China Business: Michael Pollard: Chinese investors' inbound challenge

Michael Pollard is a specialist corporate partner at Simpson Grierson.

Opinion

Cultural differences are becoming a dynamic of the marketplace, explains Michael Pollard.

Inbound Chinese investors face the same key issue all foreign investors face (whether into New Zealand or abroad): understanding the destination's business culture and adapting to it. Chinese investment is topical, but their need to understand and adapt to the culture is no different to other foreign investors.

What is different, generally speaking, is the level of culture-shift faced by many Chinese investors. With the huge growth of inbound Asian, and particularly Chinese, investment, and the increasing number of Chinese investors doing their first deal outside their home country, this dynamic is becoming a feature of our marketplace. The need to understand the cultural differences and drivers is important.

An excellent adviser will be adept at understanding the impact of the client's culture on the transaction, taking advantage of the strengths, and educating and managing the client through the challenges of working in the different New Zealand business culture. The adviser will also be adept at managing the expectations of the business counterparty.

A critical first focus is understanding hierarchy and its impact. It is not merely organisational hierarchy that is important. An individual's political and personal connections are often unexpectedly relevant. These influences, including the "concept of saving face", can be difficult to discern but have significant impact on both process and outcome. Without understanding these, it is challenging to find out real deal drivers and get results efficiently.

The typical Western business person might expect a business meeting to be very results-oriented. In most cases, the opportunity has already been identified and the focus is relatively granular. Developing a strong relationship is important, but it is often a by-product of the opportunity and developed alongside it. What is communicated is relatively more important that who is communicating. Most debate is welcomed and it's hard to offend. In contrast, with many Asian dealings, the interpersonal elements are more critical. The gestation of a business relationship seems to take longer to develop, as trust is formed, but once it has, movement to execution of the transaction is faster - with the detail receiving less focus. Hierarchy plays a more significant role. This extends to the formality with which introductions are made, the speaking order, the manner in which ideas are debated and perhaps most importantly, a sensitivity to not undermining "face".

For the adviser or counterpart to any business dealing, a understanding of these is important. It takes longer to get transactional momentum and certainty, change is challenging - particularly when it means needing to contradict a senior person; vigorous debate may be replaced by an absence of contradiction coupled with what appear to be incremental and time-consuming changes in position.

One challenge is getting the inbound investor up to speed and confident in New Zealand market norms. It is obvious that these should be challenged - there are different (often better) norms elsewhere. It is natural to come at these with a degree of scepticism until they are understood as rational.

Perhaps the greatest impact then is the time it takes to get the deal done. Precedent is also critical. Much Chinese inbound investment is state money.

There is a real sensitivity to doing a bad deal, or setting precedent around approach or terms that might be considered to apply to future investment by others.

All of these factors, coupled with a lack of familiarity with (or sense of obligation to) typical New Zealand business norms, results in frustration on all sides, and sometimes means that good deals will not be done. However, as we see more deals by Chinese investors, they will become more experienced and confident operating in New Zealand business culture and their own norms will become increasingly understood and accepted by the locals.

• Michael Pollard is a specialist corporate partner at Simpson Grierson.