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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Launching a business in China? Give yourself a "second mover advantage." China-bound entrepreneurs and small business owners: learn from experienced China hands before you bring your business to the world's largest and most dynamic consumer market. Preparing to manage a small business in China, the world's largest, most dynamic consumer market? Hundreds of thousands of other international businesspeople are too, but only a small percentage of them will succeed in bringing their start-up dreams to life in the Middle Kingdom. Give yourself a huge head-start by learning directly from experienced China pioneers. CHINA ENTREPRENEURS delivers street-tested advice on launching, growing, and operating your own business in China. Authors Juan Antonio Fernandez, professor of Management at the China Europe International Business School, and Laurie Underwood, accomplished journalist and Director of External Communications at CEIBS, use their combined 26 years of China experience to interview 40 successful international entrepreneurs who have launched and built businesses in China. These entrepreneurs share their first-hand advice, anecdotes and best practices in tackling the key challenges of winning in the China market, from negotiating with government and winning necessary start-up approvals, to hiring and keeping the right staff, to collecting payments and to safeguarding intellectual property. In addition, the experiences of the entrepreneurs will be juxtaposed against insights from experienced China consultants who assist start-ups in operating in China. Thus the book will balance extensive, on-the-ground business advice against the insights of consultants who have risen to prominence in the China business environment by advising SME business operators on succeeding in China.
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Seitenzahl: 581
Veröffentlichungsjahr: 2012
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Contents
Acknowledgments
Foreword
Introduction
Why Read China Entrepreneur?
Who is in This Book?
What We Cover
Chapter 1: Getting Started
Introduction
The Past: China Opens its Doors
The Transition: China in the 1990s
The Present: “Better for Entrepreneurs than Silicon Valley”
Dealing with the Chinese Government
Bureaucratic Challenges for Entrepreneurs
Strategies for Successful Government Relations
Conclusion
Chapter 2: Setting Up Shop (I)
Introduction
Getting Help with Licensing
Choosing the Right Legal Form
Conclusion
Chapter 3: Setting Up Shop (II)
Introduction
Finding the Money
Choosing the Right Chinese Business Partner(s)
Conclusion
Chapter 4: Targeting the Right Customers . . . and Getting Paid
Introduction
Targeting the Right Customers
Getting Your Customers to Pay You
Conclusion
Chapter 5: Human Resource Challenges
Introduction
Strengths and Weaknesses of Chinese Employees
Bridging the Skills Gap: Training, Training, Training
Training Strategies for Mid-level Managers and Senior Staff
Recruitment and Retention Challenges
HR Strategies: Selling “Small is Beautiful”
Solving the Salary Question
Conclusion
Chapter 6: Ethics and Corruption
Introduction
Putting Corruption into Context
Government Guanxi
B2B Corruption
Unethical Employees
Avoiding Government Corruption
Blocking B2B Corruption
Fighting Internal Corruption
Conclusion
Chapter 7: Business Negotiations
Introduction
Pre-negotiation Preparation
Beijing and Northern China
Shanghai and Eastern China
Guangzhou and Southern China
Interior (Undeveloped) China
At the Negotiation Table: Tactics and Strategies
Conclusion
Chapter 8: Living in China: A Survival Kit
Introduction
Clearing the Language Hurdle
Hardships of Life in China
The Struggle for Work–Life Balance
Foreign Businesswomen in China
The Good Life, China-style
Conclusion
Chapter 9: Are You Ready for China?
Introduction
Must-have Traits for China Entrepreneurs
Prerequisite Expertise
Tools for Surviving the Tough Times
Endgames
China’s Future
Confidence in the Top Leadership
Changing Opportunities
Bullish on China
Conclusion
Epilogue
Appendix: China and Its Trade Partners
China Trade Partner: Australia
China Trade Partner: Brazil
China Trade Partner: European Union
China Trade Partner: India
China Trade Partner: Japan
China Trade Partner: Mexico & Latin America
China Trading Partner: Nigeria
China Trade Partner: South Africa
China Trade Partner: United States
Index
Copyright © 2009 John Wiley & Sons (Asia) Pte. Ltd.
Published in 2009 by John Wiley & Sons (Asia) Pte. Ltd.
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10 9 8 7 6 5 4 3 2 1
To my wife, Wu Hanning and our son, Simon. Also, my deep thanks to China, the country that has given me so much.
—Juan Antonio Fernandez
China Entrepreneur is dedicated to Madhav Timalsina, Dorothy Staley, Larry Underwood, Sydney and Schafer—the book would not have been possible without your love and support—and to the China Europe International Business School.
—Laurie Underwood
Acknowledgments
This book is the result of the cooperation of many people. First, we wish to thank the 40 talented and adventurous China entrepreneurs from 25 countries or territories who so generously shared with us their experiences and hard-learned lessons. Their sole motivation in taking the time to share their insights with us was to help other entrepreneurs be successful in China’s vast and vibrant, but maddeningly confusing, business environment. (See pages xx–xxv for a listing of all the interviewees in China Entrepreneur.)
We also wish to thank the three expertswho offered additional advice for this book, drawn fromtheir years of working in China.
In addition,we are grateful to the nine country representatives whose insightful comments on the key issues facing business managers in China are presented in the appendix to this book.
Finally, we thank the team of researchers who helped us with the interviews: Ms. Linda Song (Song Dongmei), Ms. Cheng Yiting, and Ms. Luyi Bo. We also express our sincere appreciation to the administrators and our colleagues at the China Europe International Business School for their support during the researching and writing of this book.Without CEIBS, neither our first book—China CEO—nor China Entrepreneur would have been born.
We also wish to thank all those who helped us to make contact with foreign entrepreneurs in China. Finally, we want to add special thanks to Robyn Flemming and Janis Soo for their excellent work.
Foreword
Professor Juan Antonio Fernandez and journalist Laurie Underwood, both members of CEIBS, have come out with another interesting book when we are still rereading their excellent text on successful chief executives in China. In the three years since their first book’s publication, I have often seen China CEO being read by business class passengers during my frequent flights to China.With the world even more focused on China in 2009 than it was in 2006, I fully expect China Entrepreneur to be even more widely read by international business executives than its predecessor.
For their second joint book, Laurie Underwood and Juan Antonio Fernandez have turned their focus toward entrepreneurship— my field of interest as an academic. The authors have continued with their methodology of basing their book on interviews, in this case capturing the insights, anecdotes, and knowledge of 40 successful, China-based entrepreneurs, three China-based experts on different areas, and nine country representatives. Going out into the real world, using academic skills to raise relevant questions, and then using journalistic principles to present the interviewees’ responses in an accessible manner, is an extraordinary task; and the results are useful, practical, and educational. The rigorous academic research and the authors’ combined total of 24 years of working and living in greater China has created another richly information, carefully developed, but easy-to-read work.
Entrepreneurship is the art of spotting an opportunity and transforming it into business returns. It is the art of fast creation of value. How do entrepreneurs identify opportunities in China? How do they go about transforming a promising possibility into real business activity? Specifically, what are the best ways to handle the serious challenges in hiring, organizing, financing, and selling the new business?
In answering these questions, seasoned entrepreneurs and academics will likely agree that the basics are global. Even so, no one would dispute the fact that surviving in the complex and vast China market requires unique skills. This book, delivering the richness of 52 first-hand perspectives, provides readers with many reference points for understanding—and even practicing— entrepreneurship in China. For any international businessperson working in or with China, I have every confidence that this book will bring you closer to realizing your China dreams.
Pedro NuenoProfessor of EntrepreneurshipExecutive PresidentChina Europe International Business School
Introduction
“We had a couple of crazy experiences that tested my commitment to starting my company in China. Our first customer was also a potential competitor, a well connected local company. They had a very large deal with us (but later) . . . I guess they felt threatened that we would take away their customer. That wasn’t my intention, but they still felt threatened.
They knew we hadn’t got our business license yet, and that we were very poorly funded, so they decided to attack us. Their intention was to try to scare me out of China, and force my staff to join them. What they did was tell the police in Hangzhou that we had placed an espionage code into the telecom system. That is a very serious offense in China. It wasn’t true, but who knows whether truth is the deciding factor in these cases in China?
So, one Friday afternoon, at 5.30, the police showed up at our office. It was a very dangerous situation because I didn’t have a business license, so I didn’t have any ground to stand on. I didn’t have a lawyer either, as I’d never really needed a lawyer before. The police locked our door and put a seal across it. I thought I was going to be arrested for espionage!”
Interviewee, China Entrepreneur
Why Read China Entrepreneur?
Have you ever dreamed of launching a business venture in the world’s largest, fastest growing, and most dynamic consumer market? Many adventurous businesspeople from around the world have dreamt this dream, and more are joining them as China matures, opens, and internationalizes.
But as the anecdote in previous page shows, launching an enterprise in China can be fraught with more perils than even the most adventurous businessperson might anticipate. (For the full story of the fake espionage case, see the case study titled “The Price of weak Guanxi” on pages 154–155.)
It was the stories which foreign entrepreneurs in China shared with us of their “big China dreams” — as well as their “China nightmares”—that inspired us to embark on writing China Entrepreneur: Voices of Experience from 40 International Business Pioneers.
In the year following the release of our first book, China CEO: Voices of Experience from 20 International Business Leaders (John Wiley & Sons, 2006), the reception from readers worldwide was far beyond our expectations. Within 18 months, the book had sold 25,000 copies in English and had been translated into Chinese (both traditional and simplified characters), Vietnamese, Indonesian, and Korean.
Since the first book’s launch, we authors have spoken to thousands of businesspeople in Asia, Europe, and America, all of whom share an interest in doing business in China. Most satisfying have been the numerous times we have spoken with business executives working in China, who have commented: “This is exactly what I went through when I got here. I’m going to give this book to my new directors coming into China from Europe (or the U.S., or Australia, or India . . .).”
But another message we heard quite often, whether we were speaking to business associations, chambers of commerce, trade delegations, or business school students, was this: What about small business owners entering China? As one Australian businesswoman said during a book talk: “I’m not GE. I’m just me. I don’t have an army of people helping me deal with the government here. What advice do you have for me?”
So, in 2008, we again ventured into the China market with our digital recorders in hand to collect first-hand accounts of foreign (non-Chinese) businesspeople who had succeeded in launching their own businesses in the China market. Using our differing strengths in academia and business journalism, we aimed to produce a meticulously researched, yet easy-to-read guide to starting and managing a successful small business in China. As with China CEO, we sought to draw upon our strong points—Dr. Juan Antonio Fernandez’s strengths as a professor of Management at the China Europe International Business School, where he has taught since 1999, and Ms. Laurie Underwood’s 15 years of business journalism expertise in greater China (before joining CEIBS as Director of External Communications and Development).
More “Blood, Sweat, and Tears”
In crafting China Entrepreneur, we began by interviewing a select profile of business pioneers—expatriates who had successfully launched a business of their own in China, rather than executives who had been sent to China with the backing of a well-established multinational corporation. Although we had originally planned to interview the founders of 20 successful startups, we ended up talking with twice that number. Each interview seemed to lead to yet another pioneer with another fascinating tale of having triumphed over the business challenges that the entrepreneur faces in China. Several weeks into the project, we knew we were gathering valuable material for a second book. As one of our draft manuscript readers, Shanghai-based entrepreneur John Van Fleet, put it: “There is a lot of blood, sweat, and tears in these interviews.”
Who is in This Book?
By the time we had finished interviewing for China Entrepreneur, we had painstakingly tape-recorded, videotaped, and transcribed detailed interviews with 52 experts on China, each offering a wealth of insights into their experiences in this unique—and uniquely challenging—market.
Our interviewees are composed of three types of experts:
Profile of the Entrepreneur Interviewees
While our pioneers hail from 25 countries and provinces, they have certain shared characteristics. The average interviewee is aged 47, has an MBA, is married, has been in China for 12 years, speaks basic-or-above Chinese, and has been operating his or her current business for nine years. Among the 40 interviewees, 33 are men, and seven are women. (In China CEO, all 20 of the CEOs we interviewed were men, as we were unsuccessful in finding women CEOs to interview.)
China Entrepreneur interviewees’ countries/provinces of origin are as follows:
North America: 10 (United States, 9, Canada, 1)
Latin America: 2 (Brazil, 1, Mexico, 1)
Europe: 13 (Belgium, Denmark, France, Netherlands (3), Ireland, Italy, Macedonia, Spain, Switzerland, U.K. (England, Scotland))
Middle East: 4 (Iran, Israel (2), Turkey)
Asia: 8 (India, Japan (2), Korea, Taiwan (3), Singapore)
Australia: 1
Africa: 2 (Morocco, South Africa)
“The composite profile of the China entrepreneurs we interviewed would be a 47-year-old who has lived and worked in China for 12 years, speaks Chinese well, has an MBA, is married, and started his or her own business nine years ago.”
The Authors,China Entrepreneur
Their places of origin are indicated on the map.
In total, our 40 entrepreneurs have a combined 500 years of experience in China.
In terms of education, the most popular degree among our interviewees was MBA (17), followed by Bachelor of Arts (13), while five had advanced degrees (three master’s degrees and two PhDs). Concerning Chinese language ability, aside from our four native Chinese speakers (who held non-Chinese passports), most had achieved an intermediate (15) or advanced (11) level of Chinese. Only three interviewees said they had a “less-than-basic” ability in Chinese. Most were married (30). In 12 of these cases, their spouses were from greater China (including Taiwan).
Our interviewees represent a full range of business sectors. In addition, our featured entrepreneurs run the gamut of business operations. In terms of their China operations, 22 of the interviewees operated a foreign invested enterprise (FIE), while 14 ran an offshore entity or a representative office, and seven operate as Chinese-owned companies (via a Chinese partner). In total, our 40 entrepreneurs have a combined 500 years of experience in China.
The following tables introduce our interviewees in more detail. Table 1 identifies the entrepreneur interviewees.
TABLE 1Entrepreneur Interviewees
The seven consultants listed in Table 2 contributed to this book in terms of both their experience as China-based entrepreneurs and their expertise as consultants to hundreds of clients in China.
TABLE 2Consultant-Entrepreneur Interviewees
The three expert advisors listed in Table 3 added their experience in the fields of entrepreneurship, negotiation, and law in China.
TABLE 3Expert Advisor Interviewees
Finally, the nine country representatives listed in Table 4 added insights on doing business in China from the perspective of the countries they represent. These interviews appear as an appendix at the end of the book.
TABLE 4Country Representative Interviewees (country by alphabetical order)
“I think people should talk to other entrepreneurs. Recently, I was involved in a young entrepreneur organization. I realized that I should have been involved in it at the very beginning, because people here tell you the real stories. You hear real stories from people who have been through it before.”
Susan Heffernan (Australia), Founder and Managing Director, Soozar
What We Cover
The goal of China Entrepreneur is simply this: to help non-Chinese businesspeople who are interested in doing business in the Middle Kingdom to clearly understand the challenges, risks, and opportunities. Our focus on small businesses and startups helps to outline the challenges faced by pioneers who launch and operate their own ventures, rather than beginning in China with the backing of a global company. As one of our entrepreneurs told us, “I think people should talk to other entrepreneurs. Recently, I was involved in a young entrepreneur organization. I realized that I should have been involved in it at the very beginning, because people here tell you the real stories. You hear real stories from people who have been through it before.”
The purpose of our book is to collect and share those “real stories” and real advice from real China entrepreneurs.
Chapter 1
Getting Started
Understanding the Business Environment and Dealing with the Chinese Government
THEN: “I came to China in 1976 as a young banker…. We had friends doing business in China in those years who were thrown in jail for the slightest little infraction. If I had to choose one word to define that era in China, it is ‘courage.’ It was courage that drove those men and women who had no guidelines for what they were doing.”
Robert Theleen (USA), Chairman, ChinaVest
NOW: “The opening of China—the access to the WTO trading culture, and especially the influence of American and European companies—has created new role models and icons in China. In the past, role models were national heroes like Lei Feng. Now, it is Bill Gates, Michael Dell; they are the role models, with their rags-to-riches stories.”
Ge Dingkun (China), Professor of Strategy and Entrepreneurship, CEIBS
Introduction
In order to appreciate the complexity of the environment in China for international entrepreneurs, it is useful first to look backward and review the realities of the past. Only then can you gauge how great a transformation has been necessary to create the realities of the present. In this chapter, we start by looking back to when China first began to open up to the outside world. We draw upon the first-hand experiences of two of the first non-Chinese businesspeople to work in China during that era—American banker Robert Theleen and his Singaporean wife Jenny Hsui, who were invited to China as advisors to the central government in the late 1970s. Theleen and Hsui, who now operate China Vest, a successful investment bank, paint a detailed picture of China at its opening, in order to remind newcomers of just how far the nation has come in the past 30 years. From there, several other “not quite so experienced” China hands take the reader through the past two decades, leading to the dynamic business environment of today, while also giving expert advice on how to deal with the Chinese government.
This chapter covers six main topics:
The Past: China Opens its Doors
Operating effectively in China’s evolving business environment, especially for international entrepreneurs, first requires an appreciation for the fact that the nation’s “open for business” status is still quite new.
Several of our interviewees offered a first-hand perspective on the transformation of the past 20 or even 30 years. American finance expert and businessman Robert Theleen describes his arrival in China in 1976 as a rare foreign guest of the central government, invited to give a lecture at the Ministry of Petroleum. At that time, he worked as petroleum banker for a Texas bank specializing in offshore petroleum finance. Here is his account of his first official visit to pre-reform China:
Petroleum was the very first major foreign industry to enter China back in that period. [The Chinese government] was very interested. I had an invitation to speak to a delegation, but how that happened was an oddity. I received a note at Peking Hotel that said, “Be outside the hotel on the corner of Wangfujing at 7 o’clock at night.” I went out of the hotel to the designated place at the designated time. It was a spooky environment out in the street in 1976. There was an old Hongqiao limo waiting outside, China’s imitation of a Rolls-Royce. A man opened the door and told me to get into the car. I didn’t know what I was getting into—it was right out of a James Bond movie.
We drove to a remote site far away from the eyes of any other foreigners. I entered a kind of conference room. There were about 40 people sitting there, stone-faced. There was an interpreter who told me in English, “Thank you for coming. This is a delegation from the Ministry of Petroleum and they are here to listen to your remarks.” Wow! Only then did I know what I was doing!
They asked me to talk about financing petroleum. We talked about every aspect of the petroleum industry: exploration, production, equipment financing, rigs drilling—you know, the whole industry. So, I talked about it. It went on and on until the [cigarette] smoke filled the room. At the end, one member of the group told me, “You must come back. We need to learn about this industry.” So, I went back and forth to China from that time on. I would meet government officials in one place or another. Then I started to think about China as a place to do business.
Such was the hair-raising start to Theleen’s career in China, which has so far spanned three decades. Through the mid- and late 1970s, he traveled regularly to China. It was a time he describes as “like going into a black-and-white movie in the 1930s or 1940s—everything was black and white, or should I say green and blue?” (Theleen is referring to the government-issued, coarsely made blue or green pants and “Mao jackets” that both men and women wore during those years.)
Theleen says that seeing China during the years before the economic reforms of the 1980s was “a privilege, because it helps me to understand the changes the nation went through.” He describes China 30 years ago as being “absolutely at the bottom” in terms of national spirit and pride. “I saw a nation that had no hope, but it had a strong desire to improve, to get out of the bottom. The rapid changes that took place afterwards can only be explained by seeing what China was then.”
“I saw a nation that had no hope, but it had a strong desire to improve, to get out of the bottom. The rapid changes that took place afterwards can only be explained by seeing what China was then.”
Robert Theleen, (USA), Founder and Chairman, ChinaVest, speaking on China in the 1970s.
Theleen recalls another of those early groundbreaking meetings. “We were invited to Beijing to give the first seminar on venture capital ever given in China. I’ll never forget that. The institution was the newly created China Development Bank.” As he was addressing the participants, Theleen realized that they included the vice governor of the Development Bank, who went on to become the chairman of the China Banking and Regulatory Commission, one of the most powerful positions in the government today. At the end of the seminar, the vice governor said to him: “No one has ever spoken to us about this. We had no knowledge of this.”
During those years, Theleen says, it took courage for businesspeople to be pioneers in the Chinese market, and for government officials to support the efforts to open and internationalize China. “You can use different words to describe China’s change, but I think the best way to describe it was as an act of national courage. Everything else is the consequence of that; everything you can say about development, decision-making, and the Four Modernizations. Those are all rather flat words. It was about courage.”
Together with his wife and partner Jenny Hsui, Theleen launched ChinaVest, one of the first venture capital funds, in 1981. Hsui recalls how playing the role of foreign “educator” could still be a dangerous mission even then: “When we first brought up the subject of venture capital at the central government level, the [officials] didn’t understand,” Hsui says. “We actually used the word ‘risk capital’ at a meeting with the Planning Commission of the Bureau of Financial State Funds, and [the top official] stopped us—I mean loudly stopped us. He said: ‘In China, there is no risk. There is no such thing as risk. You do not have any risk when you invest in China.’ So, we changed the term to ‘enterprise capital.’”
Another anecdote recalls the atmosphere of austerity and caution that permeated Chinese society at the time. Theleen tells of the first time he was invited to meet alone with a senior official. “It was a demonstration of real trust. [The official] said, ‘I want to continue this conversation. Instead of having a formal lunch somewhere, why don’t we go someplace very close to here, somewhere very casual.’ … So, we arrived at this little restaurant. It was a hot summer day and he said, ‘Do you mind if we take off our jackets?’ I had never seen an official without his Mao jacket on; it was unheard of. Under his Mao jacket, he was wearing a beautiful shirt with gold cufflinks. I was stunned. He smiled when he saw my face. He told me about the shop in Hong Kong where he had bought the shirt. ‘In the West,’ he said, ‘you can express yourself on the outside, wearing beautiful things. In China, we have to wear them on the inside.’”
Beyond the government offices, the mindset of the general public was even more closed and cautious. Says Theleen: “The country was a blank palette. You remember Mao’s famous quote: ‘The Chinese peasant is poor and blank.’ Everyone in China was poor and blank then. ‘Blank’ was the right word; it was the effect of the Cultural Revolution. The Revolution simply erased everything, the entire society. There was nothing to build on.”
Still struggling to regain its footing after the Cultural Revolution, China was a nation unsure about which direction to take, says Theleen. The country was in a state of turmoil politically, socially, and economically. Anyone wishing to venture into the business areas that were beginning to open up faced real personal dangers. Although Theleen and Hsui went through all the proper legal channels to establish their company, only the bravest Chinese dared to interact or do business with them. The political and social environment was one of such upheaval that Chinese citizens generally felt extremely insecure. Theleen says of his first employee: “She was very nervous when she came to work for the first time. I said, ‘Why you are so nervous?’ and she said, ‘Because when I go to work for you, you have to understand that I cut myself off from my entire life. I have no support from the state, I have no health-care, I have nothing…. I am throwing myself into the bitter sea.’” While this phrase would make a modern Chinese employee laugh, Theleen says that, back then, it was a real act of courage to choose to work for a foreign company.
Foreign business pioneers in China—including Theleen and Hsui—also needed a fair amount of chutzpah. As the chapter-opening quote describes, Chinese friends of Theleen were thrown in jail “for the slightest little infraction.” A Chinese citizen who moved quickly to take advantage of the new business opportunities—for example, if he or she took a job with a foreign company, or began trading with foreigners, or befriended a foreigner—ran the risk of being criticized if the Communist Party line were to shift away suddenly from opening up China to the world. In those early years, when the ground was uncharted and there were few business regulations or useful precedents, any misstep could easily backfire and be deemed illegal.
Theleen himself received threats after setting up business in China. “In the early years, a government official once put a note under our door. In Chinese, it said: ‘If you cheat us, you could go to jail.’ That meant, you know, jail forever. We could have been killed.”
The Transition: China in the 1990s
A small but diverse group of foreign businesspeople had been allowed into China when the country started opening up during the early 1980s. Theleen describes an extremely close-knit expatriate community in China during those years, completely different from today’s competitive environment. “In those years, the [government] put all foreigners in two hotels [in Beijing]: Peking Hotel and Friendship Hotel. They wanted to keep us isolated, but they didn’t realize that this was good for us. By keeping all the foreigners in one place, they created the greatest intelligence network you could have imagined. All of us shared information. We’d visit each other’s rooms and ask, ‘What deal did you cut?’ or ‘Did you hear about that Mr. Wang? Avoid that guy.’ The networking was incredible. It didn’t matter if you were American or German or Bulgarian…. We shared information with other foreigners whatever their nationalities were.”
From an atmosphere of fear and uncertainty in the early 1980s, China’s economic reforms began to take root, and then to mushroom, during the mid- and latter part of the decade, especially after Deng Xiaoping’s famous tour of Southern China, during which he declared, “To get rich is glorious.” Theleen describes the late 1980s: “The country went fast forward, and some important economic decisions were starting to be made. Some decisions were awkward and used to drive everyone crazy, but China made some very interesting decisions almost by accident.”
Several of our interviewees began their China business dealings in the 1990s and describe a period of optimism, along with chaos and uncertainty. There was less fear and more frustration, but also, ultimately, greater chances of success.
Danish furniture entrepreneur Simon Lichtenberg describes the chaotic but vibrant environment in China when he arrived in 1993. “At that time, so many things were so new. It was a mess. The concept of having a business license was new at the time. So, there were lots of people doing business without having a company—I’m talking cash business. I spoke Chinese and I could get myself around Shanghai, so I could get around things, but it was a mess.”
American real estate entrepreneur Bruce Robertson describes the mood of promise and potential that lured him to China from Hong Kong and Singapore in 1994: “There were all kinds of crazy, crazy things going on in the early nineties. But it was clear to me that there were business opportunities, especially as an entrepreneur. I saw that immediately. I also saw that my business wasn’t really required in Singapore and in Hong Kong. The opportunity was going to be in China.”
Robertson describes an overriding optimism among businesspeople then: “I had this vision that China was going to be an enormous, rising economy that would float all the boats—even if you were in trouble, you were still going to rise.”
Once he began doing business in China, Robertson quickly recognized the newness and instability of the business environment. “In 1994, and for the following few years, China was in a transitional state. Sometimes, it was very difficult to tell whether it was a free enterprise system, or whether the government was still calling all the shots.”
Other long-timers agree that China was an easier market to crack back in the late 1980s and early 1990s, especially if your company had good relations and contacts. Says Swiss consultant Nicolas Musy: “Everything was much easier then. Fifteen years ago, it was stricter in terms of restrictions on the type of business you could do, but actually operating was much easier. At that time, there was always a way to do anything through your contacts.”
On the positive side, says Belgian consultant Jan Borgonjon, the regulations may be stricter now, but they are also generally clearer and more transparently applied. “In the late 1990s, even until a few years ago, the environment had no clear rules. You had to be very, very careful. Now, it has improved, but it’s still not easy.”
Danish entrepreneur Simon Lichtenberg agrees with Borgonjon that cheating is still a danger in China, as the case study below illustrates.
The Present: “Better for Entrepreneurs than Silicon Valley”
Given the strict anti-entrepreneurial environment of 30 years ago, and the chaotic transition since then, just how welcoming is China today for international businesspeople interested in starting a venture?
Consider the following assessment of the current environment by Ge Dingkun, Professor of Strategy and Entrepreneurship at the China Europe International Business School (CEIBS) in Shanghai. Professor Ge describes China’s current environment for entrepreneurs as “more welcoming” than California’s Silicon Valley, the world-famous entrepreneurial hot spot where he studied, worked, and taught for four years before returning to his native China. China today is “a really good place to start a company,” he says, with all the elements that startups need in order to take root and thrive.
First and foremost, Ge says, is high demand. “Demand is much more pronounced in a high-growth economy like China than in a developed nation. There is a huge market demand for products and services here. If you simply modify existing products slightly to improve them, someone will buy them.” In developed markets, by contrast, entrepreneurs generally must work much harder to improve upon existing products and attract consumers, Ge says. “On the one hand, China’s traditional state-owned enterprises, and many former SOEs, are not efficient. On the other hand, demand is strong. So there is asymmetry—low supply and high demand.” Given this environment, Ge says, entrepreneurs in China can succeed by offering a product or service that is slightly better, faster, or cheaper than existing suppliers. “In China, many people are seeking better products, but there are still not many choices.”
Government support is the second key ingredient in China’s currently welcoming environment for entrepreneurs, according to Ge. “Basically, the Chinese government is very favorable to entrepreneurs.” He points out that, especially for startups in the high-value-added fields that the Chinese government is seeking to promote, such as R&D and biotech, businesspeople can receive licenses and approvals in a matter of weeks, whereas such applications took a year to process in the past. “China can now be one of the world’s most efficient countries for starting a business. Depending on where your new business is registered, it may take from two weeks to two months,” says Ge. “It is up to the entrepreneur to search and find the right place to establish the company.” (Note that not all of our entrepreneurs experienced this world-class efficiency, as will be apparent later in this chapter.)
Ge does cite one disadvantage of China, as compared to the United States: the lack of developed government agencies or banks offering startup funding. While venture capital money is pouring into China, many venture capitalists prefer to fund ventures that are already up and running, Ge says. Thus, finding seed money in China can be extremely challenging (see Chapter 3).
Overall, though, Ge believes that China is the right place at the right time for many types of entrepreneurs, even international ones. “I tell my students, ‘If you want to start a company [in China], start now. Ten years from now, competitors will all be here.’ Many, many industries are consolidating already. In the future, the entry barriers in many industries will be huge.”
“I tell my students, ‘If you want to start a company [in China], start now. Ten years from now, competitors will all be here.’ Many, many industries are consolidating already. In the future, the entry barriers in many industries will be huge.”
Ge Dingkun, Professor of Strategy and Entrepreneurship, China Europe International Business School
Dealing with the Chinese Government
Our international entrepreneurs’ experiences with government entities in China varied widely across companies and industries. Indeed, some of our interviewees had as “rosy” a view as Professor Ge. Iranian-born American entrepreneur Shah Firoozi expresses a typical cautious optimism, explaining that there are many promising opportunities in China, but that they are not easy to find: “China is very complicated. There is no single rule that applies to the whole country.” Firoozi says that operating in China requires constantly researching evolving rules and regulations nationwide, so as to keep up with the shifting situation. “If you miss out on a new perk—such as tax breaks in Western China or new incentives for those in the IT field—your competitors may find it before you. You really have to be on your toes in this country; you have to really be in touch. It’s very difficult for foreigners to do that. There is so much information, that you will never know it all—and it is even worse if you don’t speak the language.”
For American real estate entrepreneur Bruce Robertson, setting up his business venture in China was a quick and painless process. One of his earliest projects even came together far faster in China than it could have in his native U.S., he says. “With my first [construction] project in China, the time from when I signed my initial commitment letter to do the project, to when I finished my construction work, was 10 months. No one challenged our project or caused us any trouble. It’s interesting; in a country with a communist system, you would think the government would be all over you. In fact, it was clear sailing right through the project.” But it hasn’t all been smooth sailing; Robertson’s 14 years in China have also brought periods of frustration, delay, and near disaster. (See the case study “The Trouble with Facing South,” later in this chapter.)
Dutch internet entrepreneur Marc van der Chijs cites the stresses of doing business in China when the government unexpectedly changes the rules. “You may be out of business if they change the rules. Rules can be changed at any time. So, if it’s your first time doing business in China, you take high risks.”
It is accurate to say that each of our 40 entrepreneurs has, at some time, suffered at least some degree of setback and frustration while working with the Chinese government; however, they have all negotiated well enough with the official entities to successfully launch and operate their companies. In the remainder of this chapter, our entrepreneurs share their views on working with Chinese government officials to launch, operate, and expand their business.
Entering the Gray Zone
If the colors that typified China before its reopening to the world in the mid-1980s were “green and blue” (as described earlier by China veteran Robert Theleen), then the color of post-opening China is “gray.” Not because the country itself is drab (it is anything but!), but because the business landscape is confusing and unclear. The nation’s evolving legal structure and incomplete business regulations leave in limbo many aspects of doing business there. Thus, entrepreneurs find themselves encountering laws, regulations, and procedures for which the details are not black-and-white but confusing shades of gray.
British businessman Mark Pummell, whose diverse China ventures include an art gallery/teahouse, a professional-level musical instrument export business, a recording studio, and psychotherapy services, describes the situation this way: “If you literally follow every [Chinese] regulation, you will never move forward, and you will be drawn into the bureaucracy. You should evaluate your risks and make yourself as safe as you can within the legal framework, but sometimes you have to move a little bit forward into gray areas of business.”
One of the first challenges described by China-based businesspeople is that the laws and regulations are vague, incomplete, or inconsistently implemented, and may be frequently (and suddenly) changed. This leaves companies operating in a no-man’s land where they are never 100% sure that they are following the appropriate laws and regulations correctly. Real estate developer Bruce Robertson’s reaction is typical of our interviewees: “We’ve had some big-time trouble with changes in government regulations. I would consider it the single biggest risk in doing business in China. It affects everybody.”
The good news is that all foreign enterprises—and even Chinese companies, to some extent—are sailing across the same foggy sea.
“If you literally follow every [Chinese] regulation, you will never move forward, and you will be drawn into the bureaucracy. You should evaluate your risks and make yourself as safe as you can within the legal framework, but sometimes you have to move a little bit forward into gray areas of business.”
Mark Pummell (UK), Founder and CEO, ChinArt, Sinapse, and Music Pavilion
Making the voyage into China particularly challenging, our interviewees said, is the fact that implementation of regulations can vary widely throughout the country. For international businesspeople, this causes serious difficulties in planning a nationwide business strategy, as the business plan and operations may need to vary from region to region. Japanese accounting services business founder Fumito Suzuki explains: “The main obstacle in China is the absence of unified regulations and rules. For Japanese businesses in China, their fundamental desire today is to have more freedom in operating in China. There are so many regulations, old and new, and sometimes they contradict each other.” Suzuki has also experienced laws being applied differently in different cities. “One of the biggest issues is in interpretation. The interpretation in Beijing is different than in Shanghai or in Guangzhou.”
Take calculated risks in China. Sometimes, you may need to act in the gray zone.
In other instances, the local government and the central government may interpret the same regulations differently, Suzuki says. “There are cases where a company had the approval of the Guangzhou government to open a store, but the central government says, ‘No, you can’t do it.’ Each city is different. Regulations change from location to location.”
How can business owners manage in such a confusing environment? Where central and local government implementation differs, consultant Hiroshi Shoda advises clients to seek a final answer from the highest-possible government body. He has asked for interpretation from the central government Ministry of Commerce, on behalf of his clients. In one instance, Shoda says, the Shanghai government turned down an application made on behalf of Sony. When he raised the matter with the central government, the Ministry of Commerce in Beijing intervened. “A couple of days later, the Ministry of Commerce called the Shanghai Bureau and asked them to explain why they had said no.” In the end, Sony moved the application forward.
Bureaucratic Challenges for Entrepreneurs
Our 40 international entrepreneurs shared with us their views on the two main difficulties they face in working with the Chinese government: winning the support and cooperation of individual officials, and fighting a bias against young, small, foreign-invested firms.
Winning-Over Officials
Negotiating successfully with the government requires winning over individual officials, our interviewees explained, which can be tricky. However, most of the long-time China investors we interviewed commented that the attitude of officials toward foreign investors generally has improved markedly over the past 20 years. Taiwan-born interior decoration manufacturer Wendy Tai describes working with officials from Xiamen, in Fujian Province, where some of her largest operations are located, as “quite positive…. The local government in Xiamen encourages people to start foreign companies in order to contribute to the growth of their economy. They tried their best to help us with both the license and the legal papers. We didn’t use any lawyers; we finally finalized the legal steps with the help of our employees.”
However, Tai hasn’t always found the official attitude so welcoming. She recalls her first meeting with Xiamen officials in 1989: “At that time, the people who worked in the government were far from efficient. Sometimes, you saw them just drinking tea and reading newspapers, but if you asked them to help you, they would become annoyed. ‘Can’t you see I’m busy?’, they would say. Nowadays, the situation has been greatly changed and improved.”
Even though official attitudes have improved, working with the government remains both challenging and critically important for incoming entrepreneurs. Fellow Taiwanese business founder Maggie Yu says that one of the main reasons she was able to found her company in a brand-new sector—serviced office facilities—was her emphasis on establishing good relations with the government. Yu’s business strategy boiled down to establishing good guanxi with district governments throughout Shanghai, and then locating her facilities in the districts where her company had the best relationships. “Luckily, we have a very good relationship with the Jing’an government [a district in eastern Shanghai] now, and they’ve been very supportive of us. So, we set up a new company there, and this is going to be our headquarters in the future.”
The trick, Yu says, is to determine which local government most favors your type of business. In her case, she sought a Shanghai district that was particularly interested in attracting the type of international clients who lease Yu’s serviced offices. “We are an authorized agent to attract foreign investment to Shanghai, and especially to the Jing’an area,” she says. Thus, her company directly helps the local government to attract investment, and increase tax revenue.
Determine which local district or city most favors your type of business before you choose your location. If your goals match those of the local government, applying for a business license can be quick and painless.
Yu’s second piece of advice, which she emphasizes to trainees, is that working with Chinese officials requires a special mindset and attitude—a combination of polite respect and humility (giving face) and rock-hard perseverance (see, further, the case study “Displaying the Right Attitude”). Yu explains: “When you do consulting services, you meet all kinds of restrictions, all the time. I tell my staff that, when a [Chinese] government official says, ‘This cannot be done,’ you can’t come back to tell me ‘This cannot be done.’ You’ve got to find a solution. There is always a way to do it. Nothing is impossible; it is just how hard you try. This is very important.”
Yu says that an attitude of polite persistence works well, even when facing a difficult situation. For example, when she sought to launch her business in 2003, there was no precedent for it. “In China, there was no concept for our type of business—a serviced business center—and there is still none even now; it falls in a gray area,” she says.
Yu’s strategy was to see how other companies that similarly lacked a defined business category had managed to launch their operations. She says: “Since I studied law, I know the rules in China. If you can’t find the regulations covering your business, you’ve got to find the key players in the market and follow them.” So, Yu visited the local district government offices where she planned to launch her business, and very politely asked to see how other companies in related businesses had legally set up their operations. “The officials were very kind, actually. They wanted more foreign investment.”
“I tell my staff that, when a [Chinese] government official says, ‘This cannot be done,’… you’ve got to find a solution. There is always a way to do it. Nothing is impossible; it is just how hard you try. This is very important.”
Maggie Yu (Taiwan), Founder and Managing Director, Asian BizCenter & Consulting
Through the local government officials, Yu learned that other companies offering serviced offices had simply registered as a “consulting” firm. “Many foreign investors provide many kinds of services that are prohibited for them. To get around this, they just set up a ‘consulting’ company—which can be a very broad concept. Everything falls under the umbrella of ‘consulting services.’ We just followed those big companies and started our operation. We found a way to avoid any negative outcome, as everyone does.”
If you are in a new or emerging field, find out how other successful companies in your field have navigated the legal system in order to gain government approvals.
