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Key Insights:

1.
  Legal Considerations
2.
Cultural Rules
3.
Communications
4.
Manufacturing Services

Legal Considerations

  1. U.S. companies must consider both countries’ laws. Executives need to understand their impact especially profit repatriation, taxes and business models.

  2. China’s commercial laws are changing rapidly to correspond to World Trade Organization laws, but there remain many uncertainties and different interpretations; implementation is sometimes spotty.

  3. China has numerous laws that encourage, restrict and prohibit investments in specific industry sectors. Therefore, learn whether any of these laws apply to your project during all phases of implementation.

  4. China has made many improvements for the protection of Intellectual Property Rights. However, enforcement remains a serious problem that is being addressed at the highest levels of government. Agreements must be written to minimizing the risk of IPR violations, and maximizing the redress of grievances.

  5. China is progressing with its transition to the Rule of Law, but recourse to its court system is often ineffective. Marketing strategies and tactics must be designed to minimizing the risk of disputes with Chinese partners, associates, intermediaries and suppliers, and clients.

  6. Cultural and business values, customs and norms can lead to parties attributing different perspectives to the same set of facts. In any agreement or transaction, you and your counterpart must have a common understanding of accountability and expectations.

  7. If you are going to import Chinese merchandise, determine whether these imports are subject to restrictions under U.S. trade laws. Even if the merchandise is not currently subject to import restrictions, you should plan your business activities to minimize the risk of restrictions.

  8. If you intend to export goods, services or knowledge to China, even for use in your own Chinese operations, they are subject to U.S. export laws. Many exports are not restricted, but exports of certain products and technology are restricted. It is important to check the requirements for the specific product or technology you intend to export.

  9. Although Gift Giving is an important part of Chinese culture, the U.S. Foreign Corrupt Practices Act prohibits companies from making “corrupt payments” of money or anything of value to foreign officials for the purpose of obtaining or keeping business. This includes both direct payments and indirect payments through intermediaries.

There is an explicit exception for "facilitating payments" for "routine governmental action" such as obtaining permits, processing governmental papers, and securing services such as police protection, mail pick-up and delivery, phone service, power and water supply. However, the lines between “corrupt payments” and “facilitating payments” can sometimes be hazy, so seek advice of qualified counsel.

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Cultural Rules

  1. Knowledge of the Culture and Language is critical. Even basic sayings and understandings go a long way and your hosts will appreciate your initiative. Go outside your level of comfort and engage the culture!

  2. Form connections with those with first hand experience conducting business and developing strategic relationships to access the right decision makers at the national and provincial levels.

  3. They are very keen about exchanging business cards. Bring plenty to business and social meetings, preferably written in English and Chinese characters. Present them properly to your counterparts ~ include your company's name, your job title and any special qualifications you have. When receiving a card from a Chinese businessman or official, take it with both hands and compliment something about it; be sure to keep it on the table in front of you for the entire meeting.

  4. Avoid the word "no" in your business dealings. "Perhaps," "we'll see," “let’s find out” and other ambiguous words are more appropriate.

  5. Humility is a virtue in business culture and norms. In most instances, exaggerated claims will be discounted.

  6. Expect long and arduous negotiations, even at the very end. Keep your return home dates close to the chest, noting you are there to negotiate. Be prepared and very patient. Accept the delays. The Chinese prefer to establish strong relationships before closing deals because of the lack of a strong legal system to enforce contracts.

  7. Understand the difference between a Joint Venture (JV), a Wholly Foreign Owned Enterprise (WFOE) and a Representative Office (RO).

  8. Keep an open mind for creative opportunities as your business relations deepen and current activities begin to generate revenues.

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Communications
  1. The traditional Chinese "handshake" consists of interlocking the fingers of the hands and waving them up and down several times. This is rarely used today (except during festivals, weddings and birthdays of the elderly), and the Western-style handshake is used by most everyone. When greeting, a slight bow often accompanies the handshake. While a firm grip is expected in the West, the Chinese is a gentle handshake. Except for shaking hands, do not touch anyone unless you know them very well. Never embrace or slap a Chinese associate on the back.

  2. Chinese names are "reversed" from Western names. The surname is said first and then the given name. For example, Chou En Lai, the world renowned diplomat ~ Chou is his surname and spoken first, and En Lai are his given names and spoken next. Professional, social, and family titles always follow the surname, and unless specifically invited, do not call someone by his first name.

  3. The Chinese will often avoid eye contact during conversations, especially when talking to the opposite sex or to strangers. Traditionally, it was considered impolite and aggressive to look directly into another's eyes while talking, and as a sign of respect. They typically have a "blank" facial expression during introductions. This reflects the belief that there is virtue in concealing emotions, and is not a sign of unhappiness, dissatisfaction, or unfriendliness. Chinese communication is ambiguous, indirect and highly contextual. In conversation, the real meaning, especially if it's negative, is often implied rather than stated. What is not said is often more important that what is said!

  4. When meeting someone for the first time for a business meeting, you should engage in general conversation before turning to business. Casual conversation topics in China differ, for example it is acceptable to ask about a person's job, annual salary, marital/dating status or age. Although your answers need not be detailed, trying to avoid answering will only invite suspicion and misunderstanding. The specifics of your answers are not as important as your willingness to respond. In contrast, questions about family tend to be deflected or avoided.

  5. Lavish gift-giving was once an important part of Chinese culture. Today, official policy forbids gift-giving as it can be considered bribery. Though the policy is softening, there may be times when a gift will absolutely not be accepted. Should you find yourself in this situation, graciously say you understand and withdraw the gift. Smaller, less expensive items will not be seen as a bribe, but in any case, you will have to approach gift-giving with discretion. They do not usually accept a gift, invitation or favor when it is first presented, but will politely refuse two or three times to reflect modesty and humility. Accepting something in haste makes a person look aggressive and greedy, as does opening it in front of the giver.

  6. Six, eight and nine are considered lucky numbers, since their homophones have auspicious meanings. Six implies that everything about you will go smoothly. Eight was originally deemed lucky because in Cantonese, the word for eight is fa, which means to make a great fortune in the near future. Later, the auspiciousness of eight was taken up by all Chinese. Nine implies everlasting, especially in friendship and marriage. Four and seven are unlucky numbers; the former implies death and the latter means gone.

  7. Color symbolism is very important. Red is lucky and used in all celebrations; but red ink is never used to write cards or letters, as it symbolizes the end of a relationship. Yellow is associated with prosperity, and gold is especially fortuitous. In contrast with Western cultures, white signifies death and mourning.

  8. The Chinese typically share food from a number of dishes placed in the center of the table. Each person sitting around the table takes food from the common plates. Sometimes, in order to show their friendship and sincerity, Chinese hosts will pick from dishes with the back end of their own chopsticks or spoons, and place food on your plate. Never place your chopsticks upright in a rice bowl; it replicates the bowl of sand or rice with two upright incense sticks that is traditionally placed at the shrine of deceased loved one.

 10.  Common Western gestures are considered rude.

    1. Pointing with the index finger - instead use a face-up, open hand
    2. Beckoning someone with the index finger - instead use the hand with fingers motioning downward as in waving
    3. Showing the soles of shoes
    4. Whistling to get someone's attention

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Manufacturing Services
   
  1. Take time to build a sound relationship with your counterparts. Absolute Trust must be established, since the Chinese have limited faith in the legal/court system. It takes time to develop trust. This stage of the process takes at least six months of continuous dialog and site visits at appropriate times.

  2. Look for a partner with strong quality and process controls. Depend on the - the International Standardization Organization (ISO) certification; and Chinese Certifications that are industry specific…integrating and validating the specifications to your standards. These will help you identify several small/medium sized manufacturers able to achieve your levels of quality for domestic and international sales. Also validate the high tech capabilities of candidate manufacturers via trade associations, chambers of commerce...etc.

  3. Plan on routine trips to and from China. You will need to go twice a year to get the "face time" that builds and maintains relationships; as well as host your associates at least once a year to corporate headquarters and appropriate manufacturing sites.

  4. Understand the logistical options. If shipping by sea, for instance, expect a 6-8 week allowance for delivery. Therefore, just in time inventory systems may not work. Maintain a higher level of inventory and monitor in-country distribution to support your customers; and a back-up U.S. supplier.

  5. Understand the Rules of Thumb for costs of manufacturing. For example, labor costs are typically $.50 – 1.00 per hour and the labor content of manufacturing costs is typically 5 - 10%. Generally, costs can be reduced by 30% to 50%, depending on the structure of the business relationship. Similarly, the costs of raw materials are usually dramatically lower. As the economy grows so do costs.

  6. Recognize the importance of Family Relationships. Networks are based on familial ties (i.e. the father owns a factory and eleven relatives work in it). An entire family might support the business, which helps diminish the impact from the sudden loss of a key employee, but might not always be the most productive organizational structure.

  7. Participate robustly in social activities. Business is conducted through social interactions. Dinners, drinking, tours and sightseeing are all part of a continuum of daily commerce and are important in building relationships and establishing the Trust that is mandatory for doing business. Establish your health guidelines…I never drink alcohol and tell my hosts immediately prior to events.

  8. Diplomatic and political connections are important to expedite business processes. You need their approval for almost everything especially documents. Gifts are part of the social-business mix too. Give them liberally, accept them graciously.

  9. Commercial Diplomats are a critical source of market intelligence and influence. Conduct significant research and arrange to meet with Chinese commercial officers in the U.S. to introduce your premium quality products/services and request their ongoing assistance in formal introductions to ministry officials and industry executives. They are in great demand in and out of their diplomatic offices, so respect their professionalism and diplomatic status.

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