10 difficulties faced by western multinationals in China

On December 1, 2011, in Chinnovation, Restrictions, Rivals, by Tan Yinglan

consummate

This is a guest post by one of the students I thought in executive management program in Chengdu: 梁勤. Multinationals have had mixed success in China; other than Apple and LVMH, I struggle to think of many brands (especially the likes of Google, Yahoo e.t.c) which had success in China. 梁勤, who works for an State-owned enterprise in China, provides an insider perspective.

Black Cat and White Cat of Cleantech Innovation

On September 27, 2011, in Chinnovation, Raw Materials, Requirements, Restrictions, by Tan Yinglan

This article is written by a guru (and valued friend) Pei -fu Hsieh. I have also submitted this article to China Daily (so you might see a slightly edited version) but I thought the original version is brilliantly written. He knows what he is talking about, in his previous job as KPCB China, he has made investments in a couple of cleantech companies.

Roundup of ‘How Asia Can Shape The World – Poorly Made in China or The Chinese Dream”

On August 25, 2011, in China Business Forum, Chinnovation, Events, Raw Materials, Restrictions, by Tan Yinglan

Saturday, August 20, 2011 from 10:00 AM – 11:00 AM    Key Points   Asia will redraw the map of economic progress over the next twenty-five years. Growth is necessary to solve economic and social problems, but harder to achieve as the age of plenty gives way to the age of scarcities. China is obviously a […]

Why Go to China? Part II

On June 7, 2011, in Chinnovation, Restrictions, by Tan Yinglan

Beijing Zhongguancun

This is part two of article by one of the leading authorities on China, Jonathan Story, Emeritus Professor of International Political Economy at INSEAD, and author of ‘China Uncovered – What you need to know to do business in China’, FT/Pearson.

Getting human resources right.

The key to success in China is hiring the right people. As one senior manager expressed it, ‘if you can’t make the people issues work, forget it.’ Culture, language, style and communication permeate everything, including recruiting, retaining, motivating and managing issues that are unique to China. The main point to remember is that every investor has to manage the gap between two (or more) cultures. This will entail investment in training for skills as well as for cross-cultural relations, for Chinese employees, for senior management staying in the home country as well as for senior management staff going to China. This might be costly, but will help those in the headquarters to understand the challenges that their expatriate staff may be facing and also facilitate effective communication with Chinese staff.

Opening up the prospects for local, white collar employees to reach board level in the longer term is a sina qua non to retaining them. Chinese people work hard for the benefit of their ancestors and for their progeny, and their progeny’s progeny. The first step for them along this path to the top involves bringing senior Chinese staff to other sites around the world as part of their career development programme.

Doing things well.

A further requirement for success is to remember that when setting up operations, not everything can be done simultaneously. The first thing to focus on is quality, which is the foundation of the premiums which a foreign investor will tend to be charging in China and that is a prerequisite for retaining the loyalty of your customers in the rest of the world. After quality comes cost and engineering issues, followed by delivery. Then there is the vexed matter of patent policy.

The bottom line is that precautionary measures have to be taken in house, rather than outsourced to the public regulatory system prevailing in China. Such measures include a decision about how much research and development stays at home. To accentuate intellectual property strategies to stay ahead of the local competition is no easy task given the skill shown by Chinese companies in re-engineering, and in the rapid learning curve they have gone through in developing their own corporate counterfeit strategies. Depending on the choice of location, it may be possible to have local government support in policing patents, trademarks and copyright. This may involve taking the official route through the court system, using the official hand to catch and jail the miscreants. Of course, if the miscreants are public officials, or in the extended business family of public officials, the chances of success are low to non-existent.

Global operations and the China component

A firm entering, expanding and consolidating its operations in China and ultimately integrating them into its world-wide operations, will have to adapt its policy and strategy as conditions change and corporate savoir-faire about the Chinese market grows. All through the process, you have to remember that corporate HQ must allow its China operation plenty of autonomy. Processes that work perfectly well elsewhere will have to be adapted, because what may be best practice, say, in Germany or the U.S. might not work so well in China. Products, branding and design will all need to be developed ‘on the ground’ rather than in an HQ building on the other side of the world. Logo, name and pricing cannot be decided in a meeting room thousands of miles away, possibly by people who have never even been to China.

If the China operation is to be fully integrated, then how it reports upwards will be an important reflection of how China fits into the organisation as a whole. Some companies view China as part of the Asia-Pacific region (Asia-Pac) and the Chief Executive Officer for China reports to Asia-Pac rather than directly to global headquarters. Other companies take the view that China is virtually a region in itself, with all its different markets and massive geography, so the management team in China reports directly to the central organisation. For instance, the head of Samsung in China is one of the three top decision-makers for the entire company. The position of China in the organisation does not go unnoticed by your Chinese hosts, and the stronger the connection to HQ the more the company will be respected in China.

 

So, why go to China?

 

To summarise, the lessons for companies operating in China are that they must develop their corporate learning capabilities; they must choose the ’right’ locations, and the ‘right’ people; they must manage the complex tangle of operational issues; they must be, indeed, they will be aware of intense competition; getting government policy ’right’ is crucial, and the counterpart to that is adopting in-house precautionary measures. Those measures start and end with the loyalty of your workforce. Ultimately, the calculation on the cost side is not the rock-bottom wages you find now in the rural parts of China, but the total operating costs involved in learning how to manage the complex process of doing business in China.

You can be bold, but remember that the Chinese are in a hurry, and will be for a long time yet. As former Prime Minister Li Peng answered in response to a question asked by Ken Courtis, then Vice-Chairman, Goldman Sachs, Asia Pacific, about why he took so long to crack down on inflation in the early 1990s: “Mr Courtis, imagine you are running a marathon as fast as you can with 1.3 billion Chinese pounding along, as fast as they can go, would you turn around, and ask them to stop?”

Ultimately, the reason you want to go to China is because the Chinese people are running China, and they want to get rich. But go there because you have a clear idea of what you wish to achieve, because China has great potential, and because you know you’ll need to learn about operating there in any case.

 

This concludes the “Why Go To China?” Series.

Jonathan Story, Emeritus Professor of International Political Economy at INSEAD, is author of ‘China Uncovered – What you need to know to do business in China’, FT/Pearson. The Arab language translation, same title, is being published by Librairie du Liban, one of the leading publishers in the Arab world.

WHY GO TO CHINA? PART I

On June 6, 2011, in Chinnovation, Rapid, Restrictions, by Tan Yinglan

Beijing CBD 2008-6-9 Jianwai SOHO, Yitai Cente...

This is part one of article by one of the leading authorities on China, Jonathan Story, Emeritus Professor of International Political Economy at INSEAD, and author of ‘China Uncovered – What you need to know to do business in China’, FT/Pearson.

WHY GO TO CHINA?

Why invest in China? many managers ask. The neat answer is: don’t, unless you’ve got a great business proposition, which stands out as more promising than, say, a project in Brazil or Turkey. The reason is that doing business there is an art that has to be learnt.
In a nutshell, the country’s transformation drives corporate policies. China is constructing what the communist party calls a “socialist market economy”, and at breakneck speed. In just over 30 years, China has gone from number 32 on the world exporters league to number one, and more than 400 million people have been lifted out of poverty. The party-state’s current ‘Go West’ strategy to develop the hinterland of the northern and western provinces only accentuates this trend.

Provision of public welfare is minimal, which makes achieving 10% per annum growth an imperative. Rapid development of infrastructure makes pan-national market access easier, and accelerates the pace of social change in rural and urban areas. Labour productivity gains of around 10 per cent per annum ensures China’s salience as No 1 world trader, while a managed exchange rate jacks up inflation at home, promotes Chinese hyper-competitiveness on world markets, and helps pile up vast foreign exchange reserves, nearly equivalent to the total of all rich country foreign exchange reserves.

China’s party-state dominates the market process. It owns the land, issues and revokes leases, controls where people live, regulates raw material exploration and pricing, influences the economic conditions that prevail in each location through targets for economic growth and productivity, sets and revokes taxes, runs the whole financial system as a policy tool, and draws up its own, sometimes skewed statistics. Procurement contracts go to insiders, and the party-state has a monopoly on the political system, runs the official trade union, makes appointments to corporate boards, appoints the judges, and is determined to maintain control over the media and the internet. Hence the question: why go to China in the first place?’

The prime reason is China’s growth potential. With per capita incomes still 14% of the US, China remains a low-income country, and therefore is in a good position to achieve a rapid catch-up. Going to China also enables companies to profit from China’s new role as a regional manufacturing hub for the production of consumer goods in the wider Asia Pacific region, with China being the central link between Asian trade partners and industrial countries’ markets. Meanwhile, double-digit growth and market transformation have made it a rapidly growing consumer product market.
China, however, should not be considered by investors as simply a cheap labour country. Admittedly, unit labour costs can be up to 30 times lower than those in Europe or the U.S., but total operational costs are more telling. They include: the time spent searching for an appropriate location; learning to deal with the party-state; hiring, training and retaining the right people; the need to regularly audit suppliers to ensure that system, process, quality and regulatory requirements are met; and the possible damage to the brand if poor quality products are shipped. In addition, public policy ensures that while China’s comparative advantage is abundant labour, labour shortages are widespread, especially in the coastal regions.

So, if we decide to go, what are the requirements for success?


In one word, implementation, implementation, implementation. Companies which have decided to do business in China have to become even more real learning organizations than they already are. Their personnel have built up firm-specific knowledge over time through the firm’s collective learning process, as projects are completed and new horizons and opportunities open up in light of the knowledge acquired. Now they are going to China—or anywhere ‘abroad’—they need to learn about and acquire knowledge about different cultures, languages, institutions and customs that affect firm-specific markets. Acquiring this knowledge again takes time and involves a process of trial-and-error, of learning by listening to other firms and managers and of diffusing that knowledge through the firm. This is all the more relevant for firms entering a country like China, which is undergoing its own massive learning process as it careers along to greater wealth.

Choosing the right location
China is far from homogenous, so choosing the right location is high on the list of priorities. Local administrations scout for inward investment, offering favourable leases, tax breaks, waivers on recognising the official trade union and privileged access to finance and support on patent protection. However, these offers must not, business people advise, run contrary to what the company is seeking to achieve. The politics of the CCP has created a heterogeneous set of distinct markets. Rules handed down from Beijing are implemented differently across the length and breadth of the country. What sells in a first-tier city such as Beijing or Shanghai may not sell in a second- or third-tier city such as Wenzhou or Dalian. Infrastructure and human capital varies considerably across the country. Thus, finding the best location takes time, due diligence, and careful planning.

Government relations.
Business people are unanimous in stressing the importance of government relations at all levels. Given the importance of personal relationships, the many tiers of party-state structures, and the intricate nature of centre-local relationships, firms must devote resources on a permanent basis to cultivate officials from Beijing’s ministries right down to municipality and township levels. Getting to know the right officials can be a challenge in itself. A multi-national company making a large investment might find the red carpet rolled out with alacrity, but SMEs making a relatively small investment might struggle to make contact with the people they need to meet.

A suitable business structure.

If you choose to enter the market, you have to choose which business structure is best. China’s growth has gone hand in hand with a rapid evolution in policy, so that a variety of routes to enter the Chinese market have evolved over time. Firms may opt :to open a representative office in Hong Kong; to license their technology; to enter a joint venture with a local partner; for a wholly foreign owned enterprise (WFOE); or to create a holding company.

In certain restricted sectors, you may have no option to a joint venture. Remember that on the plus side, a partner may bring local knowledge, the all-important guanxi, market access, resources, and perhaps unique competences. They will expect the foreign partner to bring managerial skills, financial assets, technical capabilities, and a willingness to share expertise. On the negative side, there may well be a mismatch in expectations and in delivery between the two sides. It is certainly easier to run a business without a partner, but investing in developing relationships is that more difficult.

This is Part I of the “Why Go To China?” Series. To be continued…

Jonathan Story, Emeritus Professor of International Political Economy at INSEAD, is author of ‘China Uncovered – What you need to know to do business in China’, FT/Pearson. The Arab language translation, same title, is being published by Librairie du Liban, one of the leading publishers in the Arab world.

solar charger SC700U 2600mAh/3600mAh/5600mAh

On January 4, 2011, in Electronics, Products, Restrictions, Uncategorized, by alex

Emergency solar charger for widely used mobile phone/GPS/MP4 / digital camera/electronic product.

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