Australia: Corrs High Vis: Episode 11 – Doing business with Asia (Part Two: China)

In the second of our two-part Corrs High Vis special, we take a closer look at Chinese cultural values, business etiquette and negotiation styles. China plays a crucial role in Australia's construction market. But what are the sensitivities professionals need to observe when doing business with our largest trading partner? Corrs Lawyer David Hastie talks to paralegal Jonathan Mackojc who has lived and worked in China about the cultural rhythms he has experienced. Corrs High Vis offers analysis and insights to help you make smarter decisions

David Hastie: Commentator

Jonathan Mackojc: Corrs Chambers Westgarth

DAVID: Hello and welcome to part two of Corrs High Vis. Corrs Constructions Podcast Series. I am joined now by Jonathan Mackojc. Let's get straight into it let's talk Chinese high level cultural values. Jonathan can you start by telling us about some of the high level business cultural values in mainland China.

JONATHAN: Sure David. Well to me China is quite a fascinating jurisdiction. I spent a few years there in China, particularly in Hong Kong and I guess I experienced firsthand China's shift or the shift that we keep hearing about where it has got a growing middleclass now where it is shifting away from the traditional status of a factory and moving more towards an established economy. I guess one of the areas to start would be that with business relationships in China, David, they take time. You don't win business with a client overnight. Relationships are always built on a high level of trust just like in Japan which Celeste pointed out earlier. This is even probably more important when the business deal is worth a significant amount. We also see this in the Australian construction industry where Chinese investors are targeting high value projects, where they are focusing now on education, innovation, technology – rather than the historical trends or investment I guess were centred on Australian residential development. It is also worth noting I guess that China is a highly collectiveness culture. It is quite pragmatic and perseverance is important to China and that's also one of the qualities that stands out for this jurisdiction and I myself saw this when I was studying and working abroad in China. China also is quite interesting in the sense that several cities such as Shanghai in the mainland, and Hong Kong as a special administrative region, both I guess are classified as global cities. So China has quite an important area now for business. Unlike Australia, which I guess has moved away from this traditional management and business structure in recent years, China is a jurisdiction that is well known for a strong sense of hierarchy still so it is very important to China. For example, formal authority is very important to the Chinese business culture. So I guess it is vital that clients really understand and appreciate that you need to approach the correct individual in the organisation David and that you need to respect these high levels of management and acknowledge I guess the seniority of staff.

DAVID: So very true Jonathan. So that sort of leads me into my next question which is around business etiquette. So you've touched on it. But I have also heard that personal business relationships are incredibly important in business in China?

JONATHAN: Yes that's right David and I am glad you touched on that point. Because personal business relationships are almost everything in China. They are very important and perhaps we don't always see that in Australia. Clients I guess should never underestimate just how much can be achieved over a dinner with business partners or perspective clients. So it is quite normal for a Chinese party, for example, to invite a current client or a new client to a dinner and they usually do this – allow them to sample some fine Chinese cuisine while discussing a business deal. I guess this method of doing business has always been a successful channel in China and the host you know when they do organise this dinner they usually do this over a round table or they opt for a banquet and they order some of the local favourites. Also David, I guess it is important to note that in Australia the difference is that we separate our business deals with our lunch and our dinner networking, it is all very separate here. Most of the time our events there is only a light topic of conversation and when we go back to the point of hierarchy being important in China, networking over dinner actually helps breakdown these potential barriers as clients and business partners are getting know each other on an informal level.

DAVID: So I might move on now to negotiation styles, it is something that I am quite interested in. Tell me Jonathan what are differences to what we experience here in Australia when negotiating with say our local clients as opposed to clients or perspective clients in China?

JONATHAN: Sure well David I guess it is good to begin with China perhaps first and then I will come to Australia in a moment. In China, it is very important that you target the key decision maker. In Australia you have bit more of a leeway with that where you can reach out to different people at different levels but with China, you always go for the key decision maker. This is also quite different to Japan because in Japan you will have a group of decision makers and you reach out to them on various levels as well.

DAVID: That's true we heard from Celeste on that in part 1 of this podcast.

JONATHAN: That's correct David. As we go back to hierarchy being important in China, if we establish who that decision maker is at an earlier stage, then we begin to understand not only the hierarchy but we begin to understand how everyone else fits into the picture. So you also need to understand the accounts part well in advance. I think this is a key point that many people don't always realise, they jumped into an negotiation quite quickly and they don't do their research. Why I say this is because China is quite a large and diverse region and negotiation styles will definitely vary from city to city. Businesses in smaller cities will have a different approach to those in bigger cities. So unlike Australia where it is easier to establish I guess a general negotiation style, it is important to understand where your client is based when you are negotiating in China. One other point I guess which is worth raising is that there is also a concept of saving face. It is quite an interesting topic for many but I guess the basics are that Chinese culture promotes avoiding these unnecessary disputes and arguments that many parties have. So what they uphold is social harmony. I guess another point is being too direct and frank is often a bit risky for western parties. Proceed smoothly, carefully and establish this rapport and trust even though you are negotiating with another party, understand who they are and that goes back to the earlier point – understand who they are and how they fit into the bigger picture and you will be able to negotiate a lot more effectively.

DAVID: It sounds yes very interesting. I mean look let's be honest everyone should be doing their homework shouldn't they before meeting with clients. But very much so this seems extremely important when meeting with our Chinese friends.

JONATHAN: That's exactly right David and I guess the final point is that Chinese businesses like to have deals come through swiftly but also they like to resolve disputes swiftly and they always want to see deals through to the end so that is why as I mentioned earlier, perseverance is very important in China.

DAVID: Yes fantastic Jonathan. Some very good tips there. How about we just finish with a couple take away points. What do you think would be sort of perhaps the three key take always from your experiences and the experiences of others that you have encountered along the way?

JONATHAN: Okay that's quite an interesting question. A bit hard to encapsulate everything into three points but if I do have to choose three I guess the first would be understand and appreciate the Chinese business culture that would be the first so perhaps invite your business partner or client to a dinner in Australia, David, highly recommend doing that. You will really appreciate how much they love these dinner conversations and chats and they will really appreciate that gesture.

DAVID: I think we all appreciate a nice dinner don't we Jonathan?

JONATHAN: Oh we do. I guess the second point David would be that we need to respect the fact that China is a leading economy. The western world has sort of looked at the US over these last few years but China has been making significant progress and it shifted from what I referred to earlier as a global factory, it is quite a common term that is used in the past to what we should properly refer to it as a sophisticated investor these days. Chinese consumption is changing. China is experiencing a rebalancing of its economy and it is time that we begin to realise that here. I guess David that leads us to our third point which is that the China/Australia relationship is already strong. We should be seeing that. China is currently our largest two-way trading partner. It is our largest export market and it is also our largest source of imports. So I would say the businesses need to be encouraged by these statistics and I guess ensure that they are familiar with other things such as international agreements such as ChAFTA which is the China Australia Free Trade Agreement. If they are familiar with these things then that will ensure that they have a competitive edge in Australia which is important because many other businesses have not considered investing in China or have been quite hesitant to.

DAVID: Fantastic Jonathan very insightful indeed. This podcast is for reference purpose only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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