Managing Director, Ben, an overseas Chinese, leads a small management team of well-educated professionals. Ben related that Jupiter once signed a contract with a state-owned customer to sell goods and services for RMB 40 million (USD 6.5 million) over a year’s duration. The terms of the contract were rather vague and the customer did not make any purchases during the year.
Questions to think about:
- Why would the Chinese sign an ambiguous contract like this?
- Why would Jupiter agree to signing a vague contract that does not lay out precisely what equipment the customer would order, and when?
Although a new supplier had been chosen by Procurement, Production continued buying from the incumbent supplier who had built strong ‘guanxi’. After doing a lot of informal questioning, Jupiter found a suitable intermediary to help launch an appropriate campaign of successful ‘guanxi building’. Needless to say, the intermediary was handsomely paid. Resorting to legal action would only have backfired and would be seen by the Chinese as lack of mutual trust and goodwill, the foundation stone for any strong business relationship.
The lesson learned from my interview was that in order to have success with signing contracts with the Chinese, it is necessary to build a serious web of connections, and to navigate these connections by doing a lot of informal digging. When things are not going well, building guanxi will remedy the situation, as will asking for favors, reciprocating favors, and occasionally, even buying guanxi to find your way around. The role of intercultural competence in negotiating business contracts with the Chinese becomes essential in realizing that having the best product at the best price alone doesn’t guarantee a successful conclusion to a business deal even with a signed contract. The signed contract is just a formality and other dynamics of guanxi building need to be at play for things to come to fruition. The Chinese want to do business with people they like and trust, which is not sufficiently evidenced in a signed contract alone.
Christina Kwok is an intercultural skills, Global Leadership Trainer and speaker. She helps diverse teams weld radically different perspectives into a unified team effort. She has worked with diverse organizations such as Zurich Insurance, UBS, and industrial firms to develop key communication skills for a global business environment. Her company is called www.cross-culturalsynergies.com.