Archive

February 2010 Edition
view

December 2009 Edition
view

October 2009 Edition
view

September 2009 Edition
view

July 2009 Edition
view

June 2009 Edition
view

June 2009 Edition

The Importance of Guanxi (relationship) and Xinyong (trust) in China

In doing research prior to my first trip to China in February, I was encouraged to review the customs and culture of this incredible country before my trip. Two customs quickly came to the forefront -- developing relationships (guanxi) and trust (xinyong) when doing business in China is one's first priority. Business always comes after first establishing a friendship between potential business partners, which then develops trust. It has been their custom for centuries, and Chinese business and government leaders prefer getting to know their partners' well in advance before contracts are signed. The Chinese want to do business with friends whom they trust.

I learned this quickly on my inaugural trip to China when I was the guest of the city of Yangzhou, which is about a three-hour drive from Shanghai and one of China's major tourist attractions. A bustling city of 4.5 million, Yangzhou is situated on the beautiful Yangtze River, and houses many historic and cultural treasures, attracting over 18 million tourists annually. Since ancient times, Yangzhou has been a tourist city. Yangzhou has always attracted numerous celebrities and scholars, as well as the Emperor Yang of the Sui Dynasty. While the city is over 2,500 years old, it doesn't look the part -- the government has re-engineered this thriving metropolis, populating the cityscape with new residential, office and government buildings as well as stimulating business growth in many sectors -- manufacturing, distribution, electronics, tourism, and retail.

While more Americans have been coming to China in recent times, it was clear to me that the Chinese are still fascinated with our culture and most importantly, the 'way we do business.' As a retail and shopping center veteran in the United States, it was with great anticipation (and some trepidation, to be honest) when my flight from San Francisco touched down on the runway in Beijing. How was this going to play out? Was I up to the challenges of working in a foreign land? This was not Hawaii, for sure. The vast numbers of American businesses and hundreds of thousands of Americans before me have firmly established more than just a beachhead in China. And I have many friends familiar with the culture of China who have helped me understand the nuances of working there. I wasn't surprised, of course, to see how American brands are infiltrating the China landscape --McDonald's and Starbucks are everywhere along with Apple's and iPods, and Nike's "swoosh" is on baseball caps, running shoes and t-shirts.

My focus was investigating a potential factory outlet shopping center site in Yangzhou, and it is a very exciting project, indeed. But I must confess, getting around this magnificent city seemed effortless for my Chinese hosts -- but I thought I was on Mr. Toad's Wild Ride at Disneyland. I was amazed how the Chinese integrate six and eight-lane boulevards full of speeding automobiles, taxis, scooters, pedestrians, and bicyclists without so much as a scratch. Well, I did see a few mangled bicycles and their owners on the side of the road telling their story to the police, but for the most part they seem to all make it work. unknown.jpg ¨

China's growth isn't stopping any time soon. To give you an idea of what is driving this growth, consider this: Over 600 million of the 1.3 billion Chinese people are under 30. This is a vibrant young country that is becoming better educated, more mobile and participating more in the global economy. Government policies, combined with a labor force that is more skilled combined with a massive investment in infrastructure help shape Chinas cities and real estate markets. A decade ago China was home to about 100 shopping malls, but today there are around 450. Four are amongst the largest malls in the world. Jones Lang LaSalle tells us that there are over 1000 foreign retailers in China today compared to just 314 in 2004. Big-box retailers and supermarkets like Walmart, Carrefour, B&Q, IKEA, and Metro have established a significant base throughout China.

According to Euromonitor International, China's 2008 retail sales were valued at $467.42 billion, but is expected to increase 59.7% to $744.16 billion by 2013. This compares to the US 2008 retail sales of $1.42 trillion and a projected rise of only 7% to $1.51 trillion in 2013. Major luxury retail brands are invading China cities such as Burberry, Zegna, Armani, La Coste, Roberto Cavalli, Canali, and Hugo Boss. According to Eromonitor's Jon Write, "...there's a real push to spend money on brands or products that people know have been made in China. The Chinese government is really encouraging its consumers to spend."

Apparently good news travels fast....as I was walking the floor at the recent ICSC convention in Las Vegas, many stopped to chat about "...what's going on with you and China?" While my work is still confidential, I was able to share my excitement with many and there were many with whom I met who are currently doing business in China, and they, too, quickly learned the importance and need to honor the centuries-old traditions of guanxi (relationship) and xinyong (trust).


Bill Eddy with client Chico Wong (on his left) and Yangzhou executives

China is exciting...it's everything everyone says it is. The buzz is real. It's now. And it's happening in retail. But the basics of doing business there -- no matter how exciting it may be now or in the future -- developing personal relationships and trust when doing business in China is one's first priority. I haven't talked with an American business person who doesn't practice these two cultural necessities.

Yes, China is everything they said it would be (incredible) but more. There is an exciting new world out there and we are just beginning to discover it.

Stay tuned to The EddyLine for more.

 


The Eddy Company is one of America's leading specialty retail leasing consultants. For information, please contact Bill Eddy at our Newport Beach office -- 949-640-7475. Or e-mail us at bill@theeddycompany.com or visit our web site -- www.theeddycompany.com