The Chinese domestic market is brutal. Your average Chinese SME is locked in a hand-to-hand, day-by-day battle for survival. Any successes they create risk being copied by their competitors within months, and from there, the number of competitors will grow exponentially until a once lucrative innovation is nothing more than a commodity.
The local competition will do anything and everything to get ahead, reverse engineer products, bribe and/or steal employees, interfere with your credit and government relations.
They will go after their competitors’ IP, suppliers, customers and distribution systems. Or, in other words, it’s just like everywhere else in the world but, due to the number of competitors, a little more so.
The irony is that many Westerners like to point to Chinese business attitudes as flawed, immature and immoral without recognizing the impact that the West has had on Chinese attitudes toward business.
In the West, as our markets matured we created systems which were designed for efficiency. They required more transparency and cooperation between businesses, which were part of the same supply stream, predicated on the idea that “I take care of you and you take care of me.” That philosophy went out the window as companies pursued cheaper sources overseas as a way of adding to the bottom line.
However, what was once a competitive advantage becomes a competitive necessity when a critical mass of your competitors starts using the same sourcing strategy. This process has touched off an ongoing race to develop cheaper sourcing which has jumpstarted economies like China and India.
Still, the consequences for companies who were part of this process in China and India have not been universally beneficial. Initial profit lines for Chinese companies were eroded by stiff competition from other local companies, and those who were not able to see the sourcing tide moving away became casualties.
These companies have learned the hard way that the magical, long-term, mutually beneficial relationship is often a myth. In Shenzhen, more than 10,000 businesses have gone bankrupt this year as lower labor costs and lax environmental enforcement has drawn business elsewhere. Even when these firms were running full tilt, they were pitted against each other in merciless cost wars instigated by foreign corporations. So, while the United States has preached a “win/win” ideology, both at home and abroad, the truth has been that it was always all about the Benjamins.
In addition, in China, due to the rapid political, social and economic changes of the last 60 years, the individual’s sense of stability and faith in the system is still developing, and the future is not certain. At this point, in the midst of an economic meltdown, the only thing that is clear is that the ideological practices of capitalist and socialist systems have blurred and that a clearly defined ideological path has not emerged.
Here is some gratuitous advice if you choose to do business in China:
When Chinese SMEs deals with other Chinese SMEs, it can be like a cobra approaching a porcupine. Each side endeavors to learn as much about the other’s strengths and weakness without disclosing their own. In the initial conversation between the companies the bosses will hint/brag about powerful connections and performance capabilities. If things progress, the employees take the field and shape the deal points as directed. Like playing Mahjong, each player is out for themselves, even if everyone is smiling while they play. Do not expect to be treated any differently just because you are a foreigner. In fact, you should be aware that they have even less reason to trust you. So do not be surprised that most Chinese businesses and people are highly secretive and distrustful. It’s not you, it’s just standard operating procedure.
In China, to be caught and disgraced is unlucky, stupid or both. Under our Judaea Christian values, right and wrong are based on collective ideals which are enforced though the individual’s sense of guilt and (if religious) ultimate punishment. In China, 5,000 years of culture and philosophy has resulted in a more pragmatic view of human nature which, while it emphasizes family values and obligation, views war and business as competitions with no rules.
For the Chinese, truth is knowledge, knowledge is power and you do not give power to a stranger who could be a potential enemy nor do you expect them to give it to you. It is an outlook on life right out of Sun Tzu’s the Art of War. Rather than trying to figure out the “truth,” plan on verifying everything every time. You may never know the truth, but you will at least have a good chance of getting what you bargained for.
China’s legal system has been developed over the last 30 years. Marrying capitalist mechanics to socialist controls has been difficult. There are many grey areas, and the legal infrastructure is immature. In addition, Chinese companies lack experience using legal means to solve disputes. In the past, the outcomes of a legal dispute were more about connections than right and wrong, but as judges are faced with stiff penalties for misconduct and the dockets fill up, a judicial economic model is evolving that puts more emphasis on the contracts and documents and a little less on who is involved.
Given the history and the current circumstances, Chinese businesses will probably only embrace those practices that create competitive advantages for them.
Western companies should keep in mind that a missionary sense of ideological zeal is less useful than a hard look at the local conditions and norms when developing opportunities.
The difference is less about how we compete than the cultural outlook we espouse and the systems we have developed. The truth is that human nature – good, bad and indifferent – is fairly universal. The difference is how it plays out in different sociopolitical economic situations.