Doing Business in ChinaJari HietalaHelsinki 24.4.2012
CV Jari Hietala               Position                                       Expertise Areas               – Vice Presiden...
Content             •   The Importance of China for Finnish Companies             •   Market Entry Modes & Nature of the B...
The Importance of China For                 Finnish Companies25/04/2012   © Finpro                          4
Asia looks set to return to its natural          “half share” of the world economySource: Angus Madison’s “Historical Stat...
Asia, Middle East and Finland in 2010                                                                 Asia and Middle East...
Maailmantalouden kasvun jakautuminen 2011e                 BKT:n kasvu 2011, %         11         10                      ...
5-year plan – estimated growth Forecast summary (% unless otherwise indicated)                                            ...
11th Five-Year Plan target and achievement until                2010                                            Index     ...
Finnish Companies in China(estimate)             • 300+ Finnish companies in more than 340 locations             • 100+ co...
What is China’s role in Finnish companies             business?             The share of Aasia of the turnover of some    ...
25/04/2012   © Finpro   12
FBCS Survey 2012 Key Points25/04/2012                  © Finpro       13
FBCS Survey 2012 Key Points25/04/2012                 © Finpro        14
Market Entry Modes & Nature of                 the Business Environment25/04/2012   © Finpro                             15
Comparison of international market entry                            modes                  High                           ...
The most typical partnering pitfalls             •   We expect that we can get additional sales with no cost             •...
Nature of the business environment in ChinaTopic                       Embryonic business                Growth business  ...
Parameters of competitiveness favor                        local presence                                                 ...
Can you have the same clock frequency when             operating from Finland?25/04/2012                    © Finpro      ...
Conclusions &                 Recommendations25/04/2012   © Finpro              21
Recommendations             •   Localising operations in China is a must for long term success                  –   To be ...
Finpro’s Global Network – Asia and Russia25/04/2012                   © Finpro                23
Finpro’s Global Network – Australia, Malaysia,             Philippines and Singapore25/04/2012                     © Finpr...
Finpro’s Network in China            Sep 2009 © Finpro ry
FINCHI – a platform of optimizing your                  value in China entrance              Plug & Play style of equipped...
FinChi Innovation Center - www.finchi.cn
Thank You!25/04/2012   © Finpro         28
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Doing business in China

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Finpron 24.4.2012 Kiinan paperi- ja selluteollisuus uudistuu – mahdollisuudet suomalaisyrityksille seminaarin esitysmateriaali. Doing business in China, Jari Hietala, Finpro.

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Doing business in China

  1. 1. Doing Business in ChinaJari HietalaHelsinki 24.4.2012
  2. 2. CV Jari Hietala Position Expertise Areas – Vice President, Head of Region Asia, location Hong Kong – Market access consulting, sales channel development Education – International business development – M. Sc (Economics) – General management – CMC (Certified Management Consultant) – Asian markets International Experience – Western European markets – UK (7 years), Belgium (3 years), Thailand (8 years, China 1 year) Professional Experience – 25 years Previous Employments – Finpro, various management positions in Asia, Industry Sector Experience Finland and Western Europe since 1994 – Cleantech- industries – Rocla Oyj, Marketing Director 1994 – GWS Mertens N.V. Belgium, Managing Director – Forest 1991-1994 – Machinery – GWS (UK) Ltd, Managing Director 1990-1991 – Metal engineering – GWS Shop Equipment Division, Marketing – Industrial equipment Manager Finland 1988-1990 – Partek Oyj, Marketing Planning Manager 1985- 198812/12/2011
  3. 3. Content • The Importance of China for Finnish Companies • Market Entry Modes & Nature of the Business Environment • Recommendations • Finpro in China25/04/2012 © Finpro 3
  4. 4. The Importance of China For Finnish Companies25/04/2012 © Finpro 4
  5. 5. Asia looks set to return to its natural “half share” of the world economySource: Angus Madison’s “Historical Statistics for the World Economy:1-2004AD”, Deutsch Bank Global Market Research 5
  6. 6. Asia, Middle East and Finland in 2010 Asia and Middle East in 2010 1,6 1,4 The bubble size indicates GDP based on China PPP in 2010. The bubble size indicates also the countrys share of the total GDP 1,2 India of all countries included in the graph. billions) 1 Population (billions 0,8 0,6 0,4 Indonesia 0,2 Japan Philippines Vietnam Thailand Korea Australia Singapore 0 -10 0 10 Malaysia 20 30 Finland 40 Hong 50 60 70 80 Kong -0,2 GDP based on PPP per capita (thousands) Source: IMF, World Economic Outlook, September 2011 Note: Amounts in current international dollar25/04/2012 © Finpro 6
  7. 7. Maailmantalouden kasvun jakautuminen 2011e BKT:n kasvu 2011, % 11 10 Kiina 9 Muu itäinen Eurooppa Intia Lähi-itä ja Afrikka 8 7 -itä Meksiko 6 Muu Brasilia Venäjä Aasia 5 Kasvu keskimäärin: +4,4 % 4 3 Pohjois-Amerikka Länsi-Eurooppa 2 Japani 1 0 0 10 20 30 40 50 60 70 80 90 100 Pylvään leveys kuvaa osuutta (ostovoimapariteetilla korjatusta) maailman bkt:stä vuonna 2010, %25/04/2012 © Finpro 7
  8. 8. 5-year plan – estimated growth Forecast summary (% unless otherwise indicated) a b b b b b 2010 2011 2012 2013 2014 2015 Real GDP growth 10.3 9 8.7 8.4 8.1 8.2 Industrial production growth 15.7 13 12.5 12 11.7 11.1 Gross agricultural production growth 4.3 2.6 3 2.7 2.8 2.8 Unemployment rate (av) 6.1 6.5 6.4 6.6 7 6.3 Consumer price inflation (av) 3.2 5 4 4.1 4 3.8 Consumer price inflation (end-period) 4.8 4.1 3.8 4.5 3.7 3.8 Short-term interbank rate (end-period) 5.8 6.8 7.3 7.1 7.3 7.3 Government balance (% of GDP) -1.6 -1.7 -1.7 -1.5 -0.9 -0.8 Exports of goods fob (US$ bn) 1,581.50 1,783.90 1,990.90 2,226.40 2,482.40 2,781.20 Imports of goods fob (US$ bn) 1,327.50 1,615.90 1,813.40 2,074.90 2,344.00 2,638.80 Current-account balance (US$ bn) 306.2 268.9 299.9 275.6 259.6 257 Current-account balance (% of GDP) 5.2 3.9 3.7 2.9 2.3 2 c External debt (end-period; US$ bn) 401 477.8 536 613.3 689.7 782 Exchange rate Rmb:US$ (av) 6.77 6.49 6.23 5.98 5.77 5.61 Exchange rate Rmb:US$ (end-period) 6.62 6.34 6.12 5.87 5.7 5.54 Exchange rate Rmb:¥100 (av) 7.7 7.96 7.7 7.39 7.03 6.72 Exchange rate Rmb:€ (end-period) 8.99 7.99 7.47 7.1 7.09 7.14 a b c Actual. Economist Intelligence Unit forecasts. Economist Intelligence Unit estimates25/04/2012 © Finpro 8
  9. 9. 11th Five-Year Plan target and achievement until 2010 Index 2005 2010 E 2010 real CompletionEconomic GDP (Trillion RMB) 18.2 26.1 39.8 Over-achieved growth Per capita GDP (RMB) 14185 19270 29748 Over-achieved Service added value proportion (%) 40.3 43.3 43 UnmetEconomic R&D expenditure (% of GDP) 1.3 2 1.75 UnmetStructure Urbanization rate(%) 43 47 47.5 Over-achieved The countrys total population (10,000) 130756 136000 134100 Over-achieved Reduction rate of energy consumption per unit of GDP (%) 20 19.1 Unmet Reduction rate of water consumption per unit of industrial addedPopulatio value (%) 30 36.7 Over-achieved n Effective utilization rate of agricultural irrigation water 0.45 0.5 0.5 Achieved&Resourc The comprehensive utilization rate of industrial solid waste(%) 55.8 60 69 Over-achieved e The total amount of cultivated land(10 billion hectares) 1.22 1.2 1.212 Over-achieved&Environ ment Emission reduction rate sulfur dioxide of selected pollutants (%) chemical oxygen 10 14.29 Over-achieved demand 10 12.45 Over-achieved Forest coverage rate (%) 18.2 20 20.36 Over-achieved National average education (year) 8.5 9 9 Achieved The number of urban basic endowment insurance coverage(10 billion people) 1.74 2.23 2.57 Over-achieved Public The new rural cooperative medical insurance coverage rate (%) 23.5 >80 96.3 Over-achieved service Rural new employment in 5 years (10,000 people) 4500 5771 Over-achieved&Peoples life Transfer of agricultural labor force in 5 years (10,000 people) 4500 4500 Achieved Registered urban unemployment rate(%) 4.2 5 4.1 Over-achieved Disposable income of urban residents per capita (RMB) 10493 13390 19109 Over-achieved Disposable income of rural residents per capita (RMB) 3255 4150 5919 Over-achieved 9 Source: China Statistic Year Book; Analyst report; Roland Berger
  10. 10. Finnish Companies in China(estimate) • 300+ Finnish companies in more than 340 locations • 100+ companies with own local manufacturing operations • Employees > 60,000 • Investments ~ 10 billion EUR; growing • Turnover ~ 15 billion EUR; growing25/04/2012 © Finpro 10
  11. 11. What is China’s role in Finnish companies business? The share of Aasia of the turnover of some selected Nordic companies in 2008 (estimates) • Ericsson 53% • Metso 20% • Nokia (APAC) 40% • SKF 18% • Outotec 32% • Kone 14% • Wärtsilä 30% • Konecranes 13% • Alfa Laval 28% • UPM 10% • ABB 25% • Assa Abloy 9% • Vestas 25% • M-Real < 9% • Atlas Copco 22% • Cargotec 22% • Volvo 8% • Sandvik 22% • Stora Enso 5%25/04/2012 © Finpro 11
  12. 12. 25/04/2012 © Finpro 12
  13. 13. FBCS Survey 2012 Key Points25/04/2012 © Finpro 13
  14. 14. FBCS Survey 2012 Key Points25/04/2012 © Finpro 14
  15. 15. Market Entry Modes & Nature of the Business Environment25/04/2012 © Finpro 15
  16. 16. Comparison of international market entry modes High Foreign Subsidiary Join Venture Investment Co-operation Franchising Risk Direct Sales Internet Outsourcing Sales Channel Licensing Indirect Exports Low Commitment High Controllability / © / 25.4.2012 / 16 25/04/2012Source: Adapted from Ahokangas & Pihkala, 2002 © Finpro 16
  17. 17. The most typical partnering pitfalls • We expect that we can get additional sales with no cost • We expect that we are automatically an interesting discussion partner for them – only because we have arranged a meeting... • We expect them to see the future as we do • We expect that they know as much as we do and update themselves constantly • We expect that by telling once the responsibility has shifted from us to them • We expect them to understand their role fully • We expect their interest to be aligned with ours • In a partnership model no single entity is in charge of the total value chain – can we live with this? Source: Pekka Rissanen, Teleste Oy25/04/2012 © Finpro 17
  18. 18. Nature of the business environment in ChinaTopic Embryonic business Growth business Mature businessMarkets Markets/clients do not exist in Market is growing in volume Long term growth of the advance market has stoppedNumber of competitors Hardly any direct competitors Many and growing number of Big number of competitors, competitors, but not necessarily at but not increasing. Lots of all markets or product segments take-overs and mergers. Both local and global competitorsMarket segments Difficult to decide to which Growing markets and/or niches Markets have been divided market segment to focuss the can be identified between competitors, difficult product development based to find niches or on market potential (difficult new opportunities to find clients)Product differences No direct comparisons in Differences can be found in No fundamental differencesin the markets terms of technical technical characteristics (which in technical characteristics characteristics; company is will even out in time) of products often alone in the marketSuccessful product OEM- strategy is better than Technology leader: technology Strategy focusing on service:strategy and basis production of the end product driven strategy; from the client superior service whenof competitiveness (pioneer of the business); view we have superior technical compared to competitors technological know-how characteristics (take benefit of the service related to the innovation Technology follower: competition weaknesses situation- driven strategy: we will of competitors) fill the gaps left by competitorsPrice setting Pricing principle still Technology leader: relatively high Market price; low price unclear (market based, price probably in the entry phase cost based or other Technology follower: market price, of industrial markets low price in the entry phase / 25.4.2012 / 18
  19. 19. Parameters of competitiveness favor local presence Communication factors Price factors • identification of Service factors • purchase price client needs • easiness to buy • delivery costs • foreseeing changes • product support (incl. • assembly costs in demandProduct factors • usage costs training, help desks • physical proximity• performance • service costs etc.) with clients• adaptability • training costs • assembly service • co-operation with• reliability • payment terms • after sales service clients• durability • guarantee • flexibility • other business networks• user friendliness • finance terms • delivery reliability • personal client care• easy maintenance • price reductions • face to face sales• design/looks • delivery time •JOT- deliveries • marketing communication• quality image • financial services • references• complementing range • language skills of products • company image / 25.4.2012 / 19
  20. 20. Can you have the same clock frequency when operating from Finland?25/04/2012 © Finpro 20
  21. 21. Conclusions & Recommendations25/04/2012 © Finpro 21
  22. 22. Recommendations • Localising operations in China is a must for long term success – To be close to customers and understand their needs – To speak the same language – To get access to the local innovation and business eco-systems – To establish your own Guanxi – To lower your production costs – To be a credible player • Operating mode options: – Fully owned subsidiary (green field or acquistion) • Sales & marketing • Sourcing • Local manufacturing/assembly • After sales – (JV with Chinese companies) – Get Chinese ownership – Alliance with local companies (partnership- model)? – OEM- model with Finnish ”integrators”25/04/2012 © Finpro 22
  23. 23. Finpro’s Global Network – Asia and Russia25/04/2012 © Finpro 23
  24. 24. Finpro’s Global Network – Australia, Malaysia, Philippines and Singapore25/04/2012 © Finpro 24
  25. 25. Finpro’s Network in China Sep 2009 © Finpro ry
  26. 26. FINCHI – a platform of optimizing your value in China entrance Plug & Play style of equipped office space State-of-art services assist your daily operation Full access to local contacts and bussiness networking No Registration or Injection Capital needed, but all local activities could be realized with FinChi turn-key solution. www.finchi.cn4/25/2012 26 Copyright @ 2010 FinChi
  27. 27. FinChi Innovation Center - www.finchi.cn
  28. 28. Thank You!25/04/2012 © Finpro 28

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