The opportunity
So what are the choices for a medium-sized company, with finite resources and no prior experience of China, in getting involved in this fast-growing area as a source of cost-competitive supply, or as a rapidly emerging market, or both?
Western companies are permitted to set up wholly-owned companies in China, to own assets in China and to operate as independent entities. However this is not always the best way of going about it – at least in the early phases. As stated earlier, the sustained success stories are almost all found in companies that have a Chinese partner, and the significance of Hong Kong figures highly in this. As a kind of checklist to start exploring the costs, risks and rewards the following guidelines are useful.
1. Research and engage a specialist Asian company that has high-level professional and political contacts and a proven track record in managing its own operations in China.
There is no substitute for working with an organization that has already succeeded in China. Much of Hong Kong’s own manufacturing activity has migrated into China over the past 20 years and the learning process is very much shorter if you can take advantage of the experience of such an operation. You can accelerate your own market entry and avoid many of the pitfalls and delays that can be encountered in dealing with Chinese regional and local officials. Involving Hong Kong operations as co-investors and/or operating partners is proving to be a strong mechanism for approaching China.
Also recruitment of the initial workforce is a nightmare to an outsider. It’s not just the question of language; the more important aspect is how to manage on a day-to-day basis a workforce from a very different social and business culture. This is particularly important if you have to secure Western quality standards from Day One. Whereas Chinese workers are generally well educated at the technical level, many have experience only in state-owned operations, where the overriding performance target has been volume output against “The Plan�. Managing multi-product operations is a particular challenge, where the principles of minimal inventory and rapid changes (for example, changes in tools and dies with minimal downtime between product runs) are still relatively unfamiliar.
The route to a solution can be summarized within the concept of “the deal and the learning�. German companies have been successful because, as one German executive once stated to me, “we supply a short-term mini-university as well as capitalize on a business opportunity�. Using this approach, it does not take long to understand one reason why the economy is growing so quickly: the Chinese work hard and take learning seriously. Accept this and build in a budget for training.
2. Do more research. Take advice from China-based specialists and draw up a short list of potential Chinese partner-companies that have been evaluated by such specialists.
If you ask a Chinese company whether they can make a component/product for you, the answer will almost always be “yes�. This is mainly because the answer “no� would involve loss of face. Additionally, many Chinese operations can meet Western standards at relatively low volumes in the early stages of a venture and yet when the volume builds up the quality and reliability above a certain point can start to drop. Predicting the probability of this and the point at which it might happen is extremely difficult for an inexperienced Western team, and even a good-looking Chinese operation cannot be taken at face value. Because of the Hong Kong experience in migrating manufacturing operations into China and building them up fairly rapidly, a Hong Kong partner knows what to look for, how to assess capabilities and how to anticipate problems.
This preparation is particularly important in addressing the issue of capability in operating at Western quality levels. Though the best Chinese operations have ISO accreditation and can operate at six-sigma standards, the levels of quality can be uneven between companies even when they clearly have comparable and appropriate technologies and systems. It is vital that you use the expertise of on-the-ground specialists in pre-qualifying candidates for your short list. One significant positive indicator is whether the senior management is Hong Kong Chinese or ethnic Chinese educated in Hong Kong, North America or Europe – and there is a rapidly increasing group of such individuals at the top levels of Chinese operations.
Additionally, the right short-list will comprise Chinese operations that take a long-term view of relationships with Western companies and can therefore be relied on to accept a Western company’s requirements in the areas of patent protection and observation of intellectual property rights. The experience and judgment of the Hong Kong partner are vital in dealing with this dimension.
3. Put together a presentation on your company and its product/service offerings.
Chinese businessmen find illustrative rather than verbal material easier to assimilate. The phrase “a picture is worth a thousand words� is certainly true in this context. Generally a first presentation should be 15-20 minutes against home-country standards, because if you have to use an interpreter the time taken to deliver will be a little more than twice as long. Again this is where an experienced Asian-based team can be a great asset, because once that team truly understands your business and shares your objectives they will be able to present directly on your behalf without the need for interpreters. This said, the speed at which Chinese commercial and technical people are learning English is breathtaking, and this is found particularly in enterprises located in the fast-growing coastal cities and Special Economic Zones. Within the next few years it is likely that English will become a “first business language�.
The final part of this white paper will be published on Thursday (5th April).
For more information on market research in China visit www.b2binternational.com.cn/English
This entry was posted
on Tuesday, April 3rd, 2007 at 12:02 pm and is filed under Industrial Research, International Market Research, Market Assesment, Market Research, Market Research China, Qualitative Research, Quantitative Research, White Papers.
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