When doing business with Asian partners, Western companies are often hindered as they negotiate an unfamiliar landscape. Companies and business units in Asia are often run by the founders and their relatives. Supply contracts tend to go to trusted friends, while knowing the right person in the right place could mean a difference of months, if not longer, in securing a licence or a key meeting.

Jean-Luc Chéreau was already an old hand in Asia before moving to China in 1999 to run French retailer Carrefour’s operations there, but he still faced surprises. When he arrived in Shanghai, the company had five contracts in hand for new stores in the country, but he noticed progress with one local partner was slow.

In an interview with McKinsey Quarterly in 2006, he explained: “Finally my assistant told me: ‘Just because he signed a 20 year contract two years ago with your former boss – a person who is not you – does not mean he will respect the contract.’ That was a big shock to me: the contract was notarised and everything. But we started to renegotiate article by article.”

Family ties

The reasons that relationships can still mean more than legal contracts are rooted in cultures that put high value on family ties and the bonds of friendship. Also, until recently in some Asian countries, a political and legal climate in which governments and bureaucracies were seen as unfair reinforced these bonds by making trust a valuable commodity.

Asian markets remained immune to the obsession with shareholder value that swept Western markets in the 1980s and peaked in the 1990s, while few family-owned businesses in the region succumbed to the flood of hostile takeover bids that had overwhelmed their Western equivalents. A 2003 white paper on corporate governance in Asia by the Organisation for Economic Co-operation and Development (OECD) observed that about two-thirds of businesses in Asia were family-controlled in 2003 (defining control as at least a 20% stake).

In addition, national governments still own significant stakes in a wide range of Asian businesses, including many publicly traded companies. This has imposed another web of key relationships.

These factors have combined to reinforce the importance of relationships among Asian companies, including those in Japan, the most developed economy in the region. In his book Keeping Better Company, Jonathan Charkham lists three key concepts that govern Japanese culture: a sense of obligation based on relationships, the importance of family (including the corporate family), and the need for consensus.

“When a Chinese company, whether a state-owned enterprise or a private company, makes a decision it always comes into so many issues, and the final outcome will be determined by measuring the impact on people,” says Ellena Au, FCMA, Chief Executive of KanTec Business Consulting in Beijing.

“Sometimes we say that Chinese companies are not scientific or fact-based, because they’re always considering so many people issues. These considerations make it more difficult than it is in the West to be sure where you look at data, sales growth, profit growth etc.”

By placing so much emphasis on individual relationships and trust, Asian firms find it harder to implement procedures that are considered best practice in the West, particularly those that increase transparency – e.g., performance-based evaluations. Their employees can view even basic control tools as a lack of trust in them.

One of the most prevalent problems is a reluctance to question decisions made by a superior. Obedience to father figures is easily transferred to obedience to anyone in authority. This is exacerbated in some companies where the chairman is the founding patriarch.