CHINA CONTINUES to see a flood of overseas investment and is now widely acknowledged as the country which will be the driving force of the world's economy in the first half of this century.
International companies have seen the cost benefits of relocating their manufacturing and sourcing operations to the mainland, but have also become sharply aware of some of the risks involved. These often centre on how best to operate in an environment which has long relied on different business practices and operated with ethical standards which are some way from those of the major multinationals.
Despite the opportunities, many joint ventures and acquisitions still fail, and the foreign investors generally come off worst. They complain of lack of transparency, limited market access, obscure regulations, HR and cultural problems, counterfeiting and unfair competition.
At various levels, they also encounter corruption and fraud, sometimes well hidden in a company's auditing and accounting records. As an indication of the problems, China's listed firms score only 44 out of 100 for corporate governance on an international scale.
The story of Bill, a personable Chinese businessman, shows what overseas investors can face. He started out in the car industry and soon developed good contacts with local suppliers, distributors and government regulators. A multinational car parts manufacturer saw his potential and hired him to lead its sales team in China.
When appointed, Bill immediately set up his own company, got his brother to manage it, and secretly began to transfer product technology and manufacturing know-how. The company grew steadily and Bill made full use of contacts made through the multinational to channel business to his brother.
Finally, he even persuaded his employer to form a joint venture with his firm, while carefully disguising his own involvement. It was only when he quit to concentrate on these outside projects that everything came to light. Now, however, he is competing directly with his former employer and selling virtually the same products.