This question and several others have been attempted to address during the ‘China Challenge’ Seminar at ‘de Baak’, Driebergen the 27th of January, 2010. Zvika Shalgo, CEO of PTL, with his keynote speech, and the panel moderated by Harry Starren, CEO of de Baak, have educated us on several topics concerning doing business in and with China. When we go, what will be the drawbacks? Can we control this dragon, taking over the world economy and coming to our small country? How should we set up a business there and how will we be successful? Also, how can our European institutions, facilitate for Chinese companies? How can we be both attractive, though also protect our own industries?
The Chinese economy has been in a gradual transition for over three decades. It has not privatised overnight, though what has been so successful is that the government did not sell of its assets to private companies, it has invested. The government backs successful companies, both Domestic Private Enterprises (DPEs) and State Owned Enterprises (SOEs). The government rewards China’s successful entrepreneurs, irrespective of whether they are party members or not (though, once they are successful, they often become a government official). They are made an example, by pioneering them and make them national champions, by investing in their growth. Where other regions do not have the financial means to give their industries the time to mature, China has. An example of this would be the Chinese 3G network. The government did not accept the foreign 3G network, as long as the Chinese network was not well-developed. Now it has adopted its own, and as it is the largest in the world, there is a great chance that it will take over the rest. ‘China’s goal is not simply – Growth’, it is sustainable growth. This financial investment by the government in its ‘National Champions’ is also one of the reasons the dragon’s roar is so loud. As other governments do not invest this much, and do not have the means, China will not have a problem to continue their successful ‘shopping spree’. These internationalising DPEs and SOEs also come to the Netherlands. Which should we be expecting? An important motive to consider is the one of asset-seeking, the Chinese want to buy up technology and know-how, and build joint-ventures in the West, to bring this knowledge home (think Lenovo, Haier, and Chery Automobile).
“Don’t be anybody’s first foreign client/partner in China” (Andrew Hupert, www.ChinaSolved.com)
Choosing a business partner in China is just like choosing a business partner anywhere else in the world. Don’t believe anyone who tells you that you cannot do the same kind of background check in China that you can do in other markets.
Here is a short list of things that needs to be done:
1. Reference checks are not only possible - they are a MUST. Check every company on your future partner’s CV and any foreign client he claims to have worked with. Call each one of them and don’t be shy about asking for any type of information. If you are afraid of hurting your future partner’s feelings – DON’T BE! Professionals with nothing to hide will not be offended. If he has something to hide and you don’t do a thorough background check, your feelings and pocket will be hurt badly! It is your business on the line, so don’t feel uncomfortable.
2. Check the business license of your future partner to find out if he is on any black lists of the tax bureau, banks, customs, trade office etc. If you feel that you cannot do it yourself, use professional help to do it for you. It is a worthwhile expense that might save you a lot of money and trouble in the future.
The top 10 economic stories of 2009 as selected by senior editors, media agencies and domestic economists. 1. The Chinese economy leads the recovery from the economic downturn
China's economy leads the economic recovery from the financial crisis worldwide, and the target of 8% GDP growth planned for this year is achievable as a result of a proactive fiscal policy, moderately loose monetary policy and extension of the economic stimulus package.
From January 14, the Chinese government launched a series of plans to adjust and reinvigorate key industries including autos, steel, shipping, petrochemical, textile industry, nonferrous metal, equipment manufacturing, IT and logistics. The government measures also include subsidies for autos, motorcycles, home appliances.
Many foreign companies think that if they hire someone with the same passport as them and speak the same language, that this will make their life easier in China. Since sending an expat is very expensive, many times a Chinese returnee, someone who was born and/or educated overseas is hired.
Overseas companies think that the returnee has several advantages:
He is cheaper, especially compared to an expat with a family with a few children who all need international education, which is extremely expensive.
He knows the Chinese language and the culture, which help him and his family settle in much quicker than a foreigner.
He knows the western style of thinking and can bridge the culture difference.
He might be more respected by local Chinese who will appreciate his achievements.
He should have similar moral standards to the country he was educated in.
Unfortunately most of these assumptions are not always true. If he was educated overseas he might lack a high level of Chinese that people who went through the Chinese education system have, and local Chinese will pick up his dialect or slight foreign accent immediately. Also in many cases the locals Chinese feel that the “returnee” is looking down at them since he “made it” overseas and they didn’t. This creates antagonism and a bad atmosphere.
Many foreign companies start their quest in China by coming to a Chinese professional business exhibition. Many clients told us a similar version of the following story.
The client was approached by a very nice, English speaking, well dressed, professional person who presented himself as a distributor in their field. He showed great knowledge about their company and seemed to have done his homework about them. He showed them his huge and costly exhibition booth where they could see that he has indeed sold many brand names well known in their industry.
He then offered to take him to dinner in his luxurious car, in one of the most expensive restaurants in town which was then followed by karaoke and dining on expensive gourmet food, wine and more. The foreigner was astonished by how much money the distributor was spending on someone he just met that day and was very impressed.
What he didn’t know was that the distributor was using the marketing budget that other clients gave him to do marketing for them - but instead the distributor uses it to entertain prospective clients - just like he intends to do with the marketing budget the new client will give him to develop the market for him.
“Why is it that when overseas entrepreneurs come to China they lose their sensibility and rationalism?” I keep asking myself and others, after finishing yet another meeting with a potential client who came to tell us all of his troubles regarding his business in China.
In our business we meet many overseas entrepreneurs who started their business in China and after getting into trouble, come to us for possible solutions. By the point they come to us, it is normally two to three years after they started the business in China and they already have at least one partner they rely on. This partner does not necessarily have to be a legal partner such as a Joint Venture partner (God forbid…) , but it can be anything from the first sales representative, first distributor, agent, Chief Rep Office, Office manager, business developer and various other arrangements that represent a very special relationship between the foreign client and their local representative. The foreign client normally comes to meet us with their “trusted” partner and they assure us that everything can be said in front of their representative.
I hate to generalize, but typically for every nine out ten cases, the main cause of the business failure in China is sitting next to the foreign client. Each time I am introduced to the “trusted” partner I am always astonished how the foreign client chose this person in the first place. I always like to hear the story of how they met and why they decided to form a partnership. I would like to share some of these stories to show how people lose their senses when starting a business in China.
Jan Molenkamp:
Many international companies have ventured into China without taking
into account the necessary preparation and analysis steps. Consequently
they inevitably run into trouble some way or another. During the time
that the domestic markets of these companies were on a “high”,
underperformance or even loss making of their Chinese entities was
accepted as a “part of the business development process.”
Now the domestic markets are less than favorable due to the global
economic crisis. Due to this, more focus is put on the individual
contribution of the various international ventures. After all, these
were set up over the past couple of years to contribute to the
enterprise’s overall bottom line. The attention to these contribution
factors quickly (and in some cases finally) exposes to some unlucky
international enterprises that the Chinese venture is underperforming
at best.
Due to enormous pressures on
profitability and cost saving a culture of decision making emerges in
corporations, which previously was deemed unnecessary. Quickly the
companies scramble their own analysts, reorganization- or liquidation
experts, who are immediately sent to China to see what can be saved,
improved or shut down.
In
recent weeks a mood of cautious optimism concerning China’s economic
growth prospects has started to take hold. The result has been the
upward revision of many analysts’ 2009 full-year GDP growth forecasts,
and a stronger Q2 2009 GDP growth result of 7.9% (compared to 6.1% in
Q1 2009).
The biggest winners from China’s
economic stimulus package so far have been domestic Chinese companies,
particularly state owned enterprises (SOE) whose combined investment
has increased by 40.6% year-to-date over the same period in 2008. A
preference for domestic goods and services under the stimulus package
was recently confirmed by a government circular issued in early June
which mandates that where possible all products and services for
government invested projects must be domestically sourced. This has
quickly become known as the “buy Chinese” order.
However,
as confirmed by the National Development and Reform Commission (NDRC),
such preference does not exclude goods produced by ‘legal branches of
foreign companies in China’ and after the notice was released there
have been evidence that national and provincial government agencies are
continuing to buy foreign products.
Most
industries go through downturns at some juncture. Planning a more
aggressive approach to sales and marketing can help to keep your
business in the black during difficult times. In addition, it can set
your company apart from the competition which may be complacently
weathering the storm. The conventional wisdom is that businesses hurt
themselves in the long run by cutting back on marketing during
recessions.
A downturn can create
opportunity for the companies that are more efficient at turning
marketing investments into revenue, since there will be less
competition overall. In a study of U.S. recessions, McGraw-Hill
Research found that business-to-business firms that maintained or
increased advertising expenditures during the 1981-1982 recession
averaged significantly higher sales growth than those that eliminated
or decreased advertising. In fact, by 1985 companies that were
aggressive recession advertisers grew their revenue over 2.5X faster
than those that reduced their advertising.
Now is the time to go on
the offensive and steal share to expand your business. If you have the
right marketing ROI system, it may be easier, more reliable and more
predictable to improve sales than it is to raise capital. The key is
increasing the effectiveness and efficiency of marketing.
China
ICT industry has been an engine of the country's economic growth –
growing two to three times faster than GDP over the past 10 years.
China's booming information industry is expected to maintain its robust
health in the coming years.
China imported
USD$245.2 billion of ICT/Electronic products in 2007, approximately
two-thirds of which were electronic components. Exports of
ICT/Electronic products from China in 2007 reached USD$459.5 billion,
accounting for 37.7% of the country's exports.
Overall
revenues of ICT/Electronic products in 2007 increased by 18%, with
computer manufacturing, communications equipment manufacturing and
electronic components accounting for over 61.4% of revenues.
