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July 18, 2012

Business in China: An eight-point primer

Posted by Anand Prasad Arkalgud (View Profile | View All Posts) at 5:55 AM

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Business in China, drawing from my experience, is influenced by a set of critical variables that must be skillfully managed in order to succeed. Here are 8:

1. Talent 
Talent, in China, is fundamentally no different from any place else in the world.  But, grasping their expectations is what requires a shift in the conventional Western mindset. Born into a country that has sustained tremendous growth momentum for over 20 years, talent wants to grow at a pace that compares. And, they evaluate potential for their growth by gauging how their employers are faring in China. Quite obviously, they don't want to commit themselves to the wrong lane and risk being left behind. So, your Chinese employee is really competing with everyone in China not just others within the company or even the industry of employment. This rationale also drives talent in hordes to the big cities where opportunities are perceived to be greater. 

2. Products and Innovation 
You must be willing to make enormous effort to educate the buyer in China about how your product delivers on the "better-than-before" value proposition. With few independent industry analysts to influence purchase decisions, it falls upon brands to take on that role too.  Getting started by first assimilating expectations and focusing on simply meeting these is possibly the best way to rev up the growth machine.  Ask anyone who has spent some time in China, and they will tell you that once you set a direction, things get done.  Concentrating on healthy innovation will possibly pay off as the brand's relationship with buyers deepens. 

3. Market
For the Chinese, there is a deep-seated wariness of being cheated or overcharged. Refraining from overselling, staying focused on meeting expectations and carefully determining how far the buyer will go to opt for "better than before" will get your enterprise to measure up on this first gauge. This wariness also ties in logically with the "proximity" factor. The Chinese consumer prefers buying from a "known" supplier to mitigate the perceived buyer's risk. So, local branding, local distribution and a pronounced provincial presence, in target markets, will all stand you in good stead.  

4. Leadership 
"So, are there no leaders in China?" One look at cities like Shanghai will show how incredulous that question is!  This is less about the availability of leadership and more about grooming local leadership to meet the organization's purposes. Early and sustained exposure to global practices clearly pays off rich dividends.

5. Scale  
In China, big is equated with great. The appeal of big companies lies more in their job creation and career growth potential than in revenue and profitability. Size and brand decibel levels count during hiring, government relations, and in business deals.  Being modest-sized in China is not a good strategy as the cost of doing business is high. 

6. Government
It's logical to view the government and State Owned Enterprises as growth-enablers, and it's judicious to nurture relationships that qualify your enterprise to be considered for business by the largest employer in the land. China's corporate law is rapidly evolving, leaving an impact on business operations and profitability. While paid advisors offer "interpretation" of these laws abound, you need to wary of those with poor credentials.  

7. "Guanxi" 
Or, who you know.  The truth is that the old boys club exists everywhere. What's different in China?  Because the governance mechanism around procurement is not detailed enough, evaluators often rely on the safety net of reliable connections - Guanxi - to influence their decisions.  Important in China, and nice to have, Guanxi is certainly not a be-all and end-all to doing business there.

8. Growth
Predictability on profitability. Margins on products that translate to a foreseeable bottom line. Improved operations that translate good margins to good net income....all of these count a great deal for businesses in China. Not just market share. As a manager in China, it is very important to measure sustainability of business not by celebrating absolute growth, but by carefully measuring performance against growth of the market.

What's your take? 

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