BUSINESS IN CHINA. RENQING.
Renqing means an exchange of favors.
Let’s say a fashion company has been developing an app that’s successful in Panama. They take that to China but don’t have much resources or relationships there. Compare it with Tencent, which is a huge company. In this case, no matter how many symbolic interactions you’ve had or how many dinners you’ve had drinking with people there, you have nothing substantial to indicate that you are good enough to work with.
In this case, you need “renqing”. You need somebody who knows the Chinese party well and has already built strong guanxi with the decision-maker. It’d be even better if that person has already had an exchange of personal favors with that client. The client has an obligation to at least listen to that person.
Strong renqing means a strong accumulation of personal favors exchanged in the past. In China, they call it social currency.
renqing, the moral obligation to maintain a relationship.
If we think about foreigner companies in the Panama Canal, you still need to build strong relationships. In that regard, the fundamentals are similar.
But there will be some cultural variations. If you come from an individualist country it will be kind of hard to develop a relationship with a collectivist society like China, where the relationship is sometimes more valuable than the deal.
China was a feudal society for a long time because China is historically an agricultural country. People are fixed to the land and don’t move around. Who you know is important, not the rules. Legal institutions are still not fully developed; relational governance is still important. This is a rural, closed, agricultural society even in big cities.
When relational governance becomes less important, legal governance becomes more dominant. Guanxi is still very important in northern parts of China. But in the south, it is more market-focused. When people go to Shanghai or Guangzhou people think is so much like our western countries.
That’s why we should never say China is just one country. Legally and politically it is, of course. From a business perspective though, you see almost several kingdoms, several different important markets. You develop your strategy according to where you go.
Chinese are more cooperative and with closer boundaries, China is a group-oriented society, Westerners are more individualistic. They have a hierarchical culture, relationship oriented. They make decisions in a group and don’t want to take responsibility for the decision, fearing the consequences of a potential failure/mistake. This makes the decision-making process very long and difficult. In China there is a lot of mistrust, they assume all the basket is full of rotten apples.
So here is some advice:
– Remember that every party has to win something.
– It’s better not to discuss the business at the meeting table, but to make the deal at the dinner table.
– Learn their table manners (who should seat where)
– Toast with your glass lower to show respect.
Remember that there are differences in the negotiation process on western and eastern cultures, they are less direct. You should accept compromises and don’t drive too hard the bargain, also try to maintain harmony and not make lose face. You might win one deal but no chances to make further business in the future, no one is going to tell it to you so better keep these concepts in mind.