Doing Business in China

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Over the past few years, China has transformed itself into a powerful, consumer-oriented culture, and many Western companies have flocked to China to take advantage of this new marketplace. However, entrepreneurs from the United States and Western countries often fail to realize that transacting business in China is a far cry from making deals at home. Ted Plafker, a Beijing correspondent for The Economist, leverages his extensive experience in Chinese culture and entrepreneurship to offer a primer for newcomers who are planning to expand their business into China. According to his book, Doing Business in China, “As many foreign companies have already proven, success in China is possible, but only for those with the patience, persistence, and resources to see it through.”

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Doing Business in China

  1. 2. DOING BUSINESS IN CHINA How To Profit In The World’s Fastest Growing Market AUTHOR: Ted Plafker PUBLISHER: Business Plus DATE OF PUBLICATION: 2007 292 pages
  2. 3. FEATURES OF THE BOOK Doing Business in China is written for Western executives who are contemplating an expansion of their interests into China, as well as those who have already made the commitment to China. Top executives and others who are preparing to relocate to China can find some valuable advice on where to live, how to negotiate China’s crowded streets, and where to find housing and schools. Plafker even gives readers some fundamental tips on how to learn Mandarin Chinese. “Every verb consists of just one or two syllables, and the form never changes,” counsels Plafker. “To express past tense, the same simple single syllable is added after all verbs.”
  3. 4. THE BIG IDEA Doing Business in China explains how China’s top emerging markets, rules and regulations, cultural differences, and sales and marketing strategies differ from the rest of the world. As Western entrepreneurs sit down with Chinese trading partners, they should keep in mind these nuances and cultural issues.
  4. 5. INTRODUCTION Over the past few years, China has transformed itself into a powerful, consumer-oriented culture . Hundreds of millions of citizens are now exercising their buying powers as members of a new middle class. As a result, many Western companies have flocked to China, anxious to take advantage of the opportunities the new marketplace offers. What businesspeople from the United States and Western countries often fail to understand is that successfully transacting business in China is a far cry from making deals at home.
  5. 6. EIGHT SECTORS FOR GROWTH According to Plafker, there are eight business sectors with the most potential for growth: automotive, medical and biotech, chemicals, construction and infrastructure, energy, finance, information and telecommunications, and media and entertainment . Each of these sectors is primed for enormous growth, but they also contain unique pitfalls that can cause ventures to stall or fail. “None of these areas listed here is a guaranteed gold mine,” Plafker says. “Plenty of foreign companies have already tried and failed in each. But they do represent eight of the biggest opportunities that foreign companies can exploit if they are properly positioned.”
  6. 7. BE WARY OF JOINT VENTURES Nevertheless, there are pitfalls in all these sectors, particularly in finance . While China has opened its borders wide to outside investment in banks and insurance companies, the country remains negligent in providing protections to creditors. Plafker blames this deficiency on the fact that China remains a socialist state, where officials harbor the attitude that “a bank run by wealthy capitalists should not be able to throw defaulting borrowers out of their home or business.” Moreover, the Chinese financial system does not do a good job investigating the credit histories of borrowers, nor does the insurance industry compile acceptable actuarial data.
  7. 8. BE WARY OF JOINT VENTURES Another pitfall facing Western businesspeople is the general lawlessness found throughout Chinese society. China may be the world’s largest police state, but it is nonetheless rife with corruption; businesspeople routinely ignore laws and defraud investors and clients. China has some of the toughest anti-theft laws in the world – in some parts of China, purse snatching carries the death penalty – yet there is no shortage of businesspeople willing to risk their lives to make illegal profits.
  8. 9. PIRACY IN CHINA Even when Western companies find acceptable partners in China, there are many minefields to navigate. China’s poor record of policing intellectual property rights is well known. This affects the value of not only legitimately produced CDs and DVDs sold in China but other goods as well – according to Plafker, Chinese entrepreneurs readily sell cheap knockoffs of all manner of consumer goods, from Nike shoes to Louis Vuitton purses to Samsonite suitcases.
  9. 10. PIRACY IN CHINA Piracy has even found its way into industries that are not typically aimed at common consumers . Plafker cites the example of Will-Burt Company of Orrville, Ohio, which decided to expand its market into China, exporting mobile searchlights for use by police cars and ambulances. Business at first boomed, but in time orders fell off sharply. Will-Burt soon discovered that a pirate had started counterfeiting its searchlights, going so far as to print the company’s logo on the devices. Will-Burt found no small measure of irony in the fact that the police agencies – which are supposed to be cracking down on piracy – had been duped into buying cheap knockoffs of the company’s searchlights.
  10. 11. LEARNING CUSTOMS AND HABITS Once Western entrepreneurs arrive in China, Plafker advises, they should make a serious effort to learn the customs and habits of their Chinese trading partners, particularly when dealing with older clients. “ When it comes to culture, norms of etiquette, social behavior, and political sensitivities, China is unique ,” says the author.
  11. 12. THE IMPORTANCE OF FACE Accepting a business card with one hand and stuffing it quickly into one’s pocket is not likely to drive off the client, but certain violations of Chinese etiquette can indeed help kill a deal. Westerners doing business in China must be mindful of the concept of mianzi , which translates to “ face .” Generally, Chinese businesspeople must maintain mianzi during business transactions.
  12. 13. STATUS SYMBOLS In addition to learning the customs and etiquette of the deal, Western entrepreneurs must also learn what is important to Chinese consumers – how to sell them products and services. Consumerism is relatively new in China ; only in recent years have Chinese citizens found themselves with disposable income. As such, many Chinese citizens regard consumer products with different attitudes than what businesspeople would find among American consumers.
  13. 14. LACK OF INFORMATION Another hurdle to doing business in China is the lack of accurate information available to entrepreneurs . Even before communism was implemented, the Chinese were notoriously close-mouthed about their affairs; there is no question they would rather bottle up embarrassing news. Even as late as 2005, Chinese authorities were able to hide the news of an explosion at a chemical plant in Jilin Province, which released a hundred tons of toxic materials into the Songhua River, endangering the water supply of the city of Harbin. The arrival of the Internet and the wide availability of cell phone communications have made it more difficult for the Chinese government to suppress information, but information still does not flow freely throughout the country.
  14. 15. LEARNING THE LANGUAGE Of course, Western businesspeople may find it easier to obtain important information in China if they learn to speak or read Chinese. Picking up the language is not an insurmountable hurdle , and learning Mandarin Chinese will not only make business transactions go more smoothly, it will also help entrepreneurs settle into comfortable lives on extended stays.
  15. 16. THE BETTER PART OF VALOR Even if a company is not forced to deal with corrupt officials, other hazards of China’s bureaucratic morass can often cause headaches. According to Plafker, the government occasionally makes what appears to be an arbitrary decision that is contrary to a company’s interests. While companies can fight back and win, in many cases it may be more prudent to absorb the loss and move on. In China, discretion is frequently the better part of valor .
  16. 17. LOW OVERHEAD Given these hurdles – the lack of accurate information, the unique cultural aspects of negotiating with Chinese clients, and the rampant lawlessness and corruption – it would seem that China is a puzzle that few Western entrepreneurs are able to solve . However, businesses operating in the country have one major advantage: In China, the overhead is lower than virtually anywhere else in the world.
  17. 18. LOW OVERHEAD Given the improvements that Chinese business leaders are making in their own management styles, and the expertise that young American-trained Chinese executives will soon be bringing home, foreign entrepreneurs may find themselves losing an important competitive edge that they have long enjoyed over their Chinese counterparts. According to Plafker, that should not deter them from investing in China. For Westerners venturing into China, the pitfalls may be abundant – but so are the rewards .
  18. 19. Business Book Summaries is a product of EBSCO Publishing. The website is updated weekly with 4 to 5 new summaries chosen from among the top business books printed in the United States. For more information or to sign up for the weekly newsletter, please visit http://www.bizsum.com. ABOUT BIZSUM.COM

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