Cultural differences to be addressed when setting up operations in China

Now is the time for New Zealand businesses to be setting up operations in China, but cultural differences need to be addressed, says visiting global business risk leader.

Stanley Chang, Grant Thornton International global business risk leader, said China’s strong growth prospects over the next five to 10 years and the growing average disposable income are reasons why businesses are moving to China not just to produce, but to sell.

“With a population of 1.3 billion, China is a huge consumer market. If your business appeals to 5% of that market, that’s a lot of new customers. Can you afford to walk away from that?” says Chang.

“China has a lot of buying power and a desire for high end, reputable products. New Zealand’s good quality air and water add further intangible value to products, especially agriculture, dairy and biotech products, that are sold in the Chinese market.

“However, it’s important to be aware of cultural differences. It would be unwise to try and impose the same home country operating style on a Chinese subsidiary of the business. While it’s important that a business owner upholds their own values and corporate culture, this needs to be adapted to the Chinese environment.”

Simon Hunter, Grant Thornton New Zealand partner, business transformation, says many New Zealand businesses are aware of the benefits of doing business in China and are seeking assistance to deal with difficulties that may arise when setting up a local subsidiary.

“Different value systems and business practices can lead to misaligned goals and misunderstandings. The Chinese are very principle driven while the western world tends to be very rule based so often things in China are evaluated with a different perspective,” says Hunter.

“For this reason education is vital in the early stages of setting up business in China. Educating local employees, especially around conflict of interest issues will help safeguard against complications.

“Engaging trusted advisers will also help avoid pitfalls along the way. The situation Zespri's Chinese subsidiary company is currently facing is a clear example of why appointing reputable advisers and performing due diligence of any partner you might be looking to engage with is necessary. 

“It’s also important to recognise that the commercial disciplines applied in New Zealand to due diligence, performance management, quality control, commercial management and risk management still apply in China. These disciplines need to be applied and maintained with even more rigor as problems often occur when these disciplines are relaxed.

“China is not a difficult place to do business, it just requires understanding.”

For further information please contact:

Simon Hunter
Partner, Business Transformation
Grant Thornton New Zealand Ltd
T +64 (0)9 926 5747
E simon.hunter@nz.gt.com

Stanley Chang            
Global business risk services leader            
Grant Thornton International Ltd
E stanley.chang@gti.gt.com