Caught in a Chinese business trap

Every delegate on the Victorian Super Trade Mission who has any knowledge of China will tell you that the way to succeed here is to play the long game. Things happen slowly, they say, so dig in and prepare to spend some serious time building relationships. There's a fair bit of irony to those remarks given that China seems to be waiting for no-one in terms of its rapid development of new cities, ones that fly by the window of its 300 kilometre per hour intercity trains.

But the leaders of companies from IT, food, manufacturing and retail all echo the same refrain when you ask them how to make it here – relationships.

Of course that can be an incredibly nebulous and frustrating experience if you are starting out here for the first time, as 40 per cent of the companies on the trade mission are.

This will be a week of functions and banquets and speed dating-style matching events. It will be the first step on a long journey, one that many Australian companies find too wearing to endure.

Kee Wong, Malaysian Chinese who doesn't speak Mandarin, has been doing business with Chinese companies for 10 years. He used to work for IBM in the region and so knows the psyche well. Kee says that unlike in Australia, where banquets are thrown toward the end of a deal negotiation, in China, the banquet is just the beginning. Many Australian companies think that is a sign that a deal is close. Not so. Kee says that even though you're the banquet guest tonight, your host will be doing the same thing with another business from another country tomorrow.

But this is a critical part of doing business here and if you are to succeed in China, then events like these are critical to finding an appropriate partner.

One Australian business that got it wrong has an eight-year tale of woe.

Lily Steiner was one of the attendees at Ted Baillieu's breakfast event on Monday. Her father started a sheepskin bootmaking business in Preston, Victoria that supplied Uggs, Target, Kmart and others. Eight years ago they came to China to set up a plant and shipped $1.5 million of equipment to Henan province to a Chinese partner.

Shortly after the equipment arrived, the Chinese partner (a state owned company) declared bankruptcy. The equipment disappeared and Lily's father Ron Steiner has spent the last 8 years trying to get restitution. No one knows where the equipment is, and despite winning 5 court cases, the Steiner's are the only parties in the bankruptcy proceedings who still haven't been paid out. Lily Steiner is now pushing the case as her father is too old, but without any Guanxi or powerful relationships to assist her, she could find herself in legal proceedings forever. She hopes the Victorian government will be able to help her.

For those companies that do get that relationship right, riding the exponential growth in China can be achieved.

Annie Meyer is the chief executive of Transtar shipping, a Melbourne based company with $150 million turnover. Transtar has been in China for around 3 years and in that time has seen revenues here grow 50 to 60 per cent to $35 million a year.

Meyer says that something that most Australians value – our laid back attitude – works against firms that come here. Chinese firms that she deals with say that Australians have a problem with not following up with the companies they meet. The tend to give up after a few meetings, thinking that the negotiations are going nowhere.

She says the Chinese expect those they partner with to push, something that most Australians can be uncomfortable with. But to make it in China, you must be prepared to attend every banquet, every meeting and treat the seemingly interminable face to face events as milestones in cementing those relationships.

Beijing's 5 star hotels are filled with executives from all over the world. Local Chinese firms can extract a high price for making a deal. Annie Meyer says Australians are seen as good negotiators but as Lily Steiner found, doing a good deal doesn't mean you can come out on top.

Jackson Hewett is travelling on the Victorian Trade Mission with the support of the Victorian Employer's Chamber of Commerce and Industry.