There is undoubtedly a large culture difference between doing business with China and the Western world.
This isn’t a bad thing at all, but the differences in conduct and attitude between the West and Asia can be stark. If you don’t know how to navigate, you could end up with a poor relationship with your supplier – which is far more important than you might think.
Business Relationships In The UK Vs China
If you’re used to dealing with business in the West, then you probably wouldn’t prioritize having a good relationship with your supplier.
For us, a good relationship is an additional bonus – but it’s not the be-all end-all. We’d expect a good relationship to possibly come with some perks such as faster manufacturing times and better response rates; possibly a way to make suppliers more receptive to your requests. However, a good relationship is not what we’d usually consider essential for doing business.
In fact, what we’d consider essential for doing business would likely only be money.
The Difference Between Business Relationships In The UK & China
Think of it like this: you’ve decided to buy some clothes online. As soon as you confirm the order, you realise that one of the items you’ve purchased is the wrong size, so you call the store to get it changed. Maybe you’ve had a bad day, maybe the person offering you customer service is a bit surly, or maybe there’s just some miscommunication – regardless of the reason, the call does not go particularly well, but you get your issue resolved.
What would you expect then?
In all likelihood, nothing. You’d expect your goods to arrive the exact same way you would before the call.
That’s where the first culture barrier lies. When working with Chinese suppliers, this is not the case – at all. Business etiquette is China is absolutely essential – your relationship with your supplier is generally what controls how smoothly or otherwise your shipment goes. Suppliers very much have preferred customers and your (and your goods!) treatment all depends on whether you’re one of these customers.
The difference is very simple: in Britain, business is business and personal is separate, whereas the business culture in China dictates that the two are one and the same. For a genuinely beneficial partnership, your supplier will want to trust and respect you.
"Guanxi" Defined and Explained
Before we start talking about the nuances of business relationships with the Chinese and sharing tips on how to make sure you cultivate a good relationship with your supplier, we’re going to share with you two parts of Chinese culture that are essential to helping you understand the business world. Guanxi and face.
If you’ve ever researched the customs for doing business with China, you will most probably have run into the word “guanxi”. Guanxi is a useful term to understand when delving into the business relationships in China.
So . . . What is guanxi?
““Guanxi” does express the relationship of one person to another, or one party to another. However, more importantly the term also expresses an obligation of one party to another, built over time by the reciprocation of social exchanges and favours. If one has “guanxi” with another, one will be quick to do a favour, act on another’s behalf and depending on the depth of the relationship, do anything necessary for the other party. By establishing this type of relationship with someone, the other party is implicitly agreeing also to be available to reciprocate when the need arises. In such a way “guanxi” can be considered as a type of currency that can be saved and spent between the two parties. Like money, it is a resource that can also be also be exhausted, so one must be sensitive not to overextend the “guanxi” that has been established.” – Guanxi: The Chinese Cultural Concept, Commisceo Global
Simply put, a very loose translation is relationships. In China, guanxi refers to the network of connections and relationships a person may have – a network of people who are willing to do that person favours. Although used in business, guanxi is actually a central part of Chinese culture and is present throughout their daily life, not just in business.
Back to business, however – for the Chinese, it is important for business partners to know each other on a personal level before delving into business with one another; often potential partners will wine and dine each other for months before even mentioning business. This means that partnerships are based on trust and mutual benefit. This trust and character-learning builds guanxi.
A good example of the way in which guanxi is used in the business world is taken from the BBC’s coverage on Chinese business practices.
“When Chinese entrepreneurs Deng Feng and Michael Yu took a BMW out for a test drive together, they managed to get into an accident and completely destroy the car. As soon as they stepped out of the wreckage, Mr Yu told Mr Deng not to worry, as he would take care of it.
Both are members of the exclusive China Entrepreneur Club (CEC), a not-for-profit group of 46 of China’s top entrepreneurs and business leaders.
Having good “guanxi” – a wide network of mutually beneficial relationships developed outside the formal work setting, for instance at evening meals or over drinks – is often the secret to securing a business deal.
Mr Yu, who is on the board of the CEC, says it is because of this that the number of CEC members is limited. The small group size ensures people can really get to know one another, build close connections and ultimately help each other out. We have had a lot of occasions for example, when members are in trouble or got into difficulty the entire club is behind a person, or we divert a lot of time to help that particular member through a difficult time,” says fellow CEC member Charles Chao, the chairman and chief executive of online media firm Sina Corporation.” – Doing Business The Chinese Way, BBC
Although this “I’ll scratch your back if you scratch mine” method may seem a little disingenuous or illegitimate to Westerners, this is an intrinsic part of the Chinese culture and was actually developed as much more of an honour code. There were periods of time in China where people were encouraged to spy on one another and friends and families were told to report each other – the most recent being the 1960s and 1970s – and in times like this, guanxi was a way to rebuild trust within communities and avoid relying on the state for judicial laws.
Through understanding guanxi and how integral it is to Chinese society, you can understand why it is essential to have a good relationship with your supplier.
The Importance Of "Face" In Chinese Culture
Arguably, one of the most important aspects of Chinese culture is “maintaining face” – similar possibly to the British and our manners.
Although not explicitly definable, face is almost what we’d consider “prestige”, “pride” and “honour” to be.Important Note
Western culture is a guilt based culture; our honour and pride is very much individual and based on things like our integrity and our morals. This means that how we act is governed by things like conscience and emotions our actions bring out. An example of this would be: were we to steal something or hurt someone, we would likely feel guilt and that would be a deterrent from doing it again. (Interestingly, this is actually in large part do to our religious beliefs; the idea that there is an afterlife in which we are judged for our sins.)China however is a shame based culture which means that their honour and pride is very much based on appearances. This means that how they act is governed by how people perceive them and how they interact with the collective as a pose to individual morality. The idea behind this being that if they were to steal something, they’d feel shamed for getting caught and embarrassing their family as a pose to guilty for stealing.Why is this important? Because our version of honour and theirs is different. Let’s explain.You’re in a business meeting and suddenly your boss starts talking about unethical business plans – you don’t agree and counter his points. In Western culture, you’d be honourable for maintaining integrity and standing up for your morals. In China, this would be losing your temper, disrespecting someone higher up in the hierarchy than you and creating a scene – all of which is considered “losing face”; something shameful and to be avoided.
The idea of maintaining face is to avoid public embarrassment and shame at all costs. This in part is why guanxi works so well – because this avoidance of shame within the network and community ensures that both parties will fulfill their obligations to each other.
However, in a wider sense, the concern with saving face is important to your business because it should colour all your interactions with your suppliers – and allow you to understand them a little better. Often, being curt or rude to them (even if inadvertently) will cause them to feel like they have “lost face” and lead to them to valuing you less as a customer. On the other hand, praising them and acknowledging what they’ve done well for you allows them to “gain face”.
Another point we briefly touched on in reference to face is the difference between guilt and shame based cultures. A simple example that demonstrates the sort of caution you should apply when doing business in China is the cheating epidemic:
“In recent years, cheating has got so out of control that, three years ago, in the small town of Zhongxiang, Hubei ( 湖北 ), a group of gaokao invigilators found themselves under siege as enraged parents and students trapped them in their office and threw rocks at the windows, shouting, “We want fairness! Let us cheat!” (because it’s now so common for students to cheat that they feel it’s an unfair disadvantage for them not to)
It’s not just the gaokao – it’s the SAT, the GRE, and a whole host of other exams. An estimated 90 per cent of all recommendation letters for Chinese applicants to United States universities are fake. Some 70 per cent of application essays are not written by students, and 50 per cent of grades transcripts are falsified.” – South China Morning Post
To gain face, parents want their children to go to high-ranking universities. These children are encouraged to get into a good school – and that’s it. In China, the status symbol is the school; to be seen as having children in a good school, or being in a good school gains face. To not be in a good school shames the entire collective and loses face. The in between doesn’t matter.
This example may seem irrelevant to business, but it perfectly captures the attitude many of the Chinese have. So be careful.
Bargaining With Chinese Suppliers
A lot of people source their goods in China expecting to get an unrealistically cheap deal, forgetting that bargaining should be beneficial for both parties. Although the cost of labour in China is much less than that of labour locally, do not suddenly start thinking you’re going to get everything for dirt cheap. Supplier negotiation is a fine line.
Not only will it not happen; it can’t. Why?
Because both sides must make a worthwhile profit. A lot of importers don’t fully grasp how many steps there are in this process and quite how much needs to be paid for – we get it, which is why we’ve explained and priced all the steps in the importing process.
Although people like to take advantage of China’s cost-effective labour, they become very tight-pursed and don’t want to pay for anything more – which can leave the Chinese suppliers (who are already saving you money) out of pocket. The ensure that your supplier negotiation strategy isn’t going to land you in hot water, keep reading!
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How Is The Supplier Thinking?
Naturally, importers can’t be expected to know the profit margins Chinese suppliers deal with – but here’s a hint: they’re not good. Considering how cheap you’re purchasing goods for, you can imagine that the profit the supplier is pulling is pretty minimal.
A majority of the time, it’s just not physically possible for them to offer a 10-20% price reduction, like many importers may request during “bargaining” – unless the price was largely off to being with. If you back your supplier into a corner and they end up working with a smaller profit margin than they’d like, what do you think happens then?
The likely outcome is a batch of products with horrible quality and a large number of defective units.
In fact, a large amount of Chinese “scammers” will cite unreasonable bargaining prices as the reasons for “scamming”. (Note: this does not go for all scammers. Some just want to swindle you out of your money – but be careful when bargaining not to take advantage, as it can turn some otherwise decent suppliers nasty.)
In short, all you need to take away from this is that you should aim to trade fairly and make sure that both sides are getting a decent deal. negotiating with suppliers is encouraged – but taking advantage of them is not.
The Difference Between Lies and Lies
You may be slightly confused by this point – a lie is a lie, right? However, here is where guilt, shame and saving face come back into it.
The Chinese have a much different relationship with the truth – whereas we have a moral obligation to be truthful, they have an obligation to save face and avoid conflict, sometimes at substitute for the truth. What we would consider deceitful and nefarious, they often consider for the best of the community or simply saving face. An example of this is that when visiting a hotel in China that does not accept foreigners, the receptionist would likely lie and say “I’m sorry, we’re currently at full capacity”; this is a lie – but not to be offensive. The receptionist is simply trying to save face by avoiding a confrontation.
Keep this in mind when dealing with suppliers – they may tell you that they can meet deadlines or produce goods they simply don’t have the ability to.
Now that you’ve read this post, we hope that you comprehend some of the vast cultural differences between China and the UK. Your relationship with your supplier is key to sourcing quality products and running your business – so make you that you don’t accidentally damage it.
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