Savvy's Resolute Adventures

Cross the River by Feeling the Stones 摸着石头过河: Know Thy Consumer: Diverse Preferences, Growth in Luxury Goods

 

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer

http://www.newsobserver.com/2011/10/09/1548419/in-china-too-know-your-market.html

Competition in China is fierce and product offerings are often broader than in the U.S.  Further complicating the market is China’s huge population and sprawling landmass, which translate into diverse consumer preferences.  The majority of Chinese consumers have historically been price-conscious, and brand loyalty is generally absent.  Consequently, market share can shift dramatically.  Some strategies for responding to these challenges include: (1) tracking customer preferences by province and (2) creating a feedback loop by fostering a relationship of trust with existing customers.

On the other extreme, according to McKinsey & Company, China will account for $27 billion in global luxury-goods sales by 2015, which equates to 20% of the global luxury-goods market.  Bain & Company estimates that China is already the seventh largest market for luxury-goods by sales. 

Large foreign companies have been slow to position themselves to capitalize on this growth.  For example, Luxottica, a leader in high-end eyewear for over 50 years, will now offer Asian collections of its popular Ray-Ban, Oakley, and Vogue sunglass lines.  According to Chief Executive, Andrea Guerra, Luxottica recognizes that to capture this growth the company needs to “really become domestic in these markets” so it can design product offerings consistent with domestic preferences and the physical differences between Asian faces and those of other nationalities.  In 2009, the company established a new design hub in Shanghai. 

Two conclusions can be drawn from this example – a local physical presence may be a competitive imperative at some point, but smaller companies can be more nimble in adapting to local markets than their larger competitors.

Aside from the regulatory animal testing issue mentioned earlier, pricing has been the other big challenge for Burt's Bees.  Geikie shared their concern of being "not premium enough...you need to be luxury or mass or you're in trouble.  We are an accessible brand. Does the affordable luxury channel really exist in China?"

 

Cross the River by Feeling the Stones 摸着石头过河

Cross the River by Feeling the Stones 摸着石头过河: Checklist for Working with Chinese Government

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/10/02/1530065/cree-nurtured-its-ties-in-china.html

The following is a list of best practices to navigate government policies successfully:

• Understand how the Chinese government interacts with businesses
• Align corporate strategy with the direction of government policies
• Keep a constant open dialogue with authorities that regulate your business, especially since personnel and responsibility changes in government are frequent and deliberate to prevent corruption. When Burt's Bees was working trying to figure out the regulatory landscape in China regarding animal testing, the government body in charge of this issue changed – it moved from one ministry to another, adding to their timeline.
• Be prepared to give up – earning government approval often requires compromise in areas such as business policies and intellectual property rights
• Attend events that show commitment to the CCP. Show support to local government and their affiliated administrative organizations in charge of operation of Special Economic Zones.

It should be noted, however, that challenging government policies create new opportunities.  Competition amongst provinces, cities, and even districts for foreign direct investment means some localities offer a myriad of incentives to attract job-creating influxes of capital.  The competition between the ministry responsible for the Water Cube and that for the Bird's Nest offered Cree a wonderful opportunity to light up two massive Olympic venues.

Tax breaks, preferential policies, and other benefits increase directly with the size of investment.  Free trade zones are a prime example.  One of the largest free trade zones is Waigaogiao located outside Shanghai.  Waigaogiao offers foreign companies numerous advantages by loosening government restrictions and providing tax incentives, simplifying customs requirements, duty exemptions, and looser importer/exporter quotas.

Longistics’ Suzhou Industrial Park (SIP) International Commodities Exhibition Center is an Integrated Free Trade Zone which allows North Carolina based companies to exhibit and send their products there for display without paying import duties. Many local districts now provide discretionary competitive tax incentives which can include  rent subsidies and tax rebates for senior management.

Cross the River by Feeling the Stones 摸着石头过河: Work with the Government

 Dr. Binshen Meng highlights new energy technologies that ENN is including in its EcoCity project as the Duke Energy group tours the construction site of this project. 

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/10/02/1530065/cree-nurtured-its-ties-in-china.html

Chen, former Red Hat China general manager, shared that while it is "super important" to build PR and image with the Chinese government, it is most important if your product is sold to the government or if competition includes local players. His team would identify key government stakeholders to invite to events where they would communicate what value open source could bring to Chinese companies.

Companies should carefully manage their interactions with numerous Chinese government authorities and agencies.  Soon after Jim Rogers, CEO of Duke Energy, decided that they should determine ways to collaborate with China on clean energy development, he and CTO David Mohler met heads of key government groups who in turn introduced them to the chairman of the National Development and Reform Commission (NDRC), a powerful organization in the Chinese government. 

This started a series of high level government relationships which have facilitated Duke Energy to have within three years a full plate of partnerships with key China players: ENN in clean energy development, electric automaker BYD (Berkshire Hathaway owns 10%), and Huaneng, China's state owned utility and largest power generator.

Similar to the U.S., there are several agencies that regulate businesses, such as the Bureau of Commerce, Bureau of Taxation, and Customs.  If a company has a positive relationship with Customs, for example, the company may get a break from the random audits that the entity frequently conducts.  Furthermore, free trade zones are controlled by the CCP, and there are specific administrative committees assigned to specific economic zones. 

 

Cross the River by Feeling the Stones 摸着石头过河: Understand the Government

Dennis Gillings, CBE, Chairman & CEO of Quintiles and Jin Li, director of medical oncology, Shanghai Fudan University Cancer Hospital as part of the company’s delegation to Shanghai in January, 2011

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/10/02/1530065/cree-nurtured-its-ties-in-china.html

Companies should educate themselves about the central government’s policies toward their particular industry and also the local government’s role in regulating their business.  While the central government is still the ultimate decision-maker, local authorities are powerful, and the interplay between both can be convoluted at times.  Keep in mind that courts are all about "stability", not justice in conflict resolution.

Despite the success of the “Open Door Policy” over the last three decades in attracting large numbers of foreign companies, many Western businesses still face political and regulatory obstacles, such as restrictions on ownership rights and protection of intellectual property.  These challenges can result in firms having to spend an unanticipated and disproportionate amount of time working with Chinese authorities. 

The degree of economic ownership and product restrictions imposed by the CCP varies by industry.  Generally, the media and telecom industries have more government restrictions than consumer goods. In sharing the contextual background of China, Wollman of Quintiles shares that "regulatory timelines are long and unpredictable." "Our growth in China has been slower than other emerging markets."  

A recent campaign of “indigenous innovation” has increased government support for local companies in many sectors.  A timely example of the central government’s influence on a foreign company’s operations is Google's decision to relocate its Mainland China search service to Hong Kong after losing its censorship battle with the Chinese government in early 2010.  After its move, Google’s user base in Mainland China decreased by 50% as it ceded market share to leading Chinese language internet search provider Baidu and its U.S. partner, Bing.

Cross the River by Feeling the Stones 摸着石头过河: Listen to the Government

Cree Lights up the Bird's Nest at the 2008 Beijing Olympics

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/10/02/1530065/cree-nurtured-its-ties-in-china.html

 

New entrants often make the mistake of approaching the Chinese market with a narrow focus on sales growth.  This myopic focus generally fails to address the Chinese market as a whole, specifically overlooking the intricate role that government plays in the domestic economy. When the government speaks, all should listen.

Burt's Bees listened very carefully for many months. They discovered that animal testing, which Burt's does not do, was required for imported cosmetics.  To make sure they understood the regulatory issue thoroughly, they talked to 18 agencies at the federal and provincial levels. It took two years to figure it out.

Geikie said that working with the Chinese government was "totally important" during the assessment stage. The global consulting firm they engaged had their own government relations arm and Burt's also worked with a local Chinese law firm. When they got contradictory points of view, they kept digging deeper until they heard consistent answers. With China's strict 5 year plan, they wanted to make sure they were basing their decision off the right data. They now have additional government relations help from Clorox as well as the partner they ended up choosing, so Geikie is comfortable they have good resources to work with the Chinese government effectively.

Just over five years ago, Chris James, vice president of strategy and business development at Cree, recalled the moment when he received a request from a woman representing the solid state industry in China wanting to bring a delegation to pay Cree a visit. It was fortuitous that Cree accepted this meeting as it marked a key moment in their China adventure.

"China fully understood both the energy dilemma they faced, and the potential to mitigate a large portion of the problem through LED lighting as they projected the country’s growth rate and likely future energy requirements.  They had done the math and had taken action to address what they saw as a real crisis. Today, there are still scheduled blackouts in China because of the need to conserve energy," said James.

He continued, "the delegation which included half private manufacturers and half government people shared with us their calculations on the potential energy impact of large-scale adoption of solid state lighting." Having spent 14 years in Canada, the delegation leader had the east meets west ability to foster what would soon become a winning relationship for the Chinese government, Cree, and Chinese manufacturers. Together, they could tackle the cited Chinese government’s challenge.

During the work up to the Olympic games, where the government wished to display technology prowess by demonstrated LED lighting on a grand scale with LEDs from Cree, the head of Cree, China, received a call from the governmental agency in charge of constructing the Water Cube.  At the same time,  Professor Luoxi Hao from Tongji University in Shanghai, suggested the Water Cube as a marquee site to light up. A complex project that ran into issues, Cree dug in and worked diligently with the team to solve and light up the cube in very short order. Then, in February 2008, the minister responsible for the Bird's Nest who had seen the light of the Cube now wanted his venue to be made LED, providing Cree yet another monumental opportunity to shine.

The Olympics were the deciding factor for launching their success in China mightily quickly. Cree lit up the Olympics not only in the water cube and the bird's nest, but the journalists' building and opening ceremony.  Every manufacturer that Cree cared about knew about Cree before the Olympics were over.  From negligible revenues in China, Cree now has 36% of their total revenues from China.

Cross the River by Feeling the Stones 摸着石头过河: Other Options

 
Grancrete, Inc. production facility in Morehead City, North Carolina

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/25/1512399/burts-bees-saw-opportunity-challenges.html

New entrants may also want to consider whether to establish local partnerships, such as joint ventures.  The traditional benefits of this option is that it allows a firm to leverage existing government relationships, market intelligence, hiring experience, and manufacturing expertise rather than developing these resources and capabilities internally.  Currently, there are two types of joint ventures permitted in China, either a cooperative joint venture (“CJV”) or an equity joint venture (“EJV”). 

The joint venture decision is company specific and should be researched carefully because the Chinese government mandates that the Chinese partner own at least 51% such that the foreign company cannot take back the technology and know-how.  JVs are  hard to unwind, and while Chinese companies love them, for U.S. companies, it is something they should think twice about.  Those JVs which are currently ongoing are those which were started way back when that was one of the only options (or which carried preferential treatment/benefits).

Jia did not consider a JV, rather is pursuing the status of wholly owned entity.  "Most U.S. companies would like to set up wholly-owned for control and IP protection.  Certain industries such as telecom, natural resource related projects, and finance require JV.  China publishes a catalog of when a JV is required." He expands, "Historically, JVs have always had problems. In a recent WTO commitment, China is requiring fewer JVs."

A wholly foreign-owned enterprise (“WFOE”) is now the most common way that foreign companies invest in China.  This alternative requires the firm to establish a separate Chinese subsidiary. Jia explains their current China entry status, "We have applied for a direct selling permit and only 2 or 3 get it per year. 27 companies including Avon and Amway already have.  We may have to wait 5 years. We are willing to be patient."

Despite the array of options, new entrants should be cognizant of the fact that a substantial investment is required prior to operations because the approval, permit, and hiring process may take up to a year or longer to complete.  FIEs will need approval from the Ministry of Commerce of the People’s Republic of China (“MOFCOM”), which will conduct a foreign investment review.  They must also register with the State Administration of Industry and Commerce (“SAIC”), which will issue a business license. However, these are not the only legal requirements for establishing a FIE, and new entrants would be wise to consult an attorney about these issues. 

In addition to legal issues, companies also need to make business choices, such as: (1) decision-making hierarchy between corporate and China operations, (2) importing or local manufacturing, (3) channels of distribution, and (4) marketing strategy.

Grancrete does not have its own offices in China, but sells its products into the market through partners. No one partner is going to have reach into their three target industries, so they need multiple partners. "Each wants exclusivity, which is challenging for us, so we must shy away since this is limiting," said Melton. "Finding the right partner has been absolutely critical." They  have a long list that didn't make the cut including those that had sense of inability to move forward, with whom they had same conversation over and over, and with those who wanted all of China for nothing."

Cross the River by Feeling the Stones 摸着石头过河: Test Market

 Suzhou is known as The Venice of the East

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/25/1512399/burts-bees-saw-opportunity-challenges.html

There are compelling reasons for a company to consider offering its products or services in a test market.   Well before reaching this stage, however, market research should be conducted on the market opportunity.  Ben Liu, President of Plexigen in Cary, which he founded in 1999, was born in Shandong province and came to the U.S. in 1985 and joined the faculty of NCSU in 1992.  He shared that in 3 separate instances he invested "a lot of money" in hiring a consultant to conduct market research with customers and potential users to find out if there was a real market opportunity. In a couple of instances, what Plexigen thought could be an opportunity turned out not to be.  The upfront research ensured that time was not wasted.

 A test market lowers the risk of full-scale entry because it is less capital intensive.  Furthermore, it provides important customer feedback about a company’s product or service that can improve a company’s business plan before a larger investment. Location is very important. It is hard to find qualified staff in smaller cities and expats face problems, too. While these issues can be offset by financial incentives, these may not be worthwhile in the end.

Geikie states "you don't launch nationally. We will test in a couple of Tier 1 cities and iterate. Learnings from ecommerce also help."

Remember that China is a huge market and approaches to doing business in different regions can be vastly different. "We've been everywhere from the Mongolian border to Shanghai and areas further south," said Melton.  They go where the infrastructure needs take them. "Three Gorges Dam is already in need of repair."

Longistics offers a low risk, turn key program for NC businesses not ready to set up a full blown office in China to test the market. During Governor Perdue’s visit to China in October 2009, Duane Long and wife Pat, also a co-founder, announced a partnership with the Suzhou Logistics Center to open the Suzhou Industrial Park (SIP) International Commodities Exhibition Center, an Integrated Free Trade Zone which allows North Carolina companies to exhibit and send their products there for display without paying import duties.

As economic development thinkers and import/export logisticians who knew that agriculture is the largest industry in NC and that less than 1% of US companies export, the Longs determined that an exhibition opportunity in China needed to be created in order to market Beika [chinese for NC] to China. Their passion and spiritual drive directed them to want to help their friends in China, help NC, and the SIP International Commodities Exhibition Center can help support  President Obama's initiative to double US exports in 5 years and leverage the trust China has for western products.

Cross the River by Feeling the Stones 摸着石头过河: Test Market, Partners & the Olympics

 

 
Cree lights up the Bird's Nest at the 2008 Olympics

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/25/1512399/burts-bees-saw-opportunity-challenges.html

 Cree, a Durham-based LED innovator, has always been a global business but it took a long time for the business in China to grow. A key factor in the development of the business there was the commercial - and then personal - relationship with a company called COTCO Luminant Devices, and its owner, Paul Lo.  The founders of Cree were big on trust which fit with building "guanxi", critical in Chinese business relationships. Top Cree executives got to know Lo well and in turn learn about China.

In March 2007, Cree acquired COTCO Luminant Device Ltd, one of Lo's holding companies. Owning COTCO provided Cree with a low-cost manufacturing platform and would offer  strategic access to the important and fast growing solid-state lighting market in China. While the deep science work remains in RTP, Cree now has manufacturing and business development functions in China.  Investing in a well rounded presence on the ground in China builds critical goodwill.

There are several alternative methods to enter China as a foreign invested enterprise (“FIE”).  Some of the key alternatives  that may be pursued separately or together depending on a company’s resources and level of expertise, include: (1) test markets, (2) partnerships, joint ventures, or alliances through a third party to set up a 'representative office', or (3) a wholly foreign-owned enterprise. 

Quintiles, headquartered in Durham and best known for its global management of clinical trials for biopharmaceutical products, has had a presence in China since 1997.  In  recent years, China has been given elevated strategic priority and as such, at the start of 2011, nearly 100 of the worldwide leaders of the 20,000-person company traveled to Shanghai for their Quintiles Global Leadership Meeting to be exposed first hand to China's healthcare system.

Thomas Wollman, SVP of Global Central Laboratories and Cardiac Safety for Quintiles, is responsible for all global lab operations and lab project management. He shared that back in 2003, they worked through contacts in China to identify 19 potential partners from which they chose their final partner.

In 2004, Matthew Szulik, past CEO of Red Hat, had the foresight to make China a major corporate priority and hired Michael Chen, a native of China with U.S. graduate degrees, to be general manager of Red Hat China. Chen had spent the prior summer  helping to put together a China market feasibility plan looking into entry options of (1) greenfield (2) joint venture or (3) acquisition.  Red Hat decided to pursue a greenfield approach and build from the ground up. With the backing of corporate that China was a strategic priority, Chen was empowered to grow and develop product and pricing  specifically for the Chinese market.

 

Cross the River by Feeling the Stones 摸着石头过河: Formulate an Entry Strategy - Burt's Bees

 Burt’s Bees team offer hand massages at the Hong Kong PR event

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/25/1512399/burts-bees-saw-opportunity-challenges.html

 

It may seem self-evident but cannot be overstated that the first step is to create a comprehensive strategy. What are your key goals in China? Decide why you want to enter China - is it for manufacturing and supply chain, the market opportunity, or for bioscience, computer science or clean technology partnerships?

Jim Geikie, vice president of global marketing at Burt's Bees, shared that since their acquisition by Clorox in 2007, one of three strategic imperatives was international expansion. The global management consulting firm they hired helped to map out the competitiveness and market attractiveness of Burt's Bees in various countries to determine where to focus their resources.

China is the #3 beauty care market in the world and soon to be #1.  While most companies enter China for the size of the market, Burt's Bees was interested because "natural" and "product safety" ranked very high on the list for Chinese consumers.  It is common in China for consumers to make their own products at home; there already existed an underlying belief in the power of natural ingredients. They wouldn't have to invest in convincing consumers.

China's intent-to-purchase scores came out very strong out of the 30 countries tested.  American brands are still aspirational in China and the 'quirky' Burt's brand with truly natural formulations stood out.  Burt's also had the opportunity to make a market as lip care in China is virtually non-existent.  "There were lots of reasons to be excited", said Geikie.

Due to the animal testing requirement for imported products, Burt's researched various entry strategies including acquiring a local brand, co-pack and distribution alliances or setting up their own shop including manufacturing and running their own stores. Each was quite complicated with different sets of pros and cons that they weighed through. 

They finally chose a partner that has  local manufacturing and established go-to market channels and, most importantly, shares Burt's Bees core fundamental values.

Cross the River by Feeling the Stones 摸着石头过河: Work with China can benefit U.S.,NC

 
Reception for Gov Purdue, delegation to introduce Longistics partnership in Suzhou.

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/18/1494316/china-challenges-western-entrepreneurs.html

It is important to note that China is making moves to  invest in doing business in NC as seen in XY International’s partnership with The Hamner Institute.   Announced at the NC-China Trade & Investment Seminar, the Biosciences Partnership will involve a one million square foot global translational biosciences research, technology, and business development cluster to be built on the Institute's campus.  At the start of 2011, a delegation from China paid the Triangle a visit for a signing ceremony before heading to D.C. for the first state dinner for President Hu.

"The Chinese are very sophisticated in their planning and have seen NC and RTP as an excellent place for them to do business," commented Duane Long, co-founder and chairman of Longistics, a provider of global logistics services headquartered in Research Triangle Park. "They describe NC 'like a garden' - they love to be here. We are becoming a destination."  He adds that "Lenovo is a large influence on the Chinese mindset - they are very well respected in China. Their executives back in Beijing are saying great things about NC."

Working with China can positively benefit the U.S. and North Carolina.  What Duke Energy is doing can create jobs in NC and other regions they serve. CTO David Mohler explains, "if our electric car maker partner BYD manufactures here, they could build a plant here and create jobs. We aren't shipping jobs to China.  A lot of Chinese investment is coming here.  70% of the jobs/value go wherever the asset goes."

            He concluded our interview with his observation, "China and Chinese people are not what we in the west think.  We have a vision of the 1960s and the Cultural Revolution.  Now China is a hugely dynamic country. Deng Xiao Ping made huge changes and introduced a market economy with great leaders. His philosophy was to 'cross the river by feeling the stones 摸着石头过河'. "

            Originally this meant to move ahead with economic reforms slowly and pragmatically, and has more recently come to exemplify capitalism and taking entrepreneurial risk. If you are not certain in trying something new, just make it across the river by feeling the stones.

The underlying proposition of this series is that the goal for new entrants is to minimize risk while at the same time positioning for maximum future gain.  In the coming weeks, this series will present the top ten strategies for establishing a successful business presence in China based  on the research of Savvy Marketing Group's China practice team and interviews with ten distinct N.C. companies.

Cross the River by Feeling the Stones 摸着石头过河: Understand Complexities

 Burt’s Bees counter in Wing-On Department Store Hong Kong

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/18/1494316/china-challenges-western-entrepreneurs.html

Furthermore, companies lacking a solid grasp of local economic forces often underestimate the complexity of the Chinese market.  Chinese companies are no longer relegated to merely low cost manufacturing.  While these companies secured a toehold by manufacturing components at the lowest cost, they have since used strategic acquisitions, licensing and partnerships to gain additional technical and management expertise.  This has allowed Chinese businesses to vertically integrate to the point where they can produce entire products in several industries, such as the automotive and aircraft industries.  Although in the first nine months of 2010 the Chinese manufactured only 1.6 million automobiles, by 2020 the nation aims to export 25 million annually.

In fact, while Western companies have been preoccupied with internal problems precipitated by The Great Recession, the economic fundamentals in China have strengthened through increased productivity and consolidation.  Chinese firms are now using excess capital for larger foreign acquisitions.  Furthermore, while many state-owned enterprises (“SOEs”) have been privatized or done away with altogether, several industries remain dominated by government-owned companies that often lack transparency.  Top executives at SOEs may even be former members of the Chinese Communist Party.  It is critical to never underestimate the significant local advantages afforded to state supported businesses. 

Therefore, firms should extensively analyze how to seize opportunities and confront inevitable challenges so they can be responsive post-entry.  Moreover, new entrants must be nimble or risk falling behind because China does not buy older technologies; it buys the technologies that will be used in the coming decade.  The majority of companies entering China prefer to hire outside experts when formulating their market strategies.

When Burt's Bees in Durham, NC prioritized global expansion, they hired a leading global management consultancy to help.  When  China arose as a top opportunity, they engaged the consultancy's China office to work closely with them on a wide range of issues from finding a partner to legal issues.  

Outside consultants provide invaluable tools for understanding the Chinese market because they can offer third party perspective through informed market research, counsel on strategy, and therefore optimize market entry.  Firms focused on consumer preferences might choose to partner with local Chinese firms in order to understand the distinct market segments within China, which can vary widely from region to region because of local tastes and traditions and economic dynamics.

Cross the River by Feeling the Stones 摸着石头过河: Why China?

 
Gancrete Production Facility in Morehead City, NC

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/18/1494316/china-challenges-western-entrepreneurs.html

Sam Jia, international corporate counsel for Market America, a product brokerage and internet marketing company headquartered in Greensboro, states "for U.S. companies, especially for consumer product companies - China is very attractive." They ran across compelling research that showed a correlation between companies that had entered China successfully and those with strong financial leadership. While, even if not causal, the two factors compelled his firm to investigate.

Although China surpassed Japan as the world’s second largest economy in 2010, the country is not a panacea for slower growth in developed markets like the U.S.  The Chinese Communist Party (“CCP”), after 30 years of market-driven reforms, is still grappling with how to govern the world’s most populous nation.  The CCP will remain the sole ruling party for the foreseeable future so foreign companies need to understand the government’s role in the domestic economy.  Since vague regulations and selective enforcement are the largest barriers to foreign investment, the most critical step for new entrants is building relationships with government authorities.  Thus, smaller companies should consider hiring advisors with contacts and expertise in order to manage their interactions with government officials prior to problems arising.

James Melton, President and CEO of Grancrete, an advanced materials company based in Morrisville, shared "international markets have become more appealing due to the U.S. crisis. China offers the most growth even with the recent slowdown. We can't ignore China as it offers projects ten to one hundred times larger than anything in the U.S. This results in expansion in both our NC facilities as well as our needing to build capacity in China."

Cross the River by Feeling the Stones 摸着石头过河: China offers challenges and opportunities for Western Companies

Left: Dr. Zhongxue Gan, CTO and Chief Scientist of ENN
Right: David Mohler, CTO of Duke Energy
Photo at ENN's headquarters in Langfang, China

Top 10 Findings: Creating a Winning Business in China
Published in the News & Observer
http://www.newsobserver.com/2011/09/18/1494316/china-challenges-western-entrepreneurs.html

While many American companies, including those in North Carolina, are investing in opportunities in China, the hurdles to entry are unique compared to those encountered in the U.S.  Strategies may be more difficult to execute for a number of reasons.  Cultural differences, public relations issues, and conflicting regulations are some of the major stumbling blocks foreign firms encounter.  Often U.S. executives are ill-equipped to tackle the country’s distinct challenges absent significant Chinese business experience.  Overcoming these obstacles can be arduous and time-consuming because the Chinese business world demands a repertoire of skills beyond and often conflicting with Western business practices.  U.S. executives need to understand that a successful presence in China entails more than a local sales team.  A comprehensive understanding of the local industry, competitors, customers, business culture, and the trajectory of the market and government policy are a few of the considerations that should dictate a strategy of entry.

When David Mohler, CTO of Duke Energy, started looking into clean energy relationships in China, he studied a dozen books  including How China's Leaders Think by Kuhn and Governing China by Lieberthal. He is also working with a tutor to learn Chinese. While a difficult language to master, it is already helping his pronunciation of names of new friends in China.

China’s rapid economic growth, large population, and urbanization have created unprecedented opportunities. In June of this year, Red Hat announced that their sales will reach $3B in 5 years with the fastest pace coming from China.

Behind the Scenes: The Making of the Savvy China Series Part 1

Bryce Roberts interviews Grace Ueng
produced by Tingting Liu on location at
The Umstead Hotel and Spa

Behind the Scenes: The Making of the Savvy China Series Part 1