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Real China business advice. The bad and the ugly.

by Dan Harris in 'China Law Blog'

Stan Abrams over at China Hearsay has an excellent China post, entitled, "A Never-ending Supply of China Business Advice." The post starts out with Stan talking of how there has been so much written on how to do business in China and some of it is less than top-notch:

At the same time, a lot of this material is repetitive, obvious, and not at all China specific. Most of the low-quality drek is written by consultants looking for clients, writers looking to sell books, or bloggers looking for more eyeballs. I'm in that last category of course, so you should always take what I say about business with a grain of salt. Damn it, Jim, I'm a lawyer, not a business expert!

Stan then notes how there is no quick list of 'Ways to Spot a China Biz Poseur.' Well, no comprehensive list anyway. The post then starts talking about a brief interview Stan read over "at Gizmodo [entitled, "What It's Like To Manufacture Technology in China"] of an Australian electronics guy and his experience with Chinese factories in Guangdong. The article is the usual blend of useful suggestions, cultural stereotypes, and universal advice masquerading as China-specific insider tips."

Stan then proceeds to very effectively deconstruct much of the "electronics guy's" advice. Stan does this by focusing on the following three points made by electronics guy:

1. Adding value to a relationship. Electronics guy says one needs to add value to a relationship. Before I talk about Stan's views on this comment, let the record reflect that I have never (as in not even one time) mentioned adding value to a relationship on this blog.

Anyway, electronics guy says that his first China order was rejected as too small, but then he came up with a way to add value to his deal with the Chinese manufacturer:

and what I did was stayed up one night and redid all their marketing material. And when I was done I emailed it to them and told them 'The value in dealing with me isn't the profit you make from one container, I can add value in other areas and I really want to work with you.

"They replied nearly immediately saying thank you and accepted the order. Then about a week later they emailed me and said that because of what I helped them with, they won a massive customer in America.

Stan's interpretation of this is as follows:

Advice: blah blah think outside the box blah blah add value blah. Or something to that effect.

I'm not trying to be a jerk here, and his experience is worth noting. But let's face it, this is not really a China biz anecdote. If you are trying to make a deal with someone and the numbers don't add up, you either walk away or change the parameters of the discussion. In this case, the foreign dude found that he had something else of value to trade on.

Why I found this interesting: file this under the category of "relationships," but not in the usual hyper-inflated sense of importance that many people still place on business relationships in China. What I refer to is that when you deal with a factory, or any other business partner, you are dealing with other people/firms that also have needs and goals, which may go beyond cash and profit margins. If the deal was only about finding an appropriate price and quantity, we could probably just write an app for that instead of keeping human beings in the loop.

Anytime human beings are involved, so are relationships and the possibility for creativity. Is this really "thinking outside the box" or an exercise in common sense?

First off, I completely agree with Stan. This isn't really much for business advice. But (and maybe I am trying to be a jerk here), this particular advice is probably pretty crappy as I do not think it is repeatable. Chinese factories generally hate small orders and they also tend not to value English language marketing all that highly. I am just guessing here, but I would think that nine out of ten Chinese factories would rather have one of their own employees who allegedly speaks English do their marketing as part of their very low salary (by Western standards) and not fill the tiny order, than have a Westerner do their marketing and fill it.

2. Language vs. cultural barriers. Electronics guy says it is important to communicate effectively. I love Stan's comment regarding this advice: "OK, chief, duly noted." Seriously, how many of you did not already know this?

Electronics guy then talks of how after talking with the Chinese factory on the telephone, he follows it up with an email using Google Translate. Stan finds this silly, as do I:

First, language barriers can be huge, and while judicious use of Google Translate or similar tools can save a lot of money, you better not rely on them too much. I've always found that the best use of translation tools is when they are used by management, who already have bilingual staff handling day-to-day matters, as a way to keep up to date on current issues, the status of a deal, etc.

For example, you better not rely on a machine translation of a Term Sheet if you're negotiating a deal, but if you are supervising a bilingual lead negotiator, checking out translated emails once in a while to check up on status can be helpful.

Second, the bit about having conference calls with folks whose English sucks and then following up with emails sounds dangerous. Better than no emails at all I suppose (documenting everything is undeniably one of the best things you can do), but if the foreigners have little experience in this market, then there is a good chance that the details "agreed" between the parties over email may not really represent a meeting of the minds.

Why? Because these days, language barriers are much less important than cultural ones. You can't swing a dead cat in Beijing these days without finding someone who's bilingual, but 90% of them have no useful bilateral business experience. The negotiating parties may end up apparently agreeing on some terms, but there might be some fundamental disagreements lurking just under the surface of the relationship that won't come up until later, usually at an inconvenient time. Language comprehension does not automatically equate to substantive comprehension.

This advice borders on bizarre. My law firm has a Spain and Germany licensed attorney and so we have a number of clients who correspond with us in Spanish and in German and I am often cc'ed on those emails and, occasionally even sent some of those directly. My Spanish is weak and my German is non-existent and so I will sometimes use Google Translate to try to gauge the urgency of the email so I know how quickly I need to bring in one of our native speakers of those languages. Google Translate is great for things like this, but I would say that it typically captures only around 80-90% of these emails. If it is getting only 80-90% of Spanish and German emails, with languages very close to English, it has to be getting way less than that when the emails are in Chinese. That sort of accuracy might be good enough if you are making rubber duckies, but I do not think it cuts it if you are making brake parts.

3. When in doubt, go for a cultural mainstay.

Electronics guy tells us how to take advantage of the fact that "one of the things they all [i.e. all 1.3 billion Chinese] care about and never want to do is 'lose face':"

That makes doing business with them very easy because if you document everything and then ask 'do we have an understanding on this?' and then later down the track something doesn't go as planned, you can confront them with the emails and they're always very quick to act on it. They're very honest and they don't want to lose face, so they will do their absolute best to keep everyone happy and to keep the relationship up.

Stan notes no objection with electronics guy calling for documenting everything but he (rightfully) resents the cultural stereotyping:

Why I find this interesting: the quote has little to do with documentation and a lot more to do with lazy cultural stereotypes.

First, one should never use "they" when talking about people in another country like this. I'm not sure why, but "they don't want to lose face" sounds vaguely racist to me.

Second, watch the stereotypes and generalizations, even nice ones like "they're very honest," which is downright silly. Also, "they" might in fact not want to "keep the relationship up." Maybe the factory, after a few years, hates your guts and wants out. These generalizations about honesty and assuming that everything is happy happy with the relationship is just asking for trouble.

Stan then points out that backing down when confronted by a written document may have absolutely nothing to do with face:

[S]ometimes there is no need to bring in these culturally-specific concepts, particularly when general human psychology and common sense will suffice. Take the above quote as an example. Let's say one company documents a relationship, perhaps by holding onto an email thread. Five years later, there is a dispute, and one of the parties digs out the email and says, "See here, we discussed this and you agreed to do X."

If the other party backs down, is it because he wishes to avoid losing face? Maybe. Another explanation is that the other party made a simple mistake, you noticed the error, and the mistake will be corrected in good faith. Still another explanation is that the other guy tried to screw you over, you caught him, and it's easier for him to admit defeat that fight a losing battle. No mystery, no cultural stereotypes, just human beings interacting with each other.

Very true. I will also note that it has been my experience that an email to a Chinese factory is not nearly as valuable as electronics guy makes it out to be. I will admit that as a lawyer I am going to be called in when things have gone bad, but I have to say that I get calls from Western companies all the time who say that their Chinese factories have failed to abide by their email agreements. Having an email that says exactly what your Chinese factory is going to do is indisputably better than having nothing at all, but having a clearly written and signed contract in Chinese is going to be far better than a few emails, but even that is not a guarantee.

There are plenty of excellent China business and sourcing consultants out there with whom I (and I am sure Stan as well) have had the pleasure of working. If you are confused about how to do China sourcing, I suggest you contact one of them.

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.

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