© HoldingRedlich2014 Australia China Business Council Importance of cultural due diligence in doing business successfully with China Dr Carl Hinze 23 April 2015

© HoldingRedlich 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

© 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)

© HoldingRedlich 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

© HoldingRedlich2014 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 5

© HoldingRedlich2014 My personal view is… 6

© HoldingRedlich2014 Who’s the boss? 7

© HoldingRedlich2014 Who am I? 8

© HoldingRedlich2014 What’s my way of living? 9

© HoldingRedlich2014 What do my relationships look like? 10

© HoldingRedlich2014 What happens when I encounter a problem? 11

© HoldingRedlich2014 What happens when I have a social gathering? 12

© 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…  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 ‘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?  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

© HoldingRedlich 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

© HoldingRedlich 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

© HoldingRedlich 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

© HoldingRedlich 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

© 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 Dr Carl Hinze Partner T E 21