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.
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.
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.
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.