I first traveled to China in 2007. In the years that followed, I have returned to China quite often. I now have close to 100 Chinese entry stamps in my passport! I was privileged to live in Beijing for two years as an expat leading the R&D team for Medtronic Spine and Biologics. I found China to be fascinating, beautiful, frustrating and a country of extremes.
One sees the opulent, luxurious lifestyles in the megacities to the simple farmers living in the countryside and the modern glass and marble skyscrapers to minimalist row houses of the Cultural Revolution. Incredible flavors for the adventurous foodie, where you can get a meal of noodles in a small streetside café for less than $2.00 USD (biang biang mian and dan dan mian are my favorites) to meals costing thousands of dollars in world-famous restaurants. Of course, there are famous attractions: The Great Wall, the Forbidden City, the Bund, the Terracotta Army, but there are so many other places of incredible beauty. Zhangjiajie, a national park in Hunan province that provided inspiration for the movie Avatar, is truly a mystical place. Wuyuan in spring is breathtakingly beautiful. The sites and history of Tibet are amazing.
Over the years, I have seen western business ventures succeed and fail in China. The key to success is no secret. You must understand the complexities that define China.
A Culture of Trade and Commerce
The Chinese have engaged in foreign trade and commerce for over 2,000 years, dating back to the times of the Silk Road. Compare this to a few hundred years for the U.S. Today it seems on every corner of every street in Chinese cities large or small, someone is selling goods or services. The Chinese are experts in trade and commerce, and it’s predicted that they will have the world’s largest economy before 2030.1 Over this long history, certain business practices developed that are foreign to westerners. To be successful, it’s necessary to understand the culture of commerce and doing business.
The Power of Guanxi
Building relationships is key to success in China. During China’s long history of trade, business relationships were based on trust and mutual benefit, as there were no laws governing commerce. These relationships are known as guanxi. Guanxi (guānxì) loosely translates as personal connections, relationships or social networks. Consultant and Executive Coach Michael C. Wenderoth likens guanxi to a “…gate erected in the Chinese business world. Those behind it help each other. Those on the outside can’t get in, unless they have guanxi with someone on the inside.”2 In western culture, business relationships develop over time while doing business. In China, the relationship comes first. Developing guanxi can be difficult for foreigners. Here are some tips.
Respect and admire Chinese history and culture: Foreigners, especially Americans, often come across as arrogant. They often imply that the only correct way is the western way. Remember, the Chinese have been doing things this way for thousands of years; trying to change the culture is fruitless and trying will likely offend a Chinese colleague.
Do some research: China is different than the U.S. in that each province has its own history, customs and food. Qingdao (or Tsingtao), a seaport in Shandong province, may be best known for its Tsingtao brewery. Qingdao is pronounced “ching’-dow.” Tsingtao is also pronounced the same way. There is no “T” sound in Tsingtao! Close to Qingdao is Mount Lao (or Laoshan), which is considered a birthplace of Taoism. Culturally, this is important in Chinese history. If you are to visit Qingdao, do some research. Having knowledge and showing interest in the area will develop guanxi.
Try The Food! Yes! Try it all!: Duck tongue, sea cucumber, chicken feet, jellyfish head, cow arteries, pig brains! Ask what foods are local and try them. My rule, “You can’t say you don’t like it if you haven’t tasted it!” Grimacing and refusing food will likely sadden your Chinese host. And possibly offend them. However, they will delight in a foreigner’s commitment to try the local food, especially if they enjoy it! Remember, too, that if you go back two or three generations in your own family, your ancestors were eating the same things. In addition, develop your skills eating with chopsticks; resist the temptation to ask for a fork and knife.
Attend business meals: Business meals are a large part of business culture in China. Seating is often a complex ritual based on the rank within the business for both the host and the guest. It is customary, especially in some regions, to drink during business meals. Drink a lot. Hosts often serve baijiu, which is any type of clear alcohol. Maotai, made from fermented sorghum, is one of the most famous and costs around $300 for 500ml. Often served in small glasses, it is consumed ganbei style, which is to drink the whole glass “bottoms up.” There is sometimes an attitude that, “If you are not willing to drink with me, you might be hiding something.” Consuming alcohol in this manner can be difficult for foreigners. Although it can be a good way to build relationships, use caution and know your limits.
Challenges of Communication
Communicating with associates in China can be challenging. First, there is the time difference. All of China is on one official time zone, even though the country is 30% wider than the U.S. If there is a conference call with participants in China and the U.S., one location will be well outside of normal working hours.
Secondly, it’s important to know that there are many dialects in China—some say too many to count. Mandarin is the dialect spoken in the capital of Beijing and is the official language in China.
In many households outside of Beijing, children first learn to speak in the local dialect. When they start elementary school, they must learn both Mandarin and English. In most cases, children are taught English vocabulary and grammar in school. I was amazed that a project manager knew the meaning of “a festoon cable.” She said, “Yeah. I know this word. I learned it in elementary school.” However, discussion skills are often lacking, as most students were not taught conversational English in school. Many Chinese are shy about speaking English and some have poor speaking skills.
Do not make a mistake believing that because someone in China does not speak English well that it also means they do not understand the language well.
Yes, Yes, Yes: We fondly referred to a common situation of miscommunication as “Yes, Yes, Yes.” A conversation goes something like this:
Me: It’s Tuesday and PO 31201 is due Friday. How’s it looking for shipping on time?
This does not necessarily mean yes, the order will ship on Friday. It might mean I agree that today is Tuesday and the order is due Friday.
Me: I’m expecting you to ship the order on Friday. Is the order O.K.?
Again, this may not mean yes, the order will ship on Friday. It may only be acknowledging that I know you are expecting the order will ship on Friday.
Me: Are you going to be able to ship the complete order?
This, too, may not mean that the order will ship on Friday. It could mean that we will, at some point, ship the complete order. I did not specially ask if the order will ship on Friday.
Me: We really need this order. It’s critical that you ship it on-time this Friday.
Chinese: Yes. We will do our best.
The “We will do our best” is a red flag that the order will be late.
The Chinese associate is not trying to be deceitful. Remember guanxi? If I have a good relationship with this colleague, it implies we get along and we are expected to help each other out, especially if we have had a relationship for a long time and we have done favors for each other in the past. It is often difficult for Chinese colleagues to admit that they will not deliver on a commitment. One of the worst things that can happen to someone in Chinese culture is to “lose face.” The concept of face in Chinese culture is a complex one. It can perhaps be most closely defined as “dignity” or “prestige,” but no translation can aptly cover all its fine nuances.3 Take care when you're communicating details and avoid putting your Chinese colleague in a situation where they might lose face.
Considerations for the Orthopedic Market
There are 1.38 billion people in China, with the majority living on the East Coast. A city with 2-3 million people is considered small. There are 65 cites in China with a population greater than 1 million. Caution is needed when looking at revenue data for orthopedic companies in China. Selling prices for domestic orthopedic devices can be a small fraction of similar products in the U.S. Therefore, the number of procedures performed is not reflective in sales revenue.
Tendering: Tendering is common in many regions around the world. It is a process of submitting a bid to supply goods or services. Tendering of orthopedic medical devices is common in China, and typically imported and locally made products are tendered separately.
Recently, the Chinese government has become more involved in tendering. China comprises 34 different regions: 23 provinces (e.g. Hunan, Shandong, Hubei), four municipalities (Beijing, Chongqing, Shanghai, Tianjin), five autonomous regions (e.g. Tibet, Inner Mongolia, Xinjiang) and two special administrative regions (Hong Kong and Macau). Each of these regions may choose to tender at different times. There is no defined schedule when tenders will open and close. Beijing has gone years without opening a tender. A product cannot be included in a tender until approval has been received from the National Medical Products Administration, formerly the China Food and Drug Administration. This means that new products with regulatory approval may not be included in a region’s tender for years and cannot officially be used by hospitals. This can result in exclusion from large markets for years.
Distribution: Typically, orthopedic products in China are sold through a network of distributors often called “dealers.” It is also common that these dealers will acquire products from the orthopedic companies and then sell directly to hospitals. This results in a two-step process: first, the product is sold to the dealer, and then the dealer sells to the hospitals. Selling to the dealer is commonly called “Buy-in.”
Companies typically record revenue when the dealer buys the products. The sale from the dealer to the hospital is commonly called “Sell-out.” It’s critically important to understand the dynamics of selling with this two-step process. It is possible to push sales on a distributor to increase revenue (remember guanxi?) without corresponding sales to the customer due to lack of tendering, just low sales or other reasons. This is called “stuffing the channel” and this practice has been used to artificially inflate sales revenue.
The combination of tendering and distribution makes launching a new product in China complex and unpredictable. Orthopedic companies selling in China and their suppliers should be aware that forecasts are fluid at best, and are likely subject to significant changes.
China is a country of extremes—fascinating, beautiful and often frustrating. Orthopedic device manufacturers have had success in China, as well as failure. I often say, “One learns from someone who has made the mistake or by making the mistake yourself.” The key to not making mistakes in China is to understand Chinese culture and business practices. Do your research and enjoy your adventure!
I have been very fortunate to have made many Chinese friends over the past dozen years. These friends have taught me everything I know about China. I express my sincere gratitude to these friends for such a wonderful gift.
- Colvin, Geoff, “China Will Overtake the U.S. as World’s Largest Economy Before 2030,” Fortune, 2017
- Wenderoth, Michael C., “How A Better Understanding Of Guanxi Can Improve Your Business In China,” Forbes, 2018
- InterNations, “Understanding the Chinese,” 2018
Dale Tempco is a medical device consultant specializing in product development, operations, quality, design for manufacturability, supply chain, M&A and finance. He has expertise in low-cost sourcing, design transfer, special process validation, cleaning validation, QMS, additive manufacturing, failure analysis and cost accounting, and has extensive global experience in China, Costa Rica, Europe and the Middle East.