© HoldingRedlich2014 Cultural cringe The importance of cultural due diligence to doing business in and with China Dr Carl Hinze 20 November 2014

© HoldingRedlich 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)  “…the whole complex of traditional behavior which has been developed by the human race and is successively learned by each generation. A culture is less precise. It can mean the forms of traditional behavior which are characteristics of a given society, or of a group of societies, or of a certain race, or of a certain area, or of a certain period of time.” (Margaret Mead 1937)

© HoldingRedlich Culture – What is it?

© HoldingRedlich Who cares?  Mergers “succeed or fail more often because of cultural factors than for any other reason.” Stachowicz-Stanusch, Journal of Intercultural Management, April  “The dispute between the two companies is being closely watched by multinationals because it has highlighted many of the cultural differences that are often present in joint ventures in China.” Financial Times in June 2007 on Danone v Wahaha

© HoldingRedlich Quaker/Snapple merger  1994 purchase of Snapple for $1.7 Billion  1997 sale of Snapple for $300 Million  Reason for failure:  Quaker: Highly focused, mass-market operating style  Snapple: Quirky, entrepreneurial

© HoldingRedlich versus

© HoldingRedlich 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?

© HoldingRedlich ‘Face’ – A closer look  Chinese Mianzi vs Lian  What others think of you…  Collective social currency 一人得道鸡犬升天 ‘yi ren de dao, ji quan sheng tian’  Critical to social relationships 人有脸，树有皮 ‘ren you lian, shu you pi’

© HoldingRedlich Dangers of “cultural handbooks” (cont.)  Understand the real role of ‘Guanxi’  It’s all about relationships, but what type of relationship and between whom?  Complex connections among guanxi, renqing, and mianzi  Both emotional and pragmatic

© HoldingRedlich2014 My personal view is… 10

© HoldingRedlich2014 Who’s the boss? 11

© HoldingRedlich2014 Who am I? 12

© HoldingRedlich2014 What’s my way of living? 13

© HoldingRedlich2014 What do my relationships look like? 14

© HoldingRedlich2014 What happens when I encounter a problem? 15

© HoldingRedlich2014 What happens when I have a social gathering? 16

© HoldingRedlich Quiz – Scenario 1 – Seating at meeting A.Head of the table B.Seat furthest from the door C.Seat facing the door D.Middle seat E.Doesn’t matter

© HoldingRedlich Quiz – Scenario 2 – Photo opportunity A.At the end of the back row B.At the end of the front row C.In the middle of the back row D.In the middle of the front row E.Doesn’t matter

© HoldingRedlich Quiz – Scenario 3 – Equity uplift A.Go ahead with the uplift secretly B.Discuss the uplift strategy with the Chinese party C.Ask your lawyers to deal with it D.Get another third party involved to do the talking E.Don’t do anything

© HoldingRedlich Quiz – Scenario 4 – Price adjustment mechanism A.Don’t ask for the price adjustment B.Negotiate price adjustment and trade it off for price reduction C.Ask your lawyers to deal with it D.Discuss the concern and proceed on a handshake E.Negotiate price adjustment and don’t give in until the contract is signed

© HoldingRedlich Quiz – Scenario 5 – Questioning employee performance/conduct A.Ask employee’s immediate supervisor to handle it B.Raise it at the weekly office meeting C.Ask your lawyers to deal with it D.Let HR sort it out E.Appoint a senior manager to handle it

© HoldingRedlich Understand cultural differences Eg.  Attitudes toward contracts  Attitudes toward time  Attitudes toward hierarchy  Attitudes toward relationships  Communication styles  Use of body language

© HoldingRedlich Be aware of cultural similarities  Desire to look good  Desire to avoid looking bad  Desire to secure a good deal  Importance of relationships

© HoldingRedlich2014 Key Contacts © Holding Redlich 2014 Disclaimer The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 24 Dr Carl Hinze Partner T E