BUSINESS CENTRAL Sept October 2006 Guanxi Whether you’re looking for suppliers, buyers, vendors, or employees, developing relationships is essential for entering the expanding Chinese market. By Gail Ivers China has earned its economic boon. In 1978, when China’s Cultural Revolution was ending and the first hints of economic reform were appearing, the poverty rate in China was 60 percent or worse. “The Communist Party had done a pretty good job with basic social services – education and health care” according to David Dollar, director of the World Bank-China. “But China was a very poor country.” Dollar compared the poverty stricken country to India or sub-Saharan Africa at the same point in time. Today, while India has reduced the poverty rate to 30 percent, “which is quite remarkable,” Dollar said, “only 10 percent of China’s population is in poverty.” Those who remain in poverty are living in central China, and most have less than six years of education. “Education is the number one indicator of poverty,” according to Dollar. “The number two indicator is that one or more adults in the family are unable to work.” This information was of particular interest to the group of St. Cloud State University faculty and staff that I was traveling with. We had come to China as an initial step in turning SCSU into the “Global University of Minnesota,” the vision of SCSU President Roy Saigo. Our goal was to investigate possible partnerships between SCSU, Central Minnesota’s business community, and Chinese universities. The role of education in reducing poverty gave our efforts even greater relevance. As a group, we spent the largest portion of our time visiting universities – seven in ten days. Each university greeted us with great ceremony. Our Chinese hosts would do a formal welcoming speech. President Saigo would follow with a thank you and explanation of the purpose of our trip. Everyone from both delegations was introduced, then the ceremonial part of the meeting ended with an exchange of gifts. Once the gifts were exchanged and the photos taken, we got down to work. Each university made an effort to provide faculty or staff who were in the same fields as those in our delegation. Mike Pesch, director of St. Cloud State’s MBA program, and I were usually paired with someone from either International Studies or the business program. What we learned is that Chinese students and faculty are very interested in partnerships that allow them to study and teach abroad. St. Cloud State’s MBA program is affordable for foreign students and most young Chinese – who start taking English classes in middle school – speak passable, if not good, English. The opportunity to have a four or six week internship in an American business, as part of a study abroad program, made the partnership even more appealing. China is currently turning out college graduates far faster than they can create college level jobs. Any edge a student has – such as studying abroad and working for an American company – makes their employment prospects that much stronger. Fine for the Chinese, but what’s in it for American companies? Guanxi. Guanxi, pronounced gwan-shee, is a relationship or personal connection between two people. It is a bond, but not a bond of friendship. It allows one member of the relationship to prevail on the other, or to be prevailed upon. It can be a network of contacts through which one party can exert influence on behalf of another. It means that each party knows the wants and needs of the other party and will take them into account when making decisions. It is networking taken to the nth degree and in China, it is a critical business component. I believe that Central Minnesota businesses can develop guanxi by providing internships for Chinese students studying in the area. Such students are likely to be hired into superior jobs on their return home, putting them in positions to help their St. Cloud connections gain footing with Chinese companies. Whether you’re looking for suppliers, buyers, vendors, or even employees, a Chinese connection with guanxi will help Central Minnesotans enter the expanding Chinese market. Internships are truly a baby step for a company that has its sites set overseas. While guanxi is critical, it is only one thing to consider, according to Minnesota native Kent Kedl. Kedl, author of “The China Ready Company,” has spent many years living and working in China. His company, Technomic Asia, helps small and midsize companies succeed in Asia. Kedl was given the task of speaking to our group on our second evening in China. A dynamic speaker, he helped us shake off jet lag by sharing valuable insights into doing business in China. Included on his “deal with it” list are: - It’s expensive to do business in China. - It’s opaque. You often do not know who you should be dealing with. - There is always some kind of government involvement – either direct or indirect – when dealing with Chinese businesses. - Intelligence is unreliable. All decisions must be made with scarce or inaccurate information. - It’s confusing. Chinese and western communication styles have few similarities and are built on different value systems. Kedl spoke of the importance of guanxi, but cautioned against placing too much value on relationships. “They’re necessary,” he said, “but not sufficient for success. You need to have a good product and business plan.” And if you assume your market is 1.3 billion people, you will fail, he added. “You must segment your market.” Better Late than Never Since “China” has become the buzz word on every business analyst’s lips, I asked Kedl if we were too late, if there were still real opportunities left for small businesses in China. “I do a talk,” he said, “called ‘Late to the Party, but Better Dressed.’ Yes, there’s still opportunity in China, but you have to work at it. If you’re not making money now at home, you probably won’t in China.” Businesses considering an expansion into the Asian market should ask themselves a number of questions, according to Kedl. “What’s your motivation for doing business in China? If it’s for the cost savings, it’s not sustainable. If that’s your only motivation,” Kedl said bluntly, “then it’s a dumb idea.” He also recommended businesses ask what they want their involvement in China to look like in three months…and three years. But perhaps the most important question Kedl posed was, “what bad happens if you don’t do something? There’s $60 billion in investment dollars coming into China right now and it’s just the beginning.” If $60 billion is only the beginning, then let’s make sure Central Minnesota companies get a piece of it. Gail Ivers is vice president of the St. Cloud Area Chamber of Commerce. If you’re interested in establishing internships for foreign students, attending a seminar on doing business in China, or a possible trade mission to China, contact her at [email protected] Talk About Change If you haven’t been to China lately, you haven’t been to China! By Gail Ivers On May 24, 2006 I left my home in rural Cold Spring at 11 a.m. At 11 p.m. the following day I dropped my luggage into my hotel room in Shanghai, China. The adventure had begun. This was not my first visit to China. I had the opportunity to spend 21 days in China in 1986. I thought I had seen China. Don’t misunderstand…I was very excited to participate on this trip. But how much can a place change in just 20 years? Enormously. Hugely. Amazingly. Extremely. Immensely. Pick your adverb. This trip to China was part of the vision of St. Cloud State University President Roy Saigo, to turn SCSU into the “Global University of Minnesota.” In April he met with Teresa Bohnen, president of the St. Cloud Area Chamber of Commerce, and explained that he was putting together a delegation of faculty and staff who would visit China to investigate possible partnerships between SCSU and Chinese universities. (See the box on page ?? for the members of the delegation.) He believed the Chamber had a role to play in helping develop those partnerships. Bohnen agreed. For reasons she explains in her President’s Letter (see page 6) she was unable to go and I was given the opportunity to step in. Talk about Change My education into just how much a country can change in 20 years began almost immediately. Our first morning we had breakfast with Ira Kasoff, principal commercial officer for the US Consulate General in Shanghai. (The Consulate General’s office is in charge of helping individuals and businesses on a wide range of issues related to China.) He told us that he first came to Shanghai in 1985. At that time, he said, Shanghai was the same as it had been since the 1920s. Today Shanghai could be almost any major metropolitan city in the world. In 20 years, this city has advanced by almost 100 years. As we walked down a pedestrian mall, surrounded by neon lights and a cacophony of cars, voices and music, I commented that it felt like Piccadilly Square in London. “Or Times Square,” someone responded. We drank Pepsi and ate at Pizza Hut where the “American Special” was pepperoni pizza. In 1986 China did not have pizza, to say nothing of Pizza Hut. In 1986, bicycles were almost the exclusive mode of transportation. It was common to see one person pedaling a bike with two people sharing the back fender.