Business, Real Business, China - Mon July 11, 2011

Smashing China

The upside: 1.34 billion customers. The downside: cultural clashes and corruption. Here’s how to scale the Great (business) Wall of China.

Three stats say everything any business person needs to know about the People’s Republic.

The first is 1.34 billion – the number of Chinese people currently living in the mainland. The second is 9.31, signifying the average annual percentage rate of growth posted by China between 1989 and 2010. Finally, there is 2019. This is the year in which, according to The Economist (and others), China will overtake the United States as the world’s largest economy.

For any business seeking an investor, a customer, a supplier, or even a new way of thinking about your company and its future, the opportunities in China are staggering. As Stephen Phillips, chief executive of China-Britain Business Council (CBBC), says: “UK firms have opportunities in every sector in China, from luxury goods, rail and infrastructure, to engineering and consumer goods. There is something for everyone here.”

But let’s narrow our focus here. For British businesses, there has never been a better time to do business in this vast country (now the UK’s eighth-biggest export market), according to the CBBC. British multinationals from BP to Tesco to Rolls-Royce are here in force, as are specialist industrial and engineering firms such as JCB and Lotus Engineering.

China has a vast and mostly skilled workforce. For now, at least, there are few better places to base your overseas industrial operations. Opt for one of the myriad Special Economic Zones (SEZs) that dot the landscape. Many have started to specialise.

Shenzhen in the far south, bordering Hong Kong, is a good place to make household products and textiles. Tianjin, 30 minutes by high-speed train from Beijing, is a mecca for media firms and sustainable energy and low-carbon companies. FOHO Economic Zone in Wujiang, an hour from downtown Shanghai, is a specialist industrial zone with its own bank and marketing agency – come here to make everything from plastic tubing and car tools to rubber tyres and drinks dispensers.

But success here isn’t handed to anyone on a plate. To thrive here you have to be better than anyone else – and to do that, here are a few basic rules to follow.

Offer something that no-one else does. China is entering a new phase of development, where brain trumps brawn. Industrial growth marked out the last three decades; service-sector growth, from media to engineering, to design and architecture – pursuits in which UK businesses excel – will dominate the next three and more.

David Ellis, a director at London-based global architects Benoy, says the firm has succeeded in China “precisely because we are a British design company and respected around the world”. He says the key to succeeding here is simple but effective. “Do great work, better than anyone else’s, as that is what the Chinese market is demanding.”

China’s business environment is also culturally and historically different, sometimes to extraordinary degrees. British (and European, American, Latin American and African) business leaders rarely have a cultural affinity with the place beyond a few tourism sites and a common love of sports (notably football and basketball).

So you need to work at things. Have patience. Chinese business leaders often size you up for months before deciding they like you. Memoranda of understanding may lead to meeting after meeting (and a seemingly endless number of banquets). But if you get the thumbs-up, be ready. Chinese companies, once they make up their minds, don’t waste time.

Get to know your suppliers and customers and investors over a beer (this always works) or a slap-up meal at a spice-laden Sichuan or Hunan restaurant (again, this rarely fails to impress). It sounds strange – rather like Britain in the eighties – but drinking is part of the process of cutting a deal, so be careful and pace yourself at banquets.

Getting to know your customers and suppliers is in itself a tricky task. Should you jump straight into China feet first, or slip in through a side door? Many opt for the latter option. Benoy entered the mainland on the back of a project with a Hong Kong developer. “He took us into China and, over the next three or four years, we got to know, and started working with, Chinese developers in the mainland. We were ultimately very cautious, but it paid off for us,” says Ellis.

Sometimes, though, you need to take the bold option. Dominic Johnson-Hill opened his first Plastered T-Shirt store in Beijing five years ago. He has made a small fortune out of selling that most basic of products – the t-shirt – to usually money-conscious Chinese consumers, at a generous mark-up. Like Benoy, Plastered is now a wholly foreign-owned enterprise, or WFOE, in China, circumventing the need for a joint-venture partner – always the preferable option for any manager or shareholder.

The next key question is this: should you trust your business partners? Foreigners have been ripped off in China for centuries, and it can be done in a hundred different ways, so look before you leap. David Wolf, founder and chairman of Beijing-based consultancy Wolf Group Asia, notes: “You don’t want to get a partner when you first arrive in China. Take your time. Get to know the place and the differences in the market. I’ve seen too many companies rush in and get partners who may not be bad people, but who don’t have the ingredients required to help you make a success of things here.”

China has its problems. Corruption is endemic, and few foreign companies ever operate here for long stretches without paying a bribe or two. With the long-delayed UK Bribery Act coming into force, bear that in mind. Beware, also, of language pitfalls (get everything translated well!), and read contracts cover to cover several times.

If you do get into trouble here, bear in mind that there is little protection – China has many laws, but few favour the foreigner. “For British companies, the biggest barrier is the fear factor ,” says the CBBC’s Phillips. “China is a long way away, and it’s expensive to get there and to deploy personnel there. But that is just the fear of the unknown. We help companies overcome that fear.”

Despite these shortcomings, China’s economy is in the ascendance, on track to become the world’s largest economy, probably within the next decade. China already boasts some of Asia’s best infrastructure. Tax laws are simple to understand. Levels of English are improving, just as Mandarin is increasingly taught in UK schools.

It’s a misconception that every business in Britain has to have a presence in China – some companies, particularly in the digital world, don’t need to be here at all. But if you can make it here, as the saying goes, you can make it anywhere. As Wolf of Wolf Group Asia says: “Once you have China figured out, it’s a great place to do business. Nothing is easy here – but everything is possible”

Read the full article here: http://realbusiness.co.uk/advice_and_guides/smashing-china

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