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The importance of personal contact in trading with China.

The People's Republic of China (PRC) is emerging as an important trading partner of the U.S. Two-way trade between the U.S. and the PRC has grown from $2.3 billion in 1979 to $20 billion in 1990. Through a series of economic reforms, China is transforming her economy into a market-oriented one. With her enormous population and steadily increasing buying ability, China possesses the potential to become the biggest market for American industrial and consumption products in the coming decades. In addition, by importing lower-cost materials, parts and equipment from China, U.S. firms can obtain a comparative advantage in production to compete in today's global market. Acknowledging this potential, many American companies are eager to enter trade relations with China.

This note suggests that establishing effective personal contact is the key to successful trading with China. The emphasis on personal contact is especially acute in exploring business opportunities in China, where backwardness of market development and incompleteness of the legal system have made conducting business very difficult for westerners. Therefore a well thought out plan should include procedures for maintaining the contact one intends to establish. The ability to adapt to the Chinese business environment requires not only up-to-date knowledge about the country and the industry concerned, but also, and more important, a good personal relationship to solve problems arising from the entire business process.

The business process of trading with China can be summarized as follows:

1. Searching background information about potential Chinese trading partners and manufacturer. This information should include the structure of the companies. In addition, the person in charge of both importing or exporting and who has good control over his suppliers and customers should be identified.

2. Negotiating prices and terms of payment once the target trading partners are selected.

3. Implementing the contract. This step requires much effort to solve potential problems, such as delays.

The key factor which makes the whole process smooth and efficient would be effective personal contact established by the American company and its Chinese partner. The establishment of such a relationship relies largely on the understanding of Chinese culture as well as business environment, norms and practices.

Effective personal contact provides the starting point to find the relevant information. Beginning in the mid 1980s, China allowed a number of large enterprises to contract directly with foreign firms. Although much exporting continues to be carried out by government-controlled foreign trade corporations and agencies, western firms can no longer focus only on key government personnel. They now have to deal directly with a large number of somewhat independent companies. However, the entire Chinese economy is still highly inefficient in terms of information availability. Information concerned with most opportunities is not readily available in official publications, and U.S. firms must rely on personal contact to find the most relevant and complete information about the Chinese partners and their reliability.

Effective personal contact can greatly help to solve problems arising from the negotiation, production and delivery process. Business norms in China are quite different from those in the U.S., which results in different business behavior. For example, delays during the negotiation process and in delivery are very common in doing business with China. First, many Chinese people simply have no strong feelings about time (see also Frankenstein 1986). The concept of "time is money" is hard for them to visualize because of the system in which they are living. Therefore, a few weeks, or even a few months of delay does not seem to be a big issue. Second, some Chinese managers hesitate to make decisions because of the fear of political punishment following a mistake, and they tend to leave decisions to upper level managers, who tend to repeat the same behavior. Third, the Chinese economy is still under a central plan and everyone does what he/she is told. This results in lack of interdepartmental coordination and therefore reduces efficiency. All these factors, plus political scrutiny have made the business process in China very lengthy.

The best way to deal with delay and other problems is to get the right person at every business stage with the ultimate authority in decision making.

The reason why personal contact carries such importance is the somewhat mysterious element of "friendship" in Chinese business culture. In Chinese society, personal relations or connections (guan-shee) are always ranked very high; this is also true when it comes to foreign trade. By tradition, Chinese business has been conducted under the "moralistic notion of friendship." (Sheng 1979) As a result, friendship is commonly used by the Chinese in judging the potential of a successful business, and the sense of trust thus created is highly valued by Chinese partners. The reason is simple; western business norms are still foreign, and a sense of trust can greatly reduce the fear of uncertainty in doing business with foreigners. Thus, American companies who are interested in establishing business relationships with China should try to create an impression of sincerity and trustworthiness. Once this is established, they will find that the trading partners in China are willing to work with them to clear the roadblocks as much as possible.

The way to establish effective personal contact with Chinese partners is to understand the local culture and business norms and to incorporate this knowledge in effective communication with them. Besides, a demonstration as a well-cultivated person will most likely win the trust and respect of Chinese partners since traditionally Chinese people place a very high value on cultural literacy. Therefore common sense should be used to find some topics that Chinese partners can share; for example, history, fine arts, and literature whenever appropriate. The best time to do this is usually at a banquet or during a sight-seeing trip.

Gift exchange is another helpful approach to build up friendship with Chinese partners. In Chinese culture, gift exchange is a tradition to express one's respect and wish to enhance friendship.

Another key point, discussed by several researchers, is the problem of "face" in communicating with Chinese partners (see, for example, Frankenstein 1986). The "face" problem needs to be handled carefully especially when disagreement occurs in negotiation. Although the Chinese claim that they always appreciate frank confrontation, they will not mention that this only works under the condition that their face is properly saved. Therefore it is necessary to be diplomatic in the choice of words and manner, especially when there is a need to make a negative comment. In this situation it is not what one says but the way it is said that matters.

Conclusion

To summarize, the complexity of doing business with China mainly comes from the political, economic, and cultural differences. Business norms in China have been changing and are becoming more compatible with international codes and norms after a series of economic reforms. However, China is still a developing country with a strong government in control, where backwardness of market development and an incomplete legal system have made business very difficult for westerners. As a result, it requires effective personal contact to find the trading partners in China, to start the business, and to solve the problems arising from the business process. Understanding Chinese social and business culture is the first step to establish effective personal contact. Given the nature of the Chinese economy and the large potential of the Chinese market, doing business with China requires a continuous process of learning, caution for instability, and flexibility to catch opportunities.

References

1. Bureau of the Census, U.S. Department of Commerce.

2. John Frankenstein, "Trends in Chinese business practice: changes in the Beijing wind," California Management Review, Fall, 24(1): 148-160.

3. Richard Sheng, "Outsiders' perception of the Chinese," Columbia Journal of World Business (Summer 1979).

Dr. Cheng-Ho Hsieh is Assistant Professor in the Department of Economics and Finance, College of Business Administration, Louisiana State University, Shreveport, La.; and Chiping Liu is Market Analyst for Lavalco. Inc., Shreveport, La.
COPYRIGHT 1992 St. John's University, College of Business Administration
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:The Forum
Author:Cheng-Ho Hsieh; Chiping Liu
Publication:Review of Business
Date:Dec 22, 1992
Words:1322
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