority that thrive?
The Mighty Fall
Are the businesses that fail in China just bad businesses? Do their bosses simply not know how to run a company? Are their products and services sub-standard? The answer to all of these questions is a resounding ‘no’! Very few Westerners go to China with a start-up. Foreign companies that go to China tend to be well-established, well-led and well-respected. Generally, they have also successfully expanded into other markets. So why do most Western companies – like Home Depot, eBay and Media Markt – fail in China, while a small number of foreign enterprises – like Ikea, Apple and Volkswagen thrive?
Through all the explanations across the extensive range of well-documented case studies, one disarmingly simple answer emerges: the key to success with China is the strength of relationships. Those businesses that have strong relationships between the Western and Chinese personnel thrive; those that don’t stagnate and ultimately fail.
At one level, this of course is common sense. Any new commercial venture is a journey with countless challenges to face and overcome along the way. Staying the course and overcoming those challenges requires a shared commitment to more than just generating a profit.
What we frequently discover, however, is that common sense is not common practice. When we are taken out of our cultural comfort zone, we tend to fall back on the technical strengths of which we are assured rather than tackling the relational issues which we too readily dismiss as emotional fluff.
At the same time, the general tenor of reports about China in the Western media is one of threat. Government representatives assure the public that they will not “kow-tow” to the Chinese; business leaders bemoan the lack of respect for legal contracts in China; and the general public are subtly warned never to trust the Chinese. How much business have you ever done with anyone you approached with the assumption that they are a threat that you cannot trust and will resist any attempt to be flexible? These barriers to business are not technical but relational. Nor are they unique to us: the Chinese don’t trust us either. Which, from a relationship perspective, leaves us with more not less to prove.
You and Me or Us
Take a typical car manufacturer’s approach to China: we know how to design, build and sell cars. Do it our way for less and you can have our business whilst we boost our profits. Win-Win! Contrast that with Volkswagen’s approach in the 1980s: you don’t yet have a private car industry to speak of, but you will do. Can we work with you to help you build it?
In the face of a perceived threat, our default position is generally to try to minimize that threat. So, to read Western news reports, we seem take comfort from shaking our heads at the fall of the Shanghai Stock Exchange, the problems of pollution, the lack of Western democracy and so on. But would you rather do business with someone who appears to pity and patronize you, or with someone who genuinely seems to want to help you solve your problems?
For the last 200 years, the West has been seen by China as a threat to their stability, sovereignty and prosperity. When we failed to get what we asked for, we took it by force. Last week, an advisor to China’s President on his visit to Washington was quoted in the New York Times as concluding: “The Americans care for strength … This reflects the American spirit — that is, to achieve a goal in a short time with power. The Americans adhere to this spirit in many fields, like the military, politics, economics and so on.”
We may or may not be naturally attracted to our (potential) Chinese counterparts – Chinese tastes are not everyone’s cup of tea. But if we will do business with China at all, we are going to have to find enough common ground to be trusted as friends. We may not remember the niceties of Chinese etiquette, but how much confidence would you have in partnering in business with a person who could not name more than three of the 660+ cities in your country? We may not be able to hold a conversation in Mandarin Chinese, but how much understanding of the Chinese market would you credit someone with who could not correctly pronounce the three syllables of the man that presides over 20% of humanity?
To protect themselves, the Chinese typically use their networks to filter out good contacts from bad. Which means that the best thing a Western business can do is engage a partner who is already trusted by Chinese networks and work with that partner to earn the trust for themselves.