Branching out from the cultural exchanges promoted by the Neighbors Abroad program, Palo Alto leaders are eyeing new business-oriented relationships with cities around the world.

The turning point came in 2007, when the mayors of sister city Enschede, the Netherlands, and Palo Alto agreed to a formal economic alliance in addition to continuing cultural exchanges.

Last December, Palo Alto furthered the entrepreneurial direction the city is taking in its international partnerships when it established a business relationship with Yangpu in Shanghai, China. The joint effort will include student exchanges with a business curriculum, business internships for youth and collaborations between high-tech companies.

With increasing overseas investment in Bay Area businesses and real estate, the globalization of Palo Alto is a trend that cannot be ignored, city leaders said.

City Councilwoman Nancy Shepherd said the Smart City Partnership with Yangpu, which focuses on technology and green programs, is "very, very different from the type of exchange than Neighbors Abroad."

But there is still a deep need for cultural literacy in global business, she said.

"You cannot escape that, even with an economic exchange, you need to understand the culture," she said.

In Shanghai, for example, there is a thousand-year cultural rule for gifting among businesses. Cultural etiquette includes giving out business cards to just about everyone. When a Palo Alto delegation that included then-Mayor Yiaway Yeh, City Manager James Keene and Shepherd went to Shanghai in early December, Shepherd discovered there is an entire ritual involved in handing out the cards.

"They give you the card with both hands, thumbs up, and I had to do it back to them, trying not to spill my cards all over," she recalled.

"They like to do a lot of toasting. They put a teaspoon of wine in the glass for each person," she said. Whoever had the higher title received more toasts and teaspoons and a higher level of wine that reached toward the rim of the glass.

Shepherd said cultural literacy is much deeper than toasting spoonfuls of wine.

"The concept is huge. It used to be 'I want to sell my razors in India,' so companies would put up a billboard and put the face of an Asian person over a white person," she said.

But now cultural understanding permeates everything, including industrial methodology. Businesses need to look at the culture in its entirety to understand what kinds of technologies are possible and acceptable there. It could mean the difference between using wind turbines, which are already accepted, instead of trying to import "smart grid" technology, she said.

Palo Alto needs to think harder about its relationships around the world and what that will mean for the city over time, Councilman Larry Klein said. Many countries want a sister-city business relationship with Palo Alto -- a copy of "the Silicon Valley plan," as one Chinese delegate once requested, so that the other countries could build tech centers, Klein said.

No such plan exists, Shepherd pointed out. Sister City business relationships could have a big impact on quality of life in Palo Alto, Klein said.

"We've become this worldwide economic power, and people want to join up with us. It raises questions about what we're really doing. It's very flattering, but we're a built-out community. We all like our idea of being the center of innovation. If a company wants to build a new facility of a million square feet, another community might say 'great' -- but Palo Alto will say, 'We don't have it.'"

Klein said the city must determine what it is trying to accomplish and what the city expects to get out of such partnerships.

"To help existing companies? To help startups? To help Stanford in some way? What does the citizenry think our role is?" he asked.