Doing Business in China

Edward Lee: China Experience
Has been serving China market since 1985.
Former Walt Disney (Licensee) General Manager – China.
Former Hallmark (Licensee) General Manager – China.
Former Deputy General Manager, China Aerospace Group (former Ministry of Aerospace, PRC)
Former Chief /Head of Risk Management – Arthur Andersen.
Former Commercial Specialist – Department of Commerce, USA
Former Far East Director – State of Alabama Government, USA
Former Negotiator – Winston & Strawn Law Firm (The launching agreement of No. 2 Chian Zen Rocket between Western Group, USA and Ministry of Aerospace, PRC).
Senior Advisor – China General Chamber of Commerce (former Ministry of Internal Trade)

China Map
23 Provinces,
4 Municipality,
5 Autonomous regions,
2 Special Administrative regions.
56 Ethnic groups
300 Languages

China Fact Sheet
Area: …………………………………..……………….... 9,596,960 sq km
Population : ……………………………………..…..… 1.37 Billion (2015)
GDP Growth: …………………………..………..….… 6.9% (2015), 7.3% (2014), 7.5% (2013)
GDP Per Capita :……………….…………….………. USD 14,100 (2015) ???, 13,300 (2014) ???, 12,400 (2013)???
Export : ……………………….….………………………. USD 2.143 trillion (2015 est.)
2.244 trillion (2014 est.)
Import : ……………………….…………………..……... USD $1.576 trillion (2015 est.)
1.809 trillion (2014 est.)
Source: CIA China Fact Sheet

Characteristics of China Market
Large in size – both land and population
Rapid changes - consumer taste and environment
Lack of regulations - not a mature market yet
Short sightedness – only focus on price cut, and
Big difference – in terms of customer income, consumer behavior, economic development stage

Characteristics of China Market
Focus on “Guanxi”
Never direct, always guess
Very complicated and confused laws, rules and regulations
Too much focus on “procedures”
High tax rates
Very difficult to fire staff
Conflicts raise because of cultural diversity
Copyrights are simply ignored

Not A Market Economy
Government interventions.
Major State Own Enterprises (SOE) CEO are appointed by Government or Government Officials.

Market Competition
Fast changing
Government intervention
Unpredictable

Language
Religion
Education
Family
Work and Leisure
Reference Groups
Culture & Social Forces

Attention !!!
When doing business in China

In-balance in regional development
Huge gap between rich and poor
Competitions among provinces, cities, even districts
Uncoordinated / Contradicted policies between local and central
governments
From export to import
From low cost to high cost manufacturing
Attention

Manufacturing moves from costal areas to inland cities due to high manufacturing costs
Difficult to recruit professional international executives
High staff turn over rate
20% Science, 80% Art
Short sight : lack of long-term development strategies
Attention

Protectionism exists in different provinces, cities.
Counterfeit
Different consumption behavior between old and new generations
Government relationship is much more important that customer relationship
Difficult in performing market research
Attention

Who are your target customers
Which is your market segment
The Hallmark Case
Target Market

People no more worry about the base needs after the Open Door since 1980s.
Rapid expenditure on real estate, entertainment, travel and services industries.
Favor western import and branded products.
Unlike the old generation, young people do not save money in banks.
Chinese Consumer Behavior

Spending focus on housing, traveling, communication, household electrical appliances, and life insurance policies.
More rational.
Huge demand on luxury, imported and brand products.
Young generation becomes the major customers.
Chinese Consumer Behavior

Different Consumer Behaviors
Beijing
Shanghai
Guangzhou

Face
Where to sit in a banquet
How to order foods in a banquet
How to walk
Everyone says s/he is the decision maker.
Personal interests is higher than company’s interests.
Focus on seniority, status and identity (CASIL 7 cars).
Everyone claims s/he has good “guanxi”.
Special Chinese Business Behavior

Hard to recruit qualified staff
High salaries
High taxes (the Four insurance: Medical, retirement, unemployment, and housing MPF).
Knowledge and know how copying.
The rise of local enterprises.
Illegal rebate.
Low loyalty.
Challenges of Foreign Enterprises

Challenges of Foreign Enterprises
Low performance standard and careless.
Challenges on moral standards and business ethics.
Restrictions on political and religious discussions ( 7 “Don’t Say)
Low market growth rate.
Too much entertainment.
Difficult to control supply quality.
Frequent changes on Government policies.

Challenges of Foreign Enterprises
High international school tuition.
Poor quality on food.
Air population.
Frequent flight cancel and delay.

Respect, do not always use western ways of thinking and practices.
Try not to appeal to legal jurisdictions.
Train local staff.
Give “face” to your counter parts.
Detail explanation avoiding mis-understanding.
Never look down on any people.
Respect the others. Don’t always think that you are special because you are a foreigner.
Ways to React

Understand the actual PRC economic development.
Understand the legal system.
Understand interpersonal relationship – “Guanxi”.
Pay special attention when picking up a local partner.
Ways to React

Conclusion