6 | Deloitte | A Middle East Point of View | Spring 20156 | Deloitte | A Middle East Point of View | Spring 2015

Winning withChina Inc. Reading the hearts and minds of Chinese multinationalsoperating in the Middle East

With a growing number of Chinese multinationalssetting up shop across the Middle East, are we readyto deal with a business partner whose culture is sodifferent to our own?

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China

China’s insatiable demand for oil is said to be the drivingfactor that kept crude oil prices in triple-digit U.S. dollarfigures for years, which in turn has added an estimatedUS$1 trillion to the GDP of the GCC countries over a 10-year period (2003-2013)1. This surge in wealth hasled to growth opportunities across a broad range ofsectors such as real estate, transportation,telecommunication and financial services, for bothChinese companies and their Middle Easterncounterparts. The aftermath of the global financial crisis, uncertainties in some parts of the region, and

in particular, the recent unexpected sharp dip in oil price have added a new dimension to the increasinglyinterconnected bilateral relationship between two of the most important emerging markets. Governmentsacross the Middle East now have a stronger incentivethan ever before, to leverage new sources ofinvestments in achieving social development andeconomic diversification of their respective countries.Whereas China, armed with US$3.3 trillion in reservesand sluggish growth at home, is eager to turn itsreserves into productive assets overseas.

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Of course, business is business at end of the day; hencethe same commercial common sense applies regardlessof where the clients come from. However, when itcomes to dealing with this culturally and linguisticallydistinct group of clients, most of whom are relativelynew in working within pre-defined internationalbusiness protocols, it would certainly help to understandthe whys and hows of their decision-making in order toform mutually beneficial relationships that are built forsuccess and built to last.

Deal lifecycle with a typical Chinese clientIt is important to understand that a typical onboardingand buying process of Chinese clients usually takeslonger–with a more complicated scoping andnegotiating process–than what would usually happenwith a Western company.

Generally speaking, a Western company purchasesservices in a fairly linear and straightforward manner: itstarts with certain needs being identified, then potentialwork processes involved being scoped and agreed uponinternally, followed by this agreement on the scope ofthe work being socialized before being crystalized into a general Request for Proposal (RFP) or Request forInformation (RFI). After providers provide theirresponses, the best or most suitable option is selected to perform the work, with minor alterations based onthe negotiation process.

For Chinese companies, these steps along the buyingprocess are less clearly defined and less linear. Theclients’ needs would usually still be developing wheninitial contact occurred. In order to secure a serviceagreement, potential service providers not only have to prove that they have what the clients need, but alsothat the clients appreciate the benefit they gain frombeing serviced in the first place. Therefore with Chineseclients, the RFP or the whole buying process is usuallyless formal.

Handling rejection

Know yourcustomer- Sales environment- Decision- making hierarchy

Guanxi

Mianzi

Client’s needsidentified

Contractssigned

Gettingpaid

Repeatedprojects

Initial proposalsevolve into a series

of increasinglyspecific proposals

Service provider’sscoping of clients’needs culminating in initial proposal

Making theinitial contact

Relationship building and management

Patience

Client’s needsredefined

Communication: language

Making compromise

Following up:friendship building

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In this process, negotiation could potentially take more turns than expected given the double effortsinvolved to: • convince the Chinese clients of their need for services;• define the need in a mutually agreeable manner, thateventually gets crystallized in a written, structured andenforceable contract. Given the competition involved,it could get infinitely more complex with lesser-knowncompetitors trying not only to outperform but toimpose their own version of the agenda on theprocess.

These convolutions might have contributed to thenotoriously lengthy sales process that is popularlyassociated with Chinese clients. While it might be thecase, potential service providers are in fact left withmore leverage in their reserve to influence andimplement what they believe to be the best solution for their clients and for themselves. There is more roomto maneuver when it comes to contract negotiation;oftentimes those who helped define the work neededwill be asked themselves to perform the scope of thework they helped identify. Credit won with particularChinese clients during this lengthy process will also likelygo a long way down the road, leading to faster, easier,and repeated project wins with the same client.

The importance of trust in a relationshipThis distinct process further reinforces the premiumattached to trust and loyalty with this particular group of potential customers, as well as the ability to earn itwith the right partners throughout this process.

Guanxi and MianziGuanxi and Mianzi are two of the most important termsto appreciate when it comes to working with Chineseclients. They operate as a backdrop against whichbusiness interactions operate and flourish.

Contrary to public perception, Guanxi (a.k.a.‘connection’) is not your typical nepotism fraught withbribery and corrupt practices of trading authority with

perks. In a business setting, it refers more to a deep andsustainable relationship that qualifies one as part of theinner circle, i.e. someone with the status of a confidant.Chinese clients value long-term relationships and preferto do business with those they know, those they sense a personal connection with, those they feel comfortableentrusting their money with, those they could count onbeyond the immediate transaction.

As a result of this cultural preference and expectation,Chinese clients are more likely to engage a serviceprovider–repeatedly–if they feel there is Guanxi with the provider, which signifies a mutually acknowledgedrelationship built upon reliability and trust.

Mianzi (a.k.a. ‘face’) could be loosely understood asdignity and pride, which feature significantly in Chineseculture, particularly that pertaining to a public settingsuch as a business/social environment.

Mianzi is of utmost importance to any Chinese clientwith a sense of self-value who wishes to commandrespect in a socio-political-economic setting. It explainsmotivation behind countless seemingly absurd andcounter-intuitive decisions made by rather rationaldignitaries of the Chinese business community.

Chinese clients are more likely toengage a service provider–repeatedly–if they feel there is Guanxi with theprovider, which signifies a mutuallyacknowledged relationship built upon reliability and trust

China

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One is often advised to exercise cultural sensitivity andprecaution in situations where Chinese clients’ Mianzimight be at stake. A rule of thumb is always be mindfulof potential acts that would likely be associated withcausing public humiliation on the part of your Chinesecounterpart, such as perceived abruptness when turningdown an invitation to socialize or challenging a seniorexecutive’s idea in front of subordinates.

Elements of trust-buildingPatienceIt is rare for a Chinese client to jump into seriousbusiness discussions when meeting someone for the firsttime, which is particularly the case with the more seniormanagement/C-suite executives. Losing patience, evenin a private setting, would be interpreted as an insultand reflect very negatively on oneself. Clients need tofeel that one cares about their business beforediscussing and entrusting mega-transformationalprojects to that person/company.

CommunicationSuccessful communication starts with listening. Thisapplies universally but particularly rings true for Chineseclients. They tend to have a stronger penchant to co-develop and redefine their specific needs of service andscope of work with potential service providers. It wouldbe unwise, and to some extent disrespectful, to dive inresponding to a particular RFP or RFI without havingtaken into account the clients’ actual situation and realintent.

Handling rejectionGiven the Chinese reluctance to turn down aproposition in an outright manner, many of therejections come in the form of subtle pushback orstalling tactics. One should acknowledge it as what it is–the fact that your proposition does not resonate withthem. However, this does not necessarily mean the endof the negotiation process. The last thing one should do in this scenario is simply walk away. The point tonote is to stay composed–acknowledge the clients’dissatisfaction, reassess flaws in previous propositions,and re-engage the client with alternative or enhancedoptions.

Making compromiseChinese clients appreciate a level of sophistication in deal negotiation. They respect counterparts whounderstand the subtleties and strategic thinking, notunlike a chess player's moves--losing a battle to win the war. One thing to bear in mind is that irreconcilabledifferences for the Chinese are indeed extremely rare.Disagreements, no matter how severe they appear inform, are manageable as long as one is clear about theclient's position and vision; and when situations arise,one is willing to show courtesy and sincerity in a sharedlong-term partnership by making concessions onmatters deemed less crucial.

Following up: continuing friendship buildingFor a business culture heavily influenced by personalrelationships, there are ultimately two scenarios whereChinese clients are willing to pay a premium for services:1) out of absolute necessity (usually a result of

regulatory pressure and/or investigation), and; 2) in anticipation of great future business/friendship

value as a result of mutual collaboration. Following up with continuing friendship building is a genuineinvestment in a long-term relationship; this is whatChinese clients essentially appreciate, and areeventually willing to pay for.

Successful communication starts withlistening. This applies universally butparticularly rings true for Chineseclients.

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Dealing effectively with the right partner(s)Chinese companies tend to be complicated entities with dynamic inner checks and balances, as well as anintricate web of stakeholders that need to be managed,to ensure a mutually satisfactory bilateral relationshipthat’s built to last.

Among the myriad stakeholders, it is essential to knowhow to work with at least three types of them: thedecision-maker, the sponsor, and the friendly coachand/or referral contact.

In order to maximize the trust-building impact, oneshould be able to address these three types of partnersappropriately with equal importance. A decision-makeris the ultimate wallet-holder and gatekeeper; hispriorities and preferences should be studied, analyzedand fully taken into consideration when structuring anydeal. The sponsor is the one person with a direct vestedinterest in making the deal a success, as much as theservice provider. His pressure points should be notedand his limits understood; a mutually agreed futurevision and appropriate approach towards realizing thatvision should be fully explored and decided upon. Thecoach/referral contact is the cultural reference point, theeyes and ears of the external service provider; his relativeindependence could serve as an ideal sounding boardfor service providers to retain their sense of objectivityand direction.

In other words, respect the decision-maker, work closelywith the sponsor, and befriend the referral contact.Never neglect any party as they all play indispensableroles in making any project a success.

Lastly, it is prudent to understand all these culturallyrelevant elements in the context of a relationship-building and management process. They serve to

facilitate business interactions throughout the deallifecycle, which help create a lasting and fruitful businesscollaboration for a lifetime. However, it would becounter-productive to overanalyze any specific element.Chinese clients are increasingly more savvy and receptiveof international protocols when it comes to dealing withforeign business partners. They are pragmatic. If there isgenuine business rationale behind a deal, they will doeverything in their power to ensure that it will be asuccess.

by James Babb, partner, Clients & Industries andMadeleine Chen Todd, manager, Chinese servicesdesk, Deloitte Middle East

Endnotes1. HSBC Report: What a globalizing China means for Africa and theMiddle East, 2014

Chinese companies tend to becomplicated entities with dynamic inner checks and balances, as well as an intricate web of stakeholders thatneed to be managed, to ensure amutually satisfactory bilateralrelationship that’s built to last

China