Chinese companies place high value on trust in business relationships, Professor Cheng-Hua Tzeng told students at Fudan University’s Global Network Week on October 21. That means that foreign companies looking to enter the Chinese market through joint ventures should focus on building trust. He introduced a series of principles for successful joint ventures, what he called the Five C Model:
- Complement the Value Chain: Companies should be certain that their business ventures will work well in tandem with those of their Chinese counterparts. When the food-producing Danone entered the Chinese market, it partnered with the well-established Wahaha, a company that was started by a Chinese entrepreneur. However, Danone discovered Wahaha was selling similar products outside of its joint venture; a legal battle with Wahaha cost the company significant resources.
- Gauge the Compatibility: Are the companies’ core values compatible with each other? Tzeng said that is a key element of successful foreign companies. When Samsung entered the market through a joint venture with an established Chinese manufacturing company, it first was called Samsung China. However, the company later renamed itself China Samsung. That name change alone helped to bolster trust with Chinese consumers, he said. “It’s not a matter of semantics; the Chinese saw that change as a matter of respect for their culture and beliefs,” Tzeng said.
- Make Minimum Commitments: Commitment is key to establishing trust with Chinese counterparts. If the Chinese venture asks to start a new product or launch a new idea, saying no could be viewed as an impediment, Tzeng said. Instead, make a minimum commitment, he recommended. “You can always set a date for a product to evaluate its use. You can say, ‘If losses reach x-dollars, then we will need to take a different path,’” Tzeng said. “Showing you have trusted their commitments will pay dividends later.”
- Take Control of Intangible Resources: Trust may be crucial, but, Tzeng said, that doesn’t mean companies should give away opportunities or trade secrets. When the dairy producer Cabot started an operation in Shanghai, it routinely had its equipment sent back to the United States for repairs. While that practice may have seemed to show a lack of respect for Chinese engineers, Cabot’s management saw greater risks in making repairs locally. “Local competitors would contact the engineers in Shanghai to see what information they could sell them about Cabot’s machines,” Tzeng said. “They acted more secretively, but they were smart enough to protect their resources.”
- Build Corporate Social Responsibility Programs: Tzeng said companies can learn from Wahaha’s CSR practices for making the company a success. When the company first launched a nutrition drink in the mid-‘80s, it gave back to the community by sending employees to volunteer in poorer areas with nutrition and education programs. “It’s a way to win the support of local governments,” Tzeng said. “Companies need to leverage their CSR operations to win long-term success in China.”