CHINA, or tips for how to start Your business in this
country?
Short introduction
During the
most of Chinese history emperors disliked merchants: they were seen as being
unproductive, as they were not working the land, and the land was the primary
source of income, as being somewhat disruptive: they could be richer than the
officials and gain political power by using their economic power. However, the
state depended upon merchants for the income.
But is
there a law against being rich?
Yes, some
of the laws were really designed to control excessive displays of wealth: for
instance, when people had huge graves, mausoleums after they died and it was a
grand event in sending the person off to the afterlife – this kind of over-consumption
was restricted by law.
This kind
of idea is also related to the Confucian value of not displaying your wealth too
openly or too excessively. Very interesting, but tourists in Shanghai can find
the ad warning them against merchants – people who might be trying to sell you
something that’s not worth as much as they say.
One of the
major issues confronting the Chinese government today is a huge disparity in
wealth between the rich and the poor in China: over 1 million millionaires and simultaneously
huge areas of poor people…
Government and Business
Some people
think of China’s economy today as a market economy. However, China still
engages in five-year economic planning cycles. These cycles, the ideas, the
goals are centrally planned. Almost all of the top 50 Chinese companies are
state-owned enterprises where more than 50% of the company’s value is owned by
the government.
But! These
plans are no longer called plans. From 2006, they’re called guidelines. These
guidelines are important for people who want to do business in China, because
these give good ideas as to the kind of areas that you could invest in and
areas you might want to avoid investing in.
If you want
to criticize the country, just be careful: there is the rising sense of
nationalism, that in its turn has an impact of what you say about China.
Many
business people today are participating in the political process by joining the
Communist Party – mainly in order to gain access to other officials for
advancing their business interests: this fact is ironic, as the Communist Party
traditionally has been the party that opposes capitalism and now it welcomes
entrepreneurs (people who were once labeled as capitalist roaders).
Many of the
state-owned enterprises have a member of the Communist Party who plays a role
in ensuring the political correctness of people in the organization. So, the
influence of the Communist Party can be seen right down into work unit.
There are 8
other political parties in China (as well as the Communist Party) the role of
which is small but they have been participating right from the beginning of the
history of the Communist Party ruling in China.
Levels of
government in China:
- The
National Government of China (National People’s Congress that meets once a
year, the State Council, the Central Committee and the Office of the
President).
- The
provincial governments (in some countries it is called the state level of
government): are made of 23 provinces, a number of autonomous regions and large
cities called municipal-level cities.
- The
local governments (cities, smaller cities and other prefectures).
This tells
us that the levels of government make the bureaucracy very complex in China.
So, if you
are a businessperson in China and you want to get any paperwork processed, it
is an extraordinarily difficult process. You do not know at which level of
government you need to operate and you do not know who has responsibility for
what. And in fact, many of the people at these different levels of government
also are not sure: they operate in areas they believe that they are responsible
for, but on paper that may not be the case. So how on Earth do you negotiate
the government in China?
Anyway, there
are many companies operating in China which can give you advice on this, they
are usually locally-based, sometimes foreign-owned. But they will be able to
advise you and guide you through the maze of the Chinese bureaucracy.
There is
something like 36 to 46 million bureaucrats in China – that’s more than the population
of Australia many times. It is important to remember that with regards to this
number of bureaucrats there are many people who are wanting to have a piece of
your business. So, it is best to work with an established consultancy company
that is experienced in helping you to navigate through the Chinese bureaucracy.
Of course,
you may be thinking at this point that business in China is too hard to do.
Then the advice is to go to China first of all and look for work. And after you
have worked in the country for a few years, you may have acquired enough
knowledge to then move on and establish your business.
Strategic thinking in China
“The Art of
War” – a book by Sun Tzu or Sun Wu (a military genius, a military general
during the Warring States Period around 500 BC), where he gave instructions to
people on how to defeat the enemy, and people have used these lessons to apply
to business today.
This book
can be found in the most shops around the world in the business section: there
are a number of strategies as to how you can deal with your competition when
you are conducting business.
Some of the
strategies, presented in the book, are focused on creating a positional
advantage: rather than just work with the existing constraints, you should do
what you can to create a favourable situation (for instance, simply to arrive
early, perhaps, for an appointment).
Another
thing is to gain business intelligence (to find out what your opposition is
doing) – in order to have the knowledge advantage.
And one
more important is to provide better logistics than your opposition.
Two main stratagems
from “The Art of War”:
“Make a
sound in the East but attack in the West”: do that signaling but plan to do
something else that is different. Give a signal by all means to your
opposition, and the opposition will then develop strategies in order to counter
what you are about to release, but you will work on “another side of the issue”.
“To feign
madness, but to keep your balance”: to deceive your business opposition. For
example, when you are drinking with your Chinese partners, you yourself remain
as though you are a little bit drunk, a little bit mad, but in fact you are
still sharp and aware of what is going on.
Problems of Going Global
Chinese
companies have very low brand awareness: the clothes you may be wearing right
now have been manufactured in China, but you do not know the brands.
One example
of a successful Chinese global brand is Lenovo – a relatively successful merger
between Chinese company and a part of American company (in 2004, IBM’s personal
computing division was sold to Lenovo Holdings).
Chimerica? China
and America: there is increasing interdependence of China and America.
These two
countries rely on each other to some extent for their growth (in the case of
China), and the economic recovery (in the case of the US). America is
increasingly relying on cheap economic goods as part of its economic recovery. Moreover,
China is a country that now has great savings, and is investing in US Treasury
bonds. Now it is the largest investor in US Treasury bonds in the world.
The
so-called ethnocentrism restricts the outlook and the view of many Chinese
people: in the mind of the many Chinese people China is the center of the World
(and the World should be coming to them to do business with, not they should be
going out) and other countries have to pay allegiance to China. Many of the
countries (Japan etc.) did this for many years, somehow like: “Please, do not
invade us”.
Furthermore,
the following factors tend to restrict the development of global Chinese
companies:
- Authoritarian
leadership – when companies go overseas they need good leaders in order to
adapt to different new markets etc.
- Centralism
– restricts the abilities of companies to operate in a much broader geographic location.
It is difficult for Chinese companies to achieve the decentralization that is
needed for global operations.
- Micromanagement
– a manager should always look over the shoulder of the employee to make sure
that they are fulfilling their responsibilities. It leads to the huge headaches
for managers, but does not operate particularly well in the context of global
companies.
Meanwhile, there
are some countries that are afraid of a few aspects of Chinese business:
- The
envolvement of Chinese military in some companies: the company called Huawei
was suspected (without really being proven) of using some of its technology to
spy on other companies (operations).
- The
general fear of Chinese espionage (as mentioned before, business intelligence
is important to the development of Chinese business strategy).
- The
ambitions of China to be a superpower (some countries are made nervous because
of China increases its power as it modernizes its military: China is developing
a blue-water navy with an aircraft carrier and probably other weapons that will
increase its power in the world).
Business in Hong Kong and in Taiwan
Hong Kong
Hong Kong –
is a place where the law is followed a little bit more closely, which is less
corrupt, and it has been the starting place for some businesses for them to
launch into greater China.
Hong Kong
was handed back to the Chinese government in 1977 after the occupation by Great
Britain during 1800.
Since this
handover, it has been found that in fact, China has become a little bit more
like Hong Kong, rather than Hong Kong has become more like China (a number of
laws were developed by the UK that helped business to thrive and flourish in Hong
Kong).
Hong Kong
cultural identity is very strong, Hong Kong people to some extent resist some
of the incursions of China into what they see as their sovereignty.
There is
the great tradition of the rule of law here: the commercial laws and the system
of business operation are much more advanced in Hong Kong compared to across
the border in the People’s Republic of China.
Very
interesting fact: the world’s first independent commission against corruption
was started in Hong Kong in 1974 and has actually been the model for many other
independent commissions against corruption around the world.
Taiwan
Through the
history of Taiwan – the small island off the coast of Mainland China – the
country started to develop itself as an independent nation (earlier it was
under Chinese and Japanese rule – so, there are still many aspects of Japanese
life in Taiwan today).
Below, you
will see the three types of companies that operate in Taiwan:
- The
large family owned or privately owned conglomerates (a number of related
industries that are all owned by the same family or group of private
individuals).
- Small
and medium enterprises (with up to 299 employees) – they have been the backbone
of the Taiwanese economy. They have been successful in operating not just in
Taiwan, but have moved abroad.
- Companies
operating on the world’s stage: Acer, HTC, Taiwan Semiconductor (the world’s
largest producer of semiconductors). These companies are organized very much on
the Western model.
Future Trends about doing business in China
The number
of tourists from China is increasing dramatically. In fact, in Australia today
the largest source country of overseas tourists is China.
The demand
for overseas education is growing rapidly in China as well: amongst the new
rich in China today, their desire is to educate their children overseas.
But the
rising wages are causing some problems, however because labour costs of
manufacturing are now cheaper in Mexico than in many of China’s southern
cities.
There is
growing wealth, a growing middle class in China, and all of these things spell
opportunity for businesses that want to invest in China. There is also the
growing importance and growing wealth in a number of Western and inner cities
of China (not only in the coastal ones).
As China is
investing more money into research and development, the protection of
intellectual property rights and the protection of one’s property and
investments – these three areas are developing rapidly. So, if you are planning
to do business in China, it is wise to get an updated perspective on these
particular areas. China is developing them as a result of the increasing economic
integration with the rest of the world.
And
finally, one of the trends in doing business in China is that the Chinese
government is trying to promote the yen as an alternative global trading
currency.
Therefore,
this means that China is moving more to international standards of accounting
and financial responsibility, and this will develop more and more over the
years to come.
