I rarely have revelations, but after being knocked over the head countless times over the years, I finally got one regarding how Chinese businesspeople tend to view their businesses differently from how Western businesspeople tend to view theirs.
The other day, a deal my law firm had been working on for a US company fell through, much to the consternation of nearly everyone involved. By everyone, I mean our China lawyers on both sides of the Pacific, the accountants, and — most importantly the US company we represented. The only party that did not want the deal to go forward was the Chinese company.
I am going to have to be incredibly vague here, for attorney-client and confidentiality reasons, but the main reason the deal fell through was because the Chinese company did not like how the American company had so little cash on hand. The Chinese company kept insisting that it did not want to give up its cash position, even though everyone else kept insisting that cash had nothing to do with the deal and that cash on hand could be equalized.
At around that same time, a couple of my law firm’s international dispute resolution attorneys were communicating with two different Chinese companies that were owed considerable sums by US companies and both of these Chinese companies were unwilling to spend any money to try to collect those sums. Our dispute resolution lawyers could not understand why these Chinese companies were unwilling to risk relatively small amounts to fund litigation to recover relatively big amounts, particularly since in both instances it was pretty clear that if these two Chinese companies did not get more aggressive in their debt collections, they would never get paid and their businesses would go under. For more on this phenomenon with Chinese companies being unwilling to pursue their creditors, check out Ranking Creditors. China Comes In Dead Last.
Then it struck me. The typical Chinese business owner is far more protective of his or her cash and far less protective of his or her business than the typical Western business owner. American and European and Australian businesspeople (I list these because most of our law firm’s clients come from North America, Latin America, Europe and Australia) frequently put cash into their businesses to keep them going, whereas Chinese businesspeople seem rarely to do so. I suspect the following reasons for this, but would LOVE to hear other potential reasons from you, our dear readers:
1. Our law firm’s business-owner clients always talk about “building” a business. They run their businesses for more than just money. They are run as something to pass on to one’s children. They are run for the employees. I am not saying money is not a big factor, but I get the sense it is much less of a factor for non-Chinese business owners than for Chinese ones.
2. Our clients tend to put their lives into their businesses. Many Chinese do also, but many also are there in large measure due to their government connections and to government largess. I suspect this too plays a part in the differences between how Chinese business owners view their businesses as compared to non-Chinese business owners.
3. American/European/Australian business owners do not typically fear the government will shut down their business. This is less true in China.
4. American/European/Australian business owners generally know that if they put their own money into their business and their business collapses, they themselves will likely avoid personal liability. This encourages them to borrow to try to save their own businesses. Chinese individuals have not had such ready access to credit nor is failing to pay one’s business debts in China treated the same as in the West.
These are the reasons I believe Chinese businesspeople tend to emphasize cash much more than American/European/Australian businesspeople and why American/European/Australian businesspeople tend to emphasize saving and growing their business more than Chinese businesspeople.
Again, what do you think? Am I off base here? If I am right, how does this affect how one should deal with a Chinese company?