CHINESE GOODWILL EXTRACTION - WWSC Zoom Call - Module II Session 1 [transcript]
8:00pm Pacific Standard Time (PST), April 7, 2019
[00:00:06] Hello. Today is our second live coaching session for Module 2, and I apologize that I had to cancel the last one from Module 1, but we will make it up over the next four weeks. So basically, I'm not being able to simulcast this on Facebook because as you all know I am in Phoenix for a conference, and so I am now set up in my hotel room. And I do have my microphone set up. I kind of tested everything, and I think the lighting in here is actually pretty good. So, I'm just gonna do the live Zoom call from here. It's just now 8:00. I just sent the final reminder in the Facebook group that the live call today has started.
[00:01:12] If nobody comes in the session will be recorded, and it will be uploaded into the Google Drive. And what we really want to do with these sessions because this is now really just a pilot program, which means that you are helping me to refine how best to deliver value to people who want to learn how to communicate and negotiate effective winning partnerships in China. So obviously this course is really focused on partnering and working with partners. But the things that you will need to learn and to develop and to adjust in order to negotiate winning partnerships in China and understand what that means, extends well beyond just partnering.
[00:02:05] It extends to leadership. It extends to how do you incentivize and motivate your local employees. It extends to how you sell to Chinese consumers. This extends to how do you communicate or negotiate with government officials. And if you are, it also extends to how you work with your fellow co-workers if they happen to be from China and this is often one of the greatest challenges. If you are a foreign manager in China and you're working with a lot of local Chinese leaders and managers that are also part of your organization. And what is the dynamic of the foreign managers and the local managers, and that creates a lot of interesting challenges, but it also creates a lot of opportunities.
[00:03:00] I just wanted to share a little bit more about my experience this week at PLF Live. So what I did is I attended a conference organized by Jeff Walker, and Jeff Walker as basically he calls himself the O.G. or original gangster or old guy that stands for Original Gangster, but basically he is really the godfather of helping people launch information products online, and one of the things that I decided I wanted to do after spending seven years in China working as a consultant, working as an instructor, working as a trainer when I when I moved back to the US in 2017.
[00:03:57] I decided that I have a lot of I don't know if you want to call it wisdom, but I have a lot of experience, and I've developed a different way to help foreign managers understand how to do business in China, how to eliminate their frustrations, and how to be successful. And there's a lot of case studies, but the biggest case study is probably myself and the transformation I made from the first time I arrived in China in 2004 by ferry.
[00:04:32] I've been doing business in Asia for many years. I was country manager for an American company in Taiwan in 1996, so by the time 2004 rolled around I had already had eight years of experience working in Greater China and Asia and really understanding how Asian business culture is different than American business culture. And one of the things that I also had, which I thought was an advantage back then was I spoke fluent Mandarin Chinese.
[00:05:15] So, experience working in Asian countries including Taiwan, engineering degree, MBA degree, and fluency in Mandarin Chinese. So really I didn't think there was any way that I could fail in Mainland China, and the company that hired me probably also felt the same way because what type of qualifications do you really need or do you want or do you desire if you want to develop the market in China, and you want to set up distribution, you want to develop key accounts, whatever it is. So, I basically checked all the boxes of experience and qualifications that you would want and a leader to send to China.
[00:06:11] But back in 2004, you know, China in 2004 wasn't nearly the China that it is today. And what do I mean by that. It means that China has dramatically increased its influence on the global stage. And as China has increased its influence on the global stage, so have the mentalities and the attitudes of a lot of people in China. OK, so certain attitudes have changed dramatically, but certain attitudes and certain cultural elements have not.
[00:06:56] So the mistakes that I made in 2004 would still apply today. OK. So, what are really the mistakes that I made in 2004 that ultimately led to partners that I had developed and cultivated and worked with ultimately doing some things that we as Americans or Westerners would consider corrupt.
[00:07:22] For example, they were siphoning products out of the supply chain and kind of reselling them back into the supply chain. OK. So, there's a lot of examples that you hear in the news about this all the time. They also registered our company's or the company that I was working for, our trademarks in China. And you know that can cause a lot of problems because global trademarks don't directly have validity in China unless you also register them in China, and a lot of foreign companies, especially smaller foreign companies didn't really think about that in advance and our company was no different.
[00:08:17] You know Apple also experienced this issue when somebody had registered iPhone in China. And I think Apple spent a lot of money and resources to reclaim the right to use iPhone in China. Now obviously a company like Apple has the resources, but most small to medium companies do not have those resources. And it just ends up being really a tremendous drain on productivity and resources to have to encounter those issues. And my channel partner also created fake products and fake labels. And ultimately, and this happens a lot, ultimately became a competitor because they were also manufacturing products with the same labels, even though it didn't have the same performance.
[00:09:16] And I now call all of this GOODWILL EXTRACTION.
[00:09:24] I don't call it corruption. Everybody else in the world calls it corruption, but I call it goodwill extraction. And the reason that I call it goodwill extraction is because the partners that you work with in China, none of them enter into the partnership with the intention to do something that you would consider corrupt. The thing to keep in mind, and this is what this course is all about, is that figuratively speaking, not literally, but figuratively speaking for Chinese people, the negotiations begins after the contract is signed.
[00:10:03] So think about that for a minute. What does that actually mean. What that means is that we as Americans during the negotiation process, our objective is to get a signed agreement.
[00:10:20] And when we're meeting perspective partners for the very first time or we're in the negotiation process, what we try to do is we try to be really transparent. We try to develop great relationships. We try to create synergy and alignment. We're usually very transparent about what we can do and what we cannot do. And we're trying to see if we can find somebody who shares our values and is the fit with what we're trying to accomplish, and then ultimately if we're successful we get a contract that we believe the terms are favorable to us. The problem is after the contract is signed, we stop negotiating!
[00:11:04] And what does that mean in the context of doing business in China?
[00:11:07] It means that we are no longer exchanging goodwill and reciprocity. And the cornerstone of everything that you do in China revolves around this concept called Guanxi. And in I think its module 5, we'll really get into the details of something that I call the Guanxi Engine, and how and what are the nuances of developing Guanxi, and how is it different than just a business relationship or a good relationship with people that you work with in your own country.
[00:11:44] And understanding that is key, but just the one overarching principle is that Guanxi is based on a continuous exchange of goodwill or what we would call reciprocity. Okay. And what happens is, if you stop exchanging goodwill with your partner after the contract is signed, then you have a goodwill deficit. OK. And if you really understand how the Chinese mentality in the Chinese mind actually works, then over time, when Chinese people start to feel that, well my American partners are no longer listening or they don't listen, they don't know understand what my real needs are. And they just want to do things their way. They get frustrated just like we get frustrated, and some of the other activities that we perceive are corrupt is really them saying that I think what's happening now is no longer fair, and of course in a bilateral relationship, there is no person, there is no one side that can judge what is fair and what is not fair.
[00:13:05] But when does Chinese feel that the relationship is no longer fair for them. What they will do is say, well you're doing business in China. I'm Chinese. I understand the value chain or the supply chain much better than you, as my foreign partner. And I know where the cracks are, and because I know where the cracks are, I know where I can extract additional value out of the supply chain or this value chain. Because that's the only way for me to get what would be fair.
[00:13:41] OK. And that's why we perceive a lot of this activity as corrupt. And by a technical definition or a literal interpretation. Yes, it is corrupt. But I think of it as something called goodwill extraction, because it's really you're not paying enough attention to your relationship with your partner. Or not exchanging enough goodwill, not developing the Guanxi, not being empathetic to what they really value and what they really care about, and lacking the awareness of what's going on in the relationship, and not having any context because you also lack a cultural understanding, you lack cultural awareness.
[00:14:23] And what happens is they start to extract goodwill out of other areas. And then if you think about it in that context, then it's really not corrupt behavior as it as much it is goodwill extraction. So that's really important to understand. And the one thing that I want to share with everybody in this program is that goodwill extraction is one hundred percent (100%) preventable!
[00:14:57] OK, but it's really hard to prevent, you know why? Because you actually have to develop a different mindset. Now I call this mindset a mindset for China business, but because your perspective and worldview is really deeply embedded in who you are. It's not easy to develop a new mindset, but it's possible.
[00:15:25] And I will also show you how throughout the course of this program. And once you develop a mindset for China business, something else happens. You start to make some natural and healthy adjustments to your attitude.
[00:15:44] It doesn't really matter what you say. The literal words that come out of your mouth. It's more important how you say. Your attitude, the attitude you have behind your words, will have much greater influence on how Chinese people interpret and perceive those words. So it doesn't really matter what you say if you don't have the right attitude or a healthy attitude. You are not going to get the responses that you desire.
[00:16:23] OK. So it begins with a mindset for China business, which leads to an adjustment of your attitude. So what happens after that. Well I actually call it the three controllable factors to be able to achieve a different result when you're doing business in China. And that is making the adjustments to your attitude, mindset, and approach.
[00:16:46] So once you develop a mindset for China business, and you start to adjust your attitude, then you're able to really adjust your approach, and your approach includes several things. It's what you choose to say, what you choose to do, and it is also your persona. The perceptions that you actually give other people. How other people actually perceive you, whether they believe you are trustworthy or not.
[00:17:19] And that is the real basis of this program is how do you make the right adjustments to your attitude, your mindset, and your approach in order to not just negotiate a successful contract with your partner, but be able to maintain a successful partnership over the life of what you want to do in China.
[00:17:44] And there are obviously many tactics and strategies that we're gonna go over in module 4. But Module 1 and module 2 is really about the foundation, and the framework, and the journey to develop this mindset for China business, so that you can start to make the proper adjustments or even the natural adjustments to your attitude, mindset, and approach.
[00:18:10] And that not only helps with your partnerships, but that helps with everything that you will do in China. All right. So again, it's really helpful for us to have engagement in the Facebook group. Also, in these coaching calls because your mindset is not going to change just by listening to case studies and examples.
[00:18:38] Your mindset is going to start to change when we engage, and you start to think differently, develop a new perspective, and do two things that we talked about in module 2, which is proactively and consciously deploy your imagination. And it has to be positive imagination, and also your purpose-driven curiosity, and that is you want to understand why people behave the way they behave and say the things they say before you pass judgment on them.
[00:19:20] And that is what we mean by purpose-driven curiosity.
[00:19:24] OK so I want to thank you for helping me improve this program, work out the bugs, work out the kinks, work out the cracks. As you can see I'm travelling, but I'm still going to make sure I consistently get on these live weekly calls as much as I can. And definitely want to hear your feedback and your engagement, and I think this kind of, you want to call it like a fireside chat, I think it was very compelling.
[00:19:58] So what I'm probably gonna do is I'm going to re-release this as a video that goes into my YouTube channel, extract the audio, put it into my podcast, and then allow more people to make comments on what we discussed today, and I look forward to the next coaching session which is tomorrow at 10a.m. Pacific Standard Time. And again, you have to make the time zone conversions to figure out what is the appropriate time to be on these webinars during your local time zone.
[00:20:38] All right. Because I know we have people in India, people in China, people in France, people I think in Chicago, I'm not sure what other US countries are. Also some people on the East Coast. So, make sure you understand or you just you convert what the local time zone is where you live. And I look forward to seeing you on a future call. We have three of these every week now for the next four and a half weeks. All right thank you very much.
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