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Path: Sourcing News & Advice
>> Import from
China Advice >> Is it still worth it to do
business in China? Part 2 – Myths and realities

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Is it still worth it to do business in China? Part 2 –
Myths and realities

Posted: September 01, 2014

by Andrew Hupert

For Westerners, doing business in China is
going through anther sea change — so
this is a good time to take a fresh look at the operating environment as it
impacts on international management decisions.

Realities:

1) The business environment in
China isn’t fair to Westerners.

2) China is one of the top two
economies in the World by just about any standard.

3) Negotiating and operating
successfully in China will probably get tougher before it gets
easier.

Myths

Category A:

1) Chinese government / CCP
policies give an automatic edge to all Chinese businesses compared to Western
operations.

2) Western companies can’t make
money in China.

3) China is about to go bust /
will quickly see how much it needs Western good will.

Category B:

1) China is more capitalist than
any other economy at any time.

2) Chinese companies have it just
as tough if not tougher than Western firms.

3) The situation is worse in the
West / the situation is improving in China.

Let’s look at each
one of these in a little more detail.

Reality #1: China isn’t
fair to Western businesses. It just isn’t. Let’s accept it and move on.
Western companies pay more, take longer, have fewer options, and are more likely
to be prosecuted/penalized than local firms. Now, here’s the business point you
have to take away from this – it doesn’t matter if there are good historical,
cultural, or political reasons; it doesn’t matter if Chinese firms are treated
just as badly or worse when they go abroad; and it doesn’t matter if Western
firms used to get preferential treatment, so today’s unfair treatment is somehow
“fair” in some obscure way. That’s all just academic theory or babyish whining.
Man-up and play to win. All that matters is that you, as an international
manager, are going to be held to the letter of the law and will always face
slower, more stringent treatment from the bureaucracy. You know it, you have
time to plan for it, and you have to deal with it. Literally. You have to
structure your business plans and negotiating strategy to compensate for
harsher, unequal treatment from bureaucratic authorities. Stop trying to cut
corners or assume you can get local treatment. If you are getting advice from
locals, make sure you are have some kind of filter i’n place to make sure they
understand the ‘Xpat Factor’. You aren’t in Kansas anymore, so stop managing or
structuring deals as though you were.

Reality #2: You’re going
to be in China or you’re going to be out of China. If you don’t need to be
here, then for God’s sake go home and stack your paper were it’s easier, fairer,
and you have some kind of legal recourse. For the rest of you, commit to the
real costs of being a serious player in China. You will have to change your
standard operating procedure, find new profit models, and will have to give up
at least some of your intellectual property. Your lawyers will tell you about
protecting yourself from the downside – and there is a lot of value to what they
say (though their US-based solutions will almost always backfire). But you also
have to talk to your marketing people to find out what can happen on the upside.
Did Microsoft really not have any idea that there might eventually be pushback
for a Western firm owning 98% + of all the professional and government desktops
in China?!? Google, Microsoft, Qualcomm, Cisco – hasn’t anyone in any of these
cutting-edge “smart” firms ever heard of scenario analysis? What happens if you
start winning big in a market where the unelected government makes up the rules
at will?

If you can’t afford to sit out this
market, then you certainly can’t afford to get kicked out. Plan for success,
and anticipate what is going to press the buttons of xenophobic, panic-prone
bureaucrats.

Reality #3: It’s only
getting harder. During the Google crack-down, one of the common Chinapologist
refrains was “China won’t permanently ban the most popular search engine in the
world because the people won’t tolerate it and/or business will suffer.” Your
version of common wisdom and simple logic just doesn’t work here. Chinese
policy makers are completely rational – but their end goals and preferred
methods aren’t related to yours in any way. They can fake the numbers and
direct the blame anywhere they want – what they can’t do is lose control of the
system they run. Everything is secondary to orderly control. That’s where you
come in – or rather, where you exit. You may consider yourself a head-down,
eyes-on-the-bottom-line, apolitical businessman who just wants to do your job
and get on with life, but to the bureaucrats you will always be a threat and
challenge to the status quo. The fine print in Deng Xiaoping’s “black cat white
cat” speeches was that once dependable SOEs and trusted Party members could
deliver needed economic growth, then the sketchier foreign elements would become
unnecessary. We’re not there yet, but clearly the CCP policymakers are
preparing for a day when foreign players have a very limited & controlled
place on the team. The WTO won’t help, the State Department won’t help, and the
Chamber of Commerce won’t help. And before you start talking about the will of
the people or power of the market, ask your Chinese associates what search
engine they use.

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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