Unlocking five ultimate secrets to doing business in China

By Katrin Büchenbacher Source:Global Times Published: 2018/1/11 15:03:39

Almost half of foreign businesses fail during their first two years in China. Photo: IC

Did you know that the answer "yes" is not necessarily an indication of agreement in China, that signing a contract may just mean the beginning of the real negotiation and that "You don't understand China" means disagreement?

The world's most rapidly developing economy has long been an attraction for foreign business people, entrepreneurs and investors. Stable growth and a vast market with a growing consumerist middle class and low labor costs are among the most significant pull-factors.

In 2011, China became the second-largest economy in the world and although its growth has gradually slowed since 2012, according to the World Bank, "it is still impressive by current global standards."

However, the temptations of the Chinese market have made some foreign companies blind to the risks and challenges because businesses can suffer from a culture shock too.

"It's a lack of understanding of the legal and cultural environment that leads to most failures," Shawn Mahoney, managing director of the EP China consulting group, told CNBC. "The only difference between success and failure in my experience is that people who are successful are more willing to talk and learn about how things work on the ground."

An estimated 48 percent of foreign companies fail in the Chinese market within the first two years, according to the PR and communications agency Weber Shandwick. Much of it can be attributed to a lack of knowledge of the local business culture, its legal framework and tradition. Its understanding is paramount to success and to calculate risks. This is especially true for start-ups that operate under even harder conditions and stronger competition.

Therefore, the Metropolitan has invited the crème de la crème of foreign entrepreneurs and consultants in Beijing to unlock the secrets of doing business in China.

Even your cleaning lady can strike a deal for your business, so keep an open mind, the CEO of Ms. Uptown advises. Photo: IC

1. Never underestimate your ayi

A typical stereotype among Chinese is that those who come to China were "losers" in their home countries. Canadian Judyanna Chen is the perfect counter-example.

Chen is a certified public accountant with over 12 years of working experience as a senior executive for private and public companies.

Since 2008, she has traveled to China periodically as a senior manager for her then accounting firm, before working as a CFO and VP of finance for large corporations in China and Canada.

But then, the "excitement" drew her entirely to China, where she took the chance at a career change. She succeeded thanks to hard work and determination.

Now, Chen owns Ms. Uptown, a female-only fitness studio in Beijing that is so successful that she now plans to expand.

Chen was inspired to create a fitness studio for women only by a female-only section in the gym she used to go to in Toronto.

"I could just focus on fitness and myself, rather than who's there and what I look like," she said, adding that the feedback from clients has been very positive so far.

Chen managed to build up contracts with large companies since she started her business. Some of them were introduced to her by her cleaning lady.

"Our ayi, the person who cleans our studio, brought in a couple of large clients who bought a couple of hundred passes because they were her clients as well," she said.

Therefore, her secret to doing business in China is that "anyone can be your next investor or partner, so keep an open mind and share ideas to find synergies."

Chen finds it "fascinating" that through her interest in people and conversations with them, ideas and projects came up that she "didn't even plan to do."

Chen does not regret her decision to move to China to do business.

"I would have missed something."

2. Do not play the foreigner card

American national Connie Hong runs a consultancy business for foreign companies who wish to enter the Chinese market, but she is also the founder of PlanetChoco - chocolate with a Chinese twist.

The reason she came to Beijing 13 years ago to do business was "passion." Besides, Hong is an independent commercial advisor for the Beijing WTO Affairs Center and has been a council member of the Beijing Brand Association since 2004.

Her ultimate secret to doing business in China is as simple as it is useful - "know your trade."

"Chinese companies don't just look for a foreign face anymore. Chinese businesses look for someone to be a good partner. They look for solid knowledge and abilities in a certain trade, something compatible and complementary."

So the days of "white monkey" business - a colloquial term describing a job that you can get on account of being a laowai (foreigner) - are over.

According to Hong, since locals are getting more "savvy and experienced in dealing with foreign countries, rules and regulations," the sole fact that a foreigner is doing business in China does not impress anyone anymore.

3. Use digital marketing

Jeff Frey, a Swiss national and graduate from Tsinghua University, created a platform for young foreign professionals called InternsInBeijing. What started out as a project between interns and companies is now the largest WeChat account for foreigners in Beijing. His company was nominated for the Sino-Swiss business award in 2017.

"It's definitely profitable; you can make a lot of money in China," Frey said. "But it takes forever for a foreigner to build a company in China."

The young man is doing business in China because of the "potential." But the sheer size of the Chinese economy can make it hard to target and reach consumers.

Frey's secret to doing business in China comes from a practical understanding of the importance of social media and digital marketing and branding in China.

 "Work with a key opinion leader to reach the consumers you want," he said.

The platform InternsInBeijing, for example, is an easy way for brands who want to reach foreigners in China.

"A key opinion leader is your promotion shortcut," he added.

However, it does not work anymore to take just any famous actor or singer that has no relation to a specific brand, Frey explained. "It's crucial to find an appropriate opinion leader."

4. Protect your ideas

Israeli Tslil Kleiman is the vice general manager at the Israeli Chamber of Commerce in China, assisting Israeli companies to enter the Chinese market. She graduated from Nanjing University with a master's in Chinese social media and has worked as a social media and project manager at the Israeli Embassy. She started her career in China right after graduation due to her unquenchable thirst for knowledge about the Chinese culture and its people.

"The more I learned, the more I realized that there is so much more to learn," she said.

The secret she wants to share with foreign companies  is to "consult with a lawyer or intellectual property expert before coming to China to protect your idea."

Is it true that ideas get stolen and copied in China once shared?

According to Kleiman, "It's not like that. The intellectual property law is much more developed and sophisticated here than in the US, but you have to understand it to protect yourself before you enter China."

5. Be smart about guanxi

The Financial Times reported that China is a country where "everything is based on relationships." Companies must have "friends" to "facilitate a free flow of information."

Kleiman does not see the importance of relationships for businesses as something that is China-specific.

"It's also true in our culture. We also need to be friends first to know each other before we start doing business. The only difference is that in Israel building trust happens quicker, and here it's a process."

Over the past 13 years of living in China, Hong noticed a "shift of focus from relationship to trade credibility."

At an entrepreneurship camp, investors analyze potential first before deciding to build a relationship with investees, Hong noted.

Chen agreed, "Relationships are basic, but you need a good project. It has to be profitable and it needs to be innovative," adding that "Back in the day it was a bit more guanxi but now it is about profit."

Kleiman noted the role that relationships play in business depended on the industry as well - tech companies do not require several dinners, bajiu drinking competitions and KTV escapes to close a deal.

Frey calls the new concept, adopted by the tech industry and start-ups, "selective" guanxi.

"Tech companies are in a rush; they don't have time to discuss a partnership for one year. Either you do it immediately, or somebody else does it."

Finally, Hong advises foreigners to move from superficial networking to genuine bonding.

"Mutually helping each other creates trust, and then you will not be treated as a foreigner anymore, but as one of them, as a friend."

Newspaper headline: Beyond guanxi


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