5 Ways Entrepreneurs Get It Wrong With China-Expansion Strategy As a huge section of the global market, understanding how to conduct business in China is a must.
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Every globally minded entrepreneur hopes to capture the fascinating market in China. Doing just that successfully, however, can be challenging.
Here, five costly and embarrassing mistakes expanding companies make when navigating the Chinese business world.
1. Lack of cultural and historical understanding
Sometimes seemingly logical decisions that look great on paper can turn into big mistakes and huge liabilities in the actual execution.
When Amazon acquired one of the top online bookstores in China, they first sent a high-level executive, which impressed the Chinese executives. But then Amazon assignined a Japanese executive to handle the specific details of working with the newly acquired company.
The Chinese online bookstore's executive was offended that a lower-ranked Japanese executive would be telling them what to do. The Chinese executive felt that the Japanese executive didn't show enough respect and, at times, even gave the impression that he looked down upon the Chinese.
Historical conflicts between Japan and China during World War II didn't make matters easier.
2. Applying what works in the U.S. to China
Many entrepreneurs make nation-centric decisions based on what's worked for them in the U.S.
For example, Walmart, the low-cost big-box retailer in the U.S., unsuccessfully tried to apply the same low-cost strategy to China. Competing on prices worked well for Walmart in the U.S. In China, however, Chinese companies can simply undercut Walmart's prices, because their products are made locally. Walmart, on the other hand, has many products from other countries, including the U.S., inevitably making them more expensive.
Since Chinese consumers perceive U.S. products to be of higher quality, a better strategy would have been to position themselves as the higher-priced and higher-quality market leader.
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3. Failure to resolve conflicts effectively
In China, conflicts are a normal part of doing business.
What most companies fail to do is understand the art of resolving these conflicts. The Chinese business culture is based on guan xi or personal relationships. A lot can be negotiated -- as long as the personal relationship is solid.
A common mistake American CEOs make is applying pressure that permanently damages the personal relationships with their Chinese counterparts. For example, one of our clients had a problem with low-quality products from his Chinese supplier. He decided to play hardball and involved the local police. The Chinese suppliers felt deeply insulted by this aggressive tactic and refused to negotiate.
In order to resolve the issue, my company sent a culturally competent consultant who used a more sensitive approach that brought the Chinese suppliers back to the negotiating table.
4. Not knowing how to make the Chinese government a friend
Entrepreneurs are often afraid of starting a dialogue with Chinese officials and government agencies, because they fear corruption at every turn, as the Western media often portrays.
A client once came to us with a particularly thorny business transaction -- the client had purchased a large order of products in China and received the incorrect quantity and wrong products. The client wanted a full refund. While in China, we met with local authorities multiple times. We explained the situation to them, concentrating on the importance of upholding China's reputation abroad and how untrustworthy business transactions such as this one could inhibit the number of Americans willing to conduct business in China. We explained that trust is paramount for international business transactions and their involvement in this situation would help restore American trust in China.
The strategy worked, and, shortly after, our client got a full refund.
5. Failure to realize that change starts from the top
Overall, it's nearly impossible to manage your growth in China without an understanding of how Chinese think and conduct business. To effectively position your company for international growth, it's crucial for CEOs to grasp the country's values and culture and even speak a few Chinese words to endear themselves to the local people.
But every change starts from the top. You can't manage others when you don't understand yourself.
China is becoming an important part of global business success. By avoiding these five mistakes, entrepreneurs can ensure that doing business in China is the boon they hoped it would be instead of a costly mistake.