Doing Business in China: Respecting Society

Doing business in China means understanding cultural contexts and communication well, among many other things. Alena Eckelmann talks to CEO and executive producer of iTV Asia, Kerry Kennedy for TopMBA.com to get his insider tips on doing business in the People’s Republic of China.

The Hawaiian Kennedy visited Asia first as a high school student. He subsequently studied in Tokyo and Taipei and has worked and lived in the Asian region ever since. He currently lives and works in Shanghai where the China office of iTV Asia is based.

China is changing at a fast pace and it is reinventing itself along the way. Business schools are rapidly emerging in the country, and established schools from abroad are beginning to set up campuses with MBA programs catering to both the local population and foreign MBA students, with the University of Nottingham in Ningbo, China being a good example.

Nuggets of traditional wisdom about China’s unique business etiquettes gained from a management guide may serve as a quick-fix for short business trips. However, aspiring MBA students and alumni with ambitions to build successful long-term relations should invest time on the ground to understand the environment and the people of 21st century China.

Cultural diversity

“First of all, it is important to understand that there is no such thing as ‘one’ China but there is a multitude of ‘actual’ China’s,” Kennedy emphasizes, attempting to make clear the vast cultural differences that exist in the most populace country on earth.

There are more than 100 cities with a population of one million or more. Five to six of these cities are referred to as first tier cities; there are 15 to 20 second tier cities and numerous third tier cities. Their total population counted together is only a fraction of the more than 1.3 billion people who live in the country.

“Think of the European Union as an analogy to China. If you live in Paris you might not necessarily know how to market to someone in Hungary. Similarly, if you are based in Shanghai or Beijing, you do not really know about the needs and ways to satisfy the people who live in far away cities or in rural areas.”

This means that there is no single rule to doing business in China, and instead foreign executives should get out of their ‘expat bubble’ in Shanghai or Beijing and carefully research their target markets.

“Individual cities and regions in China have unique cultures, sometimes even unique languages and, to some extent, unique business practices, which you have to understand in the context of your employees, vendors, business partners and customers,” Kennedy adds.

Understanding what drives people

Foreign executives in China must understand the economics of ‘more’, and understand it in the context of doing business in a hugely diverse country.

“Like everywhere in the world people in China want ‘more’; more success, more beauty, more health, and more friends. Everybody wants ‘more’, but what exactly the ‘more’ is greatly depends on who they are and where they live,” Kennedy argues.

On the one end of the spectrum there are the nouveau rich and those Chinese who have lived and worked overseas. They typically live in first tier and second tier cities and their needs are very similar to those of people in any other big city of the world. On the other end of the spectrum are people living in the third tier cities and in rural areas. They are far away from Shanghai and Beijing, both literally and figuratively.

From market know-how to adding value

China is an extremely competitive market that you need to understand in-depth in order to make it work for you. Take the example of advertising. All the major international ad agencies are already in the market, as are thousands of local agencies.

“Executives who cannot find a job in their home countries, or lost it because of the economic downturn, will not be able to start an ad agency in China without having any knowledge of the local brands. The same is true for any other industry,” Kennedy explains.

“Foreign companies entering the market need to offer a product or service that is different and innovative, one that has a unique value proposition.”

Questioning old stereotypes

While one hears stories of companies that are battling with complicated legal procedures, lengthy approval processes and bureaucracy, this is not necessarily the case.

“When we legally registered iTV Asia as a website, the registration process took only one day. It was as simple as filling out an online form; very similar to a simplified business registration process in the US. It was fast and efficient and officials were friendly and helpful,” remembers Kennedy.

Recognizing Confucian values in modern-day entrepreneurship
In China, old age brings increased respect and status, however Confucian ethics also places high value on learning and self-improvement. The biggest segments of people studying overseas in general and an MBA in particular are Chinese.

“Generally people in China believe that better education, especially an MBA, automatically means a better job and hence a better life with more money and more success, which makes their families proud. With better education, they will do a better job for their company, which benefits society and ultimately the country,” he adds.

As a foreign business executive you might find yourself dealing with Western educated Chinese in their late 20s and early 30s who can play the big industrial games, and play them well.

“They understand brand development and management and all the business functions. They also know exactly what their competition is like because they might previously have worked for a Western company. Expect them to be very competitive and ahead of the game,” Kennedy advises.

Showing respect

Like in other Asian cultures, respect is a crucial concept in Chinese culture. This applies to individual relationships as well as to a foreigner’s relationship with China as a nation. Absolute courtesy in any dealings will open doors while displays of criticism or arrogance will almost certainly result in failure.

“Looking at culture, society and politics, most of our thinking comes from a Western paradigm. If things are different in China, this does not mean that one or the other is better or worse. Like in the US, Europe or indeed elsewhere in the world, you have to abide by the local rules but you also have to be ‘smart’ enough to know how and when to challenge them,” Kennedy concludes.

For more information please sign up for our monthly newsletter, or you can discuss this topic on our MBA forums.