Expanding to China: Culture, Negotiation & Strategic Alliances

Introduction to China

As the world evolves and economic, social, and technological contexts change, economic agents are presented with opportunities to capitalize on the liberalization of markets. For the company under consideration, this possibility is reflected in the decision to launch manufacturing operations in China. In other words, the company wishes to engage in outsourcing, and to increase the efficiency of that decision, it is necessary to conduct a fourfold analysis of the country, its cultural factors, its negotiation etiquette, and potential strategic partners.

China, formally the People's Republic of China, is one of the largest and fastest-growing economies in the world. The country was once largely closed, relying on internal affairs to provide economic and social stability. Throughout the past several decades, however, China has opened its borders to international investors and has liberalized its trade. Today, China is a member of several international institutions, such as the World Trade Organization, which continually ensure that the country upholds its market liberalization commitments.

Similar to other states, China's focus is on maximizing exports and minimizing imports. The Chinese government has even sought to increase domestic consumption of local products at the expense of foreign imports, though such measures have been met with international criticism. These tendencies are reinforced at the political level by the country's communist government, while membership in international institutions ensures that China remains committed to market liberalization standards.

China has one of the fastest GDP growth rates in the world and is currently the third-largest economy by size, preceded only by the European Union and the United States. This leading position in global markets is attributable to a wide array of factors, including its large and cost-effective labor force, its manufacturing advantages, and its recent economic liberalization. These competitive advantages are also primary reasons why companies across the globe seek to develop partnerships with China. Beyond manufacturing and outsourcing contracts, China is increasingly attractive as a retail market, as its large population represents a powerful and growing consumer base with rising incomes and expanding demands.

From a technological standpoint, China is also a leading country. It holds the largest number of telephone lines in use of any nation, as well as the largest number of mobile telephones owned and utilized by the population. By number of internet users, China is similarly the largest country in the world. By number of internet hosts, China ranks sixth globally (Central Intelligence Agency), which suggests that infrastructure improvements are still needed.

Despite its many advantages and advancements, China still presents elevated risks across several dimensions. There are high levels of corruption among top-level political and corporate leaders. The legislative system is a hybrid of Soviet and European frameworks, which allows Chinese authorities considerable latitude in interpreting individual situations (Central Intelligence Agency, 2012). Human rights concerns also persist, as citizens continue to face restrictions on freedom of speech, religion, and movement.

"Against a backdrop of rapid socio-economic change and modernization, China continues to be an authoritarian one-party state that imposes sharp curbs on freedom of expression, association, and religion; openly rejects judicial independence and press freedom; and arbitrarily restricts and suppresses human rights defenders and organizations, often through extra-judicial measures" (Human Rights Watch, 2011).

Cultural Factors in China

Chinese society is generally homogenous in terms of ethnicity and religion, though several dialects are spoken across the country. With a population of approximately 1,343,239,923, China is the most populous country in the world, and its urban and rural populations are roughly equal in size.

Life expectancy at birth for the average Chinese individual is 74.84 years, and school expectancy is 12 years. Ninety-two percent of the population is literate, and the risk of contracting infectious diseases is intermediate. The adult obesity rate stands at 2.9 percent, and 8.7 percent of Chinese children are underweight.

Income per capita is approximately $8,500, which is below the global average of an estimated $10,500 and significantly lower than the American average of $49,000. Unlike the United States, where the services sector employs the majority of workers, China's labor force is distributed relatively equally across agriculture, industry, and services. Approximately 13.4 percent of the population lives below the poverty line (Central Intelligence Agency, 2012).

The Chinese population is guided by the teachings of Confucius, which prescribe expected behaviors based on the nature of relationships between parties. There are distinctive responsibilities and obligations derived from positions of superiority or inferiority within relationships. Within Chinese culture, five key relationships are recognized:

• Relationship between ruler and subject
• Relationship between husband and wife
• Relationship between parents and children
• Relationship between brothers and sisters
• Relationships between friends

In the first four relationships, the party listed first holds superiority and the second is expected to show obedience. The fifth relationship, between friends, is characterized by equality and the obligation to behave honorably. Chinese culture places a strong emphasis on honor, good reputation, and respect. It is essential for individuals to act in ways that preserve their own "face" and to avoid negatively affecting the "face" of others.

As a people and a culture, the Chinese are highly collective, preferring to belong to a group — whether family, workplace, or community — rather than acting as individuals. The cohesiveness and harmony of the group are of central importance. As a result, the Chinese tend to avoid public confrontations and will often remain silent rather than create group conflict or contradict someone openly. Silence, therefore, carries significant communicative weight in Chinese culture, as do other forms of non-verbal expression. Facial expressions, tone of voice, and posture are frequently used to convey messages and emotions. For example, a frown often signals disagreement. Chinese speakers also tend to maintain a neutral or impassive facial expression. Finally, the Chinese commonly avoid sustained eye contact so as not to intrude upon the personal privacy of others (Kwintessential).

Negotiating and Ethical Issues

Business processes in China are generally complex and must account for both legal and cultural considerations. When attending business meetings, parties are expected to greet the oldest person in the room first. Between Chinese and foreign participants, the handshake is the most common form of greeting.

As noted previously, Chinese individuals often avoid eye contact and may look toward the floor when greeting others. Foreign visitors are expected to address their Chinese counterparts by their honorific title followed by their surname. If a Chinese individual wishes to move to a first-name basis, they will initiate that transition themselves.

In business meetings, it is not uncommon for Chinese participants to engage in self-deprecating humor. American partners and negotiators should be prepared to laugh at themselves in kind.

When offering gifts to Chinese partners, foreigners should be aware that rice and food baskets are well received, while flowers, clocks, handkerchiefs, and straw sandals are associated with funerals and should be avoided. Knives, scissors, and other cutting items are perceived as symbols of severing a relationship. The number four is considered unlucky, while eight is the luckiest. Gifts should be wrapped in colors other than white, blue, or black, and should be presented with both hands. A Chinese recipient may decline a gift up to three times before accepting it and will typically not open it in the presence of the giver (Kwintessential).

In business interactions, the Chinese prefer to work with partners they know well rather than unfamiliar ones. It is therefore important for American firms to build solid relationships before entering into negotiations — for example, by sharing information about the company, its products, and its services in advance. Bureaucracy is extensive in China and business processes are slow; rank and authority are carefully observed, and foreigners tend to be perceived as organizational representatives rather than as individuals.

Business meetings and discussions are typically conducted in formal settings rather than over dinner or at social events; the Chinese draw a clear distinction between socialization and business. Business communications are official in tone, and face-to-face meetings are strongly preferred over indirect channels.

At the negotiation table specifically, only senior members of the team are expected to speak. The negotiation process is deliberate and unhurried. Because the Chinese are non-confrontational, they will rarely say "no" directly; instead, they are likely to indicate that they will "think about it" or "look into the matter."

Chinese negotiations are not focused on specific, measurable goals but rather on assessing the prospective partner and determining whether a long-term relationship is viable. Because the Chinese are calculated decision-makers, reaching conclusions often takes considerable time. American counterparts are advised to remain calm at all times, as losing composure will damage one's "face" and potentially destroy the relationship. Foreign negotiators are also advised to refrain from using high-pressure tactics — they may find themselves outmaneuvered — and to always leave room for concessions (Kwintessential).