Your Chinese partner wants to get rid of you and is willing to pay a high price to get you out.
Westerners who rely on Chinese self-interest to keep everyone honest and engaged in the joint business are undermining their own position in China. Your ideas about self-interest and “not cutting off your nose to spite your face” don’t work in China. Chinese are selfish enough – but they have a different value system. Getting rid of you may be one of their top priorities – even if it seems to you that they are undermining the business.
Everyone in business is selfish and opportunistic, but not in the same way.
Principles of Chinese Selfishness:
- You’ll leave eventually. When the going gets tough, the foreigners always do. The Mongols did. The Europeans did (for a while). The Japanese did (and will again). Foreigners leave when the road gets rough – and Chinese partners are more than happy to navigate your JV onto the worst roads available to send the point home.
- All you really have to offer are your clever little technology tricks, and they are a one-time competitive advantage. Once the Chinese know 75% of your IP, they feel they can do better without you. Without them, you are expensive dead-weight.
- Their learning curve is much steeper than yours. They have been figuring out how to operate without you since the first meeting. Your priority during that time has been figuring out how to get them to do more. They can run your China operation better than you can. You still can’t tell a cab driver the address of your factory in Songjiang District of Shanghai.
Hold On to that Partner – China Style
What can an MNC or foreign partner do to keep the Chinese side loyal, engaged and pulling in the same direction? These ideas are all simple – but if you try putting them in place AFTER your existing partner or counterparty has peaked behind the curtain and seen that you are a mere mortal they won’t work.
1. Have more to offer. The Chinese side wants bigger, better and richer – and if you can’t offer it he’ll try for it on his own. Always have an option for making the Chinese partnership bigger. Expansion is a good place to start – domestic growth is OK, overseas is better. Better deal structures that see his payout rising as a percentage of revenue – not squeezing his margins just as the business grows. New markets, new technologies, new opportunities – you’ve got to make yourself look more valuable tomorrow than you were yesterday.
2. Do something they can’t do. Leverage your strengths where they are weak. Branding, new product development, and frequent product rollouts work. Look at successful brands like Apple, Burberry and GM. Their business model is based on a series of regular, highly anticipated new product developments – and they all have to work beautifully the first time. Chinese can be efficient or innovative – they have trouble doing both at the same time.
3. Ditch them first. Nothing makes a partner sexier than the threat of them leaving first. Start making plans to go WFOE as soon as you can. For most Western firms, this requires 2 ½ competencies: Distribution and HR are definite gets. Regulatory and bureaucratic facility might be required, depending on your situation. The less needy you seem, the hotter a partner you make.
4. Have multiple partners from day 1. Access your inner slut and put it out on the street early. Once you have a successful JV or WFOE, you start giving off Chinese pheromones that everyone wants to get with. Having 5 partners only seems like it would be 5 times the work. In fact, it’s only 4.5x as much work. But still. Play one off the other.
5. Do a PacMan. He’ll try to poach your best assets – technology, brand and business process. Identify and pursue his best assets – probably senior managers and connected networkers. Build up the HR and external network you need to work on your own. http://www.chinasolved.com/2013/02/11/china-management-competence-as-competitive-advantage/ Chinese partners who are arrogant and disloyal to you are probably no better to their own people.
Remember the ChinaSolved ABCs of working in China – Always Be Connecting.
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