We have just passed the five-year mark for this column. In an effort to understand where we started, I have revisited and updated my first BizTimes Dispatches From China column as if I was writing it for the first time. As the French say, “The more things change, the more they stay the same.”
This is the first in a series of Dispatches from China through the eyes of a Milwaukee expatriate for SME’s who are thinking about doing business in China.
If you are a student of human nature you can do well in China. My Chinese friends tell me they do not fully understand China because China is not one thing but many, and its parts are as diverse as 1.3 billion people and 5,000 years can make it. On the other hand, I have noted that the instincts and elements which make up human nature – good, bad and indifferent – are universal.
The question you have to answer is: What are your business reasons for going to China? Are you curious, just following the crowd or do you see foreign markets such as China as vital to your businesses survival? If the answer is not the last one, take a tour or a class. The time, energy, resources and difficulty of getting involved in a new market should not be taken lightly, especially when you’re not familiar with the languages, customs, laws, taxes, accounting, politics or people.
If your answer is No. 3, you need to understand what China means to your business, what are the opportunities, how do you get involved, how do you protect yourself and how do you make and keep your money. This first Dispatch will address the issues broadly; later installments will attempt to deal with each in more detail.
You need to understand first what China is.
China is physically about the same size as the United States with four times as many people. Its GDP is about half of that of the United States, but it exports more than we do and imports less. In 2012 its manufacturing sector grew at 7.8 percent down from 12.9 percent in 2007. In the United States, it was 2.2 percent in 2012 vs. 0.5 percent in 2007. Keep in mind that the majority of China’s exports are controlled by large multi-national corporations, of which U.S.-based corporations have the largest share.
China is going through a rapid agriculture-to-manufacturing/service transformation, which is moving vast numbers of people from rural to urban areas. What is worth noting is that China and India represent 2.5 out of every 7 people on earth, and if you believe a consumer economy depends on consumers, then they represent the future of the consumer economy. You should also keep in mind that China is also a fast-rising political power that is competing for the world’s resources to drive its economy.
What are the opportunities?
Initially, corporations went to China for the cheap skilled labor, lax environmental standards and tax advantages afforded to foreign operations. But the tune is changing as businesses see the existing and potential market opportunities within China. What does China need today? Capital, technology and process knowledge. The question for you is: How do your business interests fit into China’s needs in a way which is profitable for both?
In 1978, under the guidance of Deng Xiaoping, China started developing a two-systems approach, which accepted the development of a capitalist economy under Communist control. Shanghai’s 4,000 high-rises, twice as many as New York has, were built in the last 30 years. The accomplishments are more amazing given that for a 10-year period during the Cultural Revolution, 1966-76, almost all higher education beyond grade school stopped. Keep this in mind if you find yourself sitting across the table from a 50- to 65-year-old Chinese businessperson. Also, keep in mind that 35 years ago there were no banks, insurers, lawyers or accountants, and all the real estate belonged to the state.
Out of this chaos, China has developed its economy. In many ways it represents an economic miracle, but in others it falls woefully short of what we would expect in a developed economic system. So be prepared.
Many of those who succeeded during this time of turmoil were those who did not understand or care about the risks they were taking. So if you are thinking about what the opportunities are, think in terms of what you have to offer that will be of value in such an economy.
It’s an economy that is about as constant as the sea but whose depths hold opportunities for those who know how to find them.
How do you get involved?
Carefully remember dragons look happy, but they have a lot of sharp teeth. The idea is you want to make a deal, not be a meal. Think of it as kissing a crocodile and be very careful. Check out who you are dealing with and what they bring to the table, what you need and what they need.
Do not rely on Ganxi (friendship). The hospitality in Asia is often overwhelming, but think it through…Why would someone in China want to help a foreigner instead of their friends and family?
Get it – all of it – in writing. Follow the laws. You may see locals playing a little fast and loose, but be assured, there will be no sympathy for foreigners who break the laws, and the U.S. Embassy will not come riding to your rescue. Lastly, but most importantly, verify everything. Trust has nothing to do with business when you are crossing borders and legal systems.
How do you make money?
Have a competitive advantage that you can protect. Have a plan, get good help, integrate quickly, put little or no money up front, be legal, be ethical, use your common sense, do not leave your moral compass on the runway.
Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.
