Friday, June 5, 2009

My Teacher: Zhou Enlai.

When entering the Chinese market, be it for export manufacturing, domestic sales, or servicing multinational corporations, any business will face significant hurdles. Chris Berghoff, president of Control Products, mentioned in a presentation recently that the largest of these hurdles is understanding Chinese culture prior to entry.

Language is a useful tool to understanding another culture, and nearly a necessity in order to feel comfortable in a foreign environment during an extended stay. Culture, however, is what makes it possible for one to thrive. One of the biggest differences between US and Chinese business practices is the existence of "guanxi".

Guanxi simply means "relationships" and sometimes "connections". But relationships in China are more complicated and work-intensive than they are in the US. The best way to explain how guanxi effects business is through one of its master practitioners: Zhou Enlai.

The late Chinese Premier rose to prominence under Chairman Mao and stayed in his position without being sent to the farms to work or losing his status through political errors. This wasn't because he did a good job and the Chairman looked objectively at his performance and thought "this man is irreplaceable". It was because Premier Zhou was one of the greatest ever at leveraging relationships to his benefit by tirelessly working to make others look good.

When Richard Nixon came to China, he was not met at the airport by Chairman Mao. The Chairman was ill. Premier Zhou went instead. In all honesty, both men were quite old and ill by 1972. Nixon's visit was Premier Zhou's idea. Chairman Mao wasn't going to risk looking bad to the public if the visit went poorly. Had the visit been Mao's idea he still would have sent Zhou.

The first dinner they had together that evening, Nixon and Zhou toasted one another. In the photo at the beginning of this blog, Zhou holds his glass level with Nixon. This small gesture was photographed, analyzed and commented on all over China. In the US it was just a nice photo.

By holding his glass level with Nixon, Premier Zhou--essentially sharing rank with Kissinger-- is not showing respect to a superior position. At an official Chinese dinner, if a government official wants to toast another government official, he must first know the official's rank so he can hold his glass at a lower level, showing the proper respect. Zhou, by holding his glass at the same level as Nixon, was suggesting that he was on the same level as the US President, and also stating with a simple gesture that Mao was therefore higher. This opened the door for the Chairman to enter meetings with Nixon to develop a relationship with the US while not looking weak to the Chinese bureaucrats that were watching his every move.

Zhou Enlai was a master strategist, expert historian, and unparalleled politician when it came to surviving in China. Businessmen from the US need to take heed of the myriad of ways they can get themselves into trouble. The Chinese will not point out that you are wrong, but they will give you a lot of slack if you show them that you understand just a few simple things.

Simon MacKinnon, former president of Corning Shanghai, spoke a few months ago at Seattle University about encountering sluggish, unresponsive government officials who seemed to be waiting for a handout before they would help with permitting for a new production facility. Mr. MacKinnon set up a meeting with the Chinese official and presented him with reports from US economic publications that had been translated by Corning employees into Chinese. These reports allowed the official to go to his boss with information that would help in his work. The process of obtaining permits to move forwards with production immediately smoothed out.

This is just one small example of the importance of relationships in China. One can form business relationships in China, but they are much more social than they tend to be in the US. In addition, friendships in China generally involve helping each other out. If a business needs permits to operate in China, they're going to have to do two basic things: Build up a relationship through informal meetings with their Chinese counterparts, and find ways to make those counterparts benefit from the relationship that has been formed. The Chinese, though fierce negotiators, believe firmly that all business transactions should be mutually beneficial. They will consider a permit request to be a business transaction. Corning was going to get a production facility out of the permits it needed from the government official. What was he going to get?

The irony of this situation lies in its simplicity. Even though it is a natural part of Chinese culture, it is often misunderstood by US businesses. Once the people at the US company realize the official is holding out or moving slowly, they become suspicious. They wonder if the official is waiting for a bribe. Sometimes they even confront the official face-to-face (this is the worst possible thing one can do) and announce that they are not paying one red cent just to get an official to do his job. Meanwhile, the official sits at his desk wondering why the Corning people can't understand that he needs something, some sort of helpful piece of information or connection, that will make his own life easier. As the two sides fail to connect, both become increasingly suspicious that the other is out to get them and will never cooperate. Move in this direction long enough and you have Isreal and Palestine. Not a good way to do business.

The Chinese can't tell you they need a favor. Sometimes they will suggest it by telling you what seems like a harmless anecdote about their lives at a dinner. In some cases that anecdote was the whole point of the dinner from their perspective, to see whether you can pick up on their needs. But if you don't realize they're telling you what they need in order to proceed with what you want, they can't be more obvious. It would be extraordinarily rude to do so.

One thing that foreigners in China fail to understand is that the Chinese have just as much trouble understanding our culture as we do theirs. They are not going to take steps that would be rude in their society to build bridges to ours. We are in their country, so it is rare that a Chinese official or businessman will be in a position to even attempt looking at the situation from our angle.

The best example of perfect, long-term execution of guanxi is the late Chinese Premier Zhou Enlai. Each businessman that enters China lacks the skills that Zhou built over a lifetime. But there are simple actions that will facilitate successful outcomes. One of them is learning to apologize, something that US businessmen and politicians rarely do. Apologizing for one's ignorance from the start will make the Chinese officials or business partners immediately more sympathetic.

I'll post more on apologizing in the next entry.

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