Managing Major Customer Relationships Involving China

Rules Of Three: Managing Major Customer Relationships Involving China

Several years ago, we published an article[1] titled “The Unwritten Rules of China”, addressing the complexities of doing business in that country.  As part of the article, we introduced a seven-dimensional assessment process to help companies determine if they were on thin ice or secure in terms of their ability to meet these business objectives.  One of the seven dimensions involved “Trust and Relationship with Your China Partner”, in that the vast majority of western initiatives in China involve some type of a relationship with a Chinese organization, with joint ventures being the most frequently encountered such structure.  Our assessment tool involved a scale from very dangerous situations to ones that offered the potential for significant success:

We suspect that our Chinese partner is competing with us using our own employees and technology.

Trust and Relationship with China Partner:  We believe in “Trust but Verify”.  Our working relationship is satisfactory, but we are open to finding something better.

We are 100% aligned; we know our role and they know theirs and we are both doing very well.  First, we needed to enjoy working together.


Many western companies assumed that the “red” end of the scale was hyperbole.  In fact, we have frequently observed exactly that situation.  In one situation, the western company did all of the things that qualified them as being “very early in China”, having established a joint venture operation to sell to Chinese customers in the vehicles industry there, at a time when most company’s interest in China was strictly because of their low-cost supply of labor.  We interacted with this company a decade after the joint venture was established, when they asked us to do some research to validate the tentative decision that they had made to shut down the operation “because the China market still hadn’t developed and their sales were barely above the level when the operation was started”.

Our suspicions were raised by this comment.  We knew that the underlying trends in the vehicles industry paralleled those of virtually every part of the Chinese economy – sustained double-digit annual growth.  The statistics in the chart below, like those of other metrics reflecting this industry’s growth, suggested that the problem wasn’t the “China market”:

Our suspicions were confirmed when we held discussions with industry participants.  What we learned is that sales were in fact booming – and that one of the beneficiaries of these booming sales was the Chinese partner who had entered into the joint venture with the western organization described above.  This firm was in fact rapidly establishing a position as an industry leader in China, at the same time that the joint venture which they had established along with their western partner was floundering.

In was not that they had done anything that was illegal by either China’s written rules or even by the unwritten rules that are perhaps of even greater importance.  Rather, the fact was that over the years, the objectives of this Chinese organization had drifted so far from the objectives underlying the formation of the joint venture firm that the Chinese organization had come to see the joint venture as more of a competitor than a “member of the corporate family”.  The Chinese version of tact, of course, had kept the Chinese company from ever surfacing this issue with its western partner at any of the dozens of Board meetings that were held over the years.

This short, somewhat sad case history provides the foundation for the first of our “Rules of Three” that apply to the challenge of managing major customer relationships in China.

The Three Faces of a Customer Relationship

Rule #1.  Major customers in China often have three faces:  that of the western partner, that of the Chinese partner, and that of the joint venture itself.  Another way of describing this first Rule of Three is that you must manage three separate relationships in order to have a chance of success.  For those with time on their hands, this can be viewed as good news, as there are three times the interactions, three times the number of conflicts to resolve, and three times the number of touch points to keep active.  For those whose schedules are already overloaded, this first Rule of Three might suggest making cautious predictions about the likelihood that the Chinese major customer relationship plan will be successful.

Most strategic account managers can relate to this rule.  Their experiences almost always include situations in which there was a lack of alignment across the business functions within the customer organization that they were managing:  purchasing disagreeing with engineering, sales in conflict with manufacturing, etc.  Issues of alignment typically reflect conflicting priorities across these business functions.

The issue of misalignment among the three participants in a Chinese joint venture is far more challenging, since the conflict may be strategic in nature.  The western firm may, for example, see the relationship as a means by which they can increase their own profitability and reward their shareholders.  The Chinese participant may see the relationship as a means by which they can gain technology and develop key competencies relevant across their broader universe of operations.  And the managers of the joint venture, at least after they’ve been in place for a while, may act like most entrepreneurs do when given the chance to do a start-up, focusing far more on their own enterprise than either of its “parents” and concerned first and foremost with the success of the start-up and the rewards that accrue to its leadership.

In the case study we used to introduce the Rules of Three, this strategic conflict was in place.  The western firm’s goals were profitable growth.  They looked at the joint venture as a way to extend the useful life of some of their product lines, viewing the Chinese market as lagging western markets.  The Chinese firm, which had global aspirations of its own, became frustrated when the joint venture failed to help it gain access to state-of-the-art technology.  As a result, they turned to other avenues to drive their own success, excluding the joint venture from these efforts.  The joint venture’s own leadership, with personal aspirations and pride both factors, saw the venture’s failures; as a result, the leadership turned over seven times in ten years as the leadership saw greener pastures elsewhere.  Compounding this strategic misalignment was the problem of “Chinese silence”.  The Chinese participants in this situation choose to politely remain quiet rather than focusing attention on the problem that existed.

This is frequently the situation that will be faced when the strategic customer is a joint venture in China.  Solving the problem of strategic misalignment within your customer’s universe is never easy, but three guidelines can be identified out of past success stories and horror stories:

(1)   Work very hard to gain a clear sense of the strategic foundations of the relationship among all of the participants, as without that understanding, nothing will ever make sense.

(2)   Know that you will always have three viewpoints to choose among:  one favorable to you, one unfavorable to you, and a middle case.  While it will be tempting to select the favorable viewpoint and declare success, know that the unfavorable viewpoint will always succeed in derailing your plan.  Most of the success stories that we’ve observed involving giving significant attention to the weakest link in the chain and finding a way to keep it from reaching the breaking point.

(3)   Draw an analogy from baseball.  Try to get a strike on the corner of the plate.  Then try a curve hoping the batter will just hit a long foul ball.  Then bring your power pitch down the center of the plate to get the out.  The business analogy for China?  First try out an idea to see how much attention it draws and what the perspectives are of the various parties.  Then attempt a test case that will engage your threesome of customers, but do so using an issue or decision that doesn’t put too much at stake in terms of your own organization’s interests.  Only after all that is assimilated, go for the close with your best fastball.

The Third Party in a Chinese Relationship

Rule #2.  There will always be a third-party involved in discussions involving customers in China.  And that third party can in fact have multiple faces.  The third parties are, of course, the Chinese governments.  While many western observers see rampant free market economics at work in China with entrepreneurship very alive and well, it remains true that governments – national and regional – are very active in every organization’s decision making.  The term “stakeholder” has quite different meaning in China than in North America or Europe.  With China’s government responsible to its citizens for so much, it is inevitable that every Chinese organization remains quite responsible to its governments.  John F. Kennedy’s “Ask not…” quotation is very applicable to the Chinese business environment.

What this means to your relationships with your customer in China is that you must consider whether your plans and ideas will survive the test of this third party.  An example at the simplest level of the spectrum would be a plan by which you would supplant a competitor and become the sole-source supplier.  In the west, that involves a two-way discussion between you and your customer.  In China, the third party will enter into the equation.  If, for example, the supplier to be supplanted is a Chinese firm, your customer may be told that the answer to give you is “No” even if the economic case you provide is compelling.  More complicated examples involve the government in various other ways, but this third party always remains a factor in relationships in China.

If the lessons of this paper all seem to imply more and more work, your reading is accurate.  Success stories associated with Rule #2 include the following:

(1)   Make an investment in relationships with the relevant Chinese governments.  Learn their objectives, gain enough insight to anticipate their reactions, and work as hard to pre-sell them as you would with any key influencer in a major customer relationship.

(2)   Attempt to get the government to have a stake in your success.  To a certain extent, that means “becoming local to China”, making contributions (e.g., by employing people there) to topics which matter to the government.  This is akin to the advantages of being on the inside looking out rather than on the outside looking it.  It’s a steep uphill battle to go against a Chinese firm if the government has a stake in their success.

(3)   Apply Rule #1 to Chinese government.  There will certainly always be at least two faces, often three, and sometimes more than three faces to the Chinese government.  The two sure-thing faces are the Chinese national government and the local government where you are operating.  Sometimes local government is itself plural with multiple jurisdictions in place.  Sometimes there are relevant agencies without alignment at one or more levels of government.  All the commentary associated with Rule #1, above, applies to the various faces of government.

The Three Time Frames of a Chinese Relationship

Rule #3.  When managing a relationship in China, you must address three time frames:  today, the “fast tomorrow”, and the “long tomorrow”.  Ignoring any one of these raises the probability of problems that will disrupt the relationship.

It is first useful to define these three time frames.  Issues associated with the “today” time frame are not unlike those involved in any geography with any customer relationship.  Gaining agreement on terms, contracts, contingencies, roles and responsibilities, and all the other elements of a business relationship must be accomplished in China.  The processes may be different, along such dimensions as the relevance of history, the importance of personal relationships in the discussions, and differences that still remain in China between “reaching agreement” and “taking action”.  But the “today” dimensions of managing a customer relationship in China are more similar than dissimilar to those of other countries.

The “fast tomorrow” time frame poses a significant challenge for relationship managers.  In China, we frequently observe that the snail’s pace that leads to a decision is accompanied by bullet-train speed once the decision is reached.  This means that the individual responsible for keeping the relationship with the Chinese customer on track must mobilize his or her own organization’s resources for fast-paced implementation.  We have noted in earlier research[1] the importance of an organization-wide commitment to the success of a strategic account relationship.  Such an organization-wide commitment allows excellence in the various Implementation Competencies, which are pivotal to a sustained major customer relationship.  In China, these competencies will be tested by the triad of pace, distance, and unfamiliarity.   Getting all relevant departments and functions ready to meet the expectations of the “fast tomorrow” will be a key challenge and a key determinant of success.

The “long tomorrow” time frame suggests the fact that in China, all things will change.  The objectives that seemed to dominate the discussions today will become irrelevant before too long, and the executives responsible for the relationship will have to be prepared to renew it along some new dimensions.  One can say this is no different than the “What have you done for me lately?” question that strategic account managers hear every day from their western customers, but we think the character of the “long tomorrow” in China is different.  In western cultures, the metrics that are used to answer the “What have you done form me lately?” question typically don’t change:  the relevant answers are always “helped you to make more sales”, or “helped you to get a higher price” or “helped you to take costs out and become more profitable”.  In China, the question might not have anything to do with any of these three answers, as the question might have a foundation in social policy or a newly defined goal or the just-revealed fifth year goals of your customer’s five year plan.

Success stories in successfully managing the three time frames are, in fact, more difficult to come by than were success stories relating to the two prior rules.  With that caveat, what we have learned to date suggests the following lessons:

(1)   Test all your plans and initiatives against the three time frames.  Like was the case in the discussion of the three viewpoints, the wisest assumption is once again that you’re only as strong as the weakest link.

(2)   Pay tremendous attention to the “fast tomorrow”.  This lesson is more driven by horror stories than success stories, but it is in fact true that the pace of China has overwhelmed the processes and systems of many very strong companies.  We’ve observed organizations that did well at implementation in familiar environments, but were thwarted trying to keep up in China.  The villains were varied, but all the lessons we’ve learned about the importance of meeting customer expectations about “on time, in full, on spec’s” apply to every dimension of customer relationships in China.

(3)   Recognize that you can only have a chance of addressing the “long tomorrow” by developing intense personal relationships with those in China with whom you are working.  In an earlier paper[2], we described this intensity as one of the biggest differences between managing a strategic account in China and doing so elsewhere.  One of the payoffs from investing in strong personal relationships in China is the likelihood of being able to gain some insights relevant to the changes that must be addressed in the “long tomorrow”.  Even the most experienced western participants in the China market know that there are aspects of that environment which they will not understand.  Having a “guide” that will keep you ahead of changes is the Chinese equivalent of finding a “great champion” in a traditional western customer relationship.


Success in managing important Chinese customer relationships requires a realization that the organizational structure relevant to your firm’s success is typically more complex than is the case in the west.  With so many customers representing the product of joint venture (and other) structures, the challenge of relationship management takes on additional dimensions.  This paper has defined three Rules of Three that can facilitate success with Chinese customer relationships.  The first rule focused on the many faces that exist to a Chinese customer relationship.  The second rule focused on the importance of government third parties.  The third rule focused on the multiple time frames that must be managed in the context of a Chinese customer relationship.  For each of these three rules, several lessons that have emerged from experiences in working with firms that have been successful in China have been provided.

[1] Atlee Valentine Pope, David G. Hartman, and George F. Brown, Jr. The Unwritten Rules of China, Blue Canyon Partners, Inc., ©2005.

[2] Atlee Valentine Pope and George F. Brown, Jr., Implementation Competencies: Creating Long-Term Growth Foundations, Velocity, First Quarter 2003.

[3] David G. Hartman, Atlee Valentine Pope, and George F. Brown, Jr., Offices, Chicago and Chengdu, Velocity, Winter 2007.

Related Insights

Price Conflict Strategic Account Relationships

Is Price Conflict Disrupting Your Strategic Account Relationships?

Imagine that your company has put in place a bold new plan for growth. The plan involves opening a new channel to market–selling through big...
China's Competitive Environment

China’s Future Competitive Environment

‘No Time for Losers’—Is Samsung a precedent? Note: This article is part three of a three part series. The first article is "We Aren't The...
Growth Choices

Growth Choices: Which Business Units Offer the Greatest Potential?

The lyrics to The Gambler focus on choices: "Know when to hold 'em, know when to fold 'em." For most businesses, identifying the best choices...