Rio Tinto repeating Foster’s cultural mistakes in China
16 July 2009
A repeat of Foster's, Rio Tinto has fallen into the same trap in failing to recognise China's unique culture in doing business and the importance relationships play in doing business in China, Deakin University's business expert on China believes.
Dr Mona Chung, whose PhD and recent book Shanghaied: Why Foster's could not Survive China examined why Foster's failed in its 15 year sojourn into China and the nuances of the relationships involved, believes companies operating in China need to employ bicultural people – people who understand the differences between the Australian and Chinese approach to doing business, not just Chinese who speak some English.
"Someone who speaks both languages is not necessarily bicultural," she said.
"A bicultural person is someone who understands the depth of understanding on both sides of the culture of doing business especially its delicacy when playing with relationships at a political level. Not only can they communicate fluently but they understand the communication styles, patterns and context.
"You need a bicultural person to control your strategic plan because that determines your market entry, your human resource choices and marketing strategies."
Dr Chung said local Chinese understood the way business is conducted in China, however often failed to communicate effectively with Australian business executives. "This causes a disconnection between plans and the actual strategies deployed when doing business with China," she said.
On her recent trip to Shanghai last week, Dr Chung saw another Australian organisation repeating the same mistakes, where the Chinese employees were running things differently from the instructions that were given by the Australian executives, taking advantage of Australian executives' lack of language and cultural recognition skills.
Dr Chung said companies needed to take into account that the Chinese government has different levels of power than Western governments.
"China's different legal, political and economic systems and the impact on the management of their business have no comparison to Western systems," she said.
One important cultural character of Chinese, which Dr Chung stated in her book, is that they never forget or forgive.
"A Chinese proverb says 'to a gentleman, revenge in 10 years is not too late'.
"Rio Tinto's mistake is not just rejecting Chinalco's recent offer which is a huge slap on the face. They also miscalculated the price 'win' the negotiation they had with BHP in 2006.
"China had become the largest iron and ore purchaser in the world for the first time and had hoped to become the international iron and ore price dictator for the first time as well," she explained.
"Rio Tinto and BHP forced China's hand by setting the price point with Japan first. That was a huge face losing event for the Chinese. Had they lost the chance to the Europeans, it would have to be less humiliating. Instead, they lost the chance to the Japanese to whom they have a deep historically poor relationship with.
"The current Rio Tinto event is for the Chinese to demonstrate that they are better at playing business games at a political level.
"While the rest of the world portrays the Chinese as unethical business players, to arrest an Australian citizen on bribery charges is a big slap back.
"To date Rio Tinto has made more than one cultural mistake. BHP is heavily tainted with Rio Tinto in many of their associations including the newly announced joint venture deal. Unless they start doing business differently with the Chinese, they will have a long bumpy road."
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