Doing Business in China - Making the most of the free trade agreement

Keen to say and do the right thing while in China? Here are some tips.

In this section:

› Building relationships
› Managing meetings and negotiations
› Dealing with government and authorities

Building relationships

Treat quality as the number one issue
"The number one thing is to have a good product, a quality product. Apart from that of course, you have to have a good relationship with people. Then you have a better chance." - Frank Zang, General Manager Hayes International, Shanghai

"Today time is money for these very busy [Chinese] executives and owners of companies and the wining and dining is not the be all and end all of relationships. The primary factor is meeting their quality specifications." - Keith Stevens, General Manager, Ovine Garment Leather Division, Richina Pacific Ltd, Shanghai

Become friends with officials
"Knowing and being 'friends' with the government officials who control regulations in your business sector is essential to business growth and development. Correspondingly, having bad relationships with officials in your business area is likely to make business growth and development almost impossible." - Dr Anatole Bogatski of international degree provider, AIS St Helens

"Generally officials might have a lot of discretion in terms of perhaps applying a policy or interpreting a policy, and obviously they will use that discretion more favourably if they like you rather than not like you." - Rob Young, China-based Kiwi businessman

"Rules change monthly. China is evolving, therefore the law and rules are evolving with it. To get that knowledge and advice you can't pick it up on the internet and you can't pick it up from the department. You normally pick it up around the meeting table or around the dinner table with officials." - Grant Walsh, China-based Kiwi businessman

Look long and hard for the right partners
"It is vital to find the right business partners, but it is often the hardest part. Finding appropriate distributors is particularly challenging." - Tim McIvor, Lanocorp Pacific, Managing Director

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Managing meetings and negotiations

Treat negotiations as a courtship process
"Foreign businesses will fail if they do not understand the Chinese way of doing things. There is no need to adopt these ways but merely to adapt to them. For instance your ace New Zealand negotiator may not be the best person to send to China. They may be too direct, too forthright and used to drawing a line in the sand and defending it against all challengers.

"A negotiator with a high level of emotional intelligence and intercultural communication skills is preferable - someone who is able to read body language and to empathise. Negotiation in China is a courtship process: you both go out for a while and get to know each other better, then you move on to the engagement (prenuptial contract). Things then move quickly and become more direct - when sufficient trust has been built up both take the plunge." - Ed Weymes, Associate Dean International at Waikato Management School, who has more than 25 years' experience in developing partnerships with Chinese enterprises.

Define your objectives
"I think a vital ingredient is to make sure you clearly define to your business partners what your objectives are and what you believe their part of the bargain is. A lot of companies don't do this. They do not put penalty clauses into their contracts and they find in time that things go sadly astray…be very, very sure of what your objectives are and put penalty clauses in your contracts for non-performance." - Keith Stevens, General Manager, Ovine Garment Leather Division, Richina Pacific Ltd.

Know when to walk away
"Our relationships have been renegotiated over the years. China is a tough place to negotiate and different from other markets. Negotiating does not always involve finding a middle ground. In other markets you can open with your ideal position and end up with your middle position some while before getting to your walk away position. In China you usually end up very close to your walk away position. You have to have very firm ideas on what your walk away position is otherwise you can end up losing a lot and ending up with a deal you cannot live with. Make sure you know what is your absolute bottom line - what you cannot move on (price, length of relationship, company reputation, standards etc). Healtheries uses an open book policy and we reveal our margins throughout the chain." - Brian Dewar, General Manager, International Business, Healtheries

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Dealing with government and authorities

Consider people's motivations when they offer help
Early on, when Skellerup wanted to start up in Jiangsu, local authorities and politicians were very accommodating and helpful, says company Managing Director and Chief Executive, Donald Stewart. "But once our roots were down in Jiangsu the level of support changed and the local authorities became very demanding. They continually put pressure on Skellerup to invest more capital in the venture."

Skellerup believes these demands are made so officials can meet their own KPIs. This constant pressure for more capitalisation has been difficult for Skellerup. Although the demands are delivered in a non-combative way, they have been persistent. Stewart says Skellerup's response has been that the company is looking at continuing to expand over the next five years if all goes well. "The Chinese authorities have appeared only to have heard 'expand' and not the caveat 'if all goes well' and the pressure continues."

Resolve potential issues at low levels
When Air New Zealand was laying the ground for the establishment of its direct Auckland-Shanghai air service, its central strategy in dealing with government officials was 'managed escalation'. Air New Zealand and its allies made every effort to resolve potential issues at low levels of the bureaucracy rather than going straight to the top. This built up credibility and support among stakeholders.

Use an agency
International financial services company KVB Kunlun eased the way for the establishment of a branch in Hong Kong by hiring a professional agency to introduce the company to the Securities and Futures Commission, which is responsible for regulating the securities and futures markets in Hong Kong. The company says the agency "helped us with the minimum amount of fuss" by facilitating licensing and other legal and regulatory requirements.

Regard officials as friends
"Our relationships with government officials are exceedingly important, particularly in Guangxi (province where BioVittoria has a facility). Without their support we would have great difficulty. We regard them as friends, they're not foes. They haven't interfered with what we are trying to do - in fact they've been hugely supportive. So we're very grateful for that. And it's from the highest level to the lowest level that we've got the support and that's worked exceedingly well for us." - Garth Smith, Managing Director, BioVittoria

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