Doing Business In China

My colleague, Crystal Jiang, is an exceptional young faculty member who studies and teaches international business strategy. She has done some excellent work, particularly on Chinese businesses. In one recent study, she found that Chinese executives trust their overseas partners differently depending on whether or not these partners were of Chinese ethnicity. Many Chinese have emigrated to other nations, particularly in Asia, over the years. Overseas Chinese are a very important economic force behind foreign direct investment in China.

Jiang distinguishes between two forms of trust: cognitive and affective. Cognitive trust is about your "head" - it's based on one's assessment of another person's knowledge, competence, and reliability. Affect-based trust is socio-emotional in nature - it's about your heart, not your head.

Jiang finds that trust plays a key role in investment relationships between Chinese firms and foreign partners. In particular, she finds that Chinese executives have higher affect-based trust, but lower cognition-based trust, in overseas Chinese than non-Chinese partners. As people think about doing business in China, they should consider how critical the role of affect-based trust can be, as well as the important role that overseas Chinese can play in forging key business relationships with Chinese firms.