Scaling the Great Wall: the Yin and Yang of resolving business conflicts in China

Business Horizons, Sept-Oct, 1997 by David Strutton, Lou Pelton

A philosophy of push and pull, compete and cooperate, may sound contradictory to many Americans, but it is the basis for attaining success in doing business with the Chinese.

There has always been an air of mystery about China, a land so remote from the United States in terms of distance and culture that Americans still refer to it as the Far East. Lately, however, East has been meeting West ever more frequently as China has become the world's hottest business opportunity. The country is so attractive that U.S. firms by the boatloads are making the strategic decision that they must be there. Too often, though, their understanding of China and its business practices is seriously limited. As a result, many American companies risk becoming marginalized there.

Consider the experiences of the U.S. pioneer companies in China. Coca-Cola, Otis Elevator, and Occidental Petroleum entered the country as soon as they gained permission from the Chinese government. Coke established a preemptive market position that has yielded formidable competitive advantages. The company succeeded in executing distribution strategies in a country with significant infrastructural problems because it first developed business relationships with local enterprises. Otis and Occidental, however, along with AT&T, Bethlehem Steel, Bechtel Group, Caterpillar, and many others, have not been so fortunate. They have had to close offices and even retreat from China after fumbling with local partners or for similar reasons. Hence, having Chinese partners does not guarantee successful market entry or subsequent expansion. Instead, the events of the last decade suggest that having contracts represents the start, not the end, of real negotiations.

The domestic business community's disillusionment with China has spread, as illustrated by a Fortune magazine cover featuring the byline, "First Prize, One Contract in China; Second Prize, Two Contracts" (Kraar 1996). Global alliances generally succeed only when the goals on which they are based remain acceptable to all parties in the face of naturally arising conflict. Unfortunately, amid repeated cultural clashes, strategic harmony among American and Chinese partners has often proven illusory.

U.S.-Chinese Business Alliances: Relevant Issues

Managers from American firms interested in China should do two things before taking the plunge. One is to travel to the top of any skyscraper in Shanghai, Beijing, or Sichuan and enjoy a view that makes wallets throb. Shanghai alone has some 2,000 cranes working, more than are currently used in all of North America. The second is to accept as an idea whose time has come the notion that China can teach Americans a thing or two about business. The Chinese culture offers many insights that transcend Western business fundamentals.

This sentiment is especially germane when it comes to resolving conflict within U.S.-Chinese business alliances. International business people invariably run the risk of managing as if they were captives of their native country's culture. But an especially noxious cultural arrogance has frequently injured American business interests in China. Western expatriates there often seem unwilling or unable to compensate for their cultural limitations. Their exposure to the local culture is usually confined to rather stilted social encounters or shielded employer/employee relationships. Such detachment does not serve strategic ends; ignorance is never blissful when the subject is international business.

True assimilation can be achieved only when one's interactions with foreign cultures demonstrate that they must be considered equal to one's own culture. Time and again this lack of understanding has proven a telling shortfall for American managers in China, particularly because one never really negotiates contracts there; rather, personal relationships are negotiated. The Chinese even have a word to describe these relationships: guanxi.

At first blush, the guanxi concept hardly appears as though it should trouble American managers. For nearly a decade, relationship marketing has held sway as a dominant Western paradigm. But the nature of business relationships in China differs dramatically from Western analogues. When asked about the presumably cooperative guanxi, one Chinese expert laughed and replied, "I can't think of organizations where infighting is more rife" ("Business in Asia..." 1996). Not surprisingly, American firms attempting to manage relationships in China have regularly found that the nature of their expertise and power, and how both may be wielded to resolve alliance conflicts, has dramatically changed.

Clearly, the means by which alliance relationships are developed and sustained in China are acquired skills. Unfortunately, they are also competencies many American managers have yet to master. As John Platt, president of U.S.-based Agriglobal, put it, "Forget about your product and how good it is. [First] develop a relationship...." (Murphy 1996). Those who have worked there also understand that alliance conflict is endemic to China. Understanding how best to negotiate conflict resolutions is therefore crucial. But to negotiate successfully, American representatives must realize how the local culture influences the incidence and resolution of conflict in China. . Otherwise, in light of their home field advantage, Chinese negotiators will routinely exploit U.S. firms.