Insights from Years of Doing Business in China
There is a barrage of political and market misconceptions about doing business in China. Many of them are for a political purpose and don’t really rely on truth or fact, but most misconceptions are born out of outdated or misinformed experiences. Having lived in China for many years, I have noticed many misconceptions about doing business in China.
Misconception #1 – I need to speak Chinese before I go to China
Like traveling to any foreign country, it is useful to have a general knowledge of the local language, but it is not necessary to be fluent. Many expatriates in China have been successful with little to no Chinese language capability at all. Many Chinese who know English will revert to English to communicate. Learning Chinese, even at a basic level, can be extremely beneficial and break down cultural barriers quickly. China’s standardized language assessment, HSK 6 is professional working level and that can open a new world of business and personal opportunities for engagement.
One suggestion is to take Chinese lessons. Getting a basic understanding of the language can be useful for doing business in China. No one will fault you for trying and you can build valuable partnerships and learn along the way.
Misconception #2 – Contracts Mean Nothing
When I first arrived in China in 2009, contracts were a nicety used to hold people accountable when it suited employers. The legal system was still in an infancy stage – and 10 years later, it still relatively is – but there are no more legal processes in place and more accountability built in. The system till has significant flaws, but contracts are being enforced more often now than in the past.
Contracts are often interpreted differently between different entities. Western businesses and Chinese businesses will read different sections and stipulations differently. Contracts in China are effective if there is a common understanding but can be ineffective if interpreted differently. Build trust first and the contract will be more suited to the relationship.
Misconception #3 – My Intellectual Property Will Be Stolen
On the surface, the intense economic competition in China may lead to a higher-risk that your IP will be targeted. There are legal and technical measures in place to mitigate this threat. Your exposure is dependent on how well you safeguard your IP and protect yourself through patent and trademark regulations. These are different in China than in the U.S. and can be much more particular. Engage a Chinese law firm that specializes in these fields. You might have to register your brand in multiple categories rather than just one. The legal system wasn’t built to make westerners happy; it was built by Chinese to help govern Chinese disputes. This means that each law was a Chinese solution to a Chinese problem. Right or wrong, effective or non-effective, that is the system. Engage experts in this field to protect you.
Misconception #4 – I need to be more “Chinese” to be successful in China
This is a common misconception. You need to be culturally “aware,” but you don’t have to change your personality or speaking style to be more “Chinese.” After 30 years of economic reform, Chinese business persons understand that you as a non-Chinese business person act and think differently. They don’t expect you to be Chinese and often appreciate it if you don’t try to act or speak as if you were Chinese. Business persons in China have seen much worse and if you make some cultural or linguistic mistakes, they are not likely to hold it against you.
This does not give you a pass to be culturally ignorant and rude. You should make attempts to be polite, sincere, and respectful of your counter-parts as they are of you. The execution and style may be different but at the end of the day, both sides want to do business.
Misconception #5 – The Chinese Communist Party (CCP) is going to take over my business
While each business is required to make reasonable accommodations to allow the formation of a communist party committee (see USCBC’s article here) much of the Communist Party involvement is in name only. This doesn’t mean that pressure will not be used later to influence how a company operates, nor does this assessment foresee China taking control over private western firms anytime soon.
My team and I at FAO Global (@FAOGlobal) have not seen or heard of these committees leveraged in a U.S. firm, but it does not mean it will not happen. If you are setting up a private enterprise in China and you have a few CCP members inform you of starting a committee, there are so few codified regulations on how private enterprises accommodate that you can even ask they meet after work. Due to the political structure of China, there are never guarantees that the government will not stick its nose into your business. If it does, this is why you should take on influential Chinese partners to manage the potential impact on your operations.
About the Author
Brandon Hughes is a U.S. businessman and China Strategist with over a decade of experience focused on emerging markets. He is currently the Founder/ CEO, and Principle consultant at FAO Global which provides bespoke data analysis and management consulting services to firms investing & operating in China & emerging markets.
Brandon brings over a decade of experience working in international markets from the public, non-profit, and private sectors. He holds an L.L.M. from Tsinghua University (Asia#1) and a B.S. in International Business from UNLV. He is currently completing a joint MBA through Columbia University, London Business School, & Hong Kong University.
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