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Selling to China: A Guide to Doing Business in China for Small- And Medium-Sized Companies

Selling to China: A Guide to Doing Business in China for Small- And Medium-Sized Companies

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by Stanley Chao

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The conventional wisdom that only large corporations can do business in China is a thing of the past. Small- and medium-sized businesses today enjoy the same opportunities in China once granted only to large, multinational conglomerates. In Selling to China, author Stanley Chao helps all businesses

• learn effective ways to deal with Chinese


The conventional wisdom that only large corporations can do business in China is a thing of the past. Small- and medium-sized businesses today enjoy the same opportunities in China once granted only to large, multinational conglomerates. In Selling to China, author Stanley Chao helps all businesses

• learn effective ways to deal with Chinese businesspeople and private and state-owned companies;

• analyze whether certain products or services are viable for the Chinese market;

• understand the psyche of the "Mao Generation" Chinese who are now China's business owners, executives, and government leaders; and

• develop low-cost, market-entry strategies

Filled with clear, tangible steps and applicable personal anecdotes, Selling to China bridges the gap between Western and Chinese cultures, languages, and histories to help businesses enter the Chinese marketplace.

Editorial Reviews

Library Journal
A consultant to foreign companies doing business in China, Chao sets his book apart by targeting smaller businesses and insisting on practicality. The son of Chinese immigrants to the United States, the author emphasizes what is necessary for operating successfully in China, as opposed to instructing readers about cultural details such as gift giving or dining etiquette. Topics include the fluid interpretation of contracts in China, the profit-seeking pragmatic nature of the generation that came of age under Mao, negotiation how-tos, and the importance of hiring a good translator and a Chinese lawyer. He discusses setting up foreign enterprises in China and warns against becoming involved in joint ventures. Using examples from his own experiences, Chao writes in a straightforward conversational style. VERDICT A useful book aimed at serious entrepreneurs ready to enter the China market. Recommended.—Susan Hurst, Miami Univ. of Ohio Libs., Oxford
Kirkus Reviews
Chao, a Chinese-American who's worked and consulted in China for years, offers commonsense tips and offbeat takes on doing business in the world's most populous country. Though China's startling growth attracts swarms of foreign capitalists, prospering in China is no easy feat. As elsewhere, success requires plenty of preparation. Owners of the small and medium-sized businesses this book targets must scope out the market warily: "Don't ever follow your gut instinct in China. It will lead to indigestion." Laws in China are in constant flux and subject to selective enforcement; contracts are considered gestures of goodwill rather than legal binders, and corruption is rampant. Despite the caveats, Chao sees ample opportunity for those willing to work hard and be careful, so he offers detailed instructions on how to find good markets and partners, avoid problems with competitors and succeed at the ancient Chinese art of haggling--"an emotional roller-coaster ride of anger, ridicule, disappointment, grief, and then finally confusion." It all boils down to one essential rule: Trust no one, which is probably good advice in any land. Chao bolsters the book's lessons with colorful examples of Chinese partners absconding with foreigners' funds and other deals with laowai (foreigners) gone awry. Checking out a list of supposed business references by phone, he hears "babies crying or grandmas screaming that dinner was ready." Short executive summaries cap each chapter, along with a final list of "13 Rules for Doing Business in China," which includes "Sweat the Details" and "Never Do Joint Ventures." The book takes a refreshingly nuanced stance on oft-repeated platitudes about Chinese cultural traits such as guanxi--connections--and mianzi, or face. An occasional cliché mars the prose--"as they say, ignorance is bliss"--but overall, this is a tightly written, sometimes even entertaining account of real-world business tactics and strategy, rather than just another boring business book. A broad, worthy compendium of business tips to succeed in China.

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Selling to China

A Guide to Doing Business in China for Small- and Medium-Sized Companies

iUniverse, Inc.

Copyright © 2012 Stanley Chao
All right reserved.

ISBN: 978-1-4759-1178-7

Chapter One

Debunking Conventional Wisdom

One of the things I do with new consulting clients is give them a crash course on what to expect in China, especially if they have never been there. Of course, we'll discuss some of the basics: history, politics, law, culture, and business strategy. Invariably, I get odd questions: "Do Chinese wives have to walk three steps behind their husbands?" "Will monkey brain be served at our business dinner—and is it rude if I don't eat it?" "Should I not openly disagree with our Chinese partner so he can save face?" Though I have eaten some strange things—beaver, donkey testicles, scorpion, silkworms—I've never come across monkey brain. Other more conventional questions concerning guanxi, socializing, Confucianism, and trust come up as well.

My guess is that these queries came from embellished anecdotes, old Charlie Chan movies, or, even worse, from books written about China in the 1980s and '90s. After so many of these entertaining but disturbing questions, I want to finally set the record straight on these folklores.

This chapter will be devoted to debunking many of the half-truths and sweeping generalizations about China that oversimplify, trivialize, and don't do justice to how business is really conducted in China. Authors, Chinese experts, and consultants exaggerate the importance of these principles to the point that businesspeople become confused and lose track of what made them successful in the first place. When I interviewed Christopher Wright, the Australian government's senior trade commissioner based in Shanghai, he showed me a manual written by a consulting company that described dos and don'ts to observe while doing business in China. Using cartoon scenes, it was a serious attempt to describe cultural and behavior etiquette differences. One of the comic strips showed a foreign businessman fumbling for his business card in one hand while reaching for his Chinese partner's card with the other. A second scene has a foreigner taking notes on the Chinese person's card while the Chinese contingency looked on in obvious anger.

"It is material like this," says Wright, "that confuses foreigners. They mislead companies out of good common business sense and commercial practices into thinking that some black magic exists for success in China. It's all made up by these consultants. At the end of the day, practical business sense will determine if companies succeed in China—nothing more, nothing less. We lose focus, lose clarity, and dive into the black magic."

Many of the how-to books for MNOs stress certain mannerisms, behaviors, and proper etiquette. When General Electric's CEO meets a senior Communist Party official in Beijing, I agree that some of the conventional wisdom still applies: Everything said and done at this meeting is on record for all the world to see. Indeed, it would be embarrassing for General Electric's CEO to be seen fumbling with his chopsticks or eating with a fork while others are using chopsticks. But SMBs will rarely face such pomp and circumstance, so don't fret if your chopsticks skills need improvement. For SMBs, much of the conventional wisdom does not apply, or at least it should not be a central focus in a meeting or relationship. At the end of the day, foreign businesspeople must be comfortable in their own skins and not always focused on trying to be people they are not or pleasing their Chinese counterparts. This unnatural behavior is a recipe for failure.

Guanxi: It's Not That Important

The term guanxi refers to a person's connections; in particular, it refers to people in influential or higher positions who would be willing to perform favors for you—knowing, however, that these favors will undoubtedly be reciprocated sometime in the future. Expressions like "I owe you one" or "I'll scratch your back if you scratch mine" are synonymous with guanxi.

The cultural difference is in the degree of the favors. In the West, we tend to use guanxi for something special or out of the ordinary, such as securing hard-to-get basketball tickets from an old friend, borrowing money from a family member, or asking a business associate for an interview for your son or daughter. In China, however, guanxi was a matter of life and death. The Chinese, having lived in poverty for the past two thousand years, used guanxi to get the basic necessities of life: food, clothing, and shelter. Without guanxi, you were alone, out to fend for yourself.

During Communism, anything that was in short supply or that needed an official's signature—entrance into college, a train ticket, or a job—was obtained with guanxi. Having a relative or friend in high places meant a ticket to better government housing, a higher-paying job, and access to Friendship Stores where you could buy hard-to-find goods, such as Cadbury chocolates and American-made soap.

Similarly, foreign companies in the 1980s and '90s ran their China businesses based on guanxi rather than good, solid business practices. This is precisely why only the MNOs could lay claim to China at that time. Besides having money, they nurtured and captured guanxi over periods of five to ten years before seeing any concrete progress. Relationship building with the Communist officials who wielded all the business power at that time was slow and cumbersome.

My aunt who lives in Wuhan, a city in central China, gave me an example of how she used her guanxi. In the early 1970s, her son, just married, wanted to move out of the family apartment. Most Chinese at that time lived in government-owned apartments, and these were always in short supply, sometimes requiring a four- to five-year wait. My aunt, who had been an elementary school classmate of a Wuhan Communist Party official, had dinner with him and explained her son's situation. Over the next few months, she showered the official with gifts and food. Her son magically moved to the top of the list and was soon living in one of the better apartment complexes in the city.

Here's another example: In 1987 I went to Northeast University in Shenyang with my father, who was teaching a summer course in electrical engineering. The university sent a junior professor, Mr. Ding, to pick us up in Beijing, where we were to stay overnight before continuing to Shenyang. On the morning of our departure to Shenyang, the professor incessantly told us how he had waited at the train station all day to purchase our train tickets. He explained how difficult it was to obtain first-class tickets given the shortage of seats, and how he had to use his guanxi to get these prized "soft" seats (the cushioned seats that were only available in first class).

This continuous nagging went on the whole week. Everything Mr. Ding did for us required a lecture on how difficult it had been. "It took me five days to get the best rooms at the hotel for you. I went all the way across town to buy an overhead projector for your lectures." Why was he telling us all this? Did he want money? We found out two months later when we returned to the States: we became his guanxi. He wrote us letters asking us to sponsor his tourist visa to the United States and to send foreign engineering textbooks and English-language courses on tape. Later he pleaded with us to sponsor his children to attend American universities. His requests were never-ending.

Things are very different in China today. Guanxi just isn't that important anymore, or at least it is equal in importance to having connections in the West. The higher standards of living for millions of Chinese have reduced the necessity for guanxi. Food, shelter, and clothing are readily available to a growing Chinese middle class. There is certainly no short supply of airplane or train tickets unless one is traveling during the holidays, and then it might be advantageous to know someone at the Ministry of Railways.

Modern and updated laws and regulations in China have improved conditions over the past twenty years, thus reducing the need for guanxi. Though sometimes still backward, there are now procedures for getting things done. Take foreign travel as an example. Before, you needed guanxi with high government officials to obtain a foreign visa to travel abroad. Today, as long as you can show a return ticket and enough money to support the trip, you can go just about anywhere in the world. The same goes for applying for a driver's license, seeking medical attention, or registering a company.

The mobility of the Chinese is another reason for the lessening importance of guanxi. Before, Chinese families lived in their hometowns for hundreds of years, never moving. They knew their neighbors from many generations back. The guanxi was deeply rooted and uncompromising. Go to one of the big cities today, such as Shanghai or Guangzhou, and I'll guess it's a fifty-fifty split between locals and out-of-towners. This "transient" trend is a result of the central government's push to drive rural Chinese to the cities. Most of the migrants are young Chinese seeking a better life, and they are relying more on their education, intelligence, and self-reliant attitude to get ahead—not on traditional guanxi.

What lesson is there for SMBs? Don't let anybody tell you that guanxi is an absolute must for doing business in China. It's just not that important anymore. Of course, it won't hurt to have guanxi, and you might get things done faster or gain better contacts and meetings, but just like in the United States, diligence and tenacity will still pay off. At the end, the forces of business—product, price, quality, and competition—along with hard work, will decide your fate in China, not guanxi.

"I divide my customers into two groups: the older generation in their forties and above, and the Generation X group," says Gary Chan, a twenty-five-year veteran of working in China and current general manager of Lenze Motors China, a German servo motor manufacturer with factories throughout China. "I need to build guanxi with my older customers with the traditional customs of dinners, karaoke, and small gifts. This means a lot to them. For my Generation X customers, I get business because we deliver good components, having nothing to do with guanxi. Regardless of my relations with them, they'll drop me if my pricing or quality is poor. Times are changing."

In 2005, my client, a medical imaging company, wanted to license its technology to Mindray, a Chinese medical company specializing in patient-monitoring and medical imaging equipment. I had no prior business with them and searched my Rolodex for contacts but to no avail. I then made phone calls to the Shenzhen headquarters and sent e-mails and faxes. No replies. I finally found a manager at their US headquarters. We met, but he didn't pass my business proposal on to the home office. This mindless searching for contacts went on for months.

But I wasn't about to give up. I went to Mindray's booth at the China International Medical Equipment Fair and found an executive who eventually set up a face-to-face visit for my client. Unfortunately, things did not work out between the companies as the American company's technology was priced too high for what the Chinese market could bear at that time, but it shows that hard work and diligence is just as good as guanxi. Having guanxi would have saved me a few months, but the results would have been the same.

Don't Lose Face over Mianzi

Mianzi or "face" is a very important concept for the Chinese. It's your reputation and how people look upon you. There are expressions in Chinese that allow a person to give, lose, save, or gain mianzi. Mianzi is not difficult for foreigners to understand, as we are keenly aware of our own and our colleagues' reputations. English expressions like "making me look bad" or "showing me off" carry the same meanings as mianzi. Mianzi, however, takes on much more importance for the Chinese, as they see it as one of the major focal points in any business meeting or relationship. For Westerners, mianzi takes a secondary position; it is not something they really think about once a meeting or relationship commences.

When doing business for my clients in China, I'm often confronted with the mianzi dilemma. I'm American Chinese, but I'm seen as a full-blown Chinese by my Chinese counterparts. They expect me to act Chinese, and the mianzi concept plays a big role in acting Chinese.

In the spring of 2007, I was searching for a new distributor for my client, an American enterprise software developer. I met with a small distributor in Shenzhen. After an hour of introductions, I doubted very much they could readily sell my client's software. I was ready to leave but could not just say, "You're too small a company and have no technical capabilities, so let's end this meeting now." For the sake of mianzi I begrudgingly spent the entire day with them exchanging pleasantries and asking them detailed questions about their company as if I were still interested in working with them. After dinner I had to finally refuse their karaoke invitation, and I went back to my hotel, upset that I had wasted the whole day.

Because I look and speak like a local Chinese, I feel obligated to act Chinese and make mianzi a priority in my Chinese relationships. MNOs must also do the same since they are usually dealing with large state-owned enterprises (SOE) where high-ranking Communist officials sit on the management teams. These Chinese statesmen are traditionalists and value the old ways. But I tell my SMB clients to not put mianzi in the forefront of any meetings or business relationships. In most cases the SMB's Chinese counterpart is also an SMB, and they are just like you: direct, short on time, and very pragmatic. The owner is probably young (in his or her forties) and would also prefer to dispense with the old customs.

In sum, don't get so immersed in mianzi that it takes away from your immediate purpose and goals. Don't be somebody that you're not. It's difficult to act Chinese, and the reality is that the Chinese don't expect you to act Chinese either. Be yourself, be polite, and be mindful of respecting your Chinese partner just as you do partners in the United States; but don't shy away from asking tough questions, cutting a meeting short, or abruptly ending a relationship. The Chinese will do the same to you.

Drinking and Socializing

Is all this drinking, eating, and singing absolutely necessary? Will the business relationship be affected if you don't attend these events? Conventional wisdom says yes. Most experts and books about China preach that socializing creates the bond and trust in the relationship; for the Chinese, the everlasting friendship developed over these social activities is worth more than any signed contract one could ever hope for. For MNOs and their executive management, I agree the entertainment activities are a must. The foreign MNOs are depending upon the Chinese government or state-owned company for favorable tax status or entry into a previously closed market or industry. The large state-owned enterprises and government ministries have already preordered the dishes for the banquet, which sometimes take days to prepare. The executives attending are probably old-school traditionalists who still value these social events. These social events have become habit for them, and any cancellation could be viewed as a snub and sign of disrespect.

The situation is quite different for SMBs. I have yet to see a situation in which foreigners were refused business because they declined a dinner invitation or skipped the "bottoms up" drinking competition. The bottom line? Making money. The Chinese will do business with you only if profits are attainable, not because you can sing Frank Sinatra's "My Way" in perfect pitch.

So why do the Chinese continually ask their guests for lunch, and then dinner, and then again for another meal the next day? It's not because they like you or want to get to know you or want to build trust, as suggested by the many China experts. They do so out of habit, like when Westerners unconsciously ask, "How are you?" Westerners are not always particularly interested in their guest's health, nor are the Chinese in many cases particularly interested in dining with their guests, but they ask out of habit and because they think it's just the right thing to do. This goodwill gesture has been around for thousands of years; it's ingrained in the Chinese psyche. My grandmother, regardless of the time of day, would always ask me if I were hungry and would then run into the kitchen and make a couple of Chinese dishes. If I saw her ten times in a day, she would ask me ten times. This was her way of greeting me, and similarly, the way most Chinese businesspeople greet their foreign partners.

All this socializing also serves as a blatant excuse for Chinese managers to eat good food, drink expensive Chinese white wine, and flirt with pretty karaoke girls. It's as simple as that. This especially applies to state-owned enterprises. You see, government companies have large budgets for these sorts of activities, and the managers—actually politicians acting as businesspeople—can't wait to host foreigners for these "important" meetings.


Excerpted from Selling to China by STANLEY CHAO Copyright © 2012 by Stanley Chao. Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

Stanley Chao is an American Chinese and the son of Chinese immigrants who escaped from the Communist takeover of China in 1949. He grew up in a very traditional Chinese family: living with 3 generations under one roof, speaking only Chinese until grade school, learning that anything less than an A grade was unacceptable, and working hard was the only way to get ahead in life. Stanley holds a BSEE degree from Columbia University, an MSEE from the University of Pennsylvania, and an MBA from the UCLA Anderson School of Business. His professional career includes stints at Philips Lighting in California, and China; Kingston Technology in California and Japan, Softbank in Japan, and Merrill Lynch in New York and Japan.

Chao currently works at All In Consulting, a Los Angeles based consulting firm assisting Western companies in their Asia and China business developments. Some of Chao's clients include: Intel, Emerson Electric, SPX, Kingston Technology, Baxter Healthcare, and dozens of small- and medium-size companies. Chao specializes in the following industries: aviation, automotive, medical, information technology, factory-related equipment, and oil/gas.

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Selling to China: A Guide to Doing Business in China for Small and Medium-Sized Companies 5 out of 5 based on 0 ratings. 4 reviews.
Anonymous More than 1 year ago
Stanley Chao’s “Selling to China” is an essential book for anyone traveling or planning on doing business in China. Mr. Chao’s anecdotes and stories give it a personal touch, while providing invaluable insight into the country and its people. The author spends approximately a third of the year living and working in China. It is well organized with key guidelines outlined in every chapter. He discusses regional differences within the country as well as generational differences. I loaned the book to a number of friends, all of whom enjoyed it. Stanley Chao’s business guidelines will work for almost any market. Mr. Chao’s sense of perspective between the Eastern and Western cultures is spot on. This is a “must read” book for the business person, student, or anyone that wants a true inside perspective on China.
Anonymous More than 1 year ago
I never thought that I will come across a book which could teach me about doing business in China like a first hand experience as does this book. Mr. Chao has done a terrific job of disseminating the most desirable information to his audience. This book undoubtedly targets audiences both familiar with the subject as well as amateur like me. Doing business in China may seem very easy, but how one can save be from financial loses, tainted reputation, legal hassle and wasting time, no one can guide you better than this critical but real-life discourse. Every entrepreneur and a student of global business should read this book and get acquainted with the depth of information and personal experiences presented in this book. Mr. Chao seems to be a genuine authority on the subject given that he has been consulting SMB’s not only through emails and telephone conversations but also with his physical presence accompanying SMB owners during their travels to China. How ugly the relationship can become or how a Chinese language translator can steal your show may not become comprehensible unless you read this book. The advices and the account of personal encounters presented in the book could help you sane a lot of trouble during your entire voyage. I read several archaic and expensive books on China before I got to this masterpiece, which is indeed relevant to the existing marketplace, cultural ethos and the laws governing world’s fastest growing economy – China. Before stepping on to the bandwagon of ‘doing business with China’, one may consider learning Mandarin to save oneself from any forthcoming harm or follow some great tips of dealing with them detailed right here in this book with focus on the culture, language, local and federal laws, criteria of choosing a business partner, the business ethics Chinese are used to and a lot of great advice. So, make sure not omit reading this masterpiece before taking the next step of your lifetime.
Great_Books More than 1 year ago
It's the first book I read about China from an author who really lived and worked in China and not just from a journalist or 3rd party accounts. Similar to Poorly Made in China, the author learned about China the hardway, and gives his real experiences and lessons about China. It's a very eye-opening book.
Anonymous More than 1 year ago
I read the book and it's great for any business wanting to go to China. It's not like other "How to" books about China, it really gives you advice on the nitty gritty in China. I am now using the recommendations on how to choose a distributor in the book on my next trip to China in December. Most authors like talking about the macro aspects of China, but as a businessman, I'm not concerned about that. I want to know about the micro aspects of China, and the author does a great job. I've read about 20 books about China over the past 2 years and this is the best to date.