Why do good companies stumble in China?

This is a response to a question by Dan Harris of China Law Blog Fame.

why do some companies seem to just coast into China while others stumble in and never recover?  What more should we be writing about to help those seeking to do business in China or to sell to China?

Dan, you’ve hit the nail on the head once again.  The non-business aspects of business are so much more often the sources of business failure than the numbers/dollars/dates.  I’m constantly amazed at how many foreign clients will say to me about their Chinese counter part, “Yea, they agree with how we do business, but our relationship is worth so much to them that we’re not worried about them doing X.”  And then it happens and they’re shocked that money wasn’t the most important (actually it likely was, they just figured out how to make it without the foreign company).

Like what you’ve read about in New Guinea, China to has different reactions to Westerization/modernization—not the least of which is the rise of (actually continuation of) Chinese Nationalism, that often manifest itself as spats of anti-foreigner racism.  These attitudes are very close to the surface for many Chinese and can be expressed in myriad ways that will affect business but never show up in any due diligence report.  Experiences that we’ve seen over the years include: Chinese not wanting to see foreign companies prosper (relative to Chinese), Chinese managers/owners not willing to work directly with foreigners, openly admitted anger that foreigners marry Chinese women, and a number of other personal issues.  While racism can be the worst case scenario, to say that it’s uncommon is a bit naive, I think.

Less personally offensive, but no-less destructive to business success would be business goals and objectives of local workers, political leaders and/or factory management that conflict with the business goals of the foreigner partner/buyer.  These are often never identified in any business meetings and are only understood after the fact as bits and pieces of previous experiences are revealed by individuals and the larger context is understood in greater detail.

For example, how both groups of workers and factories managers deal with holidays, over-time demands, rejected product, and criticism of work quality are examples of things that happen on almost every project that are almost always at odds with what foreign companies expect.  The ages, education and experience levels are radically different in various parts of China and so expectations for factories in Guangzhou cannot be transferred wholesale to Chongqing or Ningbo—yet many foreign companies are doing just that; “Going to China,” as if it’s just one big homogenous industrial zone.

There are too many example to cite but in the last ten years, my experience has been that “non-business” factors are much more likely to sink projects than are the numbers/dollars/dates (as those are usually contracted out clearly before hand).  As you continue to identify these cultural issues for your business professionals, you’ll save them time and money.  Keep up the good work!

Culture of Copy

The money quote from Bianca Bosker, the Author of Original Copies, in an interview with the WSJ China Real Times Reporter James T. Areddy:

“In the West there is a sense that copy is very taboo. It’s a terrible thing. It’s a sign of a lack of imagination.

“In China, copy doesn’t have the same stigma. You can have a copy and it can be a sign of technological achievement and cultural achievement and it’s not inferior.

“It’s not to say that originality is not prized; it’s to say you can copy something and that it can retain – more so than we think in the West – character and essence of the original. Likewise, to copy something can actually be to show mastery of something, both figuratively and literally. I talk about the imperial landscape where rulers would replicate the kingdoms of conquered people within their own domain to show their superiority.”

The author is specifically talking about architecture but the cultural mentality applies to manufacturing as well.

For years now, I’ve been trying to help smart people (with MBA’s and lots of experience) understand just why their NDA’s and other expertly written contracts continue to fail with China suppliers.  They look at the words on the paper and can’t understand what went wrong.  They always come back with “we followed the law” or “our relationship is so valuable they’d never do XXX,” or something of the sort.  To be honest, they are likely right on both accounts, they did it the “right” way and their relationship is very valuable.  But that’s not all that is going on.

As much as we’d like to think that everyone speaks the same language (money), there are often many other factors involved in decisions that contracts and straight-forward business deals don’t account for; not the least of which being cultural demands (that most westerners don’t even know they don’t know about) and even more money (from other deals that you’re specifically not being told about).

Probably the biggest barrier that I have in working with western companies is the belief that “culture doesn’t really matter that much” when compared to legal contracts, money, etc.  I partially agree.  You must have all your legal ducks in a row BEFORE you start working with a Chinese manufacturer (or any one, for that matter).  And you definitely need to run the numbers on both your investment and the investment (time/money/opportunity cost) of your supplier in China as well.  BUT when you’re doing all of this you must realize that even the very idea of “doing business” likely does not mean the same thing to you as it does to you Chinese counter part.  As I’ve said many times before, for most Chinese win/win is a panda bear, not a business philosophy.  Sure the business offices look the same, the books (the copies you see) look the same, the software is the same (although it’s a copy too), the suits are the same and you’re likely all speaking English too.   But the motivations, the responsibilities, the opportunities, the goals and the perceptions of who you are, what the deal means, who should get what, your ethnicity and country’s history with China, etc. are all definitely NOT the same.

The point being, just because you’re dealing with an MBA in a suit in English in an office in Shenzhen does not mean that you have anything in common whatsoever–especially your motivations and values.  To reduce your relationship down to signatures on a paper after chatting on line a few times and now meeting for the first time means that you’ll likely not get what you want this time around AND that you’ll be missing out on so many other opportunities to make money (and friends) in the future as well.

If knowing really is half the battle (thanks, Joe) then knowing who you’re working with (read: their cultural baggage) is or should be one of the most important parts of due diligence that you do when working overseas.

On a related note, here’s some background on what your Chinese counter-part is likely most worried about right now. H/T Dan Harris at China Law Blog.

What happens when the miracle is over?

Not sure yet, but it looks like it will be very very bad.  And it’s coming sooner than many want to believe.

From the article:

We now know that [rehypothecated assets] has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history, which incidentally is precisely what the central banks are attempting desperately to delay as much as possible by generating excess inflation to “inflate” away the debt, leading to rematching of finite assets and virtually infinite liabilities. Alas, in a world in which credit-money liabilities are in the quadrillions, and in which the real assets are in the tens of trillions, only hyperinflation can seal the deal.

Or, in other words, lose-lose.

Sssshhhhh…. Don’t tell anyone

From the NYT:

“China’s food-safety problems highlight both the collapse of the country’s business ethics and the failure of government regulators to keep pace with the expanding market economy. Yet an excessive focus on poor government oversight often means that the much graver problem of disintegrating civic morality is neglected.”

Add to that the fact that the economy is likely at 1% and not the 7% that is being claimed and you can see why FDI is down to 2009 levels and why unrest is more common than ever before.

The culmination of these multiple events suggests that changes, and not in a positive-way, are coming to China’s immediate future.

I’m still a firm believer that China’s economy will eventually be the largest in the world, it ought to with 1.5 billion people (and the Chinese will win more Golds/medals total than all others, etc. etc.).  But I’m much more worried that the “Chinese style” of doing business will become the most commonly exported feature of both China’s soft and real power.  The combination of “disintegrating civic morality” and wealth (an no place to invest domestically) invites the spread of Chinese business, influence, practice and corruption to other parts of world and other industries.

Now don’t claim that I’m saying China is the source of amoral business practices.  And don’t think for a second that I’m naive enough to believe that there is corruption already (at China levels?) in other parts of the planet as well.  But most, if not all of those other places, are limited in the influence their corruption can have outside of their respective locals–either due to significantly smaller amounts of money, people, resources or whatever.  China has none of those restrictions at this time and a growing sense of both entitlement (we should be the worlds super power like we were before) and nationalism.

S.N.O.R your way to China – Guide before you go. Guest Blog Post

Snoring is a type of action we do when we are not aware of it (hopefully….), it happens when we are unconscious.

I want to help fellow entrepreneurs here to get out of this unconsciousness and have a S.N.O.R plan. A VERY conscious 4 step plan to be ready to move to China.

Step 1: S for skills

Skills would be the 1st thing to develop and some would claim it would take the longest time developing it. What are the skills needed or at least recommended for a person who is moving to China.

Cultural Change – Get ready for a cultural change in the way you live and the way people around you will be. It will be annoying, tough and frustrating sometimes.

On the other hand it will be interesting, full of liveliness and challenging. Don’t be one of these people going back on the next flight possible. Get accustomed to what’s happening.

I recall that on the 1st day of work in a Chinese company I needed to call my wife because we just moved to our new apartment the previous day and there was a lot to do.

After making the phone call, I was told that no personal calls during work hours are allowed, only on lunch break or after work. This is something that western companies are more tolerant about and in China is a NO in many companies.

This is one example out of endless Challenging, peculiar and misunderstandings happening all the time!

My point is that you have to KNOW that you should suffer a cultural change. Have that in mind.

Language – Tons and tons of posts/newspapers/websites are written about Chinese language. It’s takes a couple of years to master it, which you probably don’t have, but you should be prepared with some basics.

I’ll write a separate review on some of the options out there, but here are a few main ones, you should have a look, at least to start with:

Chinesepod – One of the most known websites out there today which gives podcasts on various subjects in different levels. It’s thousands of podcasts that are ready for listening, you are talking about here.

Melnyk – Melnyk is also a popular website.  Melnyk gives a long series of lessons you can listen to. The first few dozen lessons are free and get you to a basic level to start with.

Study more Chinese – a website that cover news and findings of other readers about the Chinese language. It’s a good resource to find more materials.

Chinese hacks – Cool website that brings all tips & tricks to learn the language. Try it out to find more tools to enhance your Chinese learning experience.

Step 2: N for Networking

Networking is an art, it’s like a big game of connect the dots, and once you’ve connected then you get a nice picture of the environment that will be your play field. Generate meetings for networking. Go to conferences in your country/area got to do with China, in either industry you are at. It can be Tech, or sourcing or HR. Anything you can think of. The most important thing is getting those contacts and build your map in China.

You’ll learn a lot and feel more confident when arriving. These will also be the people that might help you to set in and perhaps your future business partners.

Linkedin groups

A different kind of networking I recommend on is using LinkedIn. Before I decided to move to China I started networking in groups about China and got connected with people that have “China” on their profile. Some of them are good friends of mine right now. After finding them, I got in touch with them and asked them about the right way to arrive & help finding a job, Etc.

To start with I recommend the following groups. There are many many more, but these are the ones I know and active at. There are valuable discussions there and more important people like you who have the same interest: China.

Recommended Linkedin groups

  1. China Expats and Returnees jobs
  2. Business in China
  3. China Business
  4. China networking group

Step 3: O for Online

Wow, this step is exploding with info! When mentioning “Online” I actually talking about blogs, you just have to pick the right place for you and things that interest you the most.

Blogs on China are endless (No, Really!) and you cannot cover them all. There are excellent blogs about technology in China (Click here for a Twitter list with the major tech blogs in China and Asia) , Business & law, Language, local info & Daily life, sourcing, negotiation and more, more &….more.

This list of links is not to be treated as ultimate or the best one, it meant to give you a taste and a place to start explore from.

Before I arrived I swallowed those blogs, I wanted to know everything that was going on. Almost every blog has a valuable blog role list, with which you can develop your interest even more.

There is even a website the collects all these blogs into one place, China blog network. CBN, lists are organized by topic so it’s easy to find what you need.

In addition, with some of the bloggers I also made some networking. This helped reaching more contacts and information I needed. I encourage you to follow 5-10 blogs that you find interesting for you. Try following those bloggers on Twitter as well. Send me a message if you cannot find the right blog for you on the subject of your interest. I’d be glad to help.

Step 4: R for Reading

Books would open up China for you like you’ve never felt before. When moving and living in China, you see the culture all around you and wonder where things were originated from and which person people are talking about.

I personally skipped this step before coming and I’m soooo sorry about it. It’s not something irreversible, but I’m feeling I’m missing a lot.

So as blogs, there are endless books about China. My wife on the contrary never stopped reading. She was reading more than a dozen books about China most of them of its modern history. So, I ask her a lot about current affairs and things I don’t understand and I emphasize that you should do it yourself.

Here is a list of HER recommendations.

  1. Wild Swans: Three Daughters of ChinaJung Chang
  2. Mao: The Unknown Story – Jung Chang &  Jon Halliday
  3. The New Emperors: Mao and Deng – A Dual Biography – Harrison Salisbury
  4. When Huai Flowers Bloom: Stories of the Cultural Revolution – Shu Jiang Lu
  5. The Chinese cultural revolution as history – Studies of the Walter H. Shorenstein Asia-Pacific Research Center
  6. A History of Pain: Trauma in Modern Chinese Literature and Film – Michael Berry
  7. Wild Grass – Ian Johnson
  8. Oracle Bones: A Journey Through Time in China – Peter Hessler
  9. i.      The Corpse Walker: Real Life Stories: China From the Bottom Up – Liao Yiwu

Click here for reading more about this list of China Books.

As my wife’s’ list is mostly related to modern history, please also check David’s additional list for business books related to China here.

After taking all these steps, I believe you’ll be more prepared and learn what’s going on in the middle kingdom.

Now, Go and S.N.O.R!


Shlomo Freund has just launched Start Up Noodle. It’s a blog with practical information for entrepreneurs coming to Asia and China. It contains information, guides on Chinese social media, best tech blogs, where should you work while moving to China, and more. Check it out