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China’s recent economic boom and a population of 1.3 billion people, has quickly made China the “Holy Grail” for all businesses around the world. Their seemingly unquenchable thirst for luxury and imported items has made China one of the top markets for export goods. It’s estimated that 20% of the population controls 80% of the country’s wealth. While that may seem like a small number, consider that 20% of China’s population is 260 million people, roughly the entire population of the United States. Successfully selling your products in China can shoot you to a Wal-Mart level stratosphere. Success can provide profits that dwarf domestic revenues. Just ask KFC, which owns the Chinese fast food market; even with many of its US stores bordering in the “red” it’s looking at huge corporate profits. But failure can be disastrous or at least embarrassing. Ask Home Depot, a corporation who is forced to close all seven of their big box stores in China. Even with Home Depot’s internationally recognized brand, deep pockets, in conjunction with China’s booming real estate market; Home Depot could not pull out a “win” or even a “draw” in China. But competitors such as IKEA are enjoying a fair level of success. Why? Is IKEA just better that Home Depot? No. Home Depot did not seriously recognize difference in cultures and people’s attitudes toward their products.
While China is a foreign country, it can feel like a foreign planet at times. Trying to do business there you first have to forget everything you know about the U.S. market. It seldom applies. The cultural complexities are woven into everyday life and ingrained in their thinking. The Chinese consumer is a completely different species than that of the American one. It’s very easy to fall into the idea that “it works so well here, then they’ll be clamoring for it over there.” Home Depot offers a paradise for do-it-yourselfers. Unfortunately, China is not a do-it-yourself country. With labor cost so low in comparison, people hire workers (sometimes off the street) to do the installation. The Chinese consumer doesn’t want everything under the sun in one place; they want to go to a market with shop after shop selling the same things. There they feel they have the largest selection and the ability to negotiate the best deal.
One of the most successful business strategies in China is Starbucks. When Starbucks first announced that they were going into China, the pundits all laughed at them. The idea of trying to sell coffee to a tea-drinking nation was comical. To charge for a cup of coffee the price of a meal is even more ridiculous. Yet Starbucks is one of the great U.S. to China success stories. Starbucks wasn’t selling coffee to the Chinese, they sold to the Chinese what they really wanted, the American lifestyle. Large shops walled in glass with free wi-fi allowed people there to feel like Americans. With their laptops out, they would sit there with their mug and feel cosmopolitan. More importantly, they were seen by others to be this way. Soon everyone wanted to feel this way and Starbucks took-off.
Expo in Kunshan
What ever you learned in business school scarcely applies to doing business there. The first and last thing in business in China is called “guanxi.” Translated as “relationships,” it is what all businesses in China are based. The Chinese businessman does not look at your company; he looks at you. Are you capable? Are your trustworthy? Your personal relationships with other businessmen and Government officials can be everything. Business is almost never conducted at the office. Real business is conducted at dinner in private rooms with alcohol. Tolerance for alcohol is a necessity to do business in China. They must first feel comfortable with you before even considering business. The Chinese only do business with “friends.” Because of its social connotations, drinking has ingrained itself as a part of doing business. A typical Chinese businessman will conduct these dinners 5-6 nights a week. While Americans buy alcohol by the bottle, the Chinese buy alcohol by the case. But even drinking has specific rules.
There are a series of unspoken rules in drinking when conducting business dinners. The highest-ranking person has the place of honor facing the door. You must know the hierarchy of everyone in the room. You must toast everyone in the room and they will in turn toast you. Respect is shown as you toast the highest ranking person in the room first and then on down the line. To truly show your respect, your glass must be lower than theirs as they clink. While such rules seem trivial and complex it is the expected manner of doing business.
While China is seen as a behemoth market, access to this market by foreigners is limited. While the Chinese prefer imported goods to their own, they prefer to do business with their own. Your personal network is everything in business. Only friends will open the door for you. The game is that who can secure the most powerful friends. As business goes, you can be the smartest person in the world and still not make it in China. But, you could be the dumbest and be related to Mao, then you will be rich.
By Steven Fan
Steven Fan is a Chinese American businessman living and doing business in Chongqing, China. He has a Bachelor of Arts degree in Mass Media Communications from NYU and runs several successful import/export companies. You can reach Steve Fan through Arthur Walsh at artw@fbworld.newworldwineclub.com, all communication will be passed on to him.
