Doing business with China 101


BEIJING - When MBA candidates from Loyola College in Maryland began mock negotiations with students in Beijing yesterday, they tried to adapt to Chinese culture by chatting up their counterparts and giving them "face."

On the other side of the table, though, sat a bunch of bottom-line-oriented Chinese business students who were far more interested in their percentage cut of a licensing agreement than in elliptical conversations over cups of green tea.

"We had a strategy of getting to know the Chinese and they wanted to get down to business," says Stacey M. Foxwell, a Loyola student who also works as project manager for information technology at The Sun.

"The paradigms aren't changing as quickly as reality," adds David G. Walsh, director of purchasing worldwide accessories for Black & Decker Inc., in Towson.

With the U.S. House of Representatives expected to vote on normalizing trade relations with China tomorrow, the Loyola students learned a valuable lesson they could never have fully grasped in a Baltimore classroom.

The changes that normal trade relations and China's anticipated entry into the World Trade Organization are supposed to bring about are occurring. And proponents of the trade bill believe that more foreign exposure and competition will accelerate the process.

The Loyola students are members of the school's Executive MBA program, which caters to middle-level and senior managers. They arrived here Friday for a 12-day tour to learn more about doing business with the Asian giant.

The students are scheduled to meet with various people, including Chinese CEOs, U.S. journalists and managers at the Chinese operations for Baltimore-based companies such as Black & Decker and McCormick. The tour continues to Shanghai today, moves on to the South China boomtown of Shenzhen and wraps up in Hong Kong on Monday.

The class joined Chinese students yesterday from the Beijing International MBA (BiMBA) program for a role-playing exercise. The program is run by Beijing University - the Harvard of China - and a consortium of 26 Jesuit schools in the United States, including Loyola.

The assignment was to negotiate a deal to sell U.S. auto parts in China. The sides, though, appeared to have been given different agendas. The Beijing students were focused on setting up a licensing agreement to manufacture and distribute parts. The Loyola students wanted to develop a joint-venture partnership with a Chinese manufacturer.

Walsh, who spent two years in Hong Kong working for Black & Decker, served as lead negotiator for one of Loyola's teams. His teammates included Massimo S. Fiandaca, a neurosurgeon in private practice, Tina Y. Young, director of quality qontrol at Bio Science Contract Production Corp., and Peter O'Neill, a manager with Charles Schwab.

Walsh, 34, began with a traditional Chinese slow-and-easy approach. "Basically, we're here to listen and learn," he said as he sank into an overstuffed leather chair - a staple of meeting rooms across China.

The Chinese team dangled potential revenue of $1 billion over five years before the Americans. The Americans tried to entice the Chinese with the promise of a valuable technology transfer and potential manufacturing orders for the U.S. and European markets.

Throughout the 90-minute negotiation, a Chinese student named May pestered Walsh to reveal the Americans' proposed split of revenue from a licensing agreement. In an amusing role reversal, Walsh played the stereotypical enigmatic Chinese to May's aggressive American and refused to yield any figures.

"We knew they were interested in details, numbers and facts so we prepared a lot of information," says David Zuo, 32, a Beijing student who was disappointed and a bit surprised that his team never got a chance to unleash its arsenal of figures.

"We didn't crunch a number, and they thought we'd be coming in with Excel spreadsheets," said Walsh.

To give the negotiations an air of urgency and realism, Loyola Professor and BiMBA Dean Neng Liang announced that the U.S. team's imaginary return flight to Chicago was boarding within minutes and that they must complete talks.

As time ran out, both sides came away with something. The Chinese engineered a vague licensing deal and the Americans received the promise of a joint-venture partnership in two to four years.

If only all business relationships here were so easy.

Despite progress in recent years, doing business in China remains perilous. In the two decades since the late Chinese leader Deng Xiaoping began to dismantle socialism, the rule of law and a professional business culture have yet to take hold.

Some overseas executives refer to joint ventures as "joint adventures." Most foreign companies have yet to show a profit.

The myriad culprits include naivete on the part of foreigners, embezzlement on the part of Chinese and poor distribution channels all around.

It is common, for instance, for a Chinese joint-venture partner to take a foreign design, manufacture it on the side and then introduce it into the market as competition. A few years ago, a local company in Central China's Hubei Province sold a factory out from under its overseas partner.

And in a widely reported case this year in Beijing, a Hong Kong company was accused of trying to seize dolphins, whales and sea lions from a U.S. firm that was caring for them at one of the capital's three aquariums.

Yesterday at Beijing University, though, the atmosphere remained warm and friendly. Everyone - at least publicly - seemed to be guided by the hope that often accompanies first impressions.

The Chinese students praised the Americans' professionalism and flexible approach to doing business.

The Americans were struck by the savvy and English skills of their Chinese counterparts, who in many cases were a decade or more younger.

The trade relations bill the House is considering tomorrow would end the need for annual approval of trading rights for China. It would also promise U.S. businesses unprecedented access to the Chinese market.

In anticipation of the measure's passage, one Loyola student led his colleagues in a round of applause for the students from Beijing.

"We are taught that the future of our country is our young people," says C.J. Weise, director of change management at Baltimore Gas & Electric, speaking to the class. "If the same is true of China ... the future of this country is very good."

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