By James Dodson

China Sourcing Expert

Photo, courtesy James Dodson

Photo courtesy James Dodson

As a foreigner conducting business in China, you likely will never be able to accumulate any Guanxi. People that say otherwise do not understand Guanxi.  Do not confuse “hospitality face,” with Guanxi. Guanxi is a complex term. After spending 10 + years in China, my definition is -Guanxi encompasses an individual’s entire social network and social relationships from birth to death. These are all his or her interactions with family, friends, colleagues, acquaintances, and or any other individuals or institutions.  In addition, it includes all past social interaction by the individual’s nuclear family, extended family, closest friends and institutions he has been or is a part of. Chinese are born into these giant spider webs of past, present, and future interactions of generalized reciprocity and leverage. The most important aspect of Guanxi is the leveraging of these networks and relationships by an individual, family group, or organization to achieve an objective.

Foreigners are not strands in these webs. This is why we are called “Wai Guo Ren 外国人,” which translates directly as “outside people.” Another common term that is less polite you will hear is “Lao Wai 老外 .” This translates directly as “old outside.” Foreigners are outside of the social relationship network inside China. We are an “out group.” Don’t be fooled by the friendly curious attitude. The majority of Chinese view foreigners with uncertainty and potential mistrust.  This leads to a “dig the first gold,” attitude in Chinese business. Chinese suppliers and individuals generally view any relationship with a foreigner as being short-term with considerable uncertainty. Chinese understand that it is highly likely that you or your company will not be in China several years from now. You are not part of their social relationship network.

Photo courtesy James Dodson

Photo courtesy James Dodson

If you are commodity sourcing or contract manufacturing, don’t get wrapped up in the Guanxi Game. You need to spend all of your efforts searching and selecting qualified suppliers. This means evaluating their tangibles -production capabilities, financial condition, product quality and price.  Focus your relationship building energy on making direct contact with the owner of the company that you are seeking to do business with.  You need to make sure that your business is conducted through the owner. This is the only relationship that matters. The majority of business owners and upper management cannot speak English. This is when it is very important to speak at least some Chinese. Don’t worry about the first impression. You need to answer and explain the following:

1.         Determine whether or not you can do business with this individual and his company.

2.         Impress on him that you are his / her customer. He / She is directly responsible for all of your business at the factory.

3.         Explain your business to the owner in the greatest possible detail. If the owner understands your business needs, than everyone inside the company will.

Attitudes and culture inside Chinese companies are usually a reflection of the owner’s personality. If the owner is ultra conservative, overtly greedy, indifferent, discriminatory or a crazy nutter you will have major future business problems. If he is a decent individual your business relationship will go okay. OK, by Chinese standards. You will still face communication, business and cultural differences. It is imperative that you figure out his or her personality before doing any business.

When you talk to the wrong person

Many years ago our trading company was buying Rotary Hammers from a power tool manufacturer located in Yongkang, Zhejiang. I lived in this city for 3 years and was tasked with handling this purchase order. The owner was not at the factory and I was forced to discuss this order with the General Manager. After several rounds of negotiating we reached an agreement and concluded a detailed Sales Quotation with a BOM. It was written in Chinese, stamped and signed with the companies chop. I returned next week, but the General Manager was out. As a result, I had to close the transaction with the owner. I did not think this was going to be a problem. However; it quickly developed into one.

I learned that supposedly the General Manager had not notified the owner. He was unaware of our previous negotiations and agreement. This was for 2 containers or 5000 units at $16.75USD per unit FOB, Ningbo. I presented him with the Sales Quotation agreement. He reviewed and replied that the price was too low. He called the General Manager and began to berate him saying, “How can you give these foreigners this low a price. They should not know these prices.” We argued intensely for several hours over the price of every part. I asked him to honor the agreement because it was a legal document. He responded stating he did not know about this agreement, did not stamp or sign it, and he did not care about it. I asked him again to honor it, I told him I was ready to pay right now. He refused and stated that price will be raised by $2.25 to $19.00 per unit FOB, Ningbo. We angrily exchanged vulgarities and parted ways. I was very lucky that this was a common tool and moved quickly to open negotiations with our back up options. This forced me to stay in Yongkang an additional 5 days. Our company almost missed the delivery time because of the delay in starting the order.

When you get crazy

My first clue should have been when the owner told me he was a former police officer in China.  He spat out a good price, agreed to every item in the contract without too much hassle. The deposit was paid and we were making PMMA display products for stores in Australia. My intuition told me not too work with this owner; I should have listened. Two weeks into our trial order the owner was not returning our phone calls. I decided to go to his factory and see what was going on. Upon arrival I was informed that he was having a cash flow problem and needed at least 30% more to procure the material. After a couple rounds of arguing I agreed. Then he wanted to change the packaging – redesign all the shipping cartons. I told him absolutely not and explained that it was modular for container packing. We argued vehemently until he promised to follow the contract. Another week passed and my assistant called him to check in on the order. My assistant informed me that he not started production  because he could not find the proper metal lock for one of the products. Out to the factory we went. I informed him that we selected the key and lock supplier. You were provided price, and they should have called you. You agreed to their payment terms and signed the contract. The owner replied saying that he’d found another lock supplier. The lock quality was excellent, but we needed to modify the product slightly.  He lied. The lock quality was not as good, but he’d already paid them. I was seriously livid because he just tried to get greedy and cut a corner.

Then the owner turned red and blew up. He slammed his hands on the desk and began yelling and screaming at the top of his lungs. This order it’s so difficult, you don’t know anything about quality, and you’re terrorizing me. I was shocked… but I couldn’t keep my mouth shut and I reminded him that we spent 3 days here reviewing the production process for every technical drawing in great detail and even brought his company samples for reference. Papers were flying off his desk. This guy is crazy, I thought.  After much arguing, I told him we’d would provide the locks. I  was worried and knew this guy was going to be very difficult. As a result, we returned about 12 days later to assist in packaging. By now, I was dreading every factory visit. He did not make the correct shipping cartons. They were not printed with labels. And many were missing. He shorted us on the cartons. He stated that the box factory would not do the order  because it was too many different designs. I said great let’s go to the box factory and talk to them. He refused.

Photo courtesy, James Dodson --20pcs sink sample

Photo courtesy, James Dodson –20pcs sink sample

I offered to call the box factory and talk to them. He refused to give me their phone number. I reminded him that we could have used our box factory. This escalated into an epic argument.  We were about nose to nose yelling profanities at each other on the factory floor in front of his workers. It was an extremely tense situation and you could hear a pin drop inside the factory as the workers cowered. I told him that our company was going to provide the labels and fix the cartons. In addition, to inspection we will pack this order. If he did not like it, we can go straight to the court. He yelled back,  that he never signed the contract, was forced to sign, and he produced the best quality PMMA products in China. Then in a blink he just stormed off. A couple days later I had my assistant call him and try too smooth it over. It worked enough so that we could inspect and pack up the order. Amazingly, there were only a couple minor quality issues aside from the packaging.

When you get it right 

James Dodson measuring a milk bucket

James Dodson measuring a milk bucket

All of my stainless steel milk tank fabrication business is done directly with the boss. Before I start new projects and or purchase orders, I discuss with Mr. Zhang in great detail. Right after Chinese New Year we had an order of milk tanks ship that was missing three fittings. My company in USA notified me about this issue. I called Mr. Zhang and told him what happened. The fittings were in mail in less than 24 hours, free of charge. In addition, I have had molds and product replaced free of charge according to all of our contracts and agreements. We still have disagreements, but eventually find common ground. In every meeting I emphasize product quality. I do not manage the relationship in the Chinese sense. Once in the while, I bring some small gifts like Yancheng Lake crabs or tea. I have never been to KTV or drinking with this individual. I keep it low key.

Save yourself time, a headache and make sure you meet directly with the owner before buying anything inside China.

Other recommended reading (by the editors) on building guanxi in China: Guanxi [The Art of Relationships]

And on how guanxi is changing in China: Social Connections in China: Institutions, Culture, and the Changing Nature of Guanxi (Structural Analysis in the Social Sciences)

BIO –

Mr. Dodson has lived in China since the end of 2001. During this time, he has traveled extensively through China’s back alleys sourcing products and setting up supply chains. His entrepreneurial spirit has taken him to the front lines of business inside China. After 7 years, of moving around China he decided to buy and fit out an apartment in Suzhou, SIP (Singapore Industrial Park); no easy task!

This amazing journey has taken Mr. Dodson inside more than 1,000 factories located all over China searching for the right supplier, right price and right products. He has developed new products and sourced a myriad of commodities for clients in America, Australia, and Europe. These experiences, have given him deep insight into both Chinese culture and the Chinese mode of business. After many trials and tribulations, he learned how to navigate China’s treacherous business climate. Mr. Dodson has devised strategies that prevent and quickly recognize problems allowing him to formulate realistic action plans that build supply chains and solve problems. He has helped set up Wholly Foreign Owned Enterprises (WFOE’s), incorporated a Chinese Trade Company, and operated a Rep office. As a result, he has come to understand the realities, dirty realities, of Chinese corruption and dealing with a bias legal system. Currently, he makes custom stainless steel food / beverage equipment and source construction materials.

Mr. James Dodson can be reached here.