Growing in China

Image: Corbis

BAD ADVICE Sending hongbao(red envelopes of money)to government officials may backfire

A popular warning for incoming expatriate executives to China goes like this: After staying in China for a month, you will have learned so much that you want to write a book. After staying for a year, you will have learned so much, but made enough mistakes along the way, that you want to write a magazine article. After staying for a year, you will have learned so much but made so many mistakes that you don’t dare write a thing.

The perfect ending line to the saying could be “If you are crazy enough to spend significantly more than a year in China, you can write a book on all the mistakes you made along the way.”

The biggest faux pas, committed by foreign execs from within Asia as well as Westerners, is underestimating the complexity of Chinese business culture and believing too soon that they understand it. While expats from the West may more easily realise the gap in their understanding of China’s domestic business norms, Asian executives run the risk of believing they can span the gap quicker because they hail from the same region. Asian expats, including those from Singapore and Hong Kong, sometimes make serious missteps simply because they don’t know what they don’t know.

There is no magic shortcut that can channel China expertise to foreign manager; each individual must pass through an often painful learning process. Still, there is one way to fast-forward along the learning curve by showing the contrasting characteristics of humility and strength and by learning to appreciate and benefit from the concept of guanxi (connections or network).

While being humble is not a characteristic added to the resumes of most top execs elsewhere in the world, it is critical for newcomers to China. A humble mindset allows you to admit to your novice status as a China hand and thus take the steps necessary to make up for your knowledge gaps, namely by hiring or partnering with true China experts and relying on them. That mindset will make it easy to adapt the company or your operations in the many ways in which it should be “China-fied” including perhaps paying yearly employee salaries in 13 or 14 monthly increments (to follow the custom of paying an extra 1-2 months-worth salary at Chinese New Year), giving promotions to several star employees at the same time (in order to avoid a loss of face that could bring on the resignation of a star player) or offering a faster career track in China because uber-ambitious young professionals demand an advancement pace that would likely be impossible at your company headquarters.

Adopting a humble attitude and open mind when confronting confusing business situations is essential to solving problems in China. Consider this case of severe information gap, handled with humility by a US real estate developer expatriate which resulted in a happy ending. Despite years of China experience, the developer was bewildered when the master plans he submitted to the Minhang District of Shanghai were rejected for this reason: One-third of the planned apartments were facing north. Instead of becoming frustrated at this seemingly nonsensical official decision, he realised that he must be missing crucial culture-specific information. After persistent but patient search, he learned the local land-use planning committee had been sued by a Chinese resident whose apartment faced north, due to the bad Feng Shui caused by living in an inauspiciously situated apartment. After that lawsuit, the local government decided it would never again approve a north-facing apartment. How did the developer get around this edict? He argued (successfully) that the government ban on north-facing buildings should apply only to those renting to Chinese nationals, and he promised to rent his apartments only to foreign nationals.

Humility and adaptability is only one half of the correct China mindset for foreign managers. Strength and inflexibility are equally crucial qualities. Your success in China will also rely upon your ability to maintain certain aspects of your business practices without changing for China. The challenge for every foreign manager in China is to determine when to show humility and adaptability by following Chinese norms and when to show strength and inflexibility by maintaining your home-country norms. Much of an expat’s working life in China focusses on making this decision, again and again.

Deciding when to go native in business practices can be extremely difficult. Consider this situation, described by one Singaporean manager operating in Western China: Imagine your company is entering a new city in China and seeking government approvals for your company’s planned project. Your government relations director advices hiring a friend of his, a consultant who specialises in good relations (guanxi) with officials. On your first meeting with the prospective consultant, he advises that you offer hongbao (red envelopes of money) to each of the 20 officials involved in your case — if you deliver the RMB20k, he’ll quietly distribute the envelopes.

Image: Justin Guariglia/ Corbis

HEADS UP Adapt to chinese business norms while protecting your interests

Should you do this? After all, the expense is small if it guarantees government approval of your business license, and hongbao is part of Chinese New Year celebrations. The answer: This is one instance when strength and inflexibility is in order. The Singaporean manager explained several strong reasons against using this method of guanxi building. First, once you start down the slippery slope of offering gifts of cash, you may invite in a flood of similar requests. Second, using a middleman is risky — you never know whether or not he actually delivered your money to the officials. Instead, it is better to play your ‘foreign card’ in such situations, and take a zero tolerance attitude toward any behaviour that would be considered unethical by your company.

On the other hand, refusing to spend any time understanding the Chinese concept of guanxi is also unwise. Therefore the last essential skill for expat managers in China is “appreciation for and use of guanxi.” Let me clarify, as my expat manager interviewees clarified to me, that guanxi is not (or not always) a nice way of saying corruption. In China, the term refers to a broad concept of networking that permeates not only business culture but also personal life. Newcomers to China are advised to appreciate and accept the positive aspects of guanxi, realising that, for example, the line between professional life and personal life are often blurred in China. Because of this, the Chinese style of doing business requires that you first befriend someone, then ‘talk shop.’ In the eyes of government officials, it is natural, then, that they first get to know you as a person through several goodwill building meetings, then understand your business proposition, and only then approve your project. Once you understand this mindset, the concept of guanxi makes more sense. While expats in China can (and must) avoid crossing the line into corruption, they can (and must) still respect the concept of making friends.

There are many examples of good (non-corrupt) guanxi at work, used by interviewees across a range of different fields. For instance, GE, which operates one of its international corporate learning centres in China, told of regularly inviting Chinese officials to attend training courses related to their industry. Others make use of lunches and dinners, corporate retreats, or conferences as opportunities for building relations with officials without crossing ethical lines.

Let me end with a very clever example of foreign managers who maintained core standards (strength) while adapting to some aspects of Chinese business culture (humility) while respecting the Chinese concepts of guanxi to create a true win-win. This example comes from an unlikely source. A few years ago, the Quality Brand Protection Committee (QBPC) of the China Association of Enterprises with Foreign Investment, an association representing foreign brand name luxury products, was embroiled in acrimonious discussions with local governments and police units across China over IPR (intellectual property rights) infringements. A trip to nearly any of China’s street markets openly displayed fake Gucci bags and Nike shoes, as well as pirated Hollywood and Bollywood movies openly for sale. Many local-level Chinese officials and police felt they had far more pressing matters to address than protecting the brand names of wealthy foreign purse-makers or overpaid movie stars, especially when crackdowns often meant taking paying work away from poor families in the underdeveloped regions of China.

After years of stalemates, the QPBC came up with a brilliant solution. Instead of continuing to point out the faults of the Chinese legal and law enforcement system, it decided to create an “Outstanding Crime-Solving Award” designed to recognise Chinese police units that had cracked the largest IPR crimes.

The award won government support from the Chinese Ministry of Commerce and suddenly became highly prestigious. By 2005, the QBPC was offering 10 awards per year open to police units in all provinces of China. The award system turned ‘us against them’ confrontations into ‘us with them’ cooperation: Today, the government and police units work with the QBPC to supply leads in solving IPR crimes — an excellent example of foreign managers adapting to Chinese business norms while protecting foreign business interests, and establishing good guanxi along the way.

Laurie Underwood is director of external communications & development at the China Europe International Business School. Together with CEIBS Professor Juan Antonio Fernandez, she co-authored China CEO (John Wiley, 2006) and China Entrepreneur (John Wiley, 2009). She has worked in greater China since 1987