Private eye steers the gullible around the cons that blind new investors

Bruce McLaughlin says the biggest problem faced by foreign investors entering the mainland is that they do not do enough market research. It is an oversight, says the founder of private investigation and research firm Sinogie Consulting, often fuelled by visions of grandeur and excitement as investors get carried away.

'They make assumptions about the size of the country and are disappointed when 1.3 billion people don't rush to buy their products,' Mr McLaughlin says. 'Many assume that customers in China will want the same product as those in, say, America and are surprised when no one is interested.

'And some assume that the people they're going to do business with are honest; they don't carry out even the most basic background checks. And then they're shocked when business partners run off with their money.'

The services the Briton's company offers are all founded on common sense: a studied look at the target market combined with a thorough analysis of potential partners. But time and time again, both at Sinogie, since its launch in 2001 and for five years before that in his previous position with the in-house consulting operation of a law firm, he has witnessed easily avoidable mistakes.

'You'd never try to enter the US or French market without doing any market research, without checking a potential business partner about whom you know nothing, or without even checking whether your investment is legal. But investors - even the most conservative multinationals - just seem to switch their brains off when they go into China, maybe blinded by the huge economic potential.'

Mr McLaughlin said some also put too much emphasis on guanxi (relationships): 'Yes, guanxi's important - as it is in most markets - but it's not everything. Being a legitimate company and having the capabilities to live up to your promises are important too.' Mr McLaughlin, a Putonghua speaker, has dealt mainly with the mainland, although a few investigative projects have required work in Hong Kong and Asia.