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.

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.

“Gan Bei”: Business and ritualistic drinking in China

As I have discussed in my previous article on “The subtle art of the formal Chinese banquet”  (https://nathanhgray.wordpress.com/2010/04/14/the-subtle-art-of-the-chinese-banquet/), the importance of relationship building to the Chinese is paramount. Apparent social functions like banquets are held in very high regard by Chinese businessmen and government official due to the ability for one to get to ‘know’ their potential business partners. This knowledge is achieved through watching foreign businessman’s behaviour during the formal and informal drinking and eating rituals that are performed during every formal banquet. It is therefore important to be aware of these rituals, drinking strategies and how to ensure you leave the banquet in higher esteem than when you arrived.

Drinking in China

 There is a definite hierarchy to the formal toasting at a banquet.  Thus the host will toast the most important guest, then the next most important and on and on down the order of importance. This must be remembered, in order for one not to jump the gun and propose a toast before ones allocated turn. It is therefore important for one to observe the banquet environment to determine ones hierarchy at the banquet table. Toasting someone is highly ritualistic and generally requires the toaster to stand and make a toast. It is important at this stage to ensure there is an adequate supply of wine, beer or spirit in the glasses of the toaster and the toastee. The glasses should be filled to the same level, if they are uneven it can imply anything from a lack of respect through to an intent to cause drunkenness. One must then propose a suitable toast, probably to enduring friendships and successful business ventures, while looking at the person receiving the toast. It is at this point that the glasses are clinked to confirm the toast. Even this ritualistic clinking is embedded with importance.

Clinking of glasses should be done in a delicate and considered manner, not smashed together like beer steins in a Bavarian beer hall.  It is important to get the glass as low to the table as possible when clinking glasses. This is much the same principle of bowing in traditional Japanese culture. A lower glass infers respect upon the other person. This can create a competitive environment when in China, as each person strives to outdo the other with the lowest glass.  Ultimately both glasses may be touching the table.  It is at this point that the toast is completed with the refrain of ‘Gam Bei’ which is like cheers, and implies that the glasses will be emptied. Obviously this could pose a problem if the glass is significantly filled, or is filled with a strong spirit, especially if you have already completed a series of ‘Gam Bei’s’. The glass should ideally be grasped with both hands, one hand around the rim and the other at the base of the glass.  Drinking the contents of the glass in a measured fashion, not necessarily throwing them back quickly like shooters in the front bar of you favourite night club. Depending upon the competitiveness of the drinking, you may be required to show the inside of your glass to prove it is empty, or even turn it upside down over your head. Allow for regional variations to determine which is the norm in this regard…when in Rome do as the Romans, when in China do as the Chinese.
At this point its starting to seem like an end of season footy trip or even a stag party…..but it is in fact serious business, and it is vitally important to remain at the top of your game. Potentially business killing mistakes can be made easily under drinking duress, so be careful. To succeed in not playing the fool or blowing the game through inappropriate drunkenness it is important that you have a strategy to deal with a ‘Gam Bei’ attack should one occur. A ‘Gam Bei’ attack is where a series of hosts all toast you one after the other; this is especially dangerous if you are at a numerical disadvantage, and your team members don’t match up evenly with the other side to reciprocate the ‘Gam Bei’s’.  If there is no disadvantage then this is easily remedied by reciprocal ‘Gam Bei’s’ by other members of your contingent, that way evening the drinking balance.  If you are under siege and have a disadvantage then you need to be a seasoned drinker, keep calm and even consider regular trips to the toilet….for a ritual cleansing (I am not joking here).
 Obviously not everyone who ventures to China on Business is a drinker, or a seasoned drinker, however, not accepting a toast is very dangerous and will be looked upon as uncivilized or potentially disrespectful. This does not mean that you will necessarily kill any deal, but it does mean a successful deal is a lot more difficult to achieve. So the moral of the story is to be prepared, be strategic, and try not to drink mystery spirits.

Iron Ore: How China is attempting to redress the imbalance of power

Securing Iron Ore

In the past week there have been a number of statements out of China, related to the challenge of China securing sustainable Iron Ore supply into the future.  These statements have been picked up by a number of international press outlets, however,  each statement has been reported as a standalone piece of policy, or action, not a concerted or strategic positioning by China and the collective entities of the Chinese Steel Mills to increase their relative power in Iron Ore price negotiations.

I argued two weeks ago in my article “Iron Ore: It’s about the Balance of Power” https://nathanhgray.wordpress.com/2010/04/07/iron-ore-its-about-the-balance-of-power/ that the negotiation power was moving towards the Big Three major Iron Ore suppliers in Vale, Rio Tinto, and BHP Billiton, and that this was how they were able to push a majority of Steel mills to accept a move to short-term Iron Ore Pricing.  The important thing to understand with this move to short-term pricing, is that Most does not equal all steel mills. We can assume, that although Some Chinese Steel mills have accepted this move to short-term pricing (at least in the immediate future), the majority are still holding out hope that there will be a return or continuation of the year long benchmark pricing system. So how are these Chinese Steel mills going to get the big Iron Ore suppliers back to the negotiating table?

Loading the Iron Ore Boat to China

The first step has been an ongoing process by the Chinese Government, and Chinese Steel industry as a whole. This has been through investment in iron ore mining facilities around the world, to try to secure a supply of iron ore independent of the big three largest suppliers. Where has this focus been? China has been investing heavily in Iron Ore mining exploration in Africa for example through Chinalco, and this has been in a number of joint venture operations with companies such as Rio Tinto in the Simandou Project in Guinea.  Now you might point out that, Rio is one of the big three? But it is also the most financially leveraged of the three and keen for Chinese Cash. Joint venture investment in mines like Simandou helps improve Rio’s bottom line, while also giving China, Chinalco and the Chinese Steel Mills a useful bargaining chip. Clearly if Chinese Steel Mills can secure independent or guaranteed Iron Ore supply from outside the Three Big suppliers then they can redress the balance of power, restoring balance and securing better pricing terms for Chinese Steel mills. This is however a long-term proposition.

Mining Iron Ore at the Pilbara

The Second step in this process of increasing the bargaining power for China is through government investigation of monopoly behaviour by the big three.  In the past week there have been two separate releases of statements about investigations of this kind. The first investigation is into the BHP Billiton – Rio Tinto joint venture Iron Ore mining operations in the Pilbara region of Australia. China clearly sees this as increasing the collective power of both BHP and Rio. This joint venture also came on the back of the collapse of the proposed increase in Chinalco’s investment into Rio Tinto in 2009. So there could also be some bad blood here, providing a political motive for an anti-monopoly investigation.  The second anti-monopoly investigation muted only a few days ago is into the move towards short-term Iron Ore pricing by the big three: Rio Tinto, BHP and Vale.  These two muted investigations can be seen as politically motivated to ‘encourage’ the Big Three to be careful in how they structure their pricing contracts. The message? China is watching.

China has always had a long-term outlook, and their approach to business, trade and investment is no different.  The first step in securing new independent sources of Iron Ore is part of this long-term strategy, while the second step in suggesting the potential for anti-monopoly investigations is very much a short-term strategy to keep the Big three at the negotiation table. These two strategies can be interpreted as a discrete suggestion by the Chinese Government that the big miners should return to the negotiation table, and that an industry wide move to short-term pricing, will not be a sure thing, especially when it comes to China. It is all about attempting to redress the negotiating imbalance of power back in favour of the Iron Ore Buyers, and as a result Chinese Steel Mills.

Only time will determine the success of these strategies.

The Subtle Art of the Chinese Banquet

Open the Door to Business Success in China

Conducting business in China can be a confronting affair, with the rules of engagement vastly different from what we would expect in many western countries.  The number one rule when conducting business in China is to take it slow, develop your reputation or Guanxi, and build your relationships with the people you meet, whether they be business or government officials.  Business deals can be, and will be formed in a variety of locations and environments, and the relationships you develop at the Chinese banquet table can be crucial for long term success.

Banquet settings will obviously change depending upon the people you are meeting, the location of the banquet or the food variety on offer. However some things never or rarely change.

The banquet table will in many cases be a round table, large enough to seat up to 14 people. The host of the Banquet is the most important person in the room, and their seat will be at the head of the table…which at a round table may be against the wall, allowing for the host to look into the room and see all the guests easily. The next most important host will be seated directly opposite the host at the foot of the table.  The most important guest will be seated to the right of the Host, with the second most important guest to the left. If Interpreters are required then they will be seated next to the guests, to allow for easier conversation.  The third and fourth most important guests will be seated in a similar formation at the foot of the table. The other important hosts will be seated at the wings of the table. It is always best to wait until you are invited to sit at the table, this will allow you to observe how important you are perceived by the Chinese Host of the banquet.

Is it half full? or just enough?

On the table will be placed wine glasses, and a waiter will come around with a decanted wine (depending upon the company this could be beer, rice wine or barley spirit), and pour approximately two mouthfuls of wine (about 60mls) into each glass on the table.  The head of the table will indicate that he is going to propose a toast, upon which everyone present should stand. The host will then propose a toast to enduring friendship and successful business and glasses should be raised and ‘clinked’ with each member of the banquet in turn, ensuring that the glasses were clinked as low as possible and gently. Once everyone has ‘clinked’ their respective glasses, you must drink the contents of the glass. The glasses will be promptly refilled as before, and the second host will propose a similar toast. The same ritual will then ensue.  The Chinese Banquet is as much about drinking as it is about the food. The drinking is ritualistic and reinforces the hierarchy present at the banquet table.

Following the formal group toast, the host will likely toast the guest to his right, with a speech about friendship and a personal welcome, this will indicate to all that this guest is the

Ritual symbolism is everywhere in China

most important guest at the table. The ritual will then be carried out with the second guest. It is then likely that the host will propose a toast to the second host. This will reinforce that the second host is equally important, and essentially this has passed the baton to him to start his own round of toasts to the guests beside him.  It is at this point that some food may start to appear on the table, for sharing. If you are going to China, learn to use chopsticks, as failure to adequately manage them will confirm to those present that you are indeed a Barbarian…..In essence it is not much different in western cultures to eating with your hands at a fine dining restaurant.

Conversation will be necessarily small talk and informal in most cases, and it is not appropriate generally to talk formally about business. The important thing is to build your relationship, and allow your host to understand who you are and what you stand for as a person.  And this leads us to the final point in the art of the Chinese banquet.  As in many cultures, alcohol is known to loosen the tongue, and so your host may strategically arrange toasts so that you drink more than you should, and then say more than you should. Hold your own, and try not to become too loud or obnoxious. There is no surer way of killing a deal than to be rude and offensive at the Formal Chinese Banquet.

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