Capitalizing on Trust
As relations with the West stiffen, Russia is ‘turning to the East’ and pursuing stronger ties with China. Though the political relationship between Moscow and Beijing is better than ever, bilateral economic achievements are not as apparent. This will require a substantial commitment to building mutual trust and cultural understanding that must come from both sides.
In May 2014, Russia’s Gazprom and China’s CNPC signed an estimated $400 billion deal to supply natural gas to China. The ‘epochal event,’ as President Putin put it, was completed after more than a decade of negotiations. The delay was due to a disagreement over the price, which still remains undisclosed.
This is a milestone deal – not only because of the large sum, but also because it is a symbol to the business community that the channel between the two countries is open. Although China and Russia share a border, they have not completed many deals in the last 25 years. This is particularly surprising given that both states have routinely declared that a strategic partnership exists between them.
But does this historical gas contract mean new deals between Russia and China will happen quickly? In fact, I see a lot of interest and focus from Chinese and Russian businesses as they try to follow in the lead of their governments, but there is still an inability to close deals. Indeed,
at last check, the deposit due on the aforementioned gas deal had yet to be received from China. And one can speculate why.
Leaving aside politics, I daresay the answer may boil down to the fact that Russia and China, in contrast with Russia and Western Europe, do not have a long history of mutual business, and thus lack the trust and the understanding that come with that. The seeds of trust are there, but it has not yet grown to a level where businesses can agree on mutually successful projects. Indeed, when I talk to Russian businessmen or Russian government officials, I often hear, “We don’t understand one another. We don’t know what the Chinese want.”
What could explain this? I think some of the primary causes are the differences in culture and expectations.
Chinese and Russian time horizons are frequently very different. When looking to the future, Russians typically have a much shorter time horizon; in the current environment, people are looking ahead for a maximum of 18 months or one year, if that. On the Chinese side, I see that people have a 20- to 30-year horizon. With such a long horizon, there is no reason to be in a rush when talking business. There is much less at stake in the short term, at least on a personal level, on the Chinese side because people there understand it will take a long time to get where they need to go. This is in stark contrast with the Russians, who tend to want the deal done now.
Another striking difference is the individual motivation in preparing deals and negotiations. I once heard an informal discussion between a Chinese and a Russian delegate on the sidelines of a major government-to-government roadshow. It was along the lines of the following: “How did you find your way to your government’s organization? What was your motivation?” The Russian guy said, “Well, I had a very good job before and the government paid me very well to do this. I am very happy with the opportunity it gives me, but most of all, I am glad I am paid very well for this job.” His Chinese counterpart responded, “Well, I am here because I see a great opportunity for me personally. But in taking this job, I had to convince my wife why I should take a pay cut of 50% compared to what I was getting before. I am doing this because it is good for my country.”
One can then start to understand what differences in culture those motivations bring, and what impact they have on people’s decision-making and ability to negotiate. On one hand, you have a guy who needs to meet his KPIs, who is hungry and wants to close a deal very aggressively to get his bonus. The other guy, meanwhile, is not motivated by money and so has less psychological pressure to close a deal quickly. Thus, he can pursue the best terms, using the fact that it might take a long time – years or even a decade, as we have seen in the case of the recent gas deal – to reach a good deal.
Getting the ball rolling
Considering the sharp mismatch between the understandings and motivations of the people involved, as well as the culture that this creates, one should naturally wonder how to address this issue of how to really get the ball rolling.
In fact, there is no silver bullet. A baseline is to understand the true traditional cultural differences and what you should and should not do culturally – in Russia or in China – to successfully complete deals. But this alone is not enough. There is always the requirement to spend more face time together, and to listen to and understand one another.
Investing time and money in understanding your neighbors is essential to business success and international trade. However, understanding one another and building trust is not a one-year or two-year proposition. The whole process takes decades to properly develop. This does not mean that the current generation of Russians and Chinese cannot achieve this, although getting it moving on a large scale and catching up on the last 25 years is going to require some very heavy lifting, and a lot of thinking outside the box
It would be a good idea for the Russian government to sponsor exchanges with China. They could arrange comprehensive exchange programs for students, business people, and government officials for meaningful amounts of time – maybe two to three years. These experiences could focus on language and culture to facilitate an accelerated understanding. Perhaps the government could sponsor private initiatives or underwrite projects to spur the whole process, which would prove to the Chinese that Russia is a good place to do business. It would get Chinese people coming here to live and work so that they would return to China with stories that encourage others to come to Russia to do business. It would make them feel like they and their investments were welcome, and that they could be very successful.
Investing time and money in understanding your neighbors is essential to business success and international trade. However, understanding one another and building trust is not a one-year or two-year proposition. The whole process takes decades to properly develop. This does not mean that the current generation of Russians and Chinese cannot achieve this, although getting it moving on a large scale and catching up on the last 25 years is going to require some very heavy lifting, and a lot of thinking outside the box.
The good news is that there is another thing which facilitates this process, which is the spreading of a global culture. People already trade extensively across borders. Equally important, younger people have more opportunities to travel and experience a global life at an earlier age. There are more and more international people around, and they have a better understanding of different cultures and are very mobile and global in their mindset.
To put the whole idea in a nutshell, it is critical that Russia and China develop an appreciation of the effect of cultural differences as a basis for building the in-depth understanding, trust, and mutually satisfactory relationships that are prerequisites for generating good financial returns for both parties. If done well, the mutual benefits could be enormous for both Russia and China alike.