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Australia China Business Council. Importance of cultural due diligence in doing business successfully with China. Dr Carl Hinze. 23 April 2015. Three key considerations. Reasons for interest – how to provide desired value? Financial Market access Management know-how Customer needs
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Australia China Business Council Importance of cultural due diligence in doing business successfully with China Dr Carl Hinze 23 April 2015
Three key considerations • Reasons for interest – how to provide desired value? • Financial • Market access • Management know-how • Customer needs • Cultural and sub-cultural differences • How to balance “knowhow of the West” with “culture of the East” • International best practice meets feelings and sensibilities • Language barriers – mitigating resultant inefficiencies
Culture – What is it? • “What really binds human beings together is their culture, -- the ideas and the standards they have in common.” (Ruth Benedict 1934)
Importance of culture? • Mergers “succeed or fail more often because of cultural factors than for any other reason.” Stachowicz-Stanusch, Journal of Intercultural Management, April 2009
Different cultural perspectives • Australian: post-Enlightenment Westerners • Behaviour driven by reason and enlightened self-interest • Deny “irrational” emotions • Chinese: Cultural vacuum surrounded by swirling development and fragments of traditional culture • Behaviour driven by emotions • Deny “self” (zisi) interests • Sense and sensibility
Dangers of “cultural handbooks” • Respect ‘face’ • “essential component of the Chinese national psyche” (British Embassy, Beijing) • “to be polite is to pay attention to ‘face’” (Mao, 1994) • What is it, really?
‘Face’ – A closer look • Chinese MianzivsLian • What others think of you… • National ‘face’ (goal of strengthening China shared by all) • Individual ‘face’ – public offense vs public glory • Collective social currency 一人得道鸡犬升天 ‘yiren de dao, jiquanshengtian’ • Critical to social relationships 人有脸,树有皮 ‘ren you lian, shu you pi’
Dangers of “cultural handbooks” (cont.) • Understand the real role of ‘Guanxi’ • It’s all about relationships, but what type of relationship and between whom? • Neutral concept – without connotations of “you scratch my back, I’ll scratch yours” • Complex connections among guanxi, renqing, and mianzi – three pillars of Chinese trust • Both emotional and pragmatic/instrumental • Instrumental concern of maintaining status/power • Emotional concern of maintaining self-respect/affection
Truly understand local cultures • Valuing individual vs group/collective • Valuing egalitarianism vs hierarchy • Valuing sincerity vs harmony • Valuing problem solving vs relationship building • Valuing familiarity vs formality • Valuing reason/logic vs emotion
Truly understand local languages • Understand primary language and local dialects • Employ reliable and trusted translators • Understand what is gestured and implied • Listen to what is not being said • Agree on the language of negotiation
Appreciate different negotiation styles • Do not expect a fair, win-win deal • Do not expect short meetings • Do not rush to get a deal done • Try to control the agenda • Expect changes of mind and authority • Do not expect direct discussion of interests • Do not expect sequential discussion of issues • Endure
Choose local partners very carefully • Thorough DD is required – investigate the background, histories and track record of partners • Try to learn and understand their motivations and objectives • Do not rely on information at face value – check and re-check • Only rely on trusted intermediaries
Be aware of cultural similarities • Desire to look good • Desire to avoid looking bad • Desire to secure a good deal • Importance of relationships
Dr Carl Hinze Partner T 07 3135 0630 E carl.hinze@holdingredlich.com