Friday, November 19, 2010

Conducting Business In China - Contracts

The following is a presentation given by Greg Gabissky.  You can find him at

When you think Chinese business relationships don't contract think marriage.  If you know how to make a marriage work in the West, you know how to do business with the Chinese.  You just don't know you know.

What is a marriage? And what's the difference between a marriage and a contract?  Well the first thing is a marriage is meant to be forever.  Where as a contract has a set period of time.  When you make a business relationship the Chinese, they don't want to know, oh in 5 years we'll renegotiate and maybe choose another partner.  They want to now know that you're going to be their partner for the long term.

A marriage is meant to be mutual benefit. And how do we achieve mutual benefit?  Though mutual compromise.  That's very different again than from the West.   In the West, the contract defines the terms, we don't change the terms of the contract, once it's signed.  Where as in China, a marriage is fluid, sometimes I work to benefit my partner, sometimes my partner works to benefit me.  Over time, we both benefit, it's a win-win situation.

In the West, we believe, in our arrogance perhaps, that we can predict the future accurately.  That's what a contract is.  And a contract now specified that we will now get punished, this way, if we do not do exactly this, in the future.  However, the Chinese don't have that same analytical sense about he future.  They don't believe that they can predict the future, it's a saying that the Chine use, ren suan bu ru tian suan.  Literally translated it means, Man may propose things, but the Gods decide what happens.  

The Chinese are very fatalistic, there's only two times that are important to the Chinese, now and the past.  The future is unknowable.   So, when the Chinese sign a contract, with a Western firm, what the Chinese believe that contract is, the beginning of the relation ship.   That this is we hope happens.   However, as situations change, we would expect the contract terms to change as well.  Remember, marriage, mutual benefit.  Compromise, flexibility, that's the way the Chinese think about the contract and the future.

You cannot use future benefits to get what you want now with the Chinese.  Say, "Look, if you give me this now.  You will benefit this way in the future."  The Chinese don't believe that.  The future is unknowable, who knows what will happen in the future, the gods may decide something different.  So therefore, they're not going to be lured into doing something good for you now, because that will get them some benefits in the future.

Your benefits to the Chinese must be short because they don't look long term.

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