I had lunch today with Michael Bloom, founder of Off Shore Solutions and a board member of the Master's of International Management program I just graduated from. During lunch I had the opportunity to discuss with him an article in the Oregonian titled "Made Safely in China". The article was about recent recalls of Chinese manufactured goods, and the author of the article interviewed Mr. Bloom as he's an expert in the field.
US firms sourcing goods in China often make the mistake of assuming that the rules of business in China are the same, or at least similar to those in the US. US firms spend enormous sums of money on contracts that spell out every detail of a business relationship - or even a single business transaction. However, while contracts provide a good way to develop a framework of expectations for each side of a business deal in China, they are fairly useless for any other purpose.
As I've mentioned in previous blog entries, China is an extremely "relationship-based" culture. Often times, when the relationship-based business culture of China meets the legal-based business culture of the west, there are problems. When western businesses fail to develop meaningful relationships with their Chinese suppliers, opting for legal contracts in their place, they really lose a vital component of the business relationship - guanxi.
Without that guanxi aspect of the business relationship, Chinese suppliers can be tempted to cut corners in the production process as evidenced in recent scandals involving lead in Mattel's toys and melamine in pet food. Further, if the business relationship is not mutually beneficial, the Chinese may outright refuse to honor it. Mr. Bloom related to me a case where a Chinese manufacturer discovered it was not making money on the production of goods. When this revelation was made, the supplier simply shut down production, crippling a major multi-national corporation in the process.
What US businesses often don't understand is that the contracts they rely on really don't mean anything in China. Once the Chinese business partner decides to violate the contract, the US counterpart really has no recourse. The Chinese legal system is in its infancy. Further, Chinese courts tend to side with Chinese regardless of the details of the case.
One notable exception of this would be instances where the bad actions of the Chinese side make global headlines and/or a substantial loss of life ensues. However, the consequences in circumstances like this usually involve the execution of responsible parties. While this discourages Chinese from repeating the actions involved, it hardly compensates the US firms harmed by those actions.
Successful business transactions in China depends on 2 main factors: guanxi and responsibility. US firms need to learn to develop personal relationships with their Chinese counterparts. A single person or group of people must be the "face" of the US firm and represent it in China build guanxi there. Second, with an absence of consumer protection agencies US firms rely on in the US to insure quality control, firms sourcing in China need to learn to take responsibility for their own supply chain. If your firm is importing pet food for example, you should at the minimum have personnel in the manufacturing facilities in China doing routine quality control inspections.
Finally, if a dispute does come up in the process of doing business in China, don't count on legal recourse because there likely will not be one. Negotiating is really the only viable option for US firms, and guanxi is the best card that can be played when negotiating with the Chinese.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment