A streetsmart guide to China
The one-size-fits-all approach to doing business in the mainland can be a disaster in a country as diverse as Europe where laws and attitudes are changing rapidly
With China's economy booming, everyone wants a piece of the action. But, as many investors are finding out, not everyone comes out on top. In fact, many have virtually lost their shirts.
Joel Laykin, president of Hong Kong-based public relations agency Laykin Communications, says: 'Very few of the companies we represent have seen the black ink yet. Those that have ... had a focus and a niche. They also knew who they were getting into bed with.'
China overtook the United States as the biggest recipient of foreign direct investment (FDI) last year, attracting an estimated US$52.7 billion, according to figures from the mainland's Ministry of Foreign Trade and Economic Co-operation. This year's figures are expected to be even better, with the Chinese government projecting a 5 per cent increase. But with the world's fastest-growing economy, many analysts think those estimates are conservative.
'Investor friends tell me [they're keeping it] low to surprise people,' says John L. Chan, author of China Streetsmart, What You MUST Know to Be Effective and Profitable in China.
It goes without saying that there are as many predictions about which way China's economy is heading as there are analysts. Basically, China-watchers can be broadly divided into bulls and bears. This can make things very difficult for investors trying to make business decisions.
'When you go into China, you're going to hear so many stories and most of them conflict,' Mr Chan says. 'It's all about managing information. When you hear something about China you've got to ask yourself four simple questions.'
The first thing to do is ask when it took place. 'China is changing so fast,' Mr Chan says. 'Laws and attitudes have changed. Many people now know how Western business practices are done.'
The second thing to find out is where it happened. Many people forget that China is a huge country with as much cultural, linguistic, and ethnic variety as Europe. The Pearl River Delta is as different from Shandong Province as Holland is from Greece.
'Was it in a sophisticated place like Shanghai, or a backwater, where local officials can make their own interpretation [of government policies],' Mr Chan says. 'The first mistake many people make is to treat China as one market.'
The next question to ask is who was involved on the Chinese side. Older people - those most likely to be in more senior positions - will have a different mindset to the younger generation.
'If they're in their 50s or 60s they will have gone through the Cultural Revolution,' Mr Chan says. 'These kinds of people have markedly different attitudes to those in their 20 and 30s, who are likely to be the ones working for you.'
The last question should be who was involved on the foreign side. 'Someone from Hong Kong telling me what it takes to be successful in China is different from someone from the US or Germany,' Mr Chan says. 'Stereotyping is alive and well in China, especially [with] limited exposure to foreigners.'
Mr Chan believes that guanxi, roughly translated into English as relations or relationships, is often over-hyped. 'Guanxi is a tool,' he says. 'It can be a very useful tool, but at the end of the day, you've got to have the best product or service at the best price [to be successful].'
Interestingly, Hong Kong investors - despite their widely perceived edge as tops in terms of China business savvy - often place far too much emphasis on guanxi, Mr Chan believes.
'The biggest secret about doing business in China is that there is no secret. It all gets down to common business sense,' he says.
While a lot of people are getting burned - and badly - it should really come as no surprise. Some are what Mr Chan calls 'the silly guys' who ran headlong into the country without doing their homework. They have only themselves to blame. Another group are the service providers such as advertising agencies and public relations firms. Owing to their higher costs, they simply can't compete with local companies, especially if they've brought in foreign talent. A third group are the multinationals such as General Motors. Many of these companies are looking 20 years into the future. They had no expectations of turning a profit - yet.
Then there are those doing far better than they admit. Some of them are cooking the books for tax reasons. Others are savvier still. 'Those that are really street smart are making a ton of money,' Mr Chan says. 'They won't tell you about it because they don't want to alert their competitors.'