18 Jun How business is REALLY done in China
In the United States, we have a “professional decorum” we abide by. We believe handshake agreements should be honored (even though we still get contracts in writing). We believe that the home life and the business life should be separate, but balanced. We believe that business should be open, honest, forthright, and transparent. Americans are just too lazy to deal with “drama” in their business relationships.
In China, it’s not so simple.
To begin to understand how the Chinese do business, you must first understand the concept of “face.”
Face refers to someone’s personal honor, but in reality, it borders on hubris. Each Chinese has a certain amount of face (pride) they must maintain – regardless of the situation, and regardless if it bears utilitarian fruit. In fact, a Chinese will willingly “shoot themselves in the foot” if it gives them Face among their peers or family members. In the United States, the closest thing we have to Face is conspicuous consumption – buying the car or the house you cannot afford in order to “look rich” even though you’re living on a mountain of debt.
But Face is much more than that.
- Face means not talking to your children for years because they publicly disrespected you – even though you miss them so horribly, you’re sick to your stomach every day.
- Face means making a bad business deal (where you lose money – and you knew you were going to lose money) in order to give someone else face who has a higher perceived social station than you.
- Face means taking advantage of foreigners who are trying to open up China because a) they don’t know better, and b) they may not be back for a long term relationship.
Face is tricky. Face is the primary reason Chinese have no work life balance.
Work Life Balance is Non-Existent in China
Chinese wrap their personal identity up with their profession. All too often, Chinese are sucked into dinner engagements when they would rather go home to their family, which end up becoming all evening engagements that keep them out until 2am. And it doesn’t happen once or twice. It happens over and over. So, why doesn’t the employee say no? Face. They cannot cause their boss to lose face, or they may lose their stature in the company – or worse – they may lose their job.
And, because everyone is always beholden to someone else in the business world, no single person is exempt from this plague. The secretary is forced to accompany the boss to a working dinner. The boss is forced to go to a working dinner because the client asked them to do it. The client asked them to because someone else in their company wanted an update at the last minute, and the evil cycle continues. Chinese deal in a currency that doesn’t fold and doesn’t jingle. The currency of Face has thousands of years of cultural history, and it’s the strongest currency in China.
How business is really done
Chinese don’t discuss business in business settings. They don’t do things in-step with how we do things either. The best way to explain how Chinese execute business is to regale you with one of my experiences sourcing a relationship for a client in China. In one of my trips to Baoding, a small town south of Beijing where we were helping a client get a relationship and a contract with a factory, I arrived on a Monday. The factory owners sent a car to pick me up from the Beijing airport, and brought me back to their offices. But, we didn’t go in.
“Have you eaten yet?” the owner asked.
Even though I had eaten, I answered: “Nope. Not yet. You?”
He chuckled and pointed to his surrounding staff members and said: “Let’s go eat!”
We all piled into his Mercedes Benz and drove off towards the section of the little town where all the restaurants were. They clearly had a particular restaurant in mind as we pulled in. We unloaded from the car, and began to walk to the restaurant. I was very careful to position myself in the parade of individuals heading towards the restaurant. I walked behind the factory owner, but in front of everyone else to underscore my position amongst them.
Upon arriving, we sat around a large, circular table. The largest the restaurant had. The factory owner had specifically requested it, which meant he was serious about doing business with us and was happy to have us there. When the waitress came to take our order, I counted the dishes ordered. If there were 8 dishes being ordered, we would have good negotiations this week. 1,2,3,4,5,6 dishes ordered. Then, he turned to me and asked: “What do you want to eat?”
Ordering food at a buisness meeting in China is an artform. Order the wrong dish, and you’ll insult your counterparts. Order something too cheap and you’ll insult them. Order something too expensive, and you’ll come off as presumptuous. I knew I should order two dishes to round out the 8 dish rule that denoted I was keen on doing business with them.
“Szechuan Garlic Flavored Eggplant” I told the waitress. The Chinese at the table nodded in agreement. They were satisfied with my choice.
For the next dish, I played the culture card.
“What is the specialty dish of Baoding?” I asked the factory owner.
“Niu Bian” he replied with pride.
I knew that “niu” (牛） was beef. And, I had heard this “bian” thing before while living in China, but could not remember what it was. I did, however, remember that people ate it quite frequently.
“Lets have that as our 8th dish” I replied.
There was much rejoicing as the factory owner ordered a plate of Brased Beef Bian.
We discussed American politics. We stayed away from Chinese politics and religion. We talked about the history of Baoding and its role in the Empire of old.
The dishes began to arrive.
One by one the waitress placed the dishes on the lazy susan. She announced each one as she placed it on the table.
Then, the “nui bian” arrived. Everyone eagerly awaited that dish. And, nearly instantly, offered some to me.
“It will increase your Yang energy!” the told me. (Yang energy is the Chinese traditional name for male sexual prowess and stamina).
I smiled and praised it’s “Yang energy boosting powers” openly as I scooped a large helping into my bowl of rice.
It was good. A little spongy. But it was good.
We continued to discuss current events.
Halfway through the dish I realized that “bian” was Chinese for penis. I was eating Bull Penis. It phased me for a moment, and then I continued to enjoy our conversation.
The check came.
I fought with the factory owner over who would pick up the check. Fighting over the check is an artform as well. You cannot cause the other party to lose face, but you cannot let them simply buy the dinner or you will lose face. Fight for too long, and they lose face. Give up to easily, and you lose face. It’s the cultural equivalent of the mating ritual of the birds of paradise.
Eventually, I let him have it. It was required that he buy the check because I was the customer, and 7 of the 8 people at the table all work for him. It was a settled matter from before we entered into the restaurant. But the dance must be danced.
They took me back to my hotel.
The next morning, a car arrived to pick me up for breakfast. They wanted to take me to a nice restaurant for breakfast, but I told them no: I wanted dumplings. They grew giddy with excitement. The fact a foreigner was asking for this as a breakfast meal meant he was no ordinary foreigner. He understood the Chinese people. After breakfast, we went to a local monestary where the factory assistant showed me “the sights.”
Nearing lunch time, we drove back to the factory to see the owner. “Where shall be eat lunch today?” I asked.
“You want more Bull Penis?” he replied with a sly smile.
“My Yang energy can never be too high.” I replied.
“But, if there are any other traditional specialty dishes special to this town, I would like to try those as well.”
He grinned, and chose a new restaurant for another great meal.
Again, we talked current events, what was life like in American, and the classic: “How long did you study Chinese before you learned to speak it so well?”
As lunch grew to a close, the owner said: “Come back to the factory with me. I’ll give you the tour.”
Once back to the factory, we walked through the production areas where they welded steel into shelving. We saw the ovens where they baked on the rubberized paint before those shelves could be readied for shipment to their current customer. At the time, I was sourcing a factory who could make these type of shelves (that you most frequently see in refrigerators) for a client who was selling them to a certain “refreshing” company who’s famous red colored product was native to Atlanta. This factory had been making refrigerator shelving for Haier, which is the equivalent of Whirlpool in China – a huge appliance manufacturer.
The owner proudly explained how they were using modern Japanese management techniques, and how they were able to efficiently create their products and ship them with minimal quality issues. Further, he explained their QA processes which caught all the defective pieces before they were shipped. It was an impressive operation.
Once the tour was over, it was time to eat again. And again we went to a restaurant, ordered 8 dishes, and basked in the joy of Chinese cooking and culture. This time, they brought out the hard liquor.
Chinese make many decisions based on “who can drink the most,” but being a foreigner gives you an out if you know how to do it without causing your host to lose face. I ordered a few bottles of red wine, and told them: “I am allergic to alcohol, but I am happy to toast you with some red wine to express my sincere appreciation for your hospitality.” The red wine flowed, and I was always careful to keep my glass full – and never drink too much at once. When there was a toast to be made, I needed to participate, but I did not want to be crawling out of the pub at the end of the night.
At the end of the night, we danced the “who picks up the check” dance, and once again, the owner picked up the tab.
The owner and his right hand man hailed me a cab back to the hotel. They rode with me so we could continue our long discussion on the state of television game shows.
The next morning, it was time for me to return to Beijing. The factory owner, his VP, and his secretary came to the hotel to pick me up and take me to the train station. We had not gotten breakfast together that morning. Most likely it was because I was the only one not hung over.
The owner’s secretary was driving the car. Half way to the train station, the factory owner turned around from the front passenger seat, and said: “I think we can do business.” He and I spent the next 20 minutes of the car ride discussing the terms of the deal including pricing, lead times, and other details. The deal was made in those 20 minutes.
The Take Away
Chinese don’t have credit scores. They don’t have Dunn & Bradstreet. They don’t have a legal system that can effectively reach from province to province. They test your mettle and personality through various, indirect means. They first decide if you’re a person that they like before they decide if you’re a person they can trust. If you’re a person they can trust, you’re still not necessarily someone they can do business with. Chinese know that all transactions carry risk – financial risk, face risk, risk of inconvenience. Chinese commonly rip each other off, and then just move to a different province where they can continue to live out their days unmolested by those who they ripped off. There are simply too many people in China to be able to go after “a bad guy.”
As such, they are all very cautious about who they do business with. The relationship is everything. During my trip to Baoding, I spent two days building the face of the factory owner, establishing myself as someone who understands the Chines people, language, culture, and history, and proving that I was likable, trustworthy, and someone who they want to do business with.
When all those per-requisites had been satisfied, the factory owner was willing to come to the table. He became open, transparent, and was looking to make a good deal that both of us would benefit from.
After I had unlocked the relationship, we served as the conduit for this client to get what they needed from the factory. We negotiated pricing that was so favorable, our client here in the United States was able to deliver product to his client for less than his competitors could even manufacturer it. He was able to corner his market.