Edward Tse's Blog

May 2017media

New Column: When Waltzing With a Panda, Partners Matter

By Doug Young | Caixin

(Beijing) — The saying goes “It takes two to tango,” and perhaps nowhere is that more true than in China for foreigners doing business there. But often that dance can be awkward to an outright fiasco, with one partner trying hard to tango while the other gets stuck in a slower waltz.

As I kick off my column on the murky and constantly changing business climate here in China, it seems appropriate to start with the one maxim that hasn’t really changed all that much from the earliest days when China first opened to foreign investment to the present.

I hope to take that “two to tango” maxim and many others one step further by bringing you, the readers, into this process. I hope you can share some of your stories, not only about doing business here, but also investing, traveling, networking and anything else that sheds some light on this huge market that is at once filled with potential but also contains unique challenges seldom seen elsewhere.

When you talk with foreigners who’ve spent any time in China, one of the first things that inevitably comes up is their favorite drinking story involving the local liquor, “baijiu.” But heading the list for anyone who’s done business here is the importance of finding the right partner. Nearly everyone has a story about a bad partner choice, some quite humorous and others outright scary.

The China business books are filled with such lesson-learning tales, including ones involving such corporate giants as French food giant Danone, household cleaning products maker S.C. Johnson, and U.S. household appliance maker Whirlpool. Then there are countless others involving much smaller, largely nameless foreign firms that simply ended up with a local partner and given little or no choice in the matter.

In the opening lines of his classic novel Anna Karenina, Russian author Leo Tolstoy famously said that happy families are all alike, but each unhappy family is unhappy in its own special way. Nowhere does that seem more appropriate than marriages that often bring together Chinese and Western bedfellows whose interests aren’t in sync. That mantra — “Make sure your interests are well-aligned” — was one of the biggest themes I heard when conducting a series of interviews with businesspeople who came to China in the late 1980s and early ’90s, and still holds true today.

One of the most striking cases saw the Westerner I interviewed taken hostage by his joint-venture partners when they reached an impasse on the company’s development. He was subsequently held captive in his office for more than a day as employees of the local partner stood guard outside his door.

Another striking case saw a worker killed in an accident in a factory under construction, only to have the Chinese partner quietly dispose of the body and quietly pay off the family to keep the project on track. While some might argue that partner falls into the “good” category, it certainly doesn’t reflect a huge respect for the law, let alone human life. But perhaps that’s one of the unique qualities of doing business in China — that nothing is written in stone, and rules were made to be broken, or at least bent.

One of my contacts who deals daily with the subject, corporate strategist Edward Tse, pointed out the reasons for failed partnerships are many and varied. In the case of S.C. Johnson, he said, the company simply wanted to promote its own brands, which include the likes of Drano drain cleaner and Ziploc bags. But its partner, now known as Jahwa, was more interested in promoting its own local Maxam and Ruby brands. End of story.

In Danone’s case, the French company formed its joint venture in the 1990s with Wahaha, now one of China’s leading drink makers. Danone was later horrified to discover its partner had set up parallel companies that used know-how from their venture to manufacture and sell nearly identical products, providing direct competition. With partners like that, who needs enemies?

Still others I’ve talked to over the years cite “guanxi,” the age-old Chinese practice of cultivating connections, as a similar wedge that ultimately splinters partnerships. Most Westerners often assume that maximizing profits is the central tenet of any business, failing to realize that many Chinese firms, especially older, state-owned ones, are more interested in cultivating good relations. That might lead a Chinese partner to put more emphasis on providing as many jobs as possible to boost the local economy, or hiring a local official’s uniquely unqualified relative to an important position in the venture.

At the end of the day, every business success or failure is a case study in itself, filled with lessons you won’t see anywhere else. It’s also worth noting that as China’s business climate evolves, major cities like Beijing and Shanghai are becoming increasingly Western in their approach, while many smaller cities remain stuck in a bygone era. As this column unfolds, I hope to explore in greater depth this multifaceted face of China that makes it both an exciting but also challenging place to do business, and hope that you, the readers, can join me for the ride with your own questions and experiences.

 

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Founder & CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. —learn more
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