PERFORMANCE-ENHANCING STRATEGIES FOR CHINA:
LESSONS FROM JAPANESE AND AMERICAN COMPANIES

Abstract

With an average annual GNP growth rate of 9.9 percent over the last 15 years, China has become the world's third largest economy.² Some analysts have predicted that China's economy could be larger than Japan's if the current growth rate of 14 percent continues past the end of the century. This growth rate has produced so many opportunities for foreigners that multinational companies from around the world have been seized with 'China fever'.³ These companies are clamoring for information on how to do business successfully in China which is known to be a difficult market to penetrate. Yet relatively few recent studies have identified performance- enhancing factors shown to work for multinationals from a variety of nations when they do business in China. 

This paper is based on the activities of Japanese and American companies in China. China is the third largest trading partner of the United States in combined exports and imports. Japan is China's largest trading partner. Companies from both countries have also committed considerable foreign direct investment to develop and support their business activities in China indicating that they regard China as important to their world-wide success The investment of Japanese companies in China has been enormous and American investment has also been substantial.⁴ 

The purpose of this paper was to identify performance-enhancing factors common to Japanese and American companies doing business in China. The paper was based on a series of in-depth interviews conducted in China both with the managers of Chinese companies that had dealt with American and Japanese companies and expatriates from those companies. The interviews provided many practical examples of how the Japanese and American firms had applied the factors in their activities. These five factors, with examples of their application, form five lessons for any company that would like to learn from the success of Japanese and American companies in China. 
 
 

Method

The interviewees were asked, based on their practical experience, to discuss what factors made foreign firms more or less successful in China. The picture that emerged was that most interviewees believed that Japanese and American firms were more commonly successful than companies from other parts of the world. The interviewees were then asked explain why certain factors seemed to be important and how companies had implemented them. 

The infterview data was collated⁵ so that the relative importance of the factors that emerged could be gauged by the number of references made to them in the interviews. Five factors emerged as common elements of the more successful Japanese and American firms known to the interviewees. These factors were: 

These five performance-enhancing strategies are described in five following sections with practical examples of how Japanese and American companies have implemented them. 

Relationships Based on Shared Goals, Cooperation and Trust

The Chinese argued that building effective relationships was the essence of doing business in China. Their observation was that Americans had learned much about relationship-building during the 1980s. The Japanese, however, were the most effective in this area because they were masters of both cooperating with, and gaining cooperation from the Chinese. The Chinese reported that American business persons had learned to listen and cooperate with them and that this cooperation was much appreciated. "It puts us in a more equal situation with the foreigners," reported one Chinese official. By satisfying Chinese nationalism and pride, foreigners who cooperate may encourage concessions in other areas of interest. Americans were applauded for trying to find ways to work together with the Chinese to build on Chinese strengths. By contrast, some foreign business persons were criticized because "they are more concerned with their own interests and hardly pay attention to Chinese concerns". 

In the petro-chemical industry for example, Chinese R&D has produced a number of oil refining catalysts and agents that the Chinese believed had strong international commercial potential. The Chinese approached a number of foreign companies for marketing help because they did not have the capital and international marketing expertise to market these products themselves. The Chinese recognized, when making these requests, that foreign companies might refuse to help for fear of creating more effective Chinese competition in other international markets. The Chinese offered joint venture arrangements where the foreign companies would retain control over how products and technologies would be marketed. "We actually encouraged the foreign companies to take up ownership in these joint ventures aimed at international markets so that they also had control, " reported a Chinese manager. Several American companies accepted the proposed arrangement and purchased much goodwill because the Chinese saw them as both cooperative and willing to help the Chinese achieve their goals. Several other foreign firms declined to cooperate and the Chinese concluded that these companies were too cautious to take any risks to build cooperation. 

The Chinese also appreciated the willingness of some American companies to share market information about the United States. Chinese exporters often suffer from a lack of up-to-date information about foreign markets. In the 1980s, discount stores in North America were filled with cheap products from China. The products were cheap and of low quality because they were not in tune with North American consumers' taste. Two Chinese commented: "When the Americans tell us what is acceptable in the North American market, it is a great help to us. " "This is often a great boost to our relationship and they are helping us without it costing them anything " 

Americans were also successful in using intermediaries⁷ to learn about Chinese goals and bargaining positions thereby strengthening relationships by building Chinese goals into their proposals and demonstrating a willingness to work toward shared goals. American companies are more likely than some to permanently employ their intermediaries. The Chinese have mixed feelings about intermediaries since they often prefer to deal directly with foreigners and worry that the cost of products is increased coming through a middleman. Some Chinese admitted, however, that "intermediaries can be helpful in many ways including providing customer feedback to the foreign company and uncovering potential problems before they become unpleasant surprises. " 

The Chinese reported that American companies had faults in the area of relationship building. A particular concern was that some American firms seemed to regard relationships as disposable. Once a relationship has been developed, it should be maintained even after a deal has been signed. Companies that do not cherish their relationships may damage their ability to establiish trust as this information spreads through the Chinese business community. A number of companies that pulled out of relationships and deals at the time of the Tiananmen Square incident have found it difficult to re-establish their connections in China. The Chinese reported that they learned which companies were their "friends" and which were really committed to a long term position in China. 

Americans also seemed to have a tendency to offend Chinese national pride. An American expatriate reported that he could always stimulate the Chinese to greater efforts by comparing them unfavorably with the Indians. "I tell them, 'What do you mean you cannot accomplish this task. The Indians I used to manage in India would have no problem. I though you told me you were as good as them". Subsequent interviewees confirmed that this strategy would make most Chinese feel frustrated and uncomfortable. The Chinese prefer to discuss points of agreement rather than being confronted with points of disagreement. By contrast, the Japanese are masters of building relationships by cooperating with the Chinese. The Chinese interviewees argued that Japanese willingness to change and adapt to suit the Chinese has been a key factor in the success ofthe Japanese in China. "The Japanese work very closely with the Chinese andfocus on what works with the Chinese and in China. " "Their representatives are often in our office asktng what they can do for us and how they can help us to solve our problems." "The Japanese are willing to put themselves into an equal position with us so that an equal relationship can begin. " Americans are more likely, stated several interviewees, to insist that the Chinese buy products and technologies that are claimed to be world class without making the effort to adapt them to their customers' needs. 

Attitude may be a factor here. The Japanese style is often to portray themselves as humble and willing to cooperate. Americans seem more likely to portray themselves as confident, assertive and may occasionally overstate the benefits of their products. The Chinese have learned to check virtually every product-related detail with excruciating thoroughness. If benefits have been overstated, the Chinese will probably find out and trust will be damaged. 

A key Chinese concern that the Japanese have learned to satisfy is the fear that products from other countries may not work, or provide the same benefits, in China. The Chinese will not buy features that do not provide measurable performance gains for Chinese companies or consumers. These benefits must significantly outweigh the costs of each feature since Chinese companies have limited access to foreign exchange and individual Chinese customers are poor. The Japanese are usually willing to demonstrate the benefits of their products and technologies either in demonstrations or by selling the first batch for little or no profit. An American expatriate in Shanghai stated, " We Americans have an advantage in China because we are willing to go two or three years without making a profit to establish market share. The Japanese, however, may wait ten years for a profit and that gives them an edge over us". 

Before demonstrating a new technology, however, the Japanese are likely to have visited the Chinese facilities where the technology will be used and have developed some ideas about how to adjust the technology to the new working environment. They will then ask the Chinese for the opportunity to demonstrate how the new technology will work in China. Once the Chinese have seen for themselves that the technology works and produces the expected benefits, they become more willing to buy. One Chinese manager commented that "Americans are less willing to go through this process and demonstrate how their technologies and products will interface with what we already have. " 

The Japanese are also masters of obtaining cooperation from the Chinese. There has been increasing labor unrest reported in China within foreign invested companies because Chinese employees were unfairly treated!⁸. "The Japanese first admit that there has been some is-communication and misunderstanding They then accept the blame even though sometimes it is not their fault. They then offer to cooperate with the Chinese or ask the Chinese to cooperate with them to solve the problem. Each satisfactorily resolved conflict deepens the relationship because we have shown appreciation and respect for each other in the process, " explained a Chinese manager. This approach works well because it preserves the face and pride of the Chinese in front of the foreigners. By contrast, a Chinese manager working in a Canadian-American-Chinese joint venture reported that, "the American manager acted in such a way that we did not believe that he had any respect for us so we slowed things down in protest. The Caucasians tend to blame us Chinese for their bad management, poor labor practices and poor quality. " 
 
 

Marketing and Promotion

One major foreign joint venture in Shanghai developed a popular and successful promotional strategy by bringing famous overseas Chinese performers to Shanghai and buying television time to broadcast their performances without interruption for advertising. The Chinese appreciated the opportunity to see Chinese artists who could otherwise not perform in China and sales of the company's products went up. The same company, which produces liquor, discovered over time that the Chinese preferred, in general, that alcohol beverage products be consumed in moderation. A successful campaign warning against drinking and driving was implemented. Many multinational companies, however, have not been successful in marketing and promoting their products. The expatriate manager of a large high technology venture was asked why his company's headquarters in Beijing did not have a sign advertising its presence when a major European competitor, located in the same building, did. He replied that "We know we could do a better job of promoting ourselves in China but money is limited. Should we spend more in China or use the money to expand in the United States?" Many foreign companies advertise and promote themselves and their products in the streets of major Chinese cities. 

The Chinese reported that American companies were very creative in their use of television, radio, newspapers and special events. American companies also seemed to have grasped that sustained personal contacts, visits and the development of guanxi relationships were the basic building blocks for marketing and promotion in China. "We became comfortable dealing with the Americans because they maintained ongoing contact with us and their representatives visit us from time to time. These visits allow for better communication with each other. " By contrast, some North American companies were reported to visit only once a year, at a time of their own convenience, and without sufficient warning for local representatives or intermediaries to set up meetings with key Chinese decision makers. "They do not treasure the relationship," commented the Chinese. 

The Chinese observed that, in the past, most American companies did not maintain ongoing contacts to market and promote their products. Americans seemed to change after observing the promotional strategies of their Japanese and European competitors. They learned that the Chinese preferred to be contacted and wooed by foreign companies and that the Chinese also relied on these companies to provide detailed information about their products that could be compared with that of competitors. "It is not our style to go after a foreign company to persuade it to do business with us. The Americans have realized that we rely on them to provide us with information and show us they are sincerely interested in doing business with us," commented a Chinese manager. 

Once contacts were established, Americans seemed to be better at following up than some of their competitors. While at a trade show, the marketers of a Canadian company were approached by a Chinese company that asked for product information and a bid. The Canadians replied that they would respond after returning to their Toronto office in three weeks. A month later, the Chinese received a bid with a firm price good for only three days. In the meantime, however, the Chinese had approached an American competitor, received information and a bid by fax, discussed and signed the deal. American companies win the respect of potential Chinese customers by faxing immediate quotes and sending local representatives to discuss and support the bids. American companies also often host information seminars and product exhibitions in China to introduce their technologies and products. One Chinese manager stated that "these (seminars and exhibitions) serve an educational purpose for us because we get to know how the products and technologies work in action instead of just seeing brochures and reading about abstract concepts." Another said that "questions and concerns are raised and answered in these seminars so the potential partners and customers leave the sessions with fewer doubts and more information. " 

The Japanese are acknowledged by the Chinese to have created a superb marketing and promotional organization in China. Japanese industry associations either send representatives, or have representative offices in various Chinese cities, to promote their member companies and to collect information which is supplied to members. These associations allow even very small Japanese companies to have a presence in China by providing them with inexpensive and timely information. At the same time, the associations send the relevant intelligence only to specific member companies to limit competition between Japanese companies. Once a Japanese company receives information, it is expected to contact the Chinese and send its own representative. A Chinese company once found itself contacted by a Japanese company offering a technology to improve its manufacturing process. A photograph of the Chinese plant had been printed in a local newspaper. A Japanese industry association representative had sent a copy of the picture to the Japanese company which determined that the Chinese were using an out-moded technology. 

The Japanese have also created the Sino-Japanese Friendship Association. This association acts as an umbrella organization for establishing contacts between Chinese and Japanese companies. In addition to visiting the Chinese to build relationships and collect information, it provides the Chinese with lists of relevant Japanese companies, technologies and products and acts as an intermediary. The Japanese government also pays for a program to allow Japanese management students to work in China. When these students graduate they are hired by Japanese companies for their specific expertise and established contacts. One Chinese manager commented that "we get tired of seeing their faces in our offices and we know what they are trying to do. But when we need to buy, we have a relationship with the Japanese and often know nothing about the competing products of other foreign companies. " United States industry has an organization similar to the Sino-Japanese Friendship Association called the US-China Trade Council. 

The Japanese promote trade relations with China at a governmental level by hosting business conferences of Japanese and Chinese companies in China. Japanese business people are eager to attend these events because the publicity from the event predisposes Chinese companies to talk to them. After attending a first conference session, the Japanese fan out to interview potential customers and sign deals. "The Japanese way, by our standards, is more efficient, " commented a Chinese attendee. The Japanese 

North Americans also host these kinds of events⁹ but the Chinese complain that these events suffer from poor organization and poor preparation by attending American companies. One Chinese noted that, "We had the feeling that many of them were unsure of what they were trying to achieve. They spent most of their time talking amongst themselves and the organizers did not arrange for sector meetings between Chinese and foreign companies who might have been interested in each other. We did not even get to know who was whom or what products and technologies they had. " The authors attended one of these conferences. The Chinese representatives left half way through the last day because the translation service into Mandarin broke down and no successful attempt was made to fix it. 

Experience and Learning

The Chinese reported that they preferred to do business with larger companies having excellent credentials and the resources to either complete projects or to provide long term service. A senior expatriate in Shanghai, with long experience negotiating joint ventures, noted that, "Before coming to China, your number 1 key success factor is your company's international reputation. The Chinese prefer to work only with companies seen as technological leaders in their industries. If a competitor criticizes your technological leadership, The Chinese will expect you to prove what you have claimed. " The Chinese recommended that small companies organize themselves into consortia which would have a greater variety of available products and more resources to see projects through. 

Larger companies can also use their worldwide networks to provide their Chinese contacts with information or benefits that further develop guanxi relationships. A large multinational in Shanghai built relationships by advising the Chinese government during the American-Chinese negotiations on intellectual property protection. The company had an office near Washington D.C. which could gather information for the Chinese about American political intentions. The same company was able to provide an opportunity for an important Chinese government official to serve on a trade commissions and tour Canadian plants and offices in Europe. The European office of another American company located stained glass windows stolen by the Japanese army from the Summer Palace in Beijing when they were about to be auctioned in Europe. The company purchased the windows and presented them to the Chinese government creating much good-will. 

It is also not surprising that having more years of experience doing business in China can be an asset but this is not always the case. The value of experience may be in whether a company becomes sensitized to Chinese business practices. A major North American telecommunications company, for example, initiated its first contacts in China during United States President Nixon's first visit to China in the early 1970s. The company was one of those offered the opportunity, by the Chinese Ministry of National Posts and Telecommunication, to re-build the Chinese telephone system after the Open Door Policy was initiated. The company declined any involvement, caused the Chinese to lose face, and were frozen out of central government related business for a number of years. Chinese officials from the Ministry commented that this company "could have been the market leader in China as they were the first company to enter the market. For years they did not do much except offer to export their products from China. While other companies developed relationships, this company was nowhere to be seen. " 

A manager from this telecommunications company gave a personal example of the value of having greater China-based experience. 'It is a long process developing relationships. I was here six months before the Chinese even felt comfortable in my presence. It was nine months before there was any trust and twelve months before there was a good relationship and I was here the whole time. Then I learned that there are some issues related to managing the power structure here that the Chinese will not discuss with a foreigner. You have to have local Chinese working for you who can network, build relationships and get this information for you. " If it takes so long for an expatriate to become effect*e and to develop relationships, perhaps long term assignments are particularly appropriate for China-based expatriates. 

The Chinese reported that the Japanese had a distinct advantage in China because of the similarities between Chinese and Japanese cultures. The Japanese do not have to learn from their experience in China the world the importance of relationships. The techniques of relationship that work in Japan also work in China. A Chinese manager in the agricultural industry in Beijing commented that, "The Japanese set a good example for Americans. They are very relationship oriented as are we. The Japanese invite the Chinese out for drinks or dinners and do not force business discussions. Both sides consider each other friends so the Chinese may unintentionally provide important intelligence during the proceedings. " 

The Japanese also affect a humble and modest attitude in their dealings with the Chinese. A Chinese manager in the building materials industry observed that, "The Japanese come to China and present themselves as equal to the Chinese. They ask if there is anything they can do for the Chinese or anything both sides can do together. (By contrast) some foreigners act as if they are superior and put themselves above the Chinese. They act as if they are calling the shots. " 

How may foreign companies compensate for the cultural gulf between Western and Chinese philosophies and business practices?¹⁰ Many American companies have hired local Chinese and rely on their experience. A major American-Chinese joint venture in Beijing assigned a Chinese assistant manager to each expatriate manager. The expatriate trained the Chinese in American business practices and the Chinese watched for culturally inappropriate behavior. The expatriates learned to modify some American business procedures so they would fit Chinese organizational practices. A major American wholly owned operation in Beijing found that when customer relationships were managed by local Chinese there was less conflict. A Chinese manager from this operation argued that ' foreigners will have problems dealing with conflict and disagreement in China. The Chinese are very subtle in saying 'no'.¹¹ Americans tend to get frustrated and annoyed and this o;~ends the Chinese. " A study of Canadian firms in China found that companies that hired local Chinese for R&D, manufacturing, marketing, sales, service or local management functions all had higher sales in China than companies that did not. ¹² 

A senior expatriate from Shanghai observed that some Chinese employees were better received by local Chinese business persons than others. "Your local Chinese should be from mainland China. Hong Kong people are received worse than foreigners. Taiwanese are received better than Hong Kongers but still not as well as mainlanders. Singapore Chinese are good because Singapore gets good press in China. " Other Chinese managers confirmed this hierarchy of preferences. Overseas Chinese with business experience were considered second to mainlanders. Hong Kong employees seemed to be better received in southern China. 

Local Investment and Joint Ventures

A strategy that can be employed by a company unsure whether there is sufficient demand for its products is to announce that it will begin exporting but will invest at a specific future time. When Honda made this announcement in the spring of 1994, it was well-received in the Chinese press. 

Second, local investment could result in a product better suited to Chinese customers that costs less because it was produced using less expensive Chinese labor. A Chinese manager from the environmental protection industry in Guangzhou argued that "Some North Americans do not understand that their advanced technologies are too expensive in China. We need intermediate level technologies with reasonable prices. These companies should use Chinese R&D specialists to adapt their products to the Chinese market. Sometimes features that are essential in the developed world can be eliminated to produce a cost-efficient product for China that will be successful.' A Chinese manager from the Ministry of Agriculture in Beijing stated that 'North Americans should be more flexible and creative, like the Japanese, by producing locally to lower their prices. Companies that do not do this may lose many opportunities. From the Chinese point-of-view, companies that refuse to lower their prices through local production are intentionally inflating their prices'. A major North American producer of agricultural manufactured products was cited as an example because it had not replied to a Ministry request that it license its product to a local manufacturer or enter a joint venture to lower its price. 

Third, a local marketing presence may ensure that a company's marketing strategies are suitable to the Chinese style of doing business. A foreign marketing strategy may be seen as insensitive. For example, a large North American potash corporation used to control over 50 percent of the Chinese potash market. The company's sales have plummeted because of a marketing policy which automatically raises their sales price by $5 per ton every year. "They do not understand the importance of price competition thinking that we will prefer their red potash ~In China, red is a lucky color). The color makes no difference. Their price is too high compared with Israeli competition. The Chinese point-of-view is that this company has intentionally inflated their prices to make a quick profit. This has damaged the relationship". 

Fourth, local investment results in the establishing of a local representative office. Local representatives are, according to the Chinese, more effective in building business relationships and thereby promoting products and services to the Chinese. A Chinese manager from Fuzhou stated that foreign companies needed local representative offices, or at the very least a local contact person, who could promote the companrs name w~ile making contacts with local people. The use of local Chinese to staffthese offices would reduce costs significantly. A Chinese manager from Fuzhou indicated that all large and medium sized foreign companies should have their own representative offices. "Put it in the place where you want to sell to get to know the market, the competitors and the contacts. A local office is goodfor developing contacts and guanxi networks". 

Fi~h, local offices were very useful in helping companies accumulate re]iable market intelligence. A Chinese manager from Beying stated that the main benefits of a local office were on-the-spot intelligence gathering about your competitors and the development of closer relationships with customers. "Without local representation, China seems very far away and it is changing rapidly. You will miss many opportunities". Another Beijing manager observed that "Some foreign companies seem to lack timely information about the Chinese market. The Americans, Japanese and Europeans have large networks of people worktng on their behayin China to f nd contacts and get information about the Chinese market". 

The Chinese recommended joint ventures if a foreign company planned to sell its products and services within China and needed to develop sales connections and distribution networks. ~f a company planned to produce in China for export, then the Chinese suggested that a wholly owned venture might be just as effective. Within China, having local partners produced a variety of advantages. A Canadian expatriate from Shanghai indicated that a Canadian company always needed a local partner of some sort. "The localpartner handles the tax authoriffes, government issues and contacts for distribution but not the day-to-day operations. A local partner is criffcal for dealing with the Chinese power structure which is particularly hardfor Westerners to fathom. For example, we were trying to get an advertising campaign approved in Shanghai. We did not know which Vice Mayor actually was preventing the approval. We went to the one officially in charge but he was no use. It turned out that another Vice Mayor did not approve of our product and was pulling strings to influence the Mayor directly". A Chinese banker in Beijing argued that "local Chinese joint venture partners save foreigners from carelessness. North Americans, for example, are almost never fully knowledgeable about Chinese conditions but a of local Chinese to staff these offices would reduce costs significantly. A Chinese manager from Fuzhou indicated that all large and medium sized foreign companies should have their own representative offices. "Put it in the place where you want to sell to get to know the market, the competitors and the contacts. A local office is godd for developing contacts and guanxi networks". 

Fifth, local offices were very useful in helping companies accumulate reliable market intelligence. A Chinese manager from Beijing stated that the main benefits of a local office were on-the-spot intelligence gathering about your competitors and the development of closer relationships with customers. "Without local representation, China seems very far away and it is changing rapidly. You will miss many opportunities". Another Beijing manager observed that "Some foreign companies seem to lack timely information about the Chinese market. The Americans, Japanese and Europeans have large networks of people working on their behalf China to find contacts and get information about the Chinese market". 

The Chinese recommended joint ventures if a foreign company planned to sell its products and services within China and needed to develop sales connections and distribution networks. ~f a company planned to produce in China for export, then the Chinese suggested that a wholly owned venture might be just as effective. Within China, having local partners produced a variety of advantages. A Canadian expatriate from Shanghai indicated that a Canadian company always needed a local partner of some sort. "The local partner handles the tax authorities, government issues and contacts for distribution but not the day-to-day operations. A local partner is critical for dealing with the Chinese power structure which is particularly hard for Westerners to fathom. For example, we were trying to get an advertising campaign approved in Shanghai. We did not know which Vice Mayor actually was preventing the approval. We went to the one officially in charge but he was no use. It turned out that another Vice Mayor did not approve of our product and was pulling strings to influence the Mayor directly". A Chinese banker in Beijing argued that "local Chinese joint venture partners save foreigners from carelessness. North Americans, for example, are almost never fully knowledgeable about Chinese conditions but a good partner will know your product, your market and the people who will make the product successful". 

A major role of the foreign partner is to demonstrate, in meetings with senior governmental officials and customers, that the venture is foreign and should not be treated as a local Chinese business. "At some level you need to have a foreign face. The managing director, for example, should be a foreigner who represents the foreign investment, " said the Canadian managing director of a Canadian-Chinese joint venture in Shanghai. 

The Chinese reported that American companies were particularly effect*e in setting up commercial and representative offices in virtually every regional market they did business in. "Their representatives and officers are everywhere and they come frequently to make contact with us on behalf their companies," said an official of the Guangdong government in charge of soliciting foreign cooperation. 

Officials in Guangdong also appreciated the speed with which Americans made investment decisions. "The CEO of a major American appliance manufacturer toured our facilities for the first time. After half day's discussion he was already willing to make the investment. By contrast, the Japanese are much slower and more careful. They finally agreed to a series of small investments when they found themselves falling behind the Americans. " 

Less Formal Interaction Patterns

The Chinese regarded the Japanese as relatively informal and flexible in their approach to business in China. They recommended that the Americans learn this approach. "The Japanese are successful in China because they are flexible and willing to let the Chinese use their own ways of doing things, " said more than one Chinese. "The Japanese approach works better in China because it is more suitable to our needs. " While Americans are reported more likely to insist on following their own business practices, the Japanese are more willing to give the Chinese the room to use whatever methods the Chinese think will work. "The Japanese are very practical like the Chinese. They stress results - not the means or the process to achieve the results. The business environment will define the process and the means. Foreigners should set the standards for performance and let the Chinese figure out the process. " 

The Japanese also maintain informal relationships with former customers about their purchases long after other foreigners have ceased to be concerned. "The Japanese come and talk to us even after the guarantee period is over to see if we have any problems, " said one Chinese manager. "They hold annual and semi-annual meetings of former customers and end-users to answer questions and concerns, and to introduce new prod~ucts to us. " By contrast, some North Americans "usually do not come back after the contract is signed. We have not seen the American manager who signed the contract with us since it was signed a year ago. Do they really care if we have any problems?" wondered this Chinese manager. 
 
 

Conclusions and Recommendations

• foreign companies base their entire China operations on the development of effective relationships with Chinese customers, local partners and employees. These relationships should be relatively informal, based on shared goals, cooperation and the development of trust. ¹⁴

• foreign companies promote their international expertise to their Chinese customers;
• foreign companies use their international operations to provide useful expertise and benefits to the Chinese as part of their relationship building process; and,
• foreign companies establish relatively long assignment periods for expatriates to develop experience, or hire local Chinese for their experience, or both.

• foreign companies establish networks of representative offices in the regions of China they do business in;
• foreign companies consider transferring after-sale service, marketing, sales and R&D functions for the Chinese market to a Chinese location. Obtaining local financing may also be advantageous; and,
• foreign companies planning to sell products or services within China should explore the possibilities of developing a joint venture with local partners.

Limitations

Again because of the difficulties of obtaining interviewees through intermediaries, the representation by region of China was not balanced. The Chinese point to regional differences in business practices which may not be reflected in this study. For example, loocal Chinese employees from Hong Kong and Taiwan are much better received in Guangzhou than in northern China. 

It should not be taken from the phrasing of the information in the paper that Japanese or American companies are always successful in China or always more successful than companies from other countries. It is not inteded to establish false stereotypes - there are high-performing and low-performing American and Japanese companies. The lessons described here may be valuable to any company that has not fully implemented them. 
 
 
 

*notes: 

1. The authors would like to thank the Carnegie Bosch Institute of Carnegie Mellon University, Industry Canada, the Social Sciences and Humanities Research Council of Canada, Simon Fraser University and British Columbia Trade Development Corporation for their support in making this research possible. 

2. See D. Bachman. Dissolution, frenzy and/or breakthrough? Asian Survey, 34 (1), 1994, 30-40. 

3. H. Sender. Maximum bullish. Far Eastern Economic Review, December 16, 1993: 50-55. 

4. The Chinese Customs Annual Report, 1994, reported that Japanese direct investment in China was almost US$ 2.5 billion in 1992. American investment during the same period was also reported as substantial. 

5. The data was processed in the writing of an electronic book. Abramson, Neil R. and Janet X. Ai. 1996. Doing Business in China. Ottawa, ON: Industry Canada Electronic Publishing (http://info.ic.gc.calic-data/industry/ china/eng/indexe.html). The same materials were published in French in Abramson, Neil R. and Janet X. Ai. 1996. Faire des affaires en Chine. Ottawa, ON: Industry Canada Electronic Publishing (http://info.ic.gc.ca/ic-data/industry /china/fre/indexf..html). 

6. Guanxi relationships are the personal connections, favors and relationships which facilitate almost any activity in China. Guanxi is sometimes based on gifts and bribery but cooperation and trust seem to be more central to its meaning. Interviewees in Shanghai and Fuzhou strongly emphasized its importance while interviewees in Beijing and Guangzhou downplayed it. All interviewees, however, spoke at length about the importance of relationship. 

7. Intermediaries are third party agents, brokers, trading companies, consultants, lawyers or accountants who have extensive experience in the Chinese market and who facilitate business relationships in China on behalf of foreign companies. 

8. The Nineties Quarterly, April, 1994. Published by Going Fine Ltd. of Hong Kong. 

9. In November, 1994, a delegation of Canadian companies attended a multi-city event with Canadian Prime Minister Jean Chretien. The event produced Cdn $9 billion in signed contracts and letters of intent. The authors attended a similar conference in Guangzhou in May, 1994. This event was hosted by the Hong Kong Chamber of Commerce and the Canadian Department of Foreign Affairs and International Trade. 

10. D.A. Rondinelli. Resolving U.S.-China trade conflicts: Conditions for trade and investment expansion in the 1990s. Columbia Journal of World Business, Summer, 1993: 66-81. 

1l. The Chinese may say " We'll have to discuss this later. " or " We'll have to discuss this with our superiors" when they mean no. In Mandarin, it is not common to say "no" directly. The most common form means "not yes" when translated into English. 

12. Neil R. Abramson and Janet X. Ai. Taking the slow boat to China? Business Quarterly, Winter, 1994: 27-36. 

13. J. Frankenstein. Toward the year 2000: Some strategic speculations about international business in China In L. Kelley and O. Shenkar, editors. International Business in China (London, UK, Routledge, 1993). 

14. Trust may have a somewhat different meaning in China than in the west. The Chinese believe that trust develops slowly as parties demonstrate that they are utterly reliable. There is no expectation that parties can be persuaded to trust or will trust because of the right "chemistry".