1. Prepare thoroughly
Do not enter China just because your competitors do or because you are fascinated by Shanghai. You will need mainly a hard analysis of your potential in China as you would need in any other country.
2. Watch the dynamics of your industry
Foreign firms in China are often so focused on market growth that they ignore the fundamentals of competitive analysis. For example, in the mid 1990s, more than twenty foreign brewers came to China and wanted to control 15 percent of the market. They, however, found themselves on a vaguely differentiated market with more than 600 local breweries, many of which were subsidized by local governments. After almost twenty years, their situation is still very similar.
3. Take your time
Do not think that you will start your Chinese business as early as within six months. Instead, bet on thorough planning and analysis. Carefully choose partners and do not let yourself be forced into a disadvantageous cooperation just because of time pressure.
4. Remember that Chinese society is collectivist
Collectivism of the Chinese society manifests itself in a strong partnership of groups such as families, clans and friends. Out of these groups, however, cooperation is very difficult. Be prepared for the fact that your Chinese partners will not believe in win-win agreements. Even if you think that you have negotiated everything, they will most likely open the negotiation again.
5. Count with rooted mistrust and opportunism
China still lack reliable and impartial mechanisms for trade negotiations including a functional legal system. That leaves open room for opportunistic behavior. The Chinese do not trust people outside of their groups.
6. Building trust takes time
Successful business in China requires friendly personal relationships among partners. Building friendship, however, takes time, which is another reason not to hurry. Prepare for long dinners and alcohol.
7. Get ready for pressure
Chinese negotiators may cross the boundaries that we consider to be decent. When negotiating the rights to distribute your products in China, you can for example hear the threat from them that they will use their political contacts to ban your products if you do not cooperate with them. You may also be forced to drink much alcohol to have a weaker negotiating position.
8. Remember that Chinese society is hierarchical
In Chinese companies, it is always top management that makes decisions. Middle managers have very limited decision-making and delegating powers and their main task is to carry out orders from above. Formal status plays a big role in the negotiations - not only in terms of position within the company but also in terms of age and education.
9. Keep in mind that Chinese government is decentralized
It is generally thought that the structure of the Chinese government is centralized and all the important decisions happen in Beijing. In reality, however, Beijing has little impact, especially on the very remote areas. Thus, if you get permission for something in Beijing, it is not yet certain that you it will be approved by other local governments.
10. Follow the wider context
Private business in China is strongly influenced by the State-owned Assets Supervision and Administration Commission which manages approximately one hundred state enterprises. It creates special rules to protect them, which hinders the development of private companies. You should know if some of these companies operate in your industry.
These rules were prepared for the Forbes Magazine by Michael A. Witt, Professor of Asian Business & Management at INSEAD.
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