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How To Do Business In China

Updated on February 16, 2013

I love the Chinese people. I have studied Chinese philosophy and kung fu for forty years and Chinese mysticism and Cha’n (Zen) for twenty-six years. I have the deepest respect for the Chinese people, their heritage and their culture. That being said; they are in my view, the most difficult people in the world to do business with. Perhaps I do not have the experience to say they are the most difficult, I cannot honestly say I have tried to do business within every country in the world. What I can say is that in my 38 years of international business dealings as a rough diamond gemologist, I have never met a more difficult group to work with.

Everywhere in the world you find difficulties in doing business. Some places it is culture, others it is government restrictions, regulations, taxes and fees. In some countries you have the challenge of language. My favorite of course, is the problems of corruption. In China you have all of the above and much, much more.

I do not want my reader to think I am crying about how mean the Chinese are to us poor Western business people. China has some very tough negotiators, this is to be expected. I do not have a problem with tough business men and women. As a matter of fact, tough negotiators are actually a benefit to all of us. They keep prices down and make it hard for unskilled people to remain in business. This makes it better for the people who have paid their dues in the marketplace.

My problem with the Chinese is… I must stop; I am getting ahead of myself. Before I tell you why I do not like to do business with the Chinese, let me explain some of the challenges you will face when you try to complete a business transaction in China. Let us begin with a company who would like to manufacture in China. If your company is substantial and you decide to benefit from the low wages, lax environmental regulations, cheap labor and move your manufacturing to China, here are a few issues you will have to deal with.

For the sake of argument, let us assume you cannot find a facility to suit your needs and you find you need to build a factory. The first thing you should do after you have done everything else is double your projected cost and triple the time in which you expect the project to be finished. If you are not well connected in China and are without the right people in power to pull the strings and grease the palms, you can expect it to cost you three times as much as your budget and take four to six times longer than even your worst estimate.

If you find a facility that works for you, and you do not have to build your own, expect after you move in and are all set up, to have visits from officials informing you of your many infractions and violations that were somehow overlooked when you were refurbishing the facilities to your needs. You may not like it, but you will find it cheaper to pay them, rather than to fight them. A good way to approach these problems is with this question to these officials; “What do you think it will “take” to make this problem go away?” Think you can complain to higher ups and resolve the problems? If you have this mentality, save yourself the trouble, don’t even think of trying to work in China! Now that I have scared you into contract manufacturing instead of having your own factory, let us look at the issues you will face in contract manufacturing.

The main issue is loss of control. Anyone who has manufacturing experience will tell you unless you can control production and quality, your business will most certainly fail. Contract manufacturers will lie straight to your face. They will use cheaper materials even though they have absolutely, positively agreed to use the materials you have requested. Either that or they will find corners to cut in order to drive down the cost of manufacturing. Of course, it is not you who will benefit from these savings, it is the contractor. Even when you catch them red handed they will act as if you made the mistake in your instructions and or specifications. They will tell you how sorry they are and will make the corrections. The problem is now the contractor has to find another avenue to cut his costs. You are not going to like them either. The only way you can overcome this problem is to have a Chinese American who is in your employ and who is incorruptible. He must be in the factory every day to oversee your production. Short of this, most companies can expect never ending problems with the contractors. By the way, expect within six months, someone else will be making your product down the street. Patents? Registered Trademarks? Please, don’t make me laugh.

You can be successful opening your own factory or doing contract manufacturing. It requires three things. You absolutely have to have the right connections for your product’s successful production and you cannot fail in knowing and gaining favor with the “right people” who control your industry within China. Third, you cannot succeed without a very well paid, honest, highly educated, skilled, vastly experienced, and seasoned Chinese American who is fluent not only in both languages, English and Mandarin, but also in both cultures, sensibilities and idiosyncrasies of Chinese and Western business environments. Without this person at the helm, you do not have a chance to succeed. My advice: before you spend a nickel, have this person locked in. Do not build and then try to find this person. Assuming you have solved all these issues, know that you will be faced with a continuous series of issues and you will never sleep well again.

For those who are engaging in sales in China your main challenge will be to close the deal. I know, I know, that is the issue in every deal. However, with the Chinese, you will find that even after you have done everything to build the relationship; gifts, expensive dinners, shows, and other soft costs, you are not finished. I know you have spent thousands of dollars on your travel, hotels and other expenses, and I understand all agreements have been reached. Still and all, you will find you have not made a sale. Yes, the price and terms were all agreed upon. All the “I’s” dotted and “T’s” crossed. Yet, just as they are about to sign the check, this is what will happen. They will put the pen down and tell you that the situation for them has changed and they cannot buy your product. They will tell you how sorry they are for all your trouble and expense; but really, it is out of their hands.

If you own the company, you will be flabbergasted. If you are a salesman, you are watching your career take a high dive off a short cliff. You will be in shock and you will not understand that you are being played. At this point, almost everyone who tries to sell to the Chinese will ask them these two questions; “What is this new situation? Why can’t you finish the deal?” They will calmly tell you that it is just too much money, and because of this, they must take a pass. They will then tell you that the only way they can buy this product of yours is if it is X% cheaper in price. Your mind swims and you have to make a quick decision. You can either give in to the price, or you can watch them walk away, and all the time, money and effort you have put in to the deal will be for nothing.

This is a no win situation. The Chinese are not a win-win people. They expect you to do everything you can to make as much profit as you can. They in turn, expect you to know they are going to do the same. The difference in the cultures is they do not believe the game is over until the last minute. We in the West think it is over when we have made an agreement.

It is not that they are trying to cheat you; they just play by Chinese rules, not Western morality. You are working in China, not the West. There is only one way to play in China; like a Chinese. When negotiating with the Chinese, never give your bottom price. Leave something on the table so you can still play the game. If you do this, you will make the sale and close the deal with some profit. Disregard my advice and you will go home an unhappy camper.

Earlier in this article, I was about to tell you the reason I do not like to do business with the Chinese. The truth is, I do not like to do business with the Chinese because they are better business men than I am, and that really irritates me!

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