In recent conversations with US executives doing business in China, Harvard Business School Assistant Professor Roy Y.J. Chua heard about a new trend. In an East Asian version of cutting deals on the golf course, Chinese executives often take partners to teahouses to discuss business and negotiate deals. The problem, according to these executives, is that foreigners are rarely invited.
"It's really a perception that foreigners can't appreciate the culture," says Chua. In practice, it means that foreign businesspeople are at a disadvantage compared with peers of Chinese ethnicity. "It's a gap that might make you less competitive compared with someone who is of the same ethnic culture."
“To the extent that you could speak the language or demonstrate a certain level of understanding of culture, that might help.”
As China becomes increasingly important to the world economy, it's getting more essential that global executives learn their way around Chinese cultural customs in order to be successful in that country. While every country has its version of the "old boys network" that defines in- and out-groups in business, Chinese culture puts particular emphasis on personal relationships.
"It's taken to a different level in China," says Chua. "Because of the lack of a strong legal infrastructure, people have to rely on those they know very well to get things done." There's even a name for the phenomenon, guanxi: a folk concept that means loyalty to people from the same village, but extends outward in principle to emphasize trusted personal relationships in every aspect of society.
In a paper published in the December 2011 Journal of International Business Studies, Chua looks at just how important this concept is to the Chinese—and how foreign businesspeople might overcome the challenge. The paper, "Effects of Cultural Ethnicity, Firm Size, and Firm Age on Senior Executives' Trust in Their Overseas Business Partners: Evidence from China, written with Crystal Jiang of Bryant University, Masaaki Kotabe of the Fox School of Business, and Janet Murray of the University of Missouri—St. Louis, explores the role that trust plays in forming bonds across cultures and national borders—an area that has received surprisingly scant attention in our globalized economy.
Types Of Trust
Building on past research, Chua and his colleagues investigate two types of trust: cognitive trust, which is based on confidence in a partner's technical competency, and affective trust, which is based on a shared concern for a partner's welfare and personal interests. "Cognitive trust is trust from the head; it's a very rational way of assessing ability and reliability," says Chua. "Affective trust is trust that comes from the 'heart.' This type of trust involves considerable emotional investments."
To test the relationship between those two types of trust, the researchers conducted extensive interviews with 108 Chinese senior executives from a random sample of firms in mainland China. In each interview, the researchers asked the executives to think of two overseas partners—one of Chinese ethnicity and the other of a different (non-Chinese) ethnicity. Participants were then asked a series of questions on a five-point scale about how much they could rely on those partners to complete tasks effectively (in order to measure cognitive trust), and how much the partners shared the same goals and feelings (in order to measure affective trust). These questions were asked among many other questions involving the firms' innovative capabilities and client relationships so that it was not obvious to the interviewees that the researchers were focusing on trust.
The results were striking. Affective trust, that from the heart, in overseas partners of Chinese ancestry was 33 percent higher than it was in the partners from other cultures. Even more important, however, was the influence of cognitive from-the-head trust. Far from being a cool, rational appraisal of a partner's ability, it was highly influenced by "trust from the heart" when dealing with someone from the same culture. In statistical terms, there was a 64 percent correlation between affective and cognitive trust for same-culture partners, but only an 8 percent correlation for those of a different culture.
Moreover, when that trust has been established, the research showed that it was much more fragile for those of a different ethnicity and more easily disrupted by external factors such as the size of a firm. For instance, in general, the larger the Chinese firm, the less its executives developed cognitive trust (but not affective trust) in their overseas partners, because they had more resources and thus less need to rely on those partners. However, when the overseas partners were of non-Chinese ethnicity, executives of large Chinese firms trusted them even less.
Building Trust
While such findings makes sense intuitively—we are all more partial to trusting those with whom we share values and background—the size of the correlation shows the height of the Great Wall that foreign executives must scale in proving themselves to their Chinese partners.
"That affective-trust deficit means when you try to build relationships across cultural lines, you have to deal with the fact that executives from other cultures are not going to engage with you on a social-emotional level as well," says Chua. "You have to start thinking about how you can build that level of trust."
For companies doing business in China, one solution might be to consciously hire executives of Chinese ancestry in key roles in which trust is important to establishing effective business relationships. But it might also mean placing more emphasis and attention on cultural sensitivity to bridge that affective-trust gap.
"To the extent that you could speak the language or demonstrate a certain level of understanding of culture, that might help," says Chua.
While those tactics might be especially vital in doing business in China, Chua continues, they are important to keep in mind in any business situation that mixes partners from different cultures or countries.
"Our data is only from China, so there is no concrete evidence yet for other cultures, but the theory is not culture specific," he says. "We can't be definitive that this exact pattern of findings would play out in India, for instance, but the hypothesis was developed without any specific culture in mind. China was our first test bed."
After all, every culture has its exclusive cultural rituals. Those who strive to succeed our globalized economy may just be those who can swing a golf club and appreciate a cup of tea with equal ability.
I would also add, that as a woman who has worked in Latin America, more trust is built in face to face meetings and a handshake than anything else.
Maria Botta
want, but I have not seen that trust translate into better results, which is at the end of the day what it is all about.
nager who would disagree with me.
a) hiring like minded and competent local representatives and empowering them as our management to do business in the language and culture of our customers.
b) adapting to the cultural norms of the country in which we are doing business as opposed to trying to apply our cultural norms.
c) respecting the culture of our customers as if it were our own and as we would ask them to respect ours.
d) over delivering constantly on the promise of our brand to engender trust.
e) quickly and completely accepting our responsibility for any misteps or failures to deliver as promised.
Cultural trust as you indicate is difficult to achieve and spans all nations, religions, colours and creeds. It is the seed stock of our many wars and prejudices and has been the formulator of distance and distrust impeding our progress as a species inhabiting a single fragile planet.
Our business has advanced and grown as our relationships and levels of trust have blossomed. Our quality and performance has improved as our relationships have deepened and we better understand the needs of our customers, partners, suppliers and contracted processors.
In my estimation patience and the golden rule are key to developing successful international business combined with good business intelligence and customer selection.
Trust grows from mutual respect and compatable needs.
One aspect that I would not totally agree with in terms of improving business through creating cultural links, is that it does not really produce results except to an easier time in your host country. Through creating trust you can end up getting deals that your partner or customer would otherwise have thought about for other companies. Then again, that might depend on the industry. The drawback of the relationship aspect is that you decide to do business exclusively with a partner without doing the necessary due diligence to ensure that you get the best deal.
classroom training is needed for these skills; apprenticeships, internships and the like will be required. These represent development costs that must be factored into future organizational budgets whether for short-term projects or long-term strategic leadership in a particular field or business. For the individual, such skill development must be part of the lifelong learning/experience plan, and appropriate time, money and resources allocated to that plan.
I reckon the trust aspect will always generate same trends in ethnically similar context, however in India the result may vary, and that would definitely an interesting avenue to look into.
The best result is get to know the people before you get to know their business, and hiring "locals" is not the answer, ask Rupert Murdock, he even married a "local" and he still walked out of China with a debit.....
Sanjeev Vaid