Supply Strategies

Business dealings in China involve numerous protocols and lessons learned for Westerners. Following is a list of challenges you will encounter and how you can overcome them:

1. Cultural Differences
Many US companies first trying to outsource or procure products from China fail to understand and appreciate the Chinese culture and how it impacts business dealings. Americans tend to be more direct and straightforward with their approach to business. The Chinese have one of the oldest cultures in the world dating back over 5,000 years including diverse mix of ethnic group with difference tastes, customs and preferences. The Chinese appreciate people who are humble, approachable and honest when establishing business relations. Consider that their expertise and knowledge exceeds your own in the initial stages. Becoming educated on Chinese culture through reading, listening and speaking with local people you are working with will serve as an important step towards building long lasting relationships.

2. Language Barriers
Western companies procuring goods from China often send non-Asian representatives who have very little to no language skills in China. This can lead to business dealings taking much longer time to complete. It can also lead to issues not clearly being communicated and often misrepresented. In many instances an initial “yes” response translated to English may be either an acknowledgement to your question, a maybe or a no response. It is critical to have local employees who speak the language or a translator with you in China as most business dealings are done in Chinese. People who are successful in China learn some of the basic language, especially greetings in Mandarin as it shows additional respect to their culture.

3. Misunderstanding the Importance of Relations
Many companies new to procuring goods in China fail to recognize the importance of well-established relations in China. Chinese culture revolves around “harmonious relationships” as taught through Confucianism. Relations are a necessary and fundamental part of building any business in China including suppliers, factories, government (local, provincial and national) and management. Developing relations in China with the right partner factories takes time and is not accomplished through short visits and simple business dealings. You need to be committed to spending sufficient time in China to find the right partners. Once the right partners are found you must be willing to invest significant social time outside of the business environment with your new potential partners often revolving around long dinners and other non-work related activities as part of this process. Chinese look to establish long term and lasting relationships that mean something to them. Getting to truly know you outside of the business process is a means to establish necessary friendship and trust.

4. Lack of Patience
Many procurement professionals feel that doing business is China does not work at the same speed as dealings back home. Those that have failed have tried to rush the process either due to not wanting to spend enough time in China or trying to adapt this market to more Westernized methods. Successful professionals take time through multiple visits to understand the market and build the critical relationships before pushing to negotiate contracts. Negotiations often take longer in China and seem to drag on. Initial cycle times to start up a program tend to be longer as well but once developed the factory relationships will be committed and dedicated to your business needs.

5. Lack of Communication
Many failures have resulted from lack of communication with Asian counterparts. The Chinese are hardworking and diligent people but often they might not communicate concerns or problems quickly as part of either “saving face” or not realizing the significance to a issue. Companies sourcing from China need to have a method for constant communication with China including people who speak and understand the local language and who are on top of key programs on a frequent basis. This requires having people with proper language skills for weekly meetings, conference calls and email updates on key activities to stay on top of problems and potential issues.

6. Failure to Adequately Review Quality
Many US companies procuring goods from China have failed due to too much reliance on achieving cost targets and not enough emphasis on quality measures by Chinese factories. Initial literature and samples may show key quality certifications and product that meets very high quality standards. However with many US companies pushing for lowest cost available this can lead to China factories looking at lower cost materials, alternative manufacturing methods or less quality inspections to meet key price points. If these goods are then shipped overseas to customers with unacceptable quality levels it can lead to disruptions in the sales cycle and potentially lost business. It is critical to have a system that constantly monitors the quality of product at Chinese suppliers used in the outsourcing process either through random audits and inspections or through monitoring key quality programs for deviations.

7. Lack of Understanding of a Complex Legal Structure
Although the legal framework has improved over the past 10 years, there is often little recourse for Western companies when something goes wrong. Many laws meant to protect consumers and buyers are vague and subject to interpretations. China also lacks a system of precedential law that exists in the most western countries. Where a case can be made, the legal process is typically too bureaucratic and tedious. It is critical to have local trusted relationships or referrals with direct people in China for sourcing products. Conducting due diligence and qualifying the right factories in widespread geographical regions throughout China might be a lengthy process, but can effectively mitigate any legal risks associated for companies not directly in China.

8. Lack of Understanding of Business Etiquette
Many Western companies outsourcing to China fail in initial dealings with their Chinese counterparts simply by trying to apply Western business etiquette to the China culture. China business etiquette involves following a protocol that shows respect for China culture and business dealings. Some of the following basic protocols are often overlooked:

Have business cards with both Chinese and English information and bring plenty as you will go through them.
Hand business cards with 2 hands and show respect for the cards by keeping them on the table or putting them in a card holder.
Recognize the hierarchy of the management team and show respect to the key management or general manager and be sure to address that individual when discussing the business.
Give gifts where appropriate to the key people you are visiting. Gifts do not have to be lavish and can be a token from your company such as a nice pen. Research what gifts are not appropriate (i.e. clocks, green hats or gifts wrapped in yellow paper with black writing). Red is considered a safe and lucky color for wrapping gifts.
Dress has become more casual for business meeting at factories but proper dress of more formal business meetings is recommended.
Avoid slang or euphemisms as they often are misunderstood in business meetings.
Be open to trying new types of foods and allow your host to place food on your plate or pour tea into your cup. You can reciprocate to your host as well by doing the same.
Accept frequent invitations to dinners and social occasions as this is part of the culture of building relations and getting to know you.