Got to Have Face - Industry Trend or Event

China's work culture places a premium on personal relationships. That makes business-to-business e-commerce a tough sell.

MANAGERS AT THE HUANGSHI Hardware Factory in southern China knew they could be using the Internet to sell bolts and ball bearings to buyers in the United States, but it wasn't until an old acquaintance stopped by for a cup of tea in July that they decided to actually try it.

"He used to work for the trading company we use," says Shao Zhong Yao, manager of the factory in Guangdong province. "We've known him for seven or eight years. When he changed jobs and started working for this Web site, he came by and told us that a U.S. company was looking for the kind of products we make and that we should try their online bidding auctions."

It also took a good old-fashioned sales call to convince the Fulaite Factory, in China's Zhejiang province near Shanghai, to sell its mirrors on a business-to-business Internet site. "Someone from MeetChina.com found our company and told us that they were doing a site," says factory manager Yuen Hong Liang. "Then they came and told us about their buyers and what services they would provide."

E-commerce between companies promises to generate all kinds of savings and efficiencies by cutting out middlemen as products wind their way from factory floors to store shelves. Corporate buyers for U.S. retail stores, for example, have long found goods from China by poring over dusty catalogs, traveling to distant trade fairs and hiring agents to do the legwork for them. In theory, e-commerce should automate much of that laborious routine and make it easier for buyers in the United States to find suppliers in China.

But automating commercial transactions is proving exceptionally difficult in China, where personal relationships, or guangxi, are of paramount importance in business and daily life, Dealing with strangers is generally eschewed, and any kind of ongoing business typically requires investing a great deal of time in personal contact. "It is about forming relationships by visiting someone's family home, going to their favorite restaurant. That can't be automated," says LiAnne Yu, an anthropologist who works for GVO, a Palo Alto, Calif., consulting firm that studies how Asians interact with computers.

Corruption, another accepted habit in China, also impedes replacing face time with Web sites. Exports are typically handled by powerful middlemen who know whose palms to grease, for example, to ensure that a cargo container gets to to the right place at the right time. Suppliers also are known to nurture customers with overseas trips, gifts or even cash.

Realizing the importance of personal contact, Internet companies are hiring large staffs on the ground in China. MeetChina.com has 600 people scouring the seaboard and inland to visit factory owners and help them get postings online. Global Sources has 500 people in China who crisscross similar routes. Visits also mean that the companies can check on how factories are operating and inspect their wares.

"When we looked at cross-border trade, there was a general lack of trust between buyers and sellers. If you can use on-the-ground intermediaries to rate suppliers, it helps," says Len Cordiner, chief executive officer of MeetChina.

One b-to-b firm, Alibaba.com, hosts gatherings where online traders meet and greet over drinks at a hotel or in a cordoned-off section at an old-fashioned trade show.

This month at the Guangzhou trade fair, a semiannual ritual that assembles buyers from all over the world and sellers from around China, Alibaba will hold a Face to Face Membership Meeting. It hopes to gather new members and encourage existing ones to use its site for business.

User conferences, of course, are nothing new for technology firms, but in China the expectation of personal contact with each and every potential business partner makes them especially important, and tedious. Joseph Tong, CEO of MeetChina.com's China operations, says that he has gotten grief from investors and venture capitalists for MeetChina's low-tech, knocking-on-doors approach. Replacing old middlemen with new middlemen, after all, is not exactly the sort of efficiency the Internet is supposed to reap.

But he and Chinese Internet executives insist that massaging relationships with sellers at trade shows and in one-on-one meetings is key to tackling this potentially very lucrative market.

"The biggest problem is not technology or infrastructure. It's people's mentality toward doing transactions on the Internet," says Joe Tsai, chief operating officer of Alibaba.com. "Habitual behavior is hard to change, so we are focusing our efforts on making the online experience an extremely easy process for people to adopt."

While a great deal of China's growing online Internet population is young and technologically sophisticated, most of the businesses that contribute to China's $194 billion in annual exports to the United States are less Net-savvy. One solution is to target sellers by sending short messages via the cell phones that most managers carry, says Edward Zeng of Sparkice.com, a China-based Internet company that is trying its hand at the b-to-b game.

Many Chinese managers also aren't proficient in English and are unaccustomed to dealing directly with overseas buyers. Middlemen working for domestic trading firms often handle that for them.

B-to-b companies think that eventually Chinese sellers will drop the attachment to interacting in person, once they realize how efficient doing business over the Internet can be and how much money it can save. Goldman Sachs estimates that b-to-b commerce in China could be worth $209 billion by 2005.

Anecdotal evidence in China, however, suggests that may be overly optimistic and it will take longer for companies to use the Net. Yuen, the manager of the mirror factory, says MeetChina.com is useful; he has participated in its auctions for Stanley Tools, a large tool and door maker in the United States. But he has yet to lock in any orders, and until that happens he isn't going to post any further queries on the Web site.

Similarly, Shao, the hardware factory manager, has yet to land any business through MeetChina.com. But he says he likes the idea of being in contact with buyers in the United States via a Web intermediary. He realizes that it's basically replacing one intermediary with another, but there's an important difference -- the Internet is basically transparent, whereas traditional middlemen often expect a little extra payment on the side.

"The site is still an introductory person," he says, "but they don't take any money like the old kind of middleman."

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