Australia China Business Council

1. Australia China Business Council Importance of cultural due diligence in doing business successfully with China Dr Carl Hinze 23 April 2015

2. Three key considerations • Reasons for interest – how to provide desired value? • Financial • Market access • Management know-how • Customer needs • Cultural and sub-cultural differences • How to balance “knowhow of the West” with “culture of the East” • International best practice meets feelings and sensibilities • Language barriers – mitigating resultant inefficiencies

3. Culture – What is it? • “What really binds human beings together is their culture, -- the ideas and the standards they have in common.” (Ruth Benedict 1934)

4. Importance of culture? • Mergers “succeed or fail more often because of cultural factors than for any other reason.” Stachowicz-Stanusch, Journal of Intercultural Management, April 2009

5. Different cultural perspectives • Australian: post-Enlightenment Westerners • Behaviour driven by reason and enlightened self-interest • Deny “irrational” emotions • Chinese: Cultural vacuum surrounded by swirling development and fragments of traditional culture • Behaviour driven by emotions • Deny “self” (zisi) interests • Sense and sensibility

6. My personal view is…

7. Who’s the boss?

8. Who am I?

9. What’s my way of living?

10. What do my relationships look like?

11. What happens when I encounter a problem?

12. What happens when I have a social gathering?

13. Dangers of “cultural handbooks” • Respect ‘face’ • “essential component of the Chinese national psyche” (British Embassy, Beijing) • “to be polite is to pay attention to ‘face’” (Mao, 1994) • What is it, really?

14. ‘Face’ – A closer look • Chinese MianzivsLian • What others think of you… • National ‘face’ (goal of strengthening China shared by all) • Individual ‘face’ – public offense vs public glory • Collective social currency 一人得道鸡犬升天 ‘yiren de dao, jiquanshengtian’ • Critical to social relationships 人有脸，树有皮 ‘ren you lian, shu you pi’

15. Dangers of “cultural handbooks” (cont.) • Understand the real role of ‘Guanxi’ • It’s all about relationships, but what type of relationship and between whom? • Neutral concept – without connotations of “you scratch my back, I’ll scratch yours” • Complex connections among guanxi, renqing, and mianzi – three pillars of Chinese trust • Both emotional and pragmatic/instrumental • Instrumental concern of maintaining status/power • Emotional concern of maintaining self-respect/affection

16. Truly understand local cultures • Valuing individual vs group/collective • Valuing egalitarianism vs hierarchy • Valuing sincerity vs harmony • Valuing problem solving vs relationship building • Valuing familiarity vs formality • Valuing reason/logic vs emotion

17. Truly understand local languages • Understand primary language and local dialects • Employ reliable and trusted translators • Understand what is gestured and implied • Listen to what is not being said • Agree on the language of negotiation

18. Appreciate different negotiation styles • Do not expect a fair, win-win deal • Do not expect short meetings • Do not rush to get a deal done • Try to control the agenda • Expect changes of mind and authority • Do not expect direct discussion of interests • Do not expect sequential discussion of issues • Endure

19. Choose local partners very carefully • Thorough DD is required – investigate the background, histories and track record of partners • Try to learn and understand their motivations and objectives • Do not rely on information at face value – check and re-check • Only rely on trusted intermediaries

20. Be aware of cultural similarities • Desire to look good • Desire to avoid looking bad • Desire to secure a good deal • Importance of relationships

21. Dr Carl Hinze Partner T 07 3135 0630 E carl.hinze@holdingredlich.com