Trust and Verify in China

We all know Bill Clinton’s phrase ‘[It’s] The economy, stupid’, and when it comes to doing business with China, most Australians would agree that ‘It’s the relationship, stupid’. Even the Mandarin term, guanxi, is well-known and found in newspaper articles, or dropped into conversation by that acquaintance who worked in Hong Kong for a while. It’s Rule One. But is it even true?

Well – yes and no. The relationship is one key to success in China, and must be understood and respected. However, the importance of guanxi shouldn’t mean that business people leave their common-sense at home, or forget that the Australian preference for business to be fair, clear-cut and transparent is not only of intrinsic value, but is also our advantage.

In context, the selection of a suitable manufacturing partner in China is a common challenge, and the stakes are high. To rely only on an existing relationship as an introduction to a potential business partner is to use guanxi – for example, the new Accounts Payable manager was at university with someone whose uncle (or is it his uncle’s friend?) owns a factory in Shanghai. Relationship means obligation, and the rules oblige that factory owner to cooperate fully and in good faith. This is a good start, but no guarantee of a positive outcome – already the waters are muddied because multiple parties are involved – who owes what to whom?

At this juncture, clear-eyed and friendly research should determine this manufacturer’s reputation, customer history, ownership structure, and management style. The factory should be inspected to confirm its capability to meet quality specifications, compliance requirements and lead times. This would include types of machinery, warehouse space, quality control processes, and access to transport links. Are the working conditions acceptable? On a range of metrics how does this manufacturer compare to ten of its competitors?

Uncle’s factory checks out. Time for a banquet and toasts for a rosy future! This is classic Chinese relationship-building and can and should be undertaken with an open heart. There is a place for trust in the world – alongside verification.  Australians can enjoy business in China by remembering the fundamentals of our business culture: friendly negotiation, due diligence, quality assurance, comprehensive contracts and clear communication. In a structured and safe environment, trusting relationships can be built and maintained over time for mutual benefit.

By | 2018-08-22T23:58:34+00:00 September 4th, 2017|News|Comments Off on Trust and Verify in China

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