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Is China for Me?
by Brian Finch

In this article, the first in a series on China, Brian Finch explores why British companies seem reluctant to venture into this exciting and growing market; he offers some ideas on what factors UK businesses should consider in deciding whether to take the plunge, and gives some guidance on how those who choose to do so can minimise the risks.

Background: The Chinese Economy and the Opportunities

The world stands in awe at China’s seemingly miraculous economy. For instance:

Consistently high growth rates in the last 10-20 years
Unaffected by the late 1990s Asian Financial Crisis
No sign of economic slowdown (but SARS may have some effect)
The world’s second largest foreign reserves

And what of the opportunities for foreign business?

Investment: China is now the world’s largest recipient of FDI
Trade: China is one of the world’s major trading nations and her membership of the WTO is removing many of the previous barriers to international trade.
Infrastructure: huge developments in the poorer parts of North and West China – thousands of miles of motorway; railways; fibre optic cable; over 40 airports; massive hydroelectric developments (e.g. the 3 Gorges project)
The world’s largest mobile telephone market;
Manufacturing: parts of China are now becoming the global manufacturing base, and many are state-of-the-art factories producing the latest hi-tech products for the international market
Redevelopment: Beijing is being given a face-lift for the Olympics 2008, with a total spend of some US$23 billion
Education and Training: there is a voracious appetite for all types of education and training

Frankly it is difficult to think of a business sector that cannot profit from doing business in China.

Britain and China

Following the return of Hong Kong to China in 1997, there are no longer any difficulties in our relationship at the political level. Differences remain over issues such as human rights, but in most areas bilateral relations remain warm, friendly and cooperative. This atmosphere is reflected also in our trade and economic links. For some years now, Britain has been – and remains – one of the world’s major investors in China and Europe’s largest. We are also China’s second largest European trading partner after Germany: UK exports to China are now around £2 billion per annum.

And yet…

Many British companies are still nervous about doing business with China. Despite the evidence that many British and other foreign companies have made a great deal of money there, some businessmen tend to listen only to the negative stories. What about all the companies that lost their shirts in the Chinese gold rush in the 1980s? Will my IP be stolen? How can I guarantee to get paid? What about repatriation of profits? … and so on.

These are all sensible questions based on sound concerns. China is not necessarily the best market for everyone. And it is certainly not a market you should rush into without serious planning. Here are some factors you should take into account when considering whether or not to enter the China market.

General Planning. Broadly speaking, use the same decision-making processes you use for all other kinds of planning, such as launching a new product or building a new factory. Yes, China and the China market present special characteristics and challenges. But your decision-making must remain firmly rooted in your own culture, based on your business experience and common sense, albeit taking account of any sound advice you get on dealing with China.
Objectives. You need to be very clear about what you are trying to achieve, in what time-scale, how much you are prepared to invest in up-front costs and what return you expect.
Market knowledge. Good research is usually crucial. You should already be expert on how your product or service fits into the global market and the nature of the competition. You now need to find out how this applies in particular to China and where you can find a market opening.
China knowledge. Read as much as you can; scour the Internet. Get advice. There may be plenty of existing knowledge within your organisation. Speak to friends or other companies you know with China experience. Get help and advice from various public bodies: your Chamber of Commerce; possibly your local council, Business Link; Trade Partners UK; the China-Britain Business Council. It is often valuable to use the services of a China consultant, but before doing so it is useful to gather as much general and background knowledge as you can find for yourself.
Commitment. Is your organisation fully committed at the top? This is an essential prerequisite. Without it, you stand a high chance of failure. If senior management is likely to pull the plug when the going gets tough, you should think very carefully before starting.
Resources. Have you got the right high quality people to take your venture forward? Only your best team is likely to be successful in China.
Specific Planning. If you decide you should be going into the China market you will need to make very careful and specific plans. You will need help from the China experts to deal with the particular intricacies of the culture, but you must remain firmly in charge of the strategic planning – at the highest levels. And you must continue to apply your own brand of business common sense, which is what got you where you are today. Don’t be bamboozled by the cultural differences. You must take account of them; they are very important. But in the end, you do business on the same basis as you do anywhere else: to make a profit for your organisation. Never let that be forgotten.

Think and plan carefully before venturing into the China market. It is definitely not for everyone, certainly not for those who want to make a quick profit; a long-term commitment is essential. But many companies have found, and continue to find, that if you approach the market sensibly, taking advice but never losing your business instincts, there are good profits to be made.

Brian Finch is Managing Director of EastBridge Associates, a China consultancy he set up two years ago when he retired from the Diplomatic Service. He specialises in relationship building with the Chinese, based on decades of China-related experience, fluency in spoken and written Chinese and wide-ranging contacts.

Tel: . Website: www.eastbridgeassociates.co.uk