- Sourcing in China in 2020
- New Foreign Investment Law
- Social Credit System
- Will the Shanghai Import Fair make a dent in the China trade surplus
- Scandic Sourcing's Shanghai Office is Hiring!
- China's new cybersecurity law
- 6 tips to avoid problems with your Chinese suppliers
- Register your trademark in China before someone else does!
- Stricter control of HR compliance – get in line or get in trouble
- New law for companies to check suppliers code of conduct
- Scandic Procurement Solution
When you go to China for an important business meeting it helps to know a little about Chinese business culture and how to act and appear during the meeting.
Arrival & Greeting
I China it's important to be on time, as not doing so might insult the hosts (although you might be forgiven if the traffic is exceptionally bad). If you arrive in a group, the most senior member should be the first to enter. A slight bow is a common greeting but a simple handshake is also accepted. You might be greeted with applause and should in such cases reciprocate.
Avoid: Kissing anyone on the cheek.
Present your business card immediately upon meeting your Chinese hosts. Business cards are often exchanged so make sure you bring plenty and that your title is printed on the card. When you hand over the card or receive the card, take it with both hands and make sure that your information is facing upwards when handing over the card. Whenever you receive a business card, make sure to take a moment to study it before putting it down in your pocket or preferably on the table in front of you.
Avoid: To receive or hand over business cards with one hand and putting them straight into your pocket without looking at them, and having your own business cards in the back pocket. Also make sure to not take notes on anyones business card whenever that person is present.
Clothes for men: Dress in a suit in conservative color choices,
Avoid: Colorful ties, gray suit and jeans.
Women: A formal dress is preferable.
Avoid: revealing clothing is deemed innapropriate at a business meeting.
Gifts used to be a must during business meetings but are currently under scrutiny after Chinese President Xi Jinpings crackdown on corruption in China. Modest gifts unique to your home country or region is still very much appreciated; fred wrapping is preferable. In China it's common to refuse the gift many times before finally accepting it.
Avoid: Clocks (represents death), and gifts in sets of 4 that also represents death.
During the meeting
Chinese people rarely get straight to the point but rather spend some time chit-chatting first. Once the meeting started, it's considered rude to interrupt anyone. You should not single out any one person's misstakes either as that will make him or her loose face. In general, Chinese people appreciate moderation in how you speak and in your body language.
Avoid: Strong gestures, pointing at anyone or patting anyone on the shoulder.
Managing Chinese employees and managing Western employees differ in key areas. Higher turnover rates, the concept of ‘face’, teamwork that only extends to one’s social group and a heritage of Confucianism are some issues that are quite unique to China and as an Expat Manager coming to China to lead a Chinese team, you’d best be aware of them or risk becoming a bull in a China shop rather than an efficient manager.
Teamwork in China: You are either in our out
The concept of teamwork in China cannot fully be understood without understanding the concept of in-group / out-group. Chinese people tend to relate to one another as part of an ‘in-group’ (members of their social network) or the ‘outgroup’ (everyone else). The difference in the treatment you might expect if you are part of the in-group or the out-group is usually much different. Generally speaking, one has much higher confidence and trust in ‘in-group’ members than ‘out-group’ members and as a result, will typically offer little support or help to anyone not part of the in-group.
This social dynamic is deeply engrained in the Chinese social fabric and most importantly: extends to the work place where different “cliques” that have developed strong relationships with each other work well together, even better so than Western teams according to some research. But the problem is that the co-operation between different teams and departments that belong to different in-groups is usually less than optimal. There have also been occurrences where Chinese staff provide sales leads and other confidential information to competitors because members of their social network, or ‘in-group’ work there!
Tip: Try “team-building” exercises aimed at making people work more comfortably across team barriers. Also consider job rotation where you break up the cliques within the company by moving team members around to break down the social barriers that affect your company’s performance negatively.
The cultural legacy imparted by centuries of Confucianism has imbued the Chinese with an extremely hierarchical culture with strong roots in formality–which in the workplace means that individual employees need to be strongly encouraged to speak their minds.
For the typical Western employee, achievements and success are deemed more important than seniority, or any type of social standing or class, but this dynamic is different in China due to the cultural heritage of Confucianism.
“The over-emphasis on social hierarchy imparted on Chinese culture by the values of Confucianism has stifled free exchange of ideas between people of different positions in the hierarchy” according to Professor Cai Hongbin, dean of the Guanghua School of Management at Beijing University. In other words, ideas are only viewed as valid if the people involved in the discussions are viewed as equals, and as such, there is generally more emphasis relationship building and moving up within the social hierarchy than the free exchange of ideas. "Too strong on building social connections while weak on idea exchanges," as Cai put it. Also, silence is still considered a virtue and is preferred by many Chinese employees over voicing one’s opinion, also based on the assumption that the decisions are anyway taken by the senior management.
This general lack of free communication and exchange of ideas is potentially a big loss for the company as many valuable ideas never reach senior management. As a Western Expat Manager, it is important to be aware of the legacy of Confucianism and to take efforts to mitigate it and encourage free discussions and input across social ranks or positions within the company.
Chinese employees expect a faster career path than contemporaries in the West and the turnover is higher in China’s private companies (about 20% per year) and this is potentially a big problem. Solving the key to retaining employees should thus be a key concern for a Western manager coming to China.
A 2012 Retention Survey by Hays by over 900 Chinese employees shows that lack of career progression is the main reason why someone leaves a company. Similarly, having “a clear path” was considered an extremely important factor why to keep a job by almost half the respondents. Another find by the Hays Survey among the respondents was that they have a strong desire to be recognized. In fact, “recognition for a job well done” was the #2 thing that kept Chinese workers in their jobs. It was rated “extremely important” by 48.6% candidates, second only to the “clear career path”.
Other things that increase the turnover risk for a company and losing its integrity is mixed messages: claiming to be one thing but then demonstrating another. When an organization communicates a certain message about what it’s like as a place to work, but this message doesn’t match the reality of their workplace, it’s both disappointing and unsettling for the employee and increases the turnover risk for the company.
Retention tactics: Continuous training, consistency with the company’s image and its practices, onboarding, building a good relationship with the employees, regular training and advancement, recognizing the employee’s efforts and communicating a clear career path are all ways to retain Chinese employees which can potentially save you both time and money.
The concept of “face” has already been discussed a lot so I won’t delve too far into it here, but it is worth briefly rehashing. ‘Fear of losing face and damaging guanxi’ are often cited as reasons for Chinese unwillingness to deal with problems openly and directly. Negative answers and open disagreement are avoided as they cause other people to become embarrassment and tend to ‘strip off’ their ‘face’.
Thus when your staff tell you ‘Basically, no problem’, you should be extremely careful - there might be a big problem, according to one Scottish manager.
Conclusion: Patience & Persistence
Knowing about these typical patterns of behavior among Chinese employees in the work place is a good way to becoming an effective leader in China. This understanding helps you keep your temper even, (since losing your temper is always a big mistake in China), and to mitigate negative trends in the Chinese workplace. A common mistake is to come from the outside and wanting to change things overnight, behaving like a bull in a china shop. Such expats tend to get resented by the Chinese staff, rather than embraced as a good leader.
Learning a little Chinese and being willing to use even basic sentences when talking to employees immediately sends a signal that you are willing to bridge the gap between the two cultures. It’s a quick way to bring a smile to your employees face and is a fairly easy way to improve the relationships with your staff.
The Scandic Sourcing blog interviews Fredrik Sundström, Scandic Sourcings project manager for inspections and quality control. Fredrik, who previously worked with factory establishments in the steel industry in northern China has 7 years of Sourcing experience in China.
How do you build a strong relationship with your suppliers in China?
Meeting them in person is key to building a good relationship with your suppliers. When you visit the factory in person, you send signals to the factory management that you take the project seriously. Then you can handle all communications directly rather than via time consuming emailing back and forth. Then, of course, your order volumes and how frequently you purchase plays a part in your relationship with your suppliers.
How can you make sure to get the quality you want in China?
The most important is to be on-site in China and visit your suppliers yourself or through intermediaries. Once you are visiting the factory, it is important that you talk to the right people, people directly involved with the production. The CEO of the company doesn’t usually have the same insight into the details of the project as an engineer or technician and the former is also keen to make promises which you might have to take with a grain of salt.
Read More: Scandic Sourcing's Quality Control
If you want to avoid going over deadline it is also important to be on site to project manage and continuously follow the production so that you can avoid any potential issues before it goes too far.
You also have to be cautious about communication and language – often the English speaking sales staff has limited knowledge about the actual production and might say that everything is fine without actually knowing about what is going on. The most productive communication happens with the plant’s engineers and technicians – discussing the specifics of the project step by step; this is where speaking Chinese comes in handy. Those discussions can then be the starting point for raising specific issues when you discuss the project with the CEO and factory management. This way you can also avoid vague and general language when you are discussing the project which is important – specificity is the key!
How do avoid unreliable suppliers?
Before choosing suppliers, it is important to perform a careful due diligence – meaning an audit of the supplier/s you want to work with. This audit, which involves going through the supplier’s finances, work history and reputation, is arguably the most important step in your work with Chinese suppliers, as it serves to weed out the unreliable players before even getting involved with them. It is important to emphasize the value of doing a careful supplier search and supplier evaluation.
Read More: Find a supplier in China
The next step is to visit the factories in person, and merely by judging by the first impression – the condition of a factory, and meeting with the factory management, you tend to get a lot of information about the quality of the supplier. Once in the factory, you’d prefer to find an even production output – you don’t want an empty factory, but not one that looks overly busy either. A supplier rarely says no to a new order even though they already have a full schedule which can cause trouble with keeping your deadline.
After finding a good supplier you can have a test order made to get samples, and if the samples are of sufficient quality you can commission a smaller production order – and once that is of the right quality you can make the amount you intended originally. With such an order sequence you can usually avoid major quality issues affecting your general production. It is of course an advantage if you do not rush this process. The best thing is to bring your own sample to the supplier first to make sure you get exactly what you want – the more specific you are the better!
A large number of foreign companies are subjected to fraud when purchasing goods or parts from China, especially when the payments are made before the gods are delivered. Common frauds are to receive damaged and useless goods and the losses inflicted on small and medium sized companies are often in the millions.
To avoid trouble it is important to select the right suppliers to begin with; and equally important is to evaluate your supplier before doing business with them. The choice of supplier is the most important step during your purchasing from China to avoid fraud and receiving poor quality goods. Despite that, a survey from the University of Gothenburg that interviewed small- and midsized Swedish companies who are conducting trade with China showed that supplier selection is often guided by coincidence, rather than careful selection and evaluation, even among companies who traded with China for many years. This lack of evalutation greatly increases the chances of encountering fraudulent suppliers. Moreover, many Western companies choose their suppliers online or on trade shows (which many times takes place in Hong Kong), where you might in fact be dealing with a trading agent or middleman that is falsely claiming to be a supplier or factory representative. Thus, many companies add unnecessary costs via middle men who will muddy the waters and add to the margins to make a buck!
Getting the full picture of the state of your suppliers operations requires a presence in China or a reliable partner.
In China, paradoxically as it might seem, the suppliers with the best websites and flashy presentation might be the worst options; and many of the best suppliers rarely have an English website (some are still lacking a working email address!), nor do they send English speaking representatives to trade shows – you have to dig deeper to find them.
Quality Control – requires a presence on the ground in China
Trading with China is made severely more difficult by the long distance to China and the expensive and time consuming trips over several time zones required and the general difficulty of communication. To achieve the quality you want you have to specify the details of the project – often in Chinese. Fluid communication is important to get the quality you want. The best way to buy from China is to have a contact in China who can communicate with your supplier or manufacturer in their native tongue.
Many companies use Chinese sales agents as middlemen, and even though that might work in the short term, it’s far from a stable solution for your purchasing in China. According to the dissertation from the University of Gothenburg, many sample companies couldn’t even identity all their suppliers, not to mention the trading agents and middle men in the way between them and the supplier adding margins. More shockingly, many purchasing departments don’t even have a contract with their suppliers. Order placement is often handled via email with trading agents, which is not a great way to communicate (if you want to be clear about the details to get the quality you want). Furthermore, there are ethical considerations to take into account regarding not knowing who you are dealing with and what went into making the products, not to mention the huge PR backlash it could potentially lead to.
Many Western companies deal with middle men rather than directly with their suppliers when purchasing in China and does not even issue a contract.
Scandic Sourcing's Procurement Solution
If you want a safer and more reliable solution for your purchasing from China, Scandic Sourcing has developed a procurement solution where we handle your purchasing from China in a cost efficient and transparent way. Scandic Sourcing evaluates your supplier pool to identify potential risks and prevent interruptions in your supply chain and assigns a dedicated project manager. We make sure to communicate directly with the factory owners or the management to circumvent costly middlemen and third-party agents. We can communicate directly with all layers of the supplier’s organization to get you the best price and conditions and build transparent and long-term relations with the suppliers in the process to ensure favorable working conditions.
We also handle quote requests and organize the bidding process for new orders. We also do continuous research to keep you updated on the cost structure for your industry in China, including raw material /material costs and market price.
A Swedish supplier to the automotive industry have hired Scandic Sourcing to handle the construction of a two story office area in their newly rented factory space in Wuxi, a populous city a couple of hours car ride Northwest of Shanghai in the neighboring province of Jiangsu. Scandic Sourcing's blog follows our new coworker Edvard Olsson to Wuxi for the completion of the factory.
Edvard was previously CEO for Ipeg in Shanghai and is currently responsible for factory establishments and interims management services for Scandic Sourcing.
Our first stop is in the industrial zone Wuxi New Area where final negotiations are conducted with a Chinese design firm regarding the construction and decoration of the office area.
The negotiations are in their final stage, the key is to have an eye for details and to have done adequate research. “We cross referenced with previous quotes from other design firms so that we know that their quote is reasonable in relation to the market price for this kind of construction. Then it’s a matter of knowing where there is room to negotiate the cost. Currently we are close to reaching the target cost set by our customers in Sweden”.
We then move on to the factory hall in another part of Wuxi; it is owned by a local landlord who owns a large area of industrial halls that he rents out. The landlord conducts business in a traditional Chinese fashion where agreements are reached in informal settings, so one has to be keen not to take anything for granted.
“The most important step in regards to permits is to get the new construction approved by the local fire department authorities”, says Edvard. We inspect the hall and especially the floor. “You always have to be aware of the fact that landlords sometimes try to take shortcuts to save money – one way they do that is to not use proper materials in the construction. For instance we have to make sure they used an adequate amount of concrete steel in the foundation so that it can hold the minimum weight we agreed on; in this case they followed the specifications”.
Once the construction gets underway its important to inspect it continuously to confirm that everything is handled according to the original designs. The office building will be ready in November, so the construction will go quickly – the key to meeting the narrow deadline is to discover possible errors in an early stage to correct it in time. By March of 2016, everything in the hall will be ready for full scale production.
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