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Path: Sourcing News & Advice
>> Import from
China Advice >> Is it still worth it to do
business in China? (Part 1)

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Is it still worth it to do business in China? (Part 1)

Posted: August 29, 2014

by Andrew Hupert

Glaxo SmithKline. Mercedes Benz. Yum. McDonalds. The list of Fortune 100
MNCs getting into high-profile legal trouble in China has been growing – and the
severity of problems growing more intense than ever. With the conviction of a
well-known Western consultant and the widespread deployment of China’s Anti
Monopoly Law, even the most die-hard Chinapologists are having a hard time
arguing that international firms are getting fair treatment from Beijing. In
the past the biggest problem facing Western managers and negotiators in China
was the lack of consistent laws – now the problem is too much law and uneven
enforcement.

Is doing business in China worth the effort – and
risk?

After much intense thought and analysis, the strategy team at ChinaSolved has
determined that the answer to the question “should you do business in China?”
really boils down to two more questions.

Can you do business in China?

Can you NOT do business in China?

Can you do business in China?

There was a brief window in time when international business had the
technological advantage, brand muscle, and deep pockets to write their own
ticket in China. Those planets are no longer in alignment, and China has become
an extremely competitive environment – even without Beijing fixing the game.
Old Hands used to trade funny stories about 19 year old receptionists
negotiating leases while their aged aunties haggled with tax authorities to get
an assessment knocked down by 70%. Those days are long over (and most of those
Old Hands are long gone). China now requires a specialized strategy that covers
technology transfer, HR, and competitive analysis. You don’t make it up as you
go along anymore – China is simply too expensive, too competitive, and too
hostile to throw a business plan against the wall and see what sticks.

If you’ve already put in the hard work and climbed the learning curve, you
can’t afford to sit back and rest on your laurels. (See the ChinaSolved book, “10 Common China Negotiating Mistakes” Chapter
6: Coasting on Past Successes and Good Starts.) Guanxi-building gifts,
premium pricing for prestige brands, and closely guarded trade secrets used to
be the hallmarks of a savvy international management team in China – now they
are prosecutable offenses.

In some ways what’s old is what’s new – the best way of transacting with
China may be to do business from outside of China. We’ve come a long way since
the 2006 heyday of WFOE reform and 60-40 JVs that allowed mono-lingual Western
managers to call the shots and let the locals work out the bureaucratic details.
Nowadays there are lots of ways of doing business in the Middle Kingdom without
actually setting up shop there. First of all, there’s well-developed ecosystem
of experienced, internationally savvy consultants and service companies ready
and willing to execute your China business plan. You have your choice of expat,
international JV, local Chinese or “Greater Chinese” from Taiwan, HK or
Singapore – not to mention expat Chinese living in a Western city near you. Be
warned — you get what you pay for from consultants and 3rd party
service providers (hopefully). If you haggle with locals whose main credential
is “I’m Chinese so I know how to do business in China”, you’ll probably get a
rock-bottom price — but still overpay. If you work with professionals who have
references and specialties that match your needs, you’ll spend a bit but will
probably avoid disaster.

Can you NOT do Business in China?

For many international negotiators and managers, however, it isn’t a question
of “should we be in China,” but rather – “how can we not be in China?” There
are three broad categories of international businesses that can’t afford NOT to
be in China.

First – global brands whose customers define basic service as
seamless, global coverage. Global industries include hotels, airlines,
logistics, delivery, fashion, media… well you get the idea. If you the phrase
“global account” is in your marketing manager’s vocabulary, you have to be in
China. If you make your money servicing these businesses (and want to
continue), then you may have no choice either.

Second – firms who require efficient supply chain management. If your
product plugs in or has more than 5 parts, there’s a good chance you have no
option but to be deeply involved in China. China may have gotten more expensive
of late, but it’s still the only game in town for complex assembly, factoring,
and logistics.

Third – If your business depends on new & growing markets, China is
impossible to ignore or resist. The US is recovering and Africa looks
promising, but let’s not kid ourselves — China will be urbanizing tens of
millions of people a year for the next decade. These ex-peasants will be buying
new EVERYTHING. Any C-suite that ignores that kind of spend is destined for
early retirement. This kind of marketing effort isn’t for Mom & Pops or
startups, but if you have the marketing budget to open up a new overseas
territory, 3rd Tier China is going to be very high up on your wish-list.

Andrew
Hupert runs ChinaSolved.com, an online
platform that helps the international business community achieve greater success
when doing business in China. He also writes ChineseNegotiation.com.
He can be reached at [email-masked].

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