Engaging with China: do we understand business relationships?

Is there a lack of understanding of how to build an effective relationship with Chinese partners? Photo / Thinkstock

Opinion

Henry Shi, (The University of Auckland Business School), Arran Boote (William Buck Christmas Gouwland Limited) and Charles Tang (William Buck Christmas Gouwland Limited) on how important relationships are when doing business in China.

As many will agree, China's rise over the last three decades has provided enormous opportunities for the global economy. Today's China is not only a 'world factory', but also a huge consumer market. Needless to say, as a small-scaled and trade-dependent economy, New Zealand has a high stake in its business relations with China, which is reflected in the strength of our trade statistics.

Since the New Zealand-China Free Trade Agreement came in five years ago, China has become our largest overseas market and largest source of imports; the two-way merchandise trade has grown more than 50 per cent following the FTA.

Despite the growth in trade, the potential has barely been tapped. Our experience in both academic and business networks is that many business owners are still uncertain about taking the first step. They can point to many anecdotes where exporters appear to have been trying for years to 'get a contract', without any return on the investment in business development.

We believe the problem is a lack of understanding of how to build an effective relationship. A recent research project conducted by the New Zealand Asia Institute on New Zealand Business Engagement with Asia, in which co-author Henry Shi was involved as an investigator, shows that there has been a growing realisation of the significance of business relationship in our business engagement with Asian/Chinese partners. What makes such relationships, however, remains largely a puzzle.

As we often observe, one of the most common pitfalls in New Zealand's business engagement with China is to apply a linear and results-oriented thinking while neglecting the importance of having a personal business relationship in the first place.

Too often, our businesses assume that it requires a business-to-business approach, completely on the firm level.

We have been used to the three-trip pattern for doing business with overseas customers, especially in the traditional markets such as the UK and Australia:

• On the first trip, we introduce ourselves and give a presentation.
• On the second trip, we follow up and negotiate the deal.
• On the third trip, the deal is concluded and both parties celebrate the success.

When this mindset does not produce results in China, New Zealand business developers can become suspicious. Initial findings from the New Zealand Business Engagement with Asia project have confirmed this.

Here is one example, which is undoubtedly the norm for many businesses. On their first trip to China, they can receive great hospitality from their Chinese partners, with a 'grand tour', intensive sightseeing, sumptuous dinners in luxuriously decorated restaurants, and receipt of exquisite presents. These experiences do not seem to have a focus on the business per se, and they differ considerably from the linear approach that we have been used to. It can be confusing - are the Chinese serious about business?

In most cases, they are, but obviously, they have a different approach.

In the West, including New Zealand, a relatively sound and sophisticated legal system, which is typically contract-based, allows business deals to happen without the need to seek personal connections or relationships.

Business is typically approached on the firm level, within a contractual framework, and relationships are gradually shaped as the business deal proceeds.

In contrast, the consideration of human relationships is so ingrained in Chinese culture that it has become a key component of business practices in China. Historically, both Confucian and Taoist teachings have emphasised the high-contextual humanness and human relationships - for more than 2000 years. The impact of such strong belief has been evident in the Chinese way of doing business.

One example would be the notion of 'mianzi', literally 'face', which refers to the recognition by others of an individual's social standing and position. It is vital when doing business in China that both parties' mianzi is consistently maintained and constantly acknowledged.

Therefore, a good mutual relationship is usually expected in China prior to a profitable business transaction, which is perfectly inferred in the Chinese maxim: 'xian zuo pengyou, hou zuo shengyi' (friends must be made before the deal).

In China, it is commonly believed that the relationship lasts longer than the business itself. Thus, it is far more important to build a good long-term relationship than negotiate for immediate benefits.

The Chinese prefer that their business partners share their belief in such relationships. In this context, a more fruitful approach to the 'three trip visit' would be to host prospective Chinese customers in New Zealand. Given their belief in the benefit of having a mutual relationship before business deals, the Chinese are just as interested to understand the New Zealand part of the business relationship as we are to understand theirs. We have found that these offers to visit New Zealand are often accepted and can progress the relationship in a meaningful way.

Even if the business deal eventually does not happen, the Chinese would still emphasise that 'shengyi bu cheng renyi zai' (friendship lasts in spite of the business), expecting the relationship to remain and follow on.

The Chinese approach to business frequently involves processes of creating, strengthening, and capitalising relationships for both current and future benefits. This should contribute to explaining why our time spent on sightseeing, dining, and networking with the Chinese, especially at initial stages of our engagement, is actually worthwhile. It is through these personal interactions that Chinese partners increase their trust in us, which in turn facilitates, to some extent, the subsequent business processes.

Making these types of adjustments to the way we build relationships may not be an option for all businesses, but we believe it will help bring greater trading success - for individuals and the overall economy.

About the authors:

• Henry Shi is a lecturer in the Department of Management and International Business at the University of Auckland Business School, and a research associate in the New Zealand Asia Institute. His research focuses on Asian/Chinese business matters and their impact on New Zealand.
• Arran Boote leads the Business and Taxation Services team at William Buck Christmas Gouwland, and Charles Tang is a member of his team. They have experience assisting a wide range of New Zealand exporters to establish and maintain business relationships in China.