Doing Business in China

M.Sc. Global Logistics

Khne Logistics University

Supervisor: Prof. Dr. Christian Trster

Name of Module: Intercultural Management
Names of Students: Alexandra Vasila, Abhigya Saxena, Aida Brenda Kasozi
Nakyazze, Dipti Saraogi, Florian Loeer
Date of Submission: 22.11.2014

Content
1. Economic Overview
1.1. Chinese Economy Structure and Challenges
1.2. Chinese Economy Reforms
1.3. Differences between Public and Private Sector
1.4. Emergence of Private Sector
2. Ease of Doing Business
2.1. Economic Implications of the Third Plenum (November 2013)
3. Work Culture in China
3.1. Hierarchies in a Chinese office
3.2. Guanxi: Relationship Building
3.3. Negotiations
4. Cultural norms to be aware of while doing business in China
4.1. Business dinner etiquette
4.2. General Dos and Don't's
5. Tips for first time business travellers to China
6. A Case Study
7. References

1. Economic Overview
(Index Mundi) Since the late 1970s, China has moved from a closed, highly regulated
economy to a more open, free market one - in 2010 China became the world's largest
exporter. In 2013, China stood as the second-largest economy (on PPP, i.e. Purchasing
Power Parity basis) in the world after the US, having surpassed Japan in 2001. Reforms
began with the phasing out of collectivized agriculture, and expanded to include the
gradual liberalization of prices, fiscal decentralization, increased autonomy for state
enterprises, growth of the private sector, development of stock markets and a modern
banking system, and opening to foreign trade and investment.
In the last decade, China has renewed its support for state-owned enterprises in sectors
considered important to its strategic and economic security. After keeping its currency
tightly linked to the US dollar for years, in July 2005 China moved to an exchange rate
system that references a basket of currencies. From the onset of the global financial
crisis until June 2010, Beijing allowed resumption of a gradual appreciation and
expanded the daily trading band within which the RMB is permitted to fluctuate. The
restructuring of the economy and resulting efficiency gains have contributed to a more
than tenfold increase in GDP since 1978.
However, per capita income is well below the world average. The country has a huge
immigrant population from the marginalized rural areas that stay and work at bare
minimum wages in urban factories. By 2011 more than 250 million migrant workers
and their dependents had relocated to urban areas to find work in China. Economic
development has permeated further into the coastal provinces than in the interior rural
area.
The current government faces numerous economic challenges

a very high domestic savings rate (~51%) and a correspondingly low domestic
consumption;

lack of high job opportunities from marginalized rural areas

rapidly aging workforce due the one child policy

corruption and related economic crimes

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rapid environmental damage and social strife due to the rapid transformation
(HSBS Global Connections, 2014)

Several factors together are causing Chinas growth story to slow down

a debt overhang from its credit-fuelled stimulus program

industrial overcapacity

inefficient allocation of capital by state-owned banks

slow recovery of China's trading partners

The government's 12th Five-Year Plan, adopted in March 2011 and reiterated at the
Communist Party's "Third Plenum" meeting in November 2013, emphasizes continued
economic reforms and the need to increase domestic consumption in order to make the
economy less dependent in the future on fixed investments, exports, and heavy industry
(Economy Watch, 2013). However, China has made only marginal progress toward
these rebalancing goals. The new government of President XI Jinping has signalled a
greater willingness to undertake reforms that focus on China's long-term economic
health, including giving the market a more decisive role in allocating resources.
1.1.

Chinese Economy Structure and Challenges

As is typical for a developing economy about to take off, the domestic savings rate in
China is very high, giving it a potentially large capital surplus. However, domestic
savings contributes to only a third of the national GDP and foreign investments amount
to close to 40% of the GDP. China has to slowly reverse this trend for a sustainable
growth that does not rely only on exports but rather on domestic consumption and an
innovation led service economy. Thus it has to establish an efficient financial system to
convert the domestic savings into investments.
The income disparities in the Republic of China are among the highest in the world.
Urban GDP in Shanghai is well north of 10,000 USD per year as opposed to just over
USD 1,000 in the rural province of Guizhou. Battling corruption at the senior
management level in SOEs is also a major concern for China and is highlighted in the
Third Plenum held in November 2013.

Lack of macroeconomic stability that is reflected in the form of a weak stock market
where investments are more speculation led than and transactions lack transparency
due to asymmetry of information. The real estate market has similar features; the prices
for real estate are too high for the ordinary citizen. The international standard for a
urban house price is six times the average family annual income and for Shanghai it is
20 times.
The rapid economic growth has also led to labour abuse with average wage being only
130 USD. On an average, the Chinese immigrant worker works 6.29 days/week, 8.93
hours/day.
A key challenge for the Chinese government is undertaking state-owned-enterprise
(SOE) reform, reducing the monopolies SOEs hold over various key sectors of the
economy (energy, transport, telecommunications, defense industries, etc.) while
introducing mixed ownership and competition (including foreign) into these sectors.
The economy is also looking to relax or lift hukou (housing registration) restrictions to
create a true labour market while alleviating the burden that migrants place on
municipal governments (Shambaug, 2014).
The lack of intellectual property rights, i.e. rampant piracy in parts has hurt not just
foreign firms but also Chinese firms but making them lose credibility as houses of
innovation. China needs to increasingly foster indigenous innovation, esp. in the
service sector.

1.2.

Chinese Economy Reforms

The reforms in the late 20th century saw some reforms with regard to encouraging the
existence of a robust private sector (Shambaug, 2014). However, it is important to note
that these changes were incorporated only at an economic level but not as a political
reform.
There was regional order to the economic reform starting from the coast to the
internal areas. Deng Xiaopings reforms adopted a gradual approach that put efficiency
above equality, let part of the people get rich first while using the socialist market
economy strategy at the core. In a socialist market economy, a large part of the

industries are owned by the state but they compete with each other within some rules
set by the market. Here, the state does not routinely interfere in setting of the prices.
The State owned entity (SOE) progress can be broken down into two periods
1. First Stage 1978 1992 Giving managers more decision making power by
separating the governmental function from the managerial function
2. Second Stage 1992 current Corporatization of the SOEs by keeping the
large strategic sectors but letting go of the smaller ones. The government used a
dual track pricing system, wherein some goods and services were allocated at
state controlled prices and others at market prices.
With real estate bubbles and rising food inflation continuing to be a major issue, an
easing of overall economic growth to allow for meaningful reform of Chinas fiscal and
economic structures will be important for Chinas continued economic welfare.
1.3.

Differences between Public and Private Sector

The future progress and development of China will be to a large extent determined by
the effectiveness of its institutions, firms and enterprises. Given the role of senior
managers in formulating the policies of the institutions, it becomes crucial to measure
and improve managerial effectiveness.
Therefore, understanding the basic differences between managerial effectiveness, what
motivates managers etc. is useful. Based on the paper, Comparison of public and
private sector managerial effectiveness in China (Bao, 2009), the private sector is
more likely to offer competitive pay. For the public sector, the principal concerns are
ineffective leadership and lack of people-management skills. Finally, the differences
identified between the two sectors might indicate a possible developing direction for
future SM effectiveness in the public sector, such as the emphasis placed on teamwork
and communication.
1.4.

Emergence of Private Sector (Hongliang, et al., 2009)

Before Chinas reform and open door policy, private companies were looked at as the
tail of capitalism that had to be cut. However, they did exist in a small way in the form
of family run business in the rural areas, illegal to an extent. In 1979, during the

eleventh national congress of the CPC (Communist Party of China), it was declared
that private plots, private livestock rearing and family side-line business were not to be
labelled the tail of capitalism. In 1982, the role of the individual economy was
recognized by law, which promoted the urban individual economy. Later the bigger
question of whether an individual run private company could hire associates, workmen
or labour emerged as it was viewed as fundamentally against socialism. On this, the
CPC employed a wait and see approach. Thus the private sector expanded greatly
among suspicions in the society that were voiced by the media. Against this
background, several entrepreneurs lost faith in the private sector, converting their
private companies into public ones by cancelling registration. In 1992, these concerns
were addressed in a speech saying that whether the core of the private sector is
capitalist or socialist will determine any capitalist misgivings. Thus the private sector
companies slowly began to thrive, growing at an average rate of 30% since the late
1980s.
In the course of reforms, many private companies chose to don the red cap by
affiliating themselves with public sector entities so as to avoid being viewed as
exploiters. This allowed them to be registered as public firms and helped them enjoy
favourable tax rates and lower interest rates from banks. In 1993, as per a survey
conducted 83% of collective enterprises actually turned out to be private enterprises.
Several local governments encouraged this since they earned a higher management fees
and could should a higher political achievement. In 2002, the sixth national congress of
the CPC proposed unwavering support for the growth of the non- public economy. The
clauses on protection of such entities and their private possessions provided a sense of
relief to the private company owners. Thereafter, the private companies were identified
as crucial to the growth of the economy, esp. of some marginalized sectors where
inefficient public companies had monopolized the market. In the 21st century, the
private companies have not only increased in terms of asset base but also in terms of
how theyre structured. They have diversified from mainly individual or family owned
businesses to equity based corporate entities and are moving to an expert based
management style.

2. Ease of Doing Business

The World Bank (The World Bank, 2014) releases economic data and analysis
highlighting attractiveness as business destinations of all countries. Some key
parameters to be evaluated for China are:
The Logistics Performance Index overall score reflects perceptions of a country's
logistics based on efficiency of customs clearance process, quality of trade- and
transport-related infrastructure, ease of arranging competitively priced shipments,
quality of logistics services, ability to track and trace consignments, and frequency with
which shipments reach the consignee within the scheduled time. This is on a scale of 1
to 5. China ranked 3.5 in 2014, much above the World average of 2.9.
Start-up procedures are those required to start a business, including interactions to
obtain necessary permits and licenses and to complete all inscriptions, verifications,
and notifications to start operations. Data are for businesses with specific
characteristics of ownership, size, and type of production. China has 11 procedures as
opposed to the world average of 7.
Informal payments to public officials are the percentage of firms expected to make
informal payments to public officials to "get things done" with regard to customs,
taxes, licenses, regulations, services, and the likes. The figure was 10.7% in 2012.
Overall China ranks 90 among 189 countries on the Ease of doing business criteria.
2.1.

Economic Implications of the Third Plenum (November 2013)

Given the new focus of the government on rebalancing the economy, the preferential
treatment enjoyed in China by foreign businesses in the past will be no longer, whether
it be tax rates, access to land or government support in shepherding applications
through internal approval processes in exchange for hard currency and investment
dollars in order to drive simple GDP growth. This is an approach no longer aligned
with macro policy priorities. Beyond a levelling of the playing field, there is risk that
the pendulum could swing much further. Foreign businesses will need to create much
more sophisticated levels of engagement with government and other stakeholders in
China around clear common goals.

3. Work Culture in China

In a highly competitive business environment, it is more important than ever for us to
understand the business culture of our target markets. Understanding business culture
helps us understand, anticipate and respond to unexpected behavior. It also enables us
to behave in an acceptable way and avoid misunderstandings. As the Chinese saying
goes, ru jing sui su (When you enter a region, follow its customs).
3.1.

Hierarchies in a Chinese office

The Confucian philosophy: All relations are unequal and this inequality must be
respected.
Following this philosophy, in China, the older person (or superior) automatically
receives respect from the younger (or subordinate). In China, the manager is seen as the
father figure who expects and receives loyalty and obedience. In return, he takes
holistic interest in the overall wellbeing of the subordinates. Such a mutually beneficial
relation is considered the cornerstone of business relations in China. Failure to
show/receive respect can result in loss of min zi or the face which is a very sensitive
issue for any Chinese (Buttery, et al., 1997)1.
Hofstedes cultural dimension theory also highlights that China has very high Power
Distance. There is a clearly visible unequal distribution of power and wealth. Chinese
value ranks and status. It is therefore imperative that the most important person in the
company or the group leads important meetings (Williams). During a meeting, it is
customary to show respect to by standing up when a senior person enters the room,
offering the seat of honor to him/her and being attentive even if the key persons
English is weak. Subordinate members should not speak unless asked to do so by the

The Importance of min zi (Face)

The concept of 'face' roughly translates as 'honour', 'good reputation' or 'respect'. It is critical you avoid
losing face or causing the loss of face at all times. There are four types of 'face':
1) Diu-mian-zi: this is when one's actions or deeds have been exposed to people.
2) Gei-mian-zi: involves the giving of face to others through showing respect.
3) Liu-mian-zi: this is developed by avoiding mistakes and showing wisdom in action.
4) Jiang-mian-zi: this is when face is increased through others, i.e. someone complementing you to an
associate

most senior person. Golden rule: Dont be late for a meeting and know who the boss
is.
As would be expected in a Confucian society, operational structures, chains of
command, management style etc. tend to be hierarchical and directive. Orders are
passed from a manager to his immediate subordinate who in turn passes the instructions
down the line. Since orders are dispensed word by word, one must remember to always
give a detailed and complete instruction (World Business Culture, 2013). Questioning
these instructions is considered disrespectful. It is therefore quite likely that the
subordinate will never use his judgment to conclude that the boss is wrong.
Chinese society considers empowerment and open access to information as bizarre
notions and root cause of the problems of the west. According to this school of
thought, moral degeneration and the anarchic idea that an individual is more important
than the group to which they belongs, are the two big evils prevalent in the western
society caused by the lack of observance of hierarchy. The communist party maintains
close relations with the senior managers at most Chinese firms and thus they are in a
position to scrutinize business decisions (World Business Culture, 2013).
Chinese have good recruitment and retention policies. Switching jobs is uncommon
though not unheard of. As typically seen in a growing economy, there is a dearth of
experienced managers.
If a company wants to enter the Chinese industry, a joint venture (JV) with a Chinese
organization is highly recommended as it allows you to meet people and build relations
in China. It is often been said, 'In China, if you don't have Guanxi, or personal
connections, you don't have anything.' A JV is the easiest path, not only to establishing
Guanxi, but also overcoming a lot of cultural obstacles with minimum frustration, since
the Chinese enterprise will already have the advantage of knowing the culture and
procedures, while being part of the guanxi network. It may be advisable to seek the
help of a qualified China business consultancy which will be able to bridge the cultural
and language gaps. However, in any such attempts, it is critical for the overseas
company to ensure that they have selected the 'right' joint-venture partner (World
Business Culture, 2013). In general, introduction of a more matrix-oriented approach is
bound to lead to conflict with local expectations.

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3.2.

Guanxi: Relationship Building

The Chinese prefer to establish strong relationships before closing deals therefore. It is
important not to be offended by what may be deemed as personal enquiries by the
Western world. The secret of being successful in China is the right Guanxi. Both
Chinese and foreign companies will often attribute their business success to having
good guanxi. But the obligations of guanxi are very real. In the wrong place, at an
inappropriate time, with unsuitable people, the obligations can become a trap which is
hard to escape.
It is important also to consider that business environment in China is changing.
Regulatory procedures are gradually becoming more transparent, and the legal system
is evolving to more effectively resolve disputes. Also, the successful long-term
business relationships in China are indeed anchored by strong personal bonds. China
does not draw a hard line between business and personal relationships in the way that
many Western societies do.
The necessary trust must be developed in two different ways. The first is trust from the
head the sort of thing Westerners are used to. The second is trust from the heart,
which is not only different but more difficult. In either case, if you want to create
guanxi, it begins with trust (Chua, 2012).
Ways to maintain and to nurture a relationship (EU SME, 2013):

Give before you take make sure that you are a useful source for others.

Guard your reputation to maintain your networks respect.

Check in regularly and spend time with your contacts, for instance over a meal,
a coffee or at an event. It takes time and effort to establish a relationship, and it
takes even more time and effort to maintain it.

Be available.

Be selective focus on the most fruitful relationships.

Be patient- dont be pushy if it takes longer than you expected or disappointed

if your contacts cannot solve your problem.
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3.3.

Be appreciative and reciprocal- return the favor even if it is not necessary.

Negotiations

Different approaches to the negotiation process (EU SME, 2013):

Important aspects that need special consideration:

Scheduling a meeting: Check the Chinese calendar. If you are scheduling a

meeting, avoid all national holidays, especially Chinese New Year, when the
entire country effectively shuts down and it can be very difficult to organize
meetings with key individuals. The May 1 and October 1 holidays also affect
businesses: be forewarned.

Preparations for a meeting: Be well prepared in advance of your meetings.

Your Chinese hosts will most likely know you and your business quite well.
Have a detailed proposition of the value of your company and product; your
counterparts will have one for you. Your contact in the company might be
speaking English fluently, but it is possible that the senior officials and key
decision makers dont. It is thus advisable to carry Chinese translations of your
company brochures and presentations. Try to capture their attention at the first
meeting, else you may not be able to secure follow-up. Also, remember to
communicate meeting requirements, if any (ex. Projector and screen), well in
advance.

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Contracts: There is a specific time that it is suitable to sign a contract. Early

signing in a transaction is demonstrated as a lack of personal trust. A negotiated
contract may mean little more to a Chinese negotiator than a checklist of points
or a sign of a developing relationship and it is common for clauses that
appeared to be agreed to be re-opened (Cypress Recruiting Group Inc., 2014).

Ability to understand and communicate: Experience shows that jokes, subtle or

eloquent speech, as well as emotional or dramatic presentations do not translate
well and can lead to misunderstandings. A good way to reduce the possibilities
of misunderstandings is to create more than one communication channels (more
than one person who speaks Chinese). Relying on one channel only can be fatal
to negotiations, especially when there are personal interests or conflicts of
interest involved.

Chinese Communication

Style:

The Chinese have

a reputation

for

'impassiveness', limited display of reactions and rigid body language. They

often use an intermediary make introductions to deliver bad news so as to
soften the blow and preserve good will. They also find it extremely difficult to
say 'no' and prefer to agree with things in a less than direct manner. If you hear
phrases such as, 'Yes but it might be difficult' and 'Yes, probably', take the cue
(World Business Centre, 2013).

Get the matching game right: China is a country with high power distance. This
means that the hierarchy is very important and the response to the top decisionmakers can accelerate the negotiation process, in contrast to the lower-level
staff (Fang, 2006).

Managing the process: Chinese focus on the holistic picture of each issue. The
details are analyzed during the process of the project (EU SME, 2013).

Superstitions and business: Decision making is slow in China and most people
would like to consult their stars or wait for their lucky day before taking any
decisions. Therefore, be prepared for a delay and do not rush them into taking
decisions.

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Dress code: Government officials and top management dress formally for
meetings, while business people at working levels may adopt a more casual
style. If youre not sure, go formal. Chinese favor conservative dressing. Subtle,
neutral colors should be worn by both men and women. Women should avoid
high heels, short sleeved blouses and revealing clothing as they can be
considered offensive to Chinese businessmen. Appearance is important within
Chinese business circles. Successful people are expected to look successful.
Wealth is admired, so wear good quality clothes, watches etc. if you want to
impress - but don't be overly ostentatious.

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4. Cultural norms to be aware of while doing business in China

4.1.

Business dinner etiquette

Business meals and banquets are an important issue in China that cant be ignored
when doing business. The act of dining is not only important because of conducting
business deals; it is more important to build relationships with the business partner and
is also relevant for showing respect. It is a social event in a formal context. The
discussions usually center on information about the history of both companies and
about the region of the companies. Finalizing business deals is not the use of a dinner.
For the Western business person, the dinner etiquettes can be quite strange. Before
participating a business dinner, it is therefore important to be familiar with the rules
(Sean, 2013).
Arriving: It is very important that you arrive on time. Do not arrive early for the
dinner because the host will consider that you are hungry and so you may lose
your face. Normally the guest does not bring her/his men/wife to the business
dinner but business persons are allowed to bring their secretaries (Ediplomat,
2014).
Seating: On arrival, the participant should first introduce himself, or let the
master of the dinner do the introduction - this is the better option when there are
unknown guests at the table (Wu, 2014). The most important part of the Chinese
dining etiquette is the proper seating arrangement. The host is always placed at
the head of the room (also a sign for the highest level in the hierarchy), facing
the door. The second highest-level attendee sits to the left of the highest level
and the third highest sits to his right site (only people with the same ranking are
allowed to talk with one another, people of lower level are not allowed to talk
with those above). Do not seat yourself before the host is not seated.
Eating: Do not start eating before your host does. After the seating there will be
cold dishes on the table, wait until you are invited and then slowly start to eat.
Be aware that the host of a business dinner normally orders the food. Sometimes
the guest is also allowed to order dishes for everyone; in this case you should
order dishes that are in the medium price range (Sean, 2013).

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 Chopsticks: China is famous for their traditional chopstick culture. There are
some rules that everyone should keep in mind. You shouldnt wave around with
your chopstick. It is also important to not stick the chopstick straight up in the
bowl because this is only done on funerals. Dropping the chopstick is
considered as bad luck and should be avoided (Wu, 2014). Never use your
fingers no matter how small and difficult the meal might be and never tap your
chopstick on the table, this is considered as rude. The chopsticks should never
be kept after use; you will be served with new chopsticks when the new dishes
arrive. After you finish your meal, place the chopsticks neatly on the table or on
the chopstick rest (Lininger, 2011).
Dinner progression: During the dinner, there will be a lot of dishes served, so to
have a sense what coming you should know that the meal will proceed with
meats of various varieties and peak with a fish course, followed by stable and
will end with a sweet or dessert (The Canadian Trade Commissioner Service,
2014). It is also acceptable to refuse food if you have a dietary restriction or
allergies. Otherwise, you should accept a sample of everything because this is a
sign of politeness. Be aware to leave some food on your plate during each
course of a meal to honour the generosity of your host. It is not considered as
bad manners if you slurp soup or belch, its more of sign that you like the food.
Drinking: It is really common throughout Chinese dinner to drink. But be aware
of the alcohol that is served; it is a strong distilled alcohol (baijiu) and is mainly
used for toasting. There are many toasts during the dinner. The Chinese alcohol
is considered as strong, especially for foreigners, so avoid drinking on an empty
stomach (The Canadian Trade Commissioner Service, 2014). The host is the
first to give a toast to your presence, cooperation or friendship. After the first
toast you should reciprocate the toast and make sure that your toast is no longer
than your hosts. Stand up for the toast and hold the glass with two hands. It is
also important to toast everyone at least once, starting with the highest ranked
person and then moving down. During Chinese dinner it is expected before you
begin to eat or to drink anything that you say youyi (heres to friendship),
and that after the meal you thank the host (Lininger, 2011). If you cant drink
for medical or personal reasons, please inform the host before dinner. There are

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big differences in toasting rules among the different regions in China; if you are
not sure about the rules please ask your host.
Paying: After the dinner the host will pay the bill. If you are the host, do not pay
in front of everyone. Leave the room and pay but be aware that there is no tip.
Tipping in China is illegal (Lininger, 2011). Leave shortly after that meal is
finished, because no one will leave before the guest of honour does.

General dos and donts

4.2.

There are a couple of definite no-nos and absolute dos that foreigners doing business
in this land should know about, in order to avoid losing-face situations. Outlined
below is a comprehensive list of cultural norms to take into consideration.
Dos
Introductions and greetings

During introductions, always acknowledge the Chinese group members in order

of seniority or rank (most senior first). Senior members should begin the
introductions (Ediplomat, 2014).

Family names and titles should be used until invited by Chinese host to use
given names.

Bowing is a lost formality, so during greeting, nods and handshakes are more
prevalent today (National Geographic, 2014).

When introduced to a Chinese group, they may applaud you in greeting. Be

sure to join the applause (Ediplomat, 2014).

Efforts to speak a few phrases in Chinese are considered highly. In the very
least, learn the correct greeting phrase (National Geographic, 2014).

Meetings / Negotiations

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The status of the initiator contact to the Chinese is very important as it shows
how the foreigner perceives the value of the chinese relationship. The initiator
should be someone of a high rank.

Business cards are an absolute must. They should be printed in english on one
side, and chinese (simplified characters) on the other side.

When presented a business card, receive it with both hands, with respect. Take a
moment to read it carefully, and either keep it placed before you (in a meeting
setting), or respectfully store it in the front pocket of your shirt (not the back
pocket), or safely stow it away, in their presence. This shows that you value the
person represented on the business card (Culturally Savvy, 2010).

After receiving a business card, present your own in response, with both hands.
The writing should face the person receiving the card.

When presented with a gift, receive it with both hands, and show effusive
gratitude to the gift giver. Place gift aside, to be opened later in private in order
to avoid coming across as greedy (Lonely Planet, 2009).

If giving gifts, give one to everyone present, or do not give gifts all. It is
however recommended to give a relatively valued gift to the Chinese side at the
first meeting ( it goes toward establishing guanxi) (Culturally Savvy, 2010).

Should older chinese refuse first offer of gift (out of politeness), make a second
offer and third if necessary.

English is not used as the medium of communication for meetings in China,

even if the Chinese may understand it. Hire or request for an interpreter.

Respect the silent pauses that happen during meetings, however long. Resist the
urge to fill the silence.

After hosting a chinese delegation, during departure, accompany guests to the

elevator. High ranking guests should be accompanied up to the car, and the host
should wait till the car is out of sight before turning his back (Culturally Savvy,
2010).

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Finally, dining and entertainment are a big part of doing business with chinese.
This bit is covered extensively in the business dinner etiquette section.

Consider it a great honor, if Chinese invite you to their house as they prefer to
entertain people, especially foreigners, in public places. If you however, must
turn down the offer, do explain your constraints else offense might be taken by
your rejection.

Donts

Do not be late for any appointments or meetings. This is a sign of disrespect for
the other partys time. Better to reschedule in advance.

Do not touch or hug, as Chinese do not like being touched by strangers.

Do not yell or lose your temper in any situation as it is considered a facelosing situation. Keep calm, or keep your face expressionless in tense
situations (Lonely Planet, 2009).

When seated, do not point the bottoms of your feet to anyone.

Do not point with the index finger; use the open hand if you must point.

Do not blow your nose in front of people, or pocket the used handkerchief
afterwards it is considered disgusting.

With regards to gifts, do not give items in the white and black color spectrum.
These are funeral or death-related colors in Chinese culture. In the same vein,
do not give inappropriate gifts (like clocks whose chinese word is similar to
death) or items in even numbers (even numbers are bad luck). Thoroughly
research the potential implications of any gift to be given in this culture to avoid
embarassment (Culturally Savvy, 2010).

Do not write with red ink, as it symbolises the end of relationship (Culturally
Savvy, 2010).

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5. Tips for first time business travellers to China

For the foreigner business people making the trip to China for the first time, it can be
rather overwhelming, more so if the trip is intended to be a short one. Below are some
tips to help make the stay a bit less daunting.

Visa: some countries do not require visas to get into Hong Kong for visits upto
30 days. However, to get to mainland China does require visas, so be sure to
find out the respective visa requirements ahead of time, and apply early to
allow for any delays (Traveler's Digest, 2013).

Flights: thoroughly research your flight routes before departure. The modern
airports (Being and Shanghai Pudong) are efficient, but going through secondtier cities, as well as use of domestic air travel is a bit different as getting to the
right gate is confusing, and the boarding time is relatively shorter. It is also
better to book flights such that you land in the evening. It gives you time to get
some much needed sleep and rest in (Traveler's Digest, 2013).

Travel insurace: while medical care in china is affordable, do make it a point to

get travel insurance from your home country for the travel period to cover any
eventualities (like lost luggage, evacuation, etc).

Check the weather: it is always recommended to check the weather situation of

your destination before departure. Warm temperatures would call for lighter
clothing, while cold temperatures would call for heavier clothing.

Travel light: avoid packing a lot so that you have to check luggage in. No
checked luggage means shorter time at the airport of your destination, and more
time for more important things. Do not forget to pack the correct chargers and
adapters for your gadgets (Wadell, 2014).

Language barrier: Mandarin Chinese is still the default language in China, so

learning a few phrases before hand is advisable. While in China, be sure to
carry Chinese business cards of your hotel and the places you wish to visit in
order to make it easier for you to communicate your destinations. Having a

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Chinese phrase book, and/or English-Chinese pocket dictionary can also be

very helpful (Lonely Planet, 2011).

Currency: most major credit cards are acceptable in the larger cities of China.
However, do have some cash on hand to be exchanged for local currency on
arrival to cover miscellanous items like transportation. Keep in mind that Hong
Kong and China have different currencies.

Taxis: taxis /cabs in China are very easy to use and are a cheap and efficient
way to get around. With the Chinese-written business cards, it shouldnt be a
problem communicating where you want to go to the cab driver.

Unlocked mobile phone: carry an unlocked phone when going to China. Local
SIM cards and credit can be purchased all over (in convenient stores) at cheap
prices (Choi, 2010).

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6. A Case Study
The Chinese Negotiation (John, et al., 2003)
Key learning: The people who represent your company in China will make all the
difference when it comes to negotiating deals and forging business relationships.
Long ago, Nigel Campbell, a leading expert on business strategies in China, concluded
that it was essential to have the right people participating in negotiations: Foreign
companies that had Chinese-born executives driving the negotiations succeeded. Others
did not.
In 1994, Ford ignored this sage advice when it appointed Jim Paulson president of Ford
of China. Paulson, an affable Midwestern engineer and a lifelong Ford man, had
worked on plant-related issues in several foreign countries. In trying to get an entre for
Ford into China, he faced a complex negotiation environment. Governments of both
countries were embroiled in fights over intellectual property regulations. GM, Toyota,
and Nissan lurked in the background. Substantial product changes needed to be
negotiated. Most important, Paulson didnt possess a deep cultural understanding of his
Chinese counterparts. Later, in Time magazine, he lamented, We tried to find out
more about how they were arriving at their decisions, but we didnt have enough
Chinese-speaking people to establish close contact with the officials in Shanghai.
Meanwhile, arch competitor GM had an ace in the hole named Shirley Young. Born in
Shanghai, Young spoke fluent Mandarin. Her father was a war hero. Her stepfather had
served as Chinas ambassador to the United States, the UK, and France. Young, who
had worked as a consultant to GM since 1983 and joined the company in 1988 as vice
president of consumer market development, boasted an Ivy League education and a
wall full of awards, including Woman of the Year for the Chinese-American Planning
Council.
Young offered another advantage: She brought great guanxi. Even though Ford had
been one step ahead in the initial bidding phase, Young was able to pass the final
victory to GM. By 1997, 100,000 midsize Buick Regals had been produced at a new
billion-dollar assembly plant in Shanghai.

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Oddly enough, Ford had the ideal person for the jobDr. Lawrence T. Wong. An
engineer raised in China, Wong possessed all the language and cultural skills that
Young had, and he was president of Ford of Taiwan. He even had the critical
engineering expertise that Young lacked. Perhaps the best measure of Wongs
capabilities is his current position. Since 1996 he has held the reins of the Hong Kong
Jockey Clubthe most important horse-racing operation in the world, with annual
revenues of $12 billion, and the largest charitable donor in all of China. How could
Ford, blessed with such a trump card, have overlooked him?
Eventually, Ford wised up and appointed an ethnic Chinese executive to a senior
position in Beijing in 1998Mei-Wei Cheng. In April 2001, Ford completed a 5050
joint venture agreement with Chongqing Changan, Chinas third largest automaker, to
produce 50,000 small cars. It took Ford some five years to begin recovering from its
shame in Shanghai. Subsequent interviews with executives at Shanghai Auto confirmed
that the key mistake Ford made was in Dearborn; that is, not selecting someone like
Larry Wong to lead Ford of China in the first place.

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