After the trip my friend was on to other clients and never found out what became of the exec and his venture. But my friend wasn’t optimistic. As is so often the case, Westerners — especially Americans — depersonalize business in a way that sets them up to fail in China. Goodwill matters. It matters a lot. It makes no difference how tired or energized you are, how hopeful or hopeless things look, how cut and dried things seem to be. Without goodwill, you’re swimming upstream, if not entirely sunk.

I turn again to Jack Perkowksi’s experiences, told of in Managing the Dragon. His company, ASIMCO, invested vast amounts of time and money in establishing goodwill with their brake-manufacturing partner in Langfang. In recounting what this accomplished for ASIMCO, Mr. Perkowski writes:

In the end, despite all of our changes in management and export focus, the Langfang joint venture will probably never be a big moneymaker for ASIMCO by itself. But because of the strong relationship we’ve built with our Chinese partner there, we’ve since spawned two wholly owned businesses.

(pp. 175-6)

Mr. Perkowski goes on to detail successful, moneymaking businesses that sprang from the Langfang success — which was founded upon goodwill.

Goodwill alone won’t get you far. Business will always to some extent still be business: you have to deliver quality goods and services that your customers want, and do so cost- and time-effectively. But if you’ve got the business practices down, goodwill can multiply itself, along with time and money, to create truly enduring, successful businesses in China.

The West, and especially the U.S., worships logic and rationality. Our economic and political institutions are founded upon it. In the context of public life, we speak of feelings in mostly derisive terms. To be “emotional” is to be weak. This makes sense in the context of American universalism: emotion is subject to personal whim, and could endanger the Platonic perfection we seek in our institutions. And relationships based on positive feelings could divert our attention from what is “true,” and have us make bad decisions. There’s plenty of psychological evidence that all humans, including Americans, make decisions based on emotion anyway. But Americans still see ourselves as a people who privilege rationality.

Logic and rationality don’t hold the same sway in China. Relationships, including business relationships, are based on many factors; personal feelings are one important factor. You’ll hear Chinese people talk about how they have a “good feeling” (hǎo gǎnjué 好感觉) toward someone, and that they’re willing to do more things for this person because of it. It used to drive me crazy at markets when people told me they’d give me a better price because I speak Chinese (and that they therefore had a better feeling towards me). “What in heaven’s name could my speaking Chinese possibly have to do with how much you charge me?” I would ask myself indignantly. Whether or not the actual price was lower doesn’t matter. It’s enough that it was advanced as a reason for a discount.

In his brilliant book Managing the Dragon, Jack Perkowski writes the following on the importance of trust — a form of goodwill — in business relationships in China:

I learned how strongly and favorably the Chinese react when they realize that you trust them.…The fact that I could set up a wholly owned facility to manufacture higher-technology compressors…would never have been possible if a certain amount of trust didn’t exist between the two shareholders.…Everybody feels involved, like we’re all part of the same family.

(pp. 177-8; I also recommend that you persue Mr. Perkowski’s Managing the Dragon Blog)

Of course trust and goodwill matter in the U.S. too. But when push comes to shove in the U.S., we rely on public institutions like the courts to arbitrate. In China, where such public institutions are unreliable, building and maintaining goodwill must be a top priority for you and your organization.