Making Profits in China
by Brian Finch

The question of making profits in China has been and remains a matter of considerable concern to perhaps most foreign companies. Why this concern? After all, China is one of the fastest growing economies in the world and all the signs are that this trend is likely to continue despite the current threat of a slowdown in most other parts of the world. The major factors that cause foreign businesses to worry include:

• The 1980s and 90s “gold rushes”. When the Chinese market began to open up, large numbers of foreign businessmen rushed headlong for what they thought would be a quick killing. They seriously misjudged the market and the result was a disastrous collective loss of shirts by many foreign businesses. This has left a legacy of mythology, leading newcomers to believe that China is still shark-infested.
  
  
• Intellectual Property Rights. This issue has undoubtedly been a major concern to many foreign businesses and has caused serious problems in the past. China now has some of the best laws in the world in this area, but their implementation remains erratic and unsatisfactory.
  
  
• Fear of the unknown. This seems to be more of a British concern, not necessarily shared by other foreigners; many British businesses appear reluctant to venture into pastures new.

Dealing with these issues in turn:

Losing Shirts. Chinese are sharp, astute businessmen. Whilst cultural differences are important, especially the need to build good relationships, the basics of business in China are the same as those at home. Hard-nosed business negotiations must be conducted with the same common sense approach used elsewhere. Foreign companies that have succeeded in China have taken careful and proportionate account of the cultural niceties, sought sound professional advice, carried out thorough due diligence and other enquiries, made the right contacts and developed solid and long-lasting relationships of trust, and then gone on to apply to their China business precisely the same set of skills that brought them success at home. Put bluntly, don’t leave your hard won business skills in the departure lounge!

IPR. This is a problem anywhere in the world, but it has to be acknowledged that it can be more serious in China. There is no quick answer, but there are a number of ways to reduce the risks and these include: 

• Rapid marketing. With fast developing products, e.g. in the IT industry, by getting large numbers of the product to market quickly, you can reduce the temptation for others to copy you. If they do, you will already have made a killing, and in any case the technology will have moved on.
  
  
• Good partnership. This comes back to relationship building again. If you have a Chinese partner with whom you have a relationship of trust that has been set up in the right way, it will be in his interests to look after your interests. Thus his energies will be directed to defending your IPR rather than trying to circumvent them.
  
  
• Careful legal planning. Use a good lawyer experienced in this field and ensure you take all necessary steps to register your IP with all the appropriate authorities, and vigorously pursue any infringement.

Clearly it is best to use a combination of such measures to ensure maximum protection.

Fear of the Unknown. Many UK businesses seem incapable of reaching out across the English Channel, let alone venturing to the other side of the world. This is a pity when the opportunities in the expanding Chinese economy are so great compared to the current gloomy outlook in the West. The solution is education, and help from those who understand the market. There is plenty of advice available; some of it is free, and much of it is sound, although there are still some charlatans out there! Professional help and advice will not only overcome or eliminate the fear, but will also greatly improve the prospects for making profits.

Conclusion

There are understandable concerns about losing money in China. Careful planning with professional help, together with continued reliance on normal business skills, will reduce the risks and increase the chance of making profits. There is no need to get ripped off.

Finally, remember China is a big place; the market is as varied as that of Europe. Shanghai and Gansu have no more in common as business locations than have Paris and rural Albania. And what businessman who has never set foot outside the UK can claim never to have been ripped off here, or not to have suffered from late payment by a client? The problems of profitability faced by businessmen in China are essentially the same as those encountered in Europe or anywhere else, although the perceptions may be different.

Brian Finch is Managing Director of EastBridge Associates, a China consultancy he set up at the beginning of the new Millennium, specialising in relationship building with the Chinese, based on decades of China-related experience, fluency in spoken and written Chinese and wide-ranging contacts. 

For further information call:  or visit: www.eastbridgeassociates.co.uk

First published by Croner.CCH Group Ltd in the Journal of Credit Management Issue 22