Entrepreneurship in China

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Tips for Western Entrepreneurs going to China. Sponsored by Kauffman.org

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Entrepreneurship in China

  1. 1. Entrepreneurship in China: Stimulus for Discussion Jim Cook Cook-Hauptman Associates, Inc. Sponsored by : The Kauffman Foundation
  2. 2. Can America Do Better?
  3. 3. Contents <ul><li>Qualifying for the China Challenge </li></ul><ul><li>Chinese Society/Culture Basics </li></ul><ul><li>China’s “Chinese Characteristics” </li></ul><ul><li>Meet the People, Generation by Generation </li></ul><ul><li>Opportunity Segmentation of China </li></ul><ul><li>Sourcing/Selling Opportunity Templates </li></ul><ul><li>“ On the Ground Nitty-Gritty” Tips </li></ul><ul><li>OK, let’s open up China (to discussion)! </li></ul>
  4. 4. Yes, America can do Better! <ul><li>How’s our chances (as Americans) in China? </li></ul><ul><ul><li>Decision must come from deep inside you, not infatuation </li></ul></ul><ul><ul><li>Get a native partner who has bonded to you and your goals </li></ul></ul><ul><ul><li>Understand, respect , and exploit the cultural differences </li></ul></ul><ul><ul><li>Be ready to substitute “trust” for contracts and recourse </li></ul></ul><ul><ul><li>Use “Chinese Characteristics” to build competitive advantage </li></ul></ul><ul><ul><li>Flow with the government policies and serve ignored markets </li></ul></ul><ul><ul><li>Be prepared for setbacks, delays, and disappointments </li></ul></ul><ul><li>Getting Started </li></ul><ul><ul><li>Sourcing or selling, you must understand your market </li></ul></ul><ul><ul><li>Acquaint yourself with the legal/administrative landscape </li></ul></ul><ul><ul><li>Raise value adding investment capital, not just cash </li></ul></ul>
  5. 5. Chinese Society/Culture Basics <ul><li>Every Chinese difference has an implicit advantage potential </li></ul><ul><li>It’s an empirical, not theoretical, society (toss aside tedious projections) </li></ul><ul><li>Politics trumps economics, so read policy signals and shifts </li></ul><ul><li>Social instability will not be tolerated at any price (e.g., 1989) </li></ul><ul><li>Business is relationship activated, not contract activated </li></ul><ul><li>Communication is not what it seems, it’s richer than that </li></ul><ul><li>If you’re not an “insider,” what you receive is show </li></ul><ul><li>Image is important; Face is crucial; Ignoring this is fatal </li></ul><ul><li>Generational differences are marked with opportunity indicators </li></ul><ul><li>Your intellectual property (IP) is only as safe as you make it </li></ul><ul><li>The regulatory environment has its own “Chinese Characteristics” </li></ul>
  6. 6. “ Chinese Characteristics” <ul><li>Central policies pick favorites; currently it’s the Emerging West (and “green”) </li></ul><ul><li>Land, buildings, capital, accommodation, and taxes are cheap for policy favorites </li></ul><ul><li>State Owned Enterprises (SOEs) are a 1/3 of GDP (and all have a “Party Secretary”) </li></ul><ul><li>Infrastructure (e.g., power, plastics, steel) is world class and usually economical </li></ul><ul><li>Technological universities are a hub of connections and can be used as such </li></ul><ul><li>Today, there’s a surplus of college graduates; China isn’t yet a Symbol Economy </li></ul><ul><li>China doubled Japan’s economic miracle and could land a family on Mars first </li></ul><ul><li>Returning Chinese (who have succeeded in the West) are welcome (“turtles”) </li></ul><ul><li>Chinese institutions and SOEs don’t find, direct, nor motivate talent well </li></ul><ul><li>Productivity figures are sometimes shockingly low, often despite very hard workers </li></ul><ul><li>Trust through “guanxi” does the work of contracts, credibility, and character </li></ul><ul><li>Chinese save over 30% of their gross salary and have large reserves as a result </li></ul>
  7. 7. Generational Demographics DOB Age Defining Event Consequence + Characteristics - Characteristic 1948- 60 50 Cultural Revolution No/low university education Ethical, pragmatic Unsophisticated 1959- 49 39 Open Door Policy Experienced struggle Tough, hard working Not international 1970- 38 28 Spectacular Rise of China Expects automatic success Educated, bi-lingual, global Cocky 1981- 27 17 One Child Policy Spoiled, focus of family pressure Career focused, globally astute Weak social skills 1992-2002 16 6 2008 Olympics Electronics/Media/ Material addicted Wide open to the whole world Overwhelmed (by expectations)
  8. 8. Opportunity Benefits Summary <ul><li>Gov’t favorite #1: Emerging West (Sichuan, ChongQing, NE, …) </li></ul><ul><li>Gov’t favorite #2: “Green” power, conservation, substitution </li></ul><ul><li>Ignored markets: 2 nd tier of over 100 cities > 1 million people </li></ul><ul><li>Sell to the SOE’s (e.g., training – ISO, Deming, Finance, Law …) </li></ul><ul><li>Manage “trust” for speed and risk-capital benefits </li></ul><ul><li>Use “trust” instead of plans, projections, and contracts </li></ul><ul><li>Make universities a connections hub (copy Obama) </li></ul><ul><li>Tap the frustrated unemployed, talented, college graduates </li></ul><ul><li>Convert the enormous savings into something very secure </li></ul><ul><li>Alleviate the pressures or shortcomings of the Generations </li></ul><ul><li>Sell future success to the kids, each has 4 parents to buy/pay </li></ul><ul><li>Sell productivity enhancements that increase employment </li></ul>
  9. 9. China - Five Distinct Opportunity Segments <ul><li>Affluent Coastal regions: e.g., JiangSu, Fujian, GuangDong, … </li></ul><ul><li>Second Tier Cities: e.g., LuoYang, WeiFeng, ZiGong, … </li></ul><ul><li>Emerging “Western” provinces: e.g., SiChuan, ChongQing, Jilin, HLJ, … </li></ul><ul><li>Undeveloped provinces: e.g., GuiZhou, YuNan, GanSu, … </li></ul>
  10. 10. China Sourcing Template
  11. 11. China Selling Template
  12. 12. Sourcing/Selling Summary <ul><li>Emerging West for skill intensive production and selling infrastructure and second wave of upscaling (repeat of Affluent coastals of the past twenty years) </li></ul><ul><li>2 nd Tier Cities for labor intensive sourcing and selling American product access/franchises (below the Western radar) </li></ul><ul><li>Gov’t favors: Emerging West (central gov’t), green technology (central gov’t), and centers of excellence (local) [Note: this “West” includes North East and Central China, too] </li></ul><ul><li>You can count on: </li></ul><ul><li>High receptivity to locating in government industrial/technology parks </li></ul><ul><li>Every consumer having a cell phone, credit card, and access to the internet </li></ul><ul><li>Typically, college graduates having had over 8 years of English schooling </li></ul>
  13. 13. “ On the Ground Nitty-Gritty” Tips <ul><li>Commerce is conducted by “trust”; 30% down/70% on delivery T/T </li></ul><ul><li>Checks never, I’ve only see Wire Transfers, Credit cards, and Cash used </li></ul><ul><li>Employment law requires insurance (Retirement, Unemployment, Hospital, Maternity, Work injury, and Union dues) costing employers 40% and employees 10% </li></ul><ul><li>Employers must pay severance of a month’s salary for each year served </li></ul><ul><li>Customs is a mixed bag with some egregious gouging and delaying </li></ul><ul><li>Contracts should be rare, bi-lingual, and specifying remedy by arbitration </li></ul><ul><li>Corporate Structure Options: Cooperative Joint Venture (Chinese Partner + $1,000 fees) , Wholly Foreign-Owned Enterprise (minimum of $15,000 + $5,000 fees) </li></ul><ul><li>Registration can require proof of suitability, resume, business summary, references/agent, by-laws, directors, translated into Chinese (see: http://www.jljgroup.com/index.php?id=75&lang=en#section2 </li></ul><ul><li>IP protection suggestions: log access to databases, withhold key process parameters, design “black boxes” in, disburse suppliers and key people, imbed logo holograms and the like into products, and assemble offshore </li></ul>
  14. 14. Finally China’s Open (for discussion)! <ul><li>Questions and Comments </li></ul><ul><li>Thank you, again. </li></ul><ul><li>On the Internet (roughly 460 KB) at: </li></ul><ul><ul><li>http://cha4mot.com/entrepreneurship-in-china.ppt </li></ul></ul>
  15. 15. Jim Cook’s Journeys <ul><li>President, CEO of NASDAQ Listed Company (Software Tools) and on the board of two publicly held and numerous private companies, all high technology </li></ul><ul><li>President, CEO of Exxon-Mobil financed venture (Electronics) </li></ul><ul><li>President, CEO of Globatech, Inc. in Beijing (Japanese financial portal) </li></ul><ul><li>Vice President (Technology) Computervision, Fortune 500 Company (CAD/CAM) </li></ul><ul><li>Taught MBAs at UCSD (Economics of Mfg.), Worcester Polytechnic Institute (Advanced Mfg.) and U. of Melbourne (Entrepreneuring) </li></ul><ul><li>Lectured on management at: MIT, NU, People’s University, and Chinese Academy of Sciences; BS math RPI, graduate math MIT, on CCTV news with Jiang Ze Min </li></ul><ul><li>Consulted on management to: DuPont, Motorola, Bell Labs, D & B, … </li></ul><ul><li>Interviewed 6 times on FNN (now, CNN Financial) about High Tech investing </li></ul>

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