Brazil and China seem like polar opposites. What led you to focus on those two countries?
DANIEL: It was a combination of coincidence and planning. I always toyed with the idea of becoming a consultant. When I was younger, I took advantage of industry opportunities and then went into consulting at 35. But I had been in Brazil for a long time, and nine years ago, my brother and I said, let’s do it together. Strategically, it worked well.
LUTZ: I encountered China for the first time 20 years ago, and then it became a recurring theme in my life. During my studies and internships, I went to China. I worked for a major automotive supplier and had to deal with the country too. I noticed that there were very few Chinese specialists in large companies, but there is a great need. At the time, I was already quite experienced with China and spoke the language fluently. So, I came up with the idea of becoming self-employed. We started with automotive suppliers. Meanwhile, we work on everything that has to do with technology in the market. Over the years, a clear focus has emerged on advising partnerships between German and Chinese companies. There was and still is a gap in the consulting market. And that became our niche.
There are immense cultural diferences between Europe and China. What are the most striking ones companies routinely face?
LUTZ: In business terms, the most important question is what kind of person am I dealing with; for example, as a European buyer talking to a Chinese seller. And we have found that the similarities of the function as a buyer and seller can often compensate for cultural differences. It does not matter so much whether I’m dealing with a salesperson from China or France. The national cultures are very different, but they are still a seller and they have many things in common. Experienced businesspeople usually get along very well with people from other cultures, because they interact based on these functions. Nevertheless, cultural differences play a role. In China, the focus on the group is a big difference to Germany. In addition, there are generally clear hierarchies in Chinese society. That explains why titles on business cards are so important. You study them intensively when you get one, because you have to know where you stand in relation to the other person.
Do Chinese people basically have the same understanding of hierarchies as us?
LUTZ: That’s very complex. It depends on the company, who’s the customer, and who’s the supplier. The customer is always king, but you have to consider the size of the company too. The big one is more important than the little one. If a large company supplies a small one, but at the same time you have a high-ranking salesman sitting opposite a young buyer, then it really gets tricky. That’s why people in China often go out to eat with business partners to build relationships.
Are Chinese open to Western business culture and forgiving of missteps?
LUTZ: I call that my “call to serenity”. As a foreigner in China, you can theoretically do a lot wrong, but every effort is perceived positively.
Seems very complicated. How is it in Brazil?
DANIEL: Much less so. The culture is very European or American-influenced. People are pretty informal and open-minded. This has some advantages. You are welcomed with open arms. In many Brazilians’ eyes, everything that comes from abroad is thought to be better quality per se, like the managers who come over here having a better education than the local ones. That’s the stereotype that prevails here.
The stereotype sounds like it is not the case.
DANIEL: Well, of course, there is the tendency for good people to be sent abroad. But the fact that Brazilian culture is much more similar to ours also has disadvantages. You can misjudge the market here, because you simply assume it’s like Europe. People think, “Great, that’s like Germany, we’ll do it all ourselves.” But that’s often a mistake. In Brazil, you need a lot more flexibility, professionally and privately, because things are difficult to plan. Twenty years ago, when inflation ceased, I got an excel sheet from the head office with the request to enter a ten-year plan. I laughed because I would barely know what I would sell next month. Many things are incomprehensible to us Germans, such as why a licence has not been issued for three months or why the fire brigade has not come to inspect the production hall. Brazilians just know the ways to assess and accelerate these processes.
How can you speed things up?
DANIEL: Be persistent. The question is, of course, how should I be persistent? If a German comes and thinks they can just put up more resources or money to get what they want, you can really shoot yourself in the foot if you do it the wrong way. It’s a sensibility only Brazilians and people who have been here for a long time possess.
Cultural diferences aside, what are the possibilities for German or European companies to enter the Brazilian and Chinese markets?
DANIEL: The typical case in Brazil is this: I want to sell a product that is probably better quality than the local one. The price is higher, but that is okay, because people here pay for superior quality too. For that, you need a partner, be it a sales partner, an importer or a trading company. You could do everything yourself, but it is much more difficult. And you need a plan B right from the beginning. In other markets, I would not necessarily come up with a plan B, but it’s needed in Brazil. And we recommend entering the market step by step; start small and get to know the market and customers in general. When a company feels safe and knows where the pitfalls are, the next step is taken; for example, founding a local company.
LUTZ: China is much more predictable. Most of the things companies ask us to do, we’ve already done at least once, and usually it will work a second time. This reliability lets you put so many resources, such as money and staff, towards plan A that you can hardly afford a plan B. The good news is that there are many German companies in China, and over 6,000 are active in the Greater Shanghai region alone — three times as many as in all of Brazil. There are so many models you can choose from, like office-in-office solutions or service providers for German companies to partner with. There are 15 to 20 business models on hand. In contrast, Brazil has one or two constructs that could be considered.
What would you say are the biggest hurdles for European companies?
LUTZ: In China, you have to make a distinction between entry into the market and the challenges you face once you are established. When entering — that is, in the first three years — you try to understand the basics of the country, like the language, the manners, the culture, the power structures, the regional structures. That’s pretty complicated, but once you know how it works, you’ll be fine. Owing to regulatory requirements and the search for the right personnel, the early days make for intensive consultation. Once inside, the hurdles that companies mention are with Chinese competitors, government distortions of competition, cybersecurity, and limitations on the internet and communications. You cannot do proper research on anything in the West via legal channels in China. The Chinese search engine Baidu is not at all set up to return information that would be economically useful from the Western point of view.
DANIEL: For Brazil, I would raise two points. Firstly, the bureaucracy is very demanding and probably worse than in Germany. And secondly, the country’s complexity, its size, and the logistical difficulties.
And the current political situation?
There’s a national crisis.
DANIEL: Brazil is unstable, but the economy works somehow. The economy always goes up and down, but there are never really any brutal swings, at least on the macro level. It is a constant wave motion. This also means, if there is a crisis like now – and we are talking about the worst crisis in decades – companies don’t panic. They cut costs and fire people, but production sites are rarely closed. They produce, sell and continue their business, simply waiting until things recover. You weather the storm.
LUTZ: That’s our experience from the past decade in Brazil. If things go badly, the business languishes. When business is bad in China, you immediately burn money. Therefore, there is more pressure to act. My perception is that if German clients in China have a problem, they immediately put a lot of effort in it, and often also money.
You are very well-versed in the national languages. Would a company that wants to enter the market make progress with English only?
DANIEL: My answer is no. You do not get far with English at all. Few people speak English and even fewer speak good English. If I want to build a business and the authorities do not speak English and the websites do not have an English version, then it is only possible to move forward with Portuguese.
LUTZ: If you want to operate in China, that only works with Chinese. So few people speak English that inexperienced companies can be misled. You will find an English-speaking contact person who you can use to set up a business. I just got off the phone with a company that failed spectacularly with this. They set up a site in eastern China because they got along well with the site’s promotion manager. He was then hired by the company as the manager. The Germans thought it was a great opportunity, because he knew everyone locally. But it turned out that he had no idea about the business and just brought his acquaintances into the company. Who in Germany would hire a government employee to run a business? A classic mistake is also that companies go to China and work with interpreters who do not understand the business, but get a permanent position. Sometimes it works, but unfortunately it is not quite as common that the interpreter you hired is also a good salesperson with technical expertise.
From your experience, is it more difcult to enter the
Chinese or Brazilian market?
LUTZ: The first step to founding a company is bigger in China than in Brazil. On the other hand, I would say, in general, you can do more and more innovative things in Brazil.
DANIEL: Going from zero to one hundred in Brazil is impossible. But if you do not stress out and say ‘in five years I want to be in the market’, it’s not difficult, because you can afford the luxury of learning. We are also there as consultants to minimise the mistakes.
With years of international consulting experience under your belt, do you believe that the two countries of expertise mirror your personality as brothers?
DANIEL: As for Brazil, I would say yes.
LUTZ: As far as my own Chinese characteristics are concerned, I’m the wrong one to judge. I hope I got some of the positive qualities, like flexibility and a long-term approach, relationship negotiation, and patience. German industry has an excellent reputation in many countries, but it sometimes makes us a bit too self-assured when dealing with people overseas. I think it is important to keep in mind that we can learn from other countries as well. Intensive international activities are a very effective way for continuous improvement – and a fun way, too.