19 Dec 2011  Research & Ideas

Climbing the Great Wall of Trust

New research from Assistant Professor Roy Y.J. Chua investigates the difficulties for foreigners doing business in China, and what they can do to overcome the challenge. Key concepts include:

  • Foreign businesspeople must learn their way around Chinese cultural customs and the importance of personal relationships and trust in order to be successful in that country.
  • For companies doing business in China, one solution might be to consciously hire executives of Chinese ancestry in key roles or placing more emphasis and attention on cultural sensitivity.
  • The researchers believe that similar dynamics are likely to rule in any business situation that mixes partners from different cultures or countries.

 

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.

About the author

Michael Blanding is a writer based in Brookline, Massachusetts.

Comments

    • Anonymous

    If this article was about white people's interesting habit of doing business with other white people be called racism? Why is this written as if it's an interesting fluke that everyone should do their best to "fit in" uncle tom style. This is proof of deeply ingrained racism that we all knew (Japanese, Africans, Americans for a couple of examples) existed but could not put a finger on stats. This article is helpful in that respect. Simply look at how Gary Locke is received. To add insult to injury the most common complaint I hear in China is that, "we treat white people too nicely and are not fair to Asians". How can racism occur at the level with the common belief that it not only does not exist but, in fact, is the opposite. Chinese are somehow racist against their own people? You hit a very good topic here

     
     
     
    • Jerry Zremski
    • Washington bureau chief, The Buffalo News

    This is very important research exploring the impact of something very basic -- human nature -- on business relations in China. As a reporter, I've encountered American business people who have struggled with the very different Chinese business culture, and Professor Chua's research sheds light on that struggle.

     
     
     
    • Anonymous

    Without reading the actual study, a review of this article is the only basis of my conclusion. Old Boys network or not, we have networks from our universities here, Frat brothers or Sorority sisters, and even Army buddies. It appears that this understanding of the "Chinese tea house" is no different. Any Americans should know this intuitively. Good to see that there may be some studies supporting it.

     
     
     
    • Maria Botta
    • Creative Consultant

    This research needs to also examine to what extent gender plays a role. I am almost 100% certain, that as in the West where women are rarely invited to the golf course, women are also rarely invited to teahouses. This is more a study about male trust, not trust in general.

    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

     
     
     
    • Stewart Hamilton
    • Emeritus Professor, IMD

    An interesting piece. And accurate in its observations. For your readers who might wish to see details of some more examples of the problems can have a look at my new book (written with Jinxuan Zhang), published this month by Palgrave Macmillan, "Doing Business with China: avoiding the pitfalls"

     
     
     
    • Anonymous

    I can't help but comment on this brief summary. The company I work for does a decent amount of business in China. We import component parts. We are a small to mid size organization. We hired a supply chain director who originally hails from China. We hired him not only because he is very competent, but also because I hoped he would be able to better navigate the linguistic and cultural nuances. I have been to China with and without him several times over the last two years. We have had lots of tea and fantastic dinners. His one on one negotiations have (I am sure) been smooth because of the cultural background.....BUT all of the tea houses, dinners and cultural background has not helped with improving the performance of our suppliers. They treat our business the same way they treated us when I had non-Chinese running the supply chain group. Still poor quality and late deliveries. So, you can build up all of the trust you 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.

     
     
     
    • Anonymous

    I've been living and working in China for the past 7 years, running a JV. So, I too have had many, many, experiences with colleagues in tea houses and the like. Based on this experience, I would concur with much of what the authors observe about intercultural trust. However, I would also concurr with the comment above that all the trust building by both me and my overseas Chinese colleagues hasn't led to improved performance by our local partner. The single most important predictor of their willingness to cooperate remains: do I have a resource that they need. I very much enjoy my colleagues in China and regularly invest in my understanding of Chinese culture by reading the culture's literature and history. These investments making living and working here more comfortable, I suppose. But at the end of the day, collaborating with local businesses is no easier because of my investment, and I don't know a long term expatriate ma nager who would disagree with me.

     
     
     
    • colin macdonald
    • chairman, clearwater seafoods inc

    After having the benefit of travelling in different cultures and lands since I was 18 and doing business on all three major continents (North and South America, Asia and Europe)for over 3 and 1/2 decades as an exporter of Canadian seafoods I have to agree with your findings. Trust across cultures and companies is an extremely fragile component of business and personal relationships and we have found it is best secured by

    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.

     
     
     
    • Ram Poddar
    • Chairman, Vriddhi Consulting

    To my mind, this is a global phenomenon, not particularly with chinese alone. In my experience, having dealt with diffenrent organizations and nationalities accross the world, people tend to have greater confidence and trust in people who are from their own country and similar culture, be it Japanese, British, French, autralians or Americans.

     
     
     
    • Gregory Enjalbert

    When I hear about tea houses I am a little surprised as having been in Beijing for the past four years my business dealings have never ended up there. Instead most of the relationship building and high level agreements are reached through official to semi-official dinners which usually involve a very large quantity of baijiu (白酒, sorghum based potent alcohol). Maybe it depends on the industry, mine is the railway industry and it is common practice, as well as (unfortunately) chain smoking.

    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.

     
     
     
    • Sahat Hutagalung
    • Senior Expert, Indonesia Power PT

    Yes, I am agree that every culture has its exclusive culture ritual and to succeed the bussiness in globalized econony are importannt to keep in the mind in bussiness situation a mixing beetween partner culture such as swinging a golf club and appreciating of a cup of tea.

     
     
     
    • Charles Mwale
    • Founder & CEO, Vision Leadership Institute International

    In my book,"The Effective Leader", I address the importance of trust. I stress that trust is very essential in both team building and for organization success and effectiveness. Mostly, trust is rooted in relationships. Therefore, it becomes imperative that leaders that aspire to be succesful and effective in business consider ways in which they can build relationships with the intent of fostering trust. One way that leaders could employ to that effect is communicating to the Chinese business community that they respect their views, expertise, way of doing things and also show a willingness to recieve feed back on how best to develop those relationship. Trust building takes time and thus business leaders operating in that region need patience.

     
     
     
    • Dennis Nelson
    • Quality Lead, SFS

    The lessons in the article go much deeper to all relationships, not just those relationships on an international scale; and require appropriate resourcing. Those who strive for success at any level within any geographic area or organizational unit must focus on building trust, first and foremost. Building trust requires many shared experiences which requires much research, introspection, planning, focused interaction, post-analysis and continuous improvement in relating to the other person's perspectives. This always has been true. Some in the past succeeded because of limited competition for their products or services, even with little or no interpersonal abilities. In the future, the "global village" of competition will require competitors to master the art of interpersonal relationships as well as the science of business, whether in an international marketplace or on a team within any organization. More than book or 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.

     
     
     
    • Shameer Khanal
    • Senior Advisor, GIZ

    It will also be interesting note how a third party cultural references will work in this context. How about a traditionally western business hiring someone from say south or south east asia to work in China, any data available in that context?

    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.

     
     
     
    • Timothy Choi
    • Consultant, PTCT - Shanghai / Hong Kong

    While cultural proximity can influence how fast trust can be established, the approach is also important. I knew a certain business owner, an overseas Chinese with good command of Putonghua (Mandarin), who rushed into deals with Chinese customers. When disputes arose during project executions, this business owner became mistrustful of the customers. His actions also demonstrated such mistrust. It is not hard to see that the relationships with customers at best would stay at simple transactional basis. No trust can be established with the customers, many of whom are ready to defect as soon as there is a better offer arising on the horizon

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    The self-centred approach of Chinese is something which speaks about their lack of understanding/appreciation of other people and their culture. There appears be great absence of trust the Chinese have on others. How then do others trust them? Chinese do business worldwide and even their substandard goods find a market. This one way trust is dangerous in the long run. Is it Chinese superiority complex, national pride or something something else. We could even infer that this is because they would not like others to know their dubious ways of doing business.

     
     
     
    • tony
    • Director, Landscape Architect

    Fabulous stuff, but we (China based executives) already know. However if you were to do the same research in Australia for example you would find the same lack of trust for non ethnic Aussies as you would for researching, say India or Eu.Countries. The reason is simple, we trust less a person of "foreign" origin as we do in the macro sense a person from across a sate line.. 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

    Trust is like air pressure in car tires. Air pressure does not cause the car to move , but if there is no air pressure the car movement is bumpy and painfully slow. Sanjeev Vaid

     
     
     
    • Li ming

    Sometimes, guanxi is more important than ability among business partners not only in China but also in other countris and is established easily between Chinese and foreigner, it need more time yet. In the business activitis, except culture, how about bribe and authority?

     
     
     
    • Margaret Wei
    • Director

    The article made an interesting point about globalization and cross-cultural business conducts. However, it is important to note that "the Great Wall of Trust" is not China specific: I have worked with people from all over the world, and see this lack of trust in every culture. You still see US firms managing their Asia business with expats from US, and the executives from corporate talk about baseball games in a small US town and expect the Asian team members to comment like themselves. So Chinese tea culture is really no different from US baseball talk. By nature, human beings are afraid of uncertainty, and people working cross-boundaries simply need to learn to deal with this inborn fear.