7 Secrets to Business Success in China

by Paul M. Denlinger

One:
Learn About China

Many companies, when they expand to overseas markets, do not have a detailed knowledge of the new market they are going into. If a company is expanding into a small, comparatively unimportant market, where the revenue potential is limited, it could be argued that this is acceptable, but in the case of China, it isn't.

No matter how the world economy develops, China is going to play a greater role as it becomes more integrated into the world economy. While there may be slowdowns and setbacks along the way, this is a major trend which will not change.

Already, China is a major manufacturer for world products. More and more, companies will see China as a market with increased purchasing potential. For consumer products, most of the purchasing capability will be along China's eastern coast. For businesses selling to manufacturers, customers will be more evenly spread.

Virtually all of the leading companies in all sectors are Chinese companies. It is almost impossible for foreign brands to succeed on their own without Chinese partners; the only exceptions are a few luxury brands. As a first step, it is necessary to find out who these players are.

China is still affected by the legacy of the state-owned enterprises, which often are still major players in the economy. The finance and distribution sectors are still heavily influenced by government participation.

Even in sectors where government influence is smaller, the government can still influence development through regulation. Sometimes, these regulations are introduced with very little public debate. This is a reality every business in China must be prepared to face. In China, the learning process never ends. Just when you think you are beginning to understand it, something happens to surprise you and to remind you of the complexities of China. For many, that is also a good part of the attraction of the country.

Be humble, and never stop learning.

Seven Secrets to Business Success in China
Two:
Find the Right Partner. Since virtually all of the major players in all sectors in China are Chinese companies, it is very important to find a good reliable partner to work with. A good partner, and a good trusting relationship, will significantly shorten the learning curve, and add to a company's revenue picture.

Before a company starts looking for a partner, it first needs to understand the landscape of the sector it is going to participate in. Who are the major players? What are their strengths and weaknesses? What key relationships do they have? What is their corporate culture?

Then, the company going into China has to have a clear idea of what its own strengths are, and what it can bring to the table. At this stage, the company has to be coldly realistic about what it can do, and then bring these forth in partnership discussions. In a good match, the companies will have complementary strengths and business cultures.

In a good partnership, both sides will respect each other for their core expertise, and will focus their energies on jointly developing new products and services for the Chinese market. This will quickly pay off in the form of faster return on investment and revenues.

In a poor partnership, there is no trust, and energy and attention are devoted to getting the upper hand on the other business partner. Each partner thinks that is better, and seeks to dominate the partnership and abuse, and even humiliate, the other partner. When this happens, an outside competitor benefits.

Partnerships are influenced by personalities, and it is important that key executives on both sides of the table feel that, at the very least, they can work to build a trusting relationship, and have an open channel for communications.

If the key executives feel that it is possible for them to speak honestly and frankly, then operational differences can be quickly resolved when they flare up.

Seven Secrets to Business Success in China
Three:
Start Small

Outside investors look at China either as a great, undeveloped market with huge potential, or as a hopelessly backward market. Most of the time, these outlooks are heavily influenced by the general world economic outlook.

In fact, China is an underdeveloped country with limited infrastructure, but growing purchasing potential. It now offers one of the best skilled workforces at very competitive wages. As more companies invest in China, this money will work itself more widely into the economy.

For companies wanting to sell in China, it is wise to start small, and then grow with the market. In any new business venture, there is a learning curve, and mistakes will be made. A smart manager tries to keep these mistakes from being too costly.

During this initial investment and learning phase, it's best to harbor resources. There may be a temptation to make a large investment because everyone is going to China, but many of these large-scale investments have turned into very costly mistakes.

For a large corporation, they can justify these large investments, and even losses, because investment in China was a strategic decision. However, the price is often that the executives who were involved in the initial phase of the investment were burned out by the experience, and valuable people were lost.

Business success in China is a marathon, not a sprint. Run it that way.

Seven Secrets to Business Success in China
Four:
Hire the Right People

Every business claims that its success is based on its people. This is just as true in China as everywhere else.

In fact, it is more true in China, simply because of the growth potential of the market. In a mature market or industry, the revenue percentage fluctuations of a business are comparatively small, but in a growth market, hiring the right people means the difference between being a leader or a mediocre member of the pack.

It's very important to have senior people who know Chinese and are comfortable working with Chinese. As much as possible, your Chinese company or office needs to have a Chinese face.

At the same time, a good Chinese manager needs to understand the culture of the parent company, and be able to explain the rationale for his plans to develop the China market. In addition to being a good executive, he needs to be a good bridge. At the same time, he needs to be open to suggestions and willing to listen, and not feel insecure.

In China today, there is a shortage of management who can lead teams well. There is an even greater shortage of people who can lead cross-cultural teams across multiple geographies, and have good communication skills.

If a company can find individuals with these skills, they will be in a good position for success in China.

Seven Secrets to Business Success in China
Five:
Have a Realistic and Flexible Strategy

China is a rapidly growing developing economy. In business terms, this means that there are parts of the economy which are very well developed and very modern, while there are other parts which are less developed and efficient.

For those who are more historically inclined, China today is like California during the Gold Rush or Germany in the early 1900s. In each case, the economy was undergoing rapid changes which affected all areas of the society. Many old and accepted social mores were turned on their head. New companies were formed on a daily basis; fortunes were made and lost. This was the period of the robber barons, and the government was very hard pressed to keep up with the changes of the society.

For a business, this means that it must be able to adapt and act quickly. For executives who have worked in countries with mature and stable economies, it is a whole new experience. This is why many of the major European multinationals send their management track people to China for at least two years' exposure to this market.

Because this market is so rapidly changing, it is almost impossible to set a strategy for it completely outside China. A smart multinational always gives its local Chinese management sufficient freedom to act quickly without facing the overhead of explaining every move to the overseas headquarters.

An example of dynamic change is the recent SARS scare in China. In its early stages, the Chinese government attempted to cover up the problem, saying that it was not serious. However, Chinese cell phone users sent each other messages, and in many cases, spread news and rumors via SMS (short message service) text on their cell phones. Eventually, the Chinese government had to admit to the true seriousness of this problem.

And what businesses did best during this crisis? Pharmaceutical and medical companies, and makers of herbal potions and remedies.

And, of course, the mobile phone carriers and SMS providers.

Seven Secrets to Business Success in China
Six:
Listen to Your Customers

In almost every industry, the best information for new products and services come from their customers. Unfortunately for most companies, they are usually very bad at acting on this information efficiently. In a growth market like China, competition is very intense, especially in the retail sectors. For this reason, customer satisfaction, and customer insights are invaluable.

For companies selling to the business sector, having a good healthy feedback channel is also important. Product departments become stale when they are only willing to act on their own ideas, and refuse to listen to outside feedback.

In China, many companies are in their early stages of growth, especially private companies. First generation entrepreneurial companies are usually founded on the vision of a single individual, who has the drive to bring a product to market and sell it at a profit. Companies of this kind usually have a very centralized management, with most power concentrated in the hands of the founder.

The downside of this is that the entrepreneur is usually distrustful of outside input, and is often dismissive of others' opinions. If the entrepreneur has a good feel for the market, then the company prospers, but if his judgment is off, usually the whole company suffers. In a rapidly changing market like China's, when companies succeed, they succeed quickly, and when they fail, they fail equally quickly.

Long-term overall success in China depends on having the systems in place to handle multiple input points of information, and then being able to digest and act on them.

Listen to the views of many, do your own research, then act.

Seven Secrets to Business Success in China
Seven:
Be Prepared for Fast Growth

Earlier on, companies were advised to "Start Small". This is because any business has to leave itself time to learn about China, find the right partners, hire the right people and develop the right strategy.

But, no company should be like this all the time.

A company must be prepared to quickly change to keep up with the pace of change in China, and to make decisive moves to help its business when the time is right. Opportunities can come and go very quickly.

This brings us back to the proverb about the tortoise and the hare.

In China, in the beginning, a company should start as a tortoise, but when the team and everything else is in place, it should transform itself into a hare.

The prize belongs to the smart and fleet.

Copyright 2003 China Business Strategy

Paul M. Denlinger, and China Business Strategy, work with top management teams to outsmart your competitors and generate substantial long lasting profits in the China market.

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