In July of this year, I was fortunate to accompany a client and friend to China, where he has business interests that he is looking to expand. I had never been to China and only knew what our foreign exchange student of two years had told me.
My flight from O’Hare was nonstop to Shanghai. Other than a long 14½ hours, the flight was uneventful. International flights are very different – there is a refreshment center in the middle of the plane where passengers can help themselves to drinks or snacks throughout most of the flight and there were two meals served during the trip. In this age of travel, it is unusual to get a meal, let alone two!
Once I landed in Shanghai, I began the Customs and Immigration process. The process is very interesting: they take a two-dimensional picture of every “foreigner” entering China.
I then connected with our Chinese contact and finally, my client, who traveled on a different flight. As we drove away from the airport, our pictures were taken two more times. I soon learned that there are cameras everywhere in China – over the streets and highways, over the sidewalks, in the parks, literally, everywhere. Here, in the U.S., there is great debate about surveillance, especially who can and who does have access to all of the information collected. In China, the government controls and sees, everything.
Our first stop was Nantong, about 100 kilometers west of Shanghai. Nantong is a medium-sized Chinese city, with a population of approximately 8 million people.
We checked into our hotel, which was really beautiful. There was a wedding planned at the hotel on that evening, which was a real treat. The decorations were wonderful, even the lobby was decorated. The hotel had old-world charm that reminded me of the Waldorf Astoria, except in Chinese motif.
After settling in, we joined our Chinese contact and her staff for dinner. Dinners in China are very different than in the U.S. Several dishes are placed in the middle of a large table that has a rotating center. We rotated the tabletop until the dish we wanted was in front of us. We then were able take some of that offering.
My chopstick skills, nonexistent when I arrived, became passable as the trip unfolded. Our hosts were very gracious and even gave me pointers on how best to use chopsticks.
As a whole, the Chinese drink a lot of alcohol (by my standards) at the evening meal. There is always wine served and usually a clear liquor, similar to a really strong gin or vodka.
At several points during the meal, someone would raise their glass and propose a toast to someone or some event. I counted eight toasts in honor of my first trip to China. This is a courtesy extended to dinner guests and it’s an honor to be toasted.
A few tidbits that I picked up:
It’s taboo to place your chopsticks directly on the table. If you have to set them down, put them over your plate. Placing your chopsticks on the table is considered disrespectful. The other big takeaway from my first meal was napkin placement. Rather than place the napkin on your lap, it is draped underneath your plate and allowed to cascade down onto your lap. This actually worked really well.
The next day, a Saturday, was spent in the office of our Chinese contact and her staff. Our client both sources raw materials and sells finished products in China. While everyone discussed chemical compounds, I listened intently and read everyone’s body language. As the week unfolded, I found myself in meetings where chemists and engineers discussed products, production rates, and costs – issues and points that were not terribly familiar to me.
All I could do was to follow people’s body language and make presumptions about how their skills and knowledge. While my client and our contact answered questions that I had about their discussions, it was a truly fascinating study in human nature.
After the business meetings in Nantong concluded, we drove to the city of Shenzou, a 2,000 year old city about 900 kilometers from Nantong. We had dinner in Shenzou and then checked into our hotel.
Sunday in Shenzou was a day for sightseeing. We visited a national park where we had a fabulous English-speaking tour guide, who had an encyclopedic knowledge of the sights. The Chinese include historic symbolisms in almost everything they build. The traditional good luck dragon was on display everywhere. Also, as expected, classical Chinese architecture was everywhere, complete with the winged extensions on rooflines. It was fascinating to see such old artifacts. The park, itself, was over 500 years old.
Sunday evening, after another dinner filled with plenty of toasts, we drove to Shanghai and checked into the Le Meridien Shanghai, a Starwood hotel. This hotel is right in downtown Shanghai, a huge city with a population of about 12 million people. The rest of the week was spent touring chemical factories and meeting with suppliers, customers and people who our client is considering for a joint venture. Here again, everyone spoke the language of everything chemical. Seeing that I was a bit out of my realm, I was able to listen and observe.
Having witnessed all that, here are my takeaways as they relate to doing business in China:
Much of the time during meetings was spent reliving prior business that had been conducted, the various intersections of where these people worked together and the general business climate of China.
Business in China is done face to face. Trust is established in person and frequent trips are required. The purchase orders and details come after the meetings.
The client I was traveling with goes to China three or four times every year for seven to ten days each time. Touring the plant, meeting the management and determining who really manufactures their own product versus who is a third-party reseller is all part of the dance. All of the dinners and all of the toasts are an integral part of every business relationship.
Like most businesses, it’s important to have materials close by so that specialty goods can be manufactured in a short timeframe. Just-in-time inventory is now standard operating procedure, and for good reason. The transportation system in China is not quite as efficient as it is in the U.S. Many of the conversations we had involved my client having materials and finished products staged in close proximity to customers.
Price is always a consideration in business, but logistics is a very close second, and sometimes even more important than price. In a country that spans 3.7 million square miles and is home to 1.4 billion people, getting the right products in the right places can be a challenge.
My client was already doing business in China, through a joint venture with a Chinese national woman we will call Suzanne. Suzanne is from Nantong. She made all the travel and transportation reservations for us. She was very good at getting us the best hotel rate, best transportation options and knew the best restaurants. More importantly, her English language skills were very good and she could communicate with us easily.
Most of the people we met with did not have adequate English skills. Whoever we met with knew Suzanne. She has been in the chemical business for 30 years and everyone knew that Suzanne could evaluate their claims effortlessly. If my client and I had been on our own, we would have trouble communicating with the locals, not to mention getting around the cities.
Also, it was helpful to know that Suzanne is feet on the ground in China to facilitate future projects and follow up with the customers.
In China, private companies are generally required to report all financial information to the government on a monthly basis. In fact, as we checked out of our hotels, Suzanne would pay the bill, give her company information to the hotel and the hotel would then certify the expense, including dates of stay, guests (they had copies of our passports), etc. This serves as a verification of business expenses.
The Chinese government has the ability, and often the incentive, to engage in businesses that are usually thought of as private sector businesses. This is a land where it is estimated that 45% of adults work for some form of the government, whether in the military, transportation, etc. etc. etc. Factory inspections are commonplace and various units of the government keep vigilant oversight on private businesses.
Labor and raw materials costs in China are usually less expensive than in the U. S. Shipping rates have been on the decline for years, but may have finally bottomed out with the recent bankruptcy of Hanjin Shipping of South Korea, one of the world’s largest shipping lines.
If you make a product that markets to the Asian population, access to 1.4 billion customers is enough incentive to bear some risk. China has made significant infrastructure improvements over the past several years and, now, transportation, telecommunications and electricity are much better. And, China is very welcoming to manufacturing companies.
China has very specific procedures in place to move currency out of the country. They keep tight control on the yuan, currently trading at fifteen cents per unit. Careful planning is needed to make sure that cash flows into and out of the country can be managed. The large, U.S.-based multinational companies doing business in China have clearly figured out how to manage their cash positions. For small and mid-sized companies, this can be a challenge.
Overall, I enjoyed my time in China, both as a country and as a business hub. China seems to take a longer view of world events rather than crying wolf like some countries.
Front page business news, including the Brexit, are not much of a distraction here, compared to business news in Chicago.
The Chinese civilization is over 4,000 years old and has seen the rise and fall of many dynasties. The Chinese invented gunpowder during the 9th century and the country has seen its fair share of armed conflict. At various points in history, it was divided into seven different countries and there were plenty of power struggles within each. Most of us have heard of the Great Wall of China, which runs along various stages of China’s northern boundary. My point is that this country has seen all manners of conflict, yet is not sidetracked by the steady stream of the worldwide turmoil that tends to rattle our business world.
For anyone interested in doing business in China, I would be happy to share what I learned about the culture, business climate, tax structure and logistical challenges that this trading opportunity presents.