By George F. Brown Jr. and David G. Hartman
Enjoy the Pack
Certainly anyone who has been doing business in China already recognizes the fact that transactions aren’t the “one to one” variety common on most western country markets. In China, the reality is “one to a pack,” with the “pack” reflecting the various organizations involved in business decisions in that country. The most common additional participants in the “pack” are still governmental organizations, both national and regional.
Most China-savvy practitioners know that it makes good sense to get to know the mayor and key party officials. In instance after instance, we’ve seen what would be considered a pure business decision in the west influenced by the potential impact on local employment or some other metric important to the mayor or other government officials.
The roster of the participants among the “pack” goes far beyond government, however. Universities, Design Institutes, and Trade Associations are among other important examples. And, like government, while the descriptor of the organization is the same as in western markets, the roles played by these organizations are very different. In previous time, for example, Chinese trade associations often actually ran their industry. That defined their roles far differently than their western counterparts. As an example, the China Valve Industry Association cited its roles as inclusive of product purchasing, investigating “internationally famous valve companies”, participating in the technical verification of foreign valves, and helping project investors to choose valves. It is hard to imagine, for example, a U.S. trade association taking on the role of recommending one of its members over the others.
You Are the Man
In China, the personal dimension of business relationships exceeds that of most other markets. One experienced executive responsible for his company’s strategic accounts described his typical message to his team as follows:
“You are our company’s point person with your assigned accounts, but it’s about the company, not about you. You need to make sure your customer sees that the relationship is with the company, not with you. You can think of yourself as the conductor of the orchestra, but always remember that it’s the orchestra that makes the music.”
His advice is correct for most market settings. Our research into strategic relationships clearly shows that company-wide competencies in implementation and innovation are the foundations for long-term successes. An individual’s relationship skills can help his company move from a traditional supplier relationship to a stronger position, but that alone typically is not enough. It takes company-wide efforts to sustain higher-level relationships.
The personal element to business relationships cannot be underestimated in China. It takes a considerable adjustment in the human resource policies of most companies to avoid disruptions such as those experienced by the firm whose executive was quoted above. Selection of individuals and management of eventual changes requires a new emphasis and level of skill.
Learn to Deploy
The concept of “China speed” is among the most challenging of concepts to communicate. One of the strongest messages we have provided about what it takes to succeed in China is that firms must change their processes to move at China speed or face a serious competitive disadvantage.
Perhaps this concept can be best understood in the context of China’s amazing pace of economic development. The country’s economy has grown at a double digit pace for twenty years, with the country’s income about eight times higher than it was just two decades ago. As a result, literally hundreds of millions of consumers have had the opportunity to buy their first cell phone, their first DVD player, their first color television, their first car, and their first condominium in a period of less than two decades. The number of passenger vehicles in China went from about four million in 2000 to more than 60 million in 2010.
While only about 10% of China’s population had an income over $10,000 in 2000, 60% exceed that level today. And these more prosperous consumers are impatient, eager to enjoy the higher standards of living that have become possible to them. As a result, speed matters and the firms that aren’t able to meet consumer demand are going to fall by the wayside.
There are still other characteristics of China’s market that reinforce the importance of speed. Markets are not only growing rapidly, but are very fluid, with tastes shifting quickly and the annual new entrants into each income strata are so numerous as to create a new market on their own, with no history or prior purchase patterns. New technologies or fashions can thus see explosive overnight sales gains. The firms that supply products have very little in the way of brand loyalty, given the absence of history, so a new entrant, from China or abroad, can quickly gain market share with the right product and sales campaign.
And processes in China are different as well. The ready availability of labor at costs that are still low by global standards allows China’s firms to do things differently than is the case in other markets. Research and development processes, for example, often reflect China’s ability to swarm a task with labor, even if the required labor involves skills like engineering. And many Chinese firms continue to bring products to market with minimal beta testing, knowing that they can swarm performance problems with service labor.
For the foreseeable future, none of these factors will change much, even as China’s economy continues to grow. “Get used to speed, Reed.” The firms that will be best prepared for success in China will rethink their processes and systems to take time out if they are going to be competitive in this market.
Stay on the Bus
In an earlier part of this article, we emphasized the personal nature of relationships in China, requiring that firms implement personnel policies that reflect the importance given to relationships by the Chinese organizations with which they are doing business. Stability is a key success factor in China. This need goes far beyond ensuring stability with Chinese customer organizations.
One reason for the criticality of stability is the fact that contracts are not reliably enforceable, so relationship is the way that interests are protected. “The rules” are often unwritten in China and are frequently unpredictable in application, so the importance of a strong relationship extends to officials as well as to customers. If a firm changes its players, the odds are good that the Chinese will think that contracts and rules are open to change as well.
“Don’t pass the baton. Success in China requires building many key relationships and sustaining them, presenting a picture of stability to all of the organizations that make or influence decisions along the customer chain. Without stability in key relationships in China, success stories will be few and far between.
The City is Key
Despite the incredible growth that China’s economy has experienced, it is a very diverse country market, far more like the European market of several decades ago than the U.S. market. The eastern part of China, including Beijing/Tianjin, the Shanghai area, and Guangdong Providence, is by far the most developed region, with the highest incomes and the greatest concentration of global firms in operation. Incomes and the business mix vary widely across the rest of China, with rapid changes taking place due to government incentives and even a western migration spurred by increasing costs in the coastal regions.
But it is not only economic geography that makes it important to focus upon the unique characteristics of regional markets in China. Widespread differences exist across China’s cities and regions, starting with rules and regulations, competitors, customers, and extending along almost every dimension that is relevant to business success. Plans for short-term successes in new regions typically result in disappointment; the better strategy is to assume the need for a reasonable start-up period during which relationships can be developed and the local rules of the road can be learned.
George F. Brown, Jr., along with Atlee Valentine Pope, is the author of "CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs." He is also the CEO and cofounder of Blue Canyon Partners, Inc., a strategy consulting firm working with leading business suppliers on growth strategy.
David G. Hartman is Blue Canyon Partners’ China practice director. He has previously served on the faculty of Harvard University and as executive director of the National Bureau of Economic Research.