Building the Relationship is the Key to Business Success in Indonesia

Building a relationship in Indonesia takes time and is built on solid foundations

Those experienced in conducting business in North Asia will tell you that relationship building is paramount to a successful business outcome. Relationship building in Asia is often in direct contrast to standard business practices expected in Anglo-Western cultures such as North America, Australia and the UK.  These business practices will affect the way negotiations are conducted, and so when you are negotiating in Asia it is important to consider the differences from your standard negotiation protocols. The Anglo-Western negotiation protocol is generally more direct and task focussed, ensuring that negotiation discussions are conducted primarily in a formal context, building relationship is not really required outside of the functionality of the deal.  In North Asia, such as China, Japan and South Korea this direct task orientated approach is at odds with the accepted relationship building process which helps to build trust or Guanxi (see my recent post on Guanxi: http://wp.me/pS6DN-37). Without trust, there is no relationship, and consequently no successful negotiation outcome. 

 In Indonesia, you would think that because it is part of “Asia” that it is safe to assume that relationship building would also be of great importance to the successful negotiation outcome.  However past research has found that Indonesia exhibits strong performance focus, suggesting that negotiations are more task orientated and potentially less focussed upon relationship building. Recent research investigating Indonesian negotiation behaviour has however, identified elements of both relationship building and also task orientation which would suggest that both assumptions were correct in an Indonesian context, and that relationship building during the negotiation process in Indonesia is unique in Asia. 

This research describes the negotiation process as starting with a task orientation and moving towards a relationship building orientation, but what does that mean?  Initial negotiation meetings are often conducted with technocrats and lower level managers who discuss the specific technical requirements of the International negotiating partner, so discuss the task at hand ie. Task Orientation. This task orientated negotiation component is similar to the negotiation protocols expected in Anglo-Western cultures, and is equally compatible with the performance orientated findings of past studies. However, this task orientated component of the negotiation does not seem to be vitally important from an Indonesian perspective, and appears to be conducted purely to appease “western” expectations. This may be due to many senior Indonesian managers being university educated in western countries such as US, UK and Australia, and so learning Anglo-Western negotiation norms and expectations. Indonesian negotiators use this initial task orientated discussion as a way to maintain harmony in the negotiations, by giving western negotiators what they want….ie. Functionality and task orientated discussion.  The Indonesian negotiators allow the negotiations to run to this familiar western format, before the negotiations return to familiar and more comfortable ground for the Indonesian negotiator. How is this done? 

Once the initial meetings have been conducted with the technocrats, the senior Indonesian executives and decision makers will then enter the negotiation, and this is when the negotiation atmospherics will ultimately change to reflect more relationship building. The negotiation team on the Indonesian side will then often change its composition and this is when the executives enter the negotiations, with the technocrats either reducing in number or no longer attending the meetings. In addition to the change in the negotiation team composition, there is also often a change in the meeting environment, as the face to face negotiations move to more informal environments such as restaurants and hotel lobbies. If the negotiation is moving towards a successful outcome then it is more likely that the meeting environment will change to further informal environments and possibly result in a meeting with the family. Once you meet the family you are a long way towards reaching your desired goal of achieving a successful business deal. 

So when you do business in Indonesia, remember that you must be concerned with building the relationship, regardless of how technical the meetings originally appear. Ultimately the stronger the inter-personal relationship the stronger your business deal will become.

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Zhongjian Ren: How to borrow Guanxi to make Guanxi and generate business success in China

Building Guanxi takes time but the greater your Gaunxi the more you will see

In an earlier article I discussed the importance of Guanxi to your likely business success in China (http://wp.me/pS6DN-37). Building your Guanxi and social capital is critical. However, unfortunately it is not possible to instantly create Guanxi, which poses a problem if you are new to the business game in China. But the Chinese have a way of navigating around this issue of building Guanxi. As I mentioned in the previous article, it is best to think of Guanxi in terms of a bank deposit, and we all know the adage that you need money to make money…..well we can probably say the same thing for Guanxi: you need Guanxi to make Guanxi. So how do you build Guanxi if you need Guanxi in the first place?

Just as in a normal business setting, you can go to the bank and borrow some money to invest, and eventually make more money. With Guanxi it is the same…..essentially you can borrow someone else’s Guanxi in the short and medium term until your own Guanxi has had time to become established. Instead of borrowing from the Guanxi from a bank, you will borrow the Guanxi from the Zhongjian Ren or ‘the Intermediary’. There is a strong and traditional importance of the Zhongjian Ren or ‘The Intermediary’ in the Chinese business context, and this is a tried and tested method of transferring Guanxi and social capital from one person to another. In a practical sense using Zhongjian Ren is the principle of guaranteeing the quality of a business partner, and putting one’s own Guanxi up as a guarantee of their good standing. The Zhongjian Ren in many cases will continue to play a part in the deal as a formal partner, until a sufficient level of Guanxi has been established. Why does this work? and why Guanxi be transferrable if it is so important?

If you find the right Zhongjian Ren you will be able to navigate into the Forbidden City

The answer to these questions are quite simple. When the Zhongjian Ren or Intermediary provides an introduction of one person or business to another person or business, there is a lot of risk involved. If the new party that is introduced behaves poorly, unethically or fails to respect the relationship then this poor behaviour will reflect upon the Zhongjian Ren. This poor reflection is essentially a negative on your level of Guanxi of the Zhongjian Ren. The person or business acting as the Zhongjian Ren loses social capital, if the offence is serious enough the Zhongjian Ren could lose a substantial amount of social capital which will impact severely on their standing and status within the network. This risk that the Zhongjian Ren holds is the reason why they will often be part of the formal deal. If the Zhongjian Ren is not part of the formal deal, there could be another way they can be compensated for the risk they are taking.

This is why Guanxi is transferrable, and how it works. It is the equivalent of a bank guarantee, but instead related to respect, trust and social capital. So if you need to build your Guanxi in order to get a deal done in China, then look for someone to act as the Zhongjian Ren…..Just remember that your behaviour and the deal you strike will reflect upon on the person who has made the introduction. Respect Guanxi and the Zhongjian Ren and you will be well on your way to business success in China.

Guanxi: Build your Guanxi bank balance if you want to succeed in China.

Build your Guanxi.....the Chinese Way

 

Anyone who has experienced China will be able to tell you that China is very different to what we expect in the West. The business traditions are equally different and if you want to succeed in business in China, it is vitally important that you understand some of the common business practices.  In the West we often   have the attitude that negotiating is purely a task orientated endeavour: primarily based upon price and product. How much am I prepared to pay to buy your product, and how much are you prepared to accept in order to sell me your product?  Now obviously these discussions surrounding price and product will always play a part in any negotiation, but in China it is not always the primary concern. There are very good reasons why this is the case in China, and also why we in the west should not be inconsiderate of these reasons…..we should remember that China is a civilization that stretches back thousands of years. 

Symbolism and tradition are found everywhere in China

Academic studies and many airline business books on China have long  acknowledged the importance of Guanxi or ‘Social Capital’. Guanxi is a confusing term to many business people in the West, but it is important to take time to understand how it works and why it works. Guanxi is essentially the level of status or respect that is accorded to a person based upon their level of social capital or personal connection which they hold within a given group of people. It is related to trust and trustworthiness, but it is much more. In the West we tend to not worry so much about this aspect of the business deal because we use legally binding contracts to ensure the other partner is kept to the agreed bargain (and in some cases even this is not sufficient to ensure ethical behaviour). In China, written contracts are technically legally binding, but in practice can be a legal nightmare. I am sure you can think of many published cases of intellectual property theft in China, from coffee shops such as Starbucks, to car manufacturers like General Motors. Just because you have a legal standing, doesn’t mean that your case will be resolved quickly or satisfactorily. Sometimes it is just better to have built up the trust or Guanxi through other means….. In a business setting Guanxi is about  managing your professional network and also maintaining a strong and solid reputation within that network. As your reputation and level of trust increases, the more likely you will be invited to participate in new deals, and the faster deals will be resolved.   

 Guanxi can take years to establish, and is hard-won and treasured in China. Think of Guanxi as a bank account that you hold, and the more money you have, the more money the bank will be prepared to lend you. Once you can build your Guanxi bank balance to a high level, your ability to succeed in business in China will be enhanced.

China in 2010: Be prepared for some great opportunities

Contrasts abound in China

The recent announcement by the powers that be in China that the RMB will have its pegging to the US Dollar loosened has received a mixed response from world markets. In the long-term it is safe to assume that there will be an appreciation in the value of the RMB, which will ultimately lead to increased costs of manufacture in China. When we add this to the already increasing costs of labour in China over the past two years, it is bad news for western companies looking to achieve super low cost manufacture in China. The Flip side to this is obviously that foreign products imported into China will now become more affordable. This is an indication of the gradual evolution of the Chinese market – a market that no longer is just a place of low cost manufacture, but a global marketplace in which Australian companies should be taking advantage.

In the past decade there have been many analysts who have suggested that the Chinese economy is overheating, and that it surely can’t sustain GDP growth rates around 10% for the long term. Surely it is a bubble that is going to burst they said…. has the bubble burst? The answer to that question is a definitive NO in 2010. The GFC was as good a time as any to be the catalyst for an economic meltdown in China, particularly as the major western developed economies in North America and Europe went into economic free fall. Demand for Chinese goods from these markets would collapse, and as a consequence so would the Chinese economy collapse. This has clearly not occurred, in large part to the Chinese Governments successful economic stimulus package, as well as the growing demand for Chinese goods amongst the emerging Chinese middle class. Times are still good in China and with the Shanghai World Expo 2010 on show, China wants the world to know what opportunities lie at its doorstep.

Consumers aplenty in Beijing

China is no longer JUST the cheap manufacturing centre of the world, it is a growing and exciting market in its own right.  The emergence of the middle class in China, has seen a demand for western products grow, shopping malls, with everyday western brands are springing up in cities all over China, from Urumqi in the North West, to Guangzhou in the South East of China. It is not just the cheap western brands like KFC and McDonald’s either, you will find malls filled with the latest HP computers, Canon and Nikon Cameras, Apple MP3 players, as well as Rolex watches,  Carrefour Shopping centres, and Nike clothing ranges. These malls are mostly filled with the real deal, not the ethically questionable counterfeit products of these same brands in China. That is not to suggest that there are not issues with counterfeit products in China, but in general they have moved on from the mainstream malls where the middle class are shopping. China is screaming out for brands and products to fill its shelves, and Australian products hold a crucial market advantage.

Australian products, are generally favourably looked upon in China, notwithstanding the recent political confrontations over mining. Australia and China have a special relationship, due to the ongoing and necessary minerals export to China, and if you are in that industry I don’t have to tell you how keen the Chinese are for your produce! Australia is the clean, green, land of opportunity for the Chinese, and Australian companies should be leveraging this perception.  The main thing to remember with China is that it is a HUGE market, of over 1.3 Billion people, and so just about any product or industry will have a market opportunity in China. So think about how your product could appeal to a Chinese market. Do you want a piece of the action?

The challenge with China is to make sure you undertake due diligence in your investigations into the potential opportunities, while ensuring your company is managing your risk. China can be a daunting place, and many companies have been ripped off by not preparing correctly before entering the market.  The Scout motto of Be Prepared is a good motto to consider for business in China. Once you’re prepared then China definitely is Open for Business.

Manage your risk: business in China is about having the right partner

China is for many businesses the great big unknown. It seems to hold so much potential, it is powerful, it is the source of low cost manufacturing, and shouldn’t your company be looking at entering the Chinese market in some capacity? China is also a large market in its own right and this is another opportunity which you could take advantage. But how do you do it?

China the forbidden country?

We have all heard the horror stories of business failure in China, or Intellectual Property being stolen and a product that is identical to your being launched on the global market place as a competitor. This is not necessarily how things need to be for a company looking to invest in China in any capacity.  It is critical for the success of any business venture for you to manage your exposure to risk, and with China, you may need to consider many more factors then those risk factors that are common in established ‘western’ markets. So how do you go about entering the Chinese market?

There are of course a few ways in which you can enter the Chinese market, those which are high risk, such as searching for manufacturers on the Internet. A simple search on http://www.alibaba.com will show you a plethora of manufacturers who can provide products to any specification required, and many will have pictures of their “manufacturing plant”.  Using this method of finding a business partner in China is rife with danger and risk. How do you know that the manufacturer is who they say they are? are they a middleman? or the manufacturer themselves? can you afford to take the risk? and are you getting the best deal possible? The answer to all these questions may indeed be NO!! The old refrain “buyer beware” is important whenever you enter into business relationships of this kind.

As in any culture and country, there are good people, and bad people, people who will do the right things and those who will try to take advantage of you and rip you off. But there are ways of offsetting this risk in China. The Chinese appreciate and treasure relationships, so you need to be aware of this with any business venture in China.  An alternative to the high risk strategy described above is to attempt to minimise your risk exposure by conducting research on the ground in China. If you want to succeed in business in China, then you need to get over to China and meet with business people who can help you, either with a joint venture, or who can help you establish a wholly owned subsidiary. It is important that as a western company that you engage good people and partners to investigate the Chinese market. Each market opportunity is unique in China, and as a consequence any investigation needs to be unique. It is here that specialist “China” companies such as The Australia China Development Company (www.tacdc.com.au) can help. Companies of this kind specialise in investigating market opportunities for western companies looking to invest in China. They can find the opportunities on the ground in China for your company, and perform a full time role that saves your company the time and manpower to fully investigate the Chinese market.

It is important to remember that this all takes time and there are no real quick deals to be made in China. If you want a good long lasting deal then you need to be prepared for the long haul. Ultimately however if you engage the right business partner to help you, your success in China will be for the long-term.

Prestige and History: How branding and bottling is critical to introducing your wine brand to China

As wine companies worldwide open their eyes to the true potential of China as a fantastic wine market, and in many cases a saviour of the wine industry (see my previous article “Ignore the Chinese wine market at your peril: How china can rescue the Australian Wine Industry” http://wp.me/pS6DN-1z ) it is important to consider the way wine is currently being marketed in China.  A vastly different drinking culture exists in China compared to the western world and as such, any penetration of wine into that drinking culture will require a considered market entry strategy that goes beyond the traditional wine marketing. Such a strategy would invariably require both an education of the Chinese consumer on how and why to drink wine and in addition to this an adaption of the marketing mix to appeal directly to the Chinese consumer. So what are Wine companies and distributors doing now in China to sell wine, and make it appealing to the Chinese Consumer?

Well it’s important to brand the wine appropriately. Most brands especially from Europe emphasise the word “Chateau” in their label, and many Chinese brands do likewise. This is understandable in a culture that is over 4000 years old, tradition and history adds prestige to a wine brand, and the word “Chateau” has an association with history and tradition. Some Chinese wine companies have gone so far as to build replica “Wine Chateaus” in China to capture the prestige and history of European wines and wineries. These Chinese brands also emphasise strong Chinese icons such as the Great Wall or the Silk Road, and this is wholly aimed at appealing to the nationalistic and patriotic feeling in China. However most of these Chinese brands are not really very great to drink…in fact I wouldn’t recommend them at all of I am honest. Of course that doesn’t mean they don’t sell in the Chinese Market, because they do!

Another brand image consideration in China is the bottle and closure device used. Even cheap, low cost wine is generally sold in bottles with a large dimple, and when you meet with wine distributors in China this is one of the first things for which they will look: How deep is the dimple? The bottle doesn’t need to necessarily contain prestigious wine, but it needs to appear that it does.  Using Cork closures is the other strong preference for the Chinese wine consumer, although a synthetic cork will probably suffice. The emotive sound and sensation of the cork being released is still important to the Chinese, and it is not as New Age as a screw cap. Once again this goes back to the desire for age, tradition, history and prestige.

 So what can we read into these branding and presentation preferences? Well wine is about prestige in China, and is more about the image than substance. If you think about my other article on understanding the Chinese wine market (http://wp.me/pS6DN-1G ), where I discuss the “shooting” and Toasting of wine in China, then taste is probably not going to be your primary motivation when buying wine in China. Ultimately creating the “right” image and branding for your wine will open up many more doors in China than the taste of your wine.

Present your wine brand as prestigious and you will find entry to the Chinese wine market much easier….but challenges will always exist, especially if you are from the New World Wine markets.

Ignore the Chinese wine market at your peril: How China can rescue the Australian wine industry

Is it half full? or just enough?

The Australian Wine industry has been around for just short of 200 years. The major wine growing regions in Australia are long established, and in the 1980’s and 1990’s the Australian Wine industry took the world by storm leading the “new world wines” against the “old world wines” into the European wine market. This market penetration was based primarily upon the ability to produce wine in a stable and scientific method that resulted in efficient and effective wine production that was standardised. When this was added to the low relative value of the Australian Dollar, it resulted in the Australian Wine industry taking a large stake in the low cost wine categories particularly in the UK.  In the past few years this production advantage for Australia has been eroded by a number of factors, firstly a substantial increase in the number of vineyards in Australia, and subsequent grape volume has meant that Vignerons are now getting less per ton of grapes than ever before, keeping the cost of wine low for the end consumer, but ensuring there is no real margin for the wine producer. Secondly, there has been a transfer of the wine making technology into other new world wine producers in New Zealand, South Africa, South America and North America, which has resulted in substantial competition at the low cost wine segment. The third and final factor has been the appreciation of the Australian Dollar in comparison to the currencies of these other New World Wines and the European markets themselves. This has ultimately ensured that although the wine glut has kept the cost of wine low from Australia, it has been rising in cost due to the currency conversion. And thus, the Australian share of the European wine market has fallen or stalled. The Australian wine industry is at a serious cross road; will it survive or ultimately fail?

What can Australian wine producers do to save their industry?

These are indeed challenging times for the Australian Wine industry, and it could well be that the root cause of the

Can wine enter the mainstream in China?

problem stems from targeting the low cost wine segment, and bulk wine, instead of a premium or super premium segment as well.  A rebranding of Australian wine as high quality is probably required going into the future if Europe is to remain or regain its status as a strong market for Australian Wine. The other potential for Australian Wine industry redemption is in the new and emerging wine markets in Asia. China holds a great deal of promise for Australian wine producers, and in contrast to the European Wine producers, China and other Asian markets are in Australia’s backyard, so there is geographic and logistic advantage for Australian wine producers which they can take advantage.

The wine is flowing in China

The wine is flowing in China

China is a market full of complexities and challenges to much of the western world, and it is true that the current market penetration of Wine into China is only minimal, with most Chinese preferring to drink Tea, Beer or traditional Chinese spirit wines such as Beiju or Maotai. However, wine does exist in China and there is a growing home grown wine industry in China, with vineyards and “chateaus” popping up in many regions of China. There is also a strong presence of French and Italian wines in the Chinese market, with their perceived prestige amongst the average Chinese wine consumer. The important thing here is that this wine market is only in its infancy, with only 5% wine penetration into the Chinese drinks market. In any other market, with perhaps the exception of India, a market of only 5% would seem very small and of little consequence to serious wine companies, but it should be remembered that we are talking about a country with a population of between 1.3-1.5 billion people.  There is also a drinking culture that exists in China, as I have already discussed in my previous articles “The Subtle art of the Chinese banquet”( http://wp.me/pS6DN-D)  and “Ganbei: Business and ritualistic drinking in China”  (http://wp.me/pS6DN-12 ), so Australian Wine companies do not need to create a new culture, just help to adapt it to drinking of wine.  

Ignoring this market potential may result in the Australian wine industry missing one of the greatest opportunities to emerge in recent years. So with the correct branding and industry support, the Australian wine brand can be positioned as the clean green and prestigious wine product at a comparable or enhanced standard to the traditional European wines.  It may not be the sole saviour of the Australian Wine industry, but it sure will go a long way towards to helping it survive. If I was advising Australian Wine companies on their international strategy, I would advise them to seriously consider the Chinese Wine market.

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