By Tim Lindeman
Summary
An important element of success when doing business in China is establishing strong relationships with partners. Computer Aid Inc. (CAI), an American outsourcing service provider, didn’t have a long-term strategy for the China market. But they did have a paying customer and a manager who was wise enough to focus on building relationships. CAI succeeded in finding a Chinese partner that was a good match for their company culture, and together they formed a joint venture that generated profits in the first year of doing business.
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About Guest: David Broderick is the Managing Director of Protius LLC, a private consulting firm with strong experience in project management as well as creating IT strategies, establishing effective business processes, ensuring data quality, and helping organizations improve productivity through executive coaching. David was formerly the Director of Global Services Delivery for Computer Aid, and the General Manager of CAI-Newtouch Joint Venture in Shanghai, China.
Key Takeaways
Invest in Relationships
China is a collective culture that puts a high value on relationships. While Chinese businesses are motivated by profits, they often prioritize relationships over other business considerations.
Read as Much as You Can
Learning how to run a successful business in China a long-term endeavor. Reading can be a short-cut to absorb the experience of others and to avoid learning by trial and error.
Find Chinese Mentors
Experienced Chinese business professionals are all around the world. Work with them as trusted mentors who provide valuable insight into Chinese culture and suggestions related to your specific business issues.
Background
CAI had a big opportunity. A Fortune 100 customer, who they provided offshore work in the Philippines for, was shifting operations to Shanghai. If CAI was willing to open an office in China in the next year, this customer would give them a lucrative project.
CAI had no clear strategy for the China market, but their international growth philosophy was to follow customers where they went, building up capabilities to support the customers’ specific geographic requirements. David Broderick, who was responsible for application support project in the Philippines, met with top CAI executives to consider the opportunity. David reasoned that the overall risk of going into China would be low if they could find a reliable joint venture partner. The executive team agreed and offered David the responsibility to lead the effort.
Partner Selection
David worked together with another executive sponsor to compile a list of potential partners. They then created a high-level questionnaire and send it to each of the companies on the list. Of the approximately fifteen firms, eight replied to the questionnaire. From these responses, they narrowed the list down to four candidates to engage in remote meetings.
From the questionnaire and an initial vetting, two firms emerged as clear frontrunners. One of the firms proposed an in-person meeting at CAI headquarters in Philadelphia. The Chinese firm’s manager, who would be attending the meeting, had a home in a Philadelphia suburb very close to where David lived. This gave the company a leg up on the other company because this manager understood the way Americans did business.
For their final selection of the JV partner, David and a group of executives from CAI took a trip to Shanghai to inspect the offices of the two potential partners. In the end, they found that the firm with the Philadelphia based manager was the best match, and they worked out a JV agreement.
During the visit, David noticed that there were a lot of similarities between the two companies. They exchanged stories about their companies’ beginnings and realized that they shared many of the same values. They also had similar attitudes towards their customers. They even had the same company colors. These similarities became talking points for how to build a relationship together over time.
Market Success
David believes there are two primary reasons for CAIs success in China: they established a strong relationship with their JV partner, and they built up a strong team of Chinese employees. Together, they came up with a tagline that would differentiate them in the market: “Two cultures, One solution.” This tagline was the thread to connect the two companies and was a great selling tool. It communicated to customers that they were dealing with one team.
The partners succeeded with CAI’s initial Fortune 100 customer, and they used this project as a reference to sign up six additional projects with several new customers. The team also worked hard to make sure that every new customer became a reference site. At the end of year one, the joint venture posted a profit, which is incredibly difficult to do going into a new market, especially one as challenging as China.
Cultural Differences
CAI’s entry into China was not without its challenges. There were a few operational issues, such as the time difference between the US and China, and a lack of having a 3rd shift in China. But the most significant challenges were related to language and cultural barriers.
Concept of Face
While most people who do business in China knows about the concept of face, David argues that few understand its complexity.
David recalls his early interactions with managers working for his Chinese partner. Because of the time difference, he would rely heavily on email for communication, sometimes sending emails with six or seven items he needed to get answers for. Quite often, he wouldn’t get any response.
With the help of David’s mentors, he eventually figured out why his partner was not answering his emails. It turned out that if there was an issue with any one item in the email, the partner would not respond rather than lose face by admitting they were having an issue. So David started to break up his emails so they contained only one question per email. After doing this, he started getting responses to more of his messages. He also collected the questions he didn’t get responses for and added them to the agenda for the next face-to-face meeting. David explains that while it was culturally acceptable to not respond to emails, his Chinese counterparts were more willing to discuss problematic issues face-to-face.
Cultural Dimensions
Geert Hofstede’s research on cultural dimensions had a significant influence on David’s thinking. Hofstede defined a system of six dimensions used to compare national cultures. (see endnote 1) The US and China are significantly different in three of the six dimensions, being almost exact opposites in the dimensions of individualism and long term orientation.
Figure 1: China vs. US Cultural Dimensions
Source: Hofstede Insights (see endnote 2)
The difference in long term orientation is especially important when doing business in China. David argues that the Chinese confront issues with a sense that “time doesn’t matter,” as long as they solve the issue correctly. According to David this typically means that the issue ends up being solved “their way.” One of David’s mentors explained: “we like to solve problems in a way where we know our children will be taken care of.”
Recommendations
Read as Much as You Can
During his time managing the China business, David built up a sizable library of books about culture, relationships, and the China market. He recommends that when working with different cultures and countries, you have to do homework to understand how they want to be treated, and reading is a great way to do this. In addition to Geert Hofstede’s research, David also recommends ”Art of managing people” by Dr. Tony Alessandra, which explores the subject of how to treat others the way they want to be treated. (see endnote 3)
Find Chinese Mentors
Knowing very little about the China market, David reached out to some people he knew who had experience doing business in China. These contacts encouraged David to find personal mentors who understood the culture, the language, and the market. Through his personal network, David found a couple of mentors, who would prove to be critical in the success of David’s management of CAI’s China business.
In retrospect, David thinks that in some ways his ignorance about the China market may have actually helped him. Instead of thinking that he knew what he was doing, he felt like he needed to learn how to do it the best way, and listened carefully to everything his mentors had to say.
Invest as Much Time in Relationships as Possible
David believes the secret ingredient for success in China is relationships. David explains that “China is all about community, family, and ‘Guanxi'” (a Chinese term meaning relationships). David spent a lot of time talking with his mentors to understand what relationships meant in the context of Chinese business, and believes that spending this time to focus on relationships was critical to CAIs success in China.
David shared an example of planning a trip to China to meet his partner’s CFO. Before the trip, he reached out to one of his mentors to discuss what gift he should bring. His mentor suggested bringing a picture book of Philadelphia because this would help the partner understand more about David’s background, and help establish a closer connection. When the CFO saw the book, he was quite enthusiastic, and shared with David that he had spent time in Philadelphia before, and looking at the pictures sparked many fond memories of the city. Later, the CFO started practicing his English with David. This was a sign of good faith because Chinese typically wouldn’t risk losing face by talking with a foreign business contact in English, especially if they are not fluent.
Don’t Be Afraid to Make Mistakes
There are a lot of cultural pitfalls to avoid when building relationships in China. And as an outsider, you will inevitably make mistakes. David advises that if there is a relationship, your business partners and customers will understand that you are trying your best, and they will attempt to help you out.
To illustrate this point, David shared a story about visiting a Chinese customer and giving them a business card holder with a clock on the front of it. The same evening after giving the gift, David was reading a book on Chinese culture and came across a section warning against giving clocks, because Chinese consider this to bring bad luck. So the next morning, David apologized to his partner. To David’s surprise, his partner was very kind and explained that after David left, they discussed the gift internally, and resolved the issue. Instead of calling the timepiece a clock, our partners decided to call it a watch instead, which is an appropriate gift in China.
Additional Material
People Interviewed for This Case Study
China BizConnect thanks the following people or organizations who kindly offered us input during the creation of this case study.
Endnotes
- Source: “Hofstede’s cultural dimensions theory,” Wikipedia, Viewed on January 29, 2019 (https://en.wikipedia.org/wiki/Hofstede’s_cultural_dimensions_theory)
Back to Text - Source: “Compare Countries,” Hofstede Insights, Viewed on January 29, 2019 (https://www.hofstede-insights.com/product/compare-countries/)
Back to Text - Hunsaker, Phillip L., and Anthony J. Alessandra. The Art of Managing People. Simon and Schuster, 1986.
Back to Text