Is it too late to enter China market?

16:33, April 26, 2010      

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Is it too late to enter the China market? Foreign companies have long seen the country with its 1.3 billion people as a potential bonanza. But have those foreign companies who have yet to make their move missed the boat?

Certainly, there are signs the China market is becoming tougher for those companies wanting to enter from outside.

Indigenous Chinese companies, particularly in key sectors such as technology, are increasingly competitive and have a more solidly entrenched position.

China's State-owned enterprises, which have benefited greatly from the country's 4 trillion yuan stimulus package, appear to have an impregnable position as never before.

There is also a sense among some in the foreign business community that regulations and rules are selectively applied to the advantage of Chinese companies.

Could it be that those who came five or even 10 or 20 years ago to China were the lucky ones and in the best position to benefit from any future spoils offered by the market?

Edward Tse, chairman of global management consultants Booz & Co in China, based in Hong Kong, admits there has been a recent nervousness among foreign companies.

"I think there has been a lot of talk in the international businesses community about how businesses feel about China now," he said.

But he added that many foreign companies now have little choice but to enter China since it is emerging as the really key market of the 21st century.

"The great majority of the companies I deal with regard it as the most important market in the world, if not the most important, " he said.

"For most foreign companies, it is not about whether to enter China, but having the right China strategy."

Since the reform and opening up began in 1978, the number of foreign companies in China has grown to around 435,000, according to the State Administration for Industry and Commerce.

Around 480 of the Fortune 500 leading companies in the world, are now in the country.

When many first entered there was very little in the way of domestic competition.

In 1992, there were just 140,000 private companies in the country compared to around 6.6 million today.

US businessman Tom Melcher is someone who is unafraid of this competition and does not believe it is too late to enter China.

He is chairman of American technology company Zinch's China operations.

The company, which provides an online platform for students applying to colleges or looking for scholarships, launched its operations in China this month.

"Are we too late? Absolutely not. Is China a bad place for foreign companies? Absolutely not. It is much easier than it was five or 10 years ago, " he said.

He said there has been a big improvement in the regulatory environment so foreign companies have a much better understanding as to where they stand.

"The regulatory environment in China is getting much more clear than it was five years ago. Sometimes it is clear in a good way. Sometimes it is clear in a bad way. But what is important is it is clear. That is what business people need," he said.

He says it is also easier for foreign companies to recruit talented people from the local workforce than it was just a few years ago.

"Even if they have not had a chance to go outside of China, they have a much more international outlook," he said.

Tse at Booz and Co said that whether foreign companies entered China five or 10 years ago or now, it has always been one of the more difficult foreign markets.

"If an American company goes to Europe or a European company goes to the US there are differences but the differences are not as great as when they go to China. It has the longest continuous civilization in the world and the culture and the way of doing things is very different," he said.

"China is not only an old nation but a new nation, which in my mind came into being when the veteran Chinese leader Deng Xiaoping visited Shenzhen in 1992 (when he called for the creation of a socialist market economy). It is a very odd combination."

Wu Changqi, professor of strategic management at Guanghua School of Management at Peking University, said it is difficult to make a case it is harder to enter China now than in the past because it was never easy in the first place.

"The Chinese market has never been an easy market for multinationals. Companies which have come to China have always needed to do a lot of homework and preparation. It is not easy to do business here," he said.

Wu adds there are areas where it has become easier rather than harder in recent years.

"There have been a lot of improvements institutionally. The government is more transparent. Government bureaucrats have become more competent and professional.

China too, to some extent, has become more integrated into the global economy, " he said.

"China's speed of business development is so rapid it is not really for the faint hearted. You need much more of a long- term vision to succeed in China compared with other emerging markets."

Roy Newey, group board director of A4e, a services business which helps people who are unemployed get back into work, is someone not daunted by the prospect of entering China.

The Sheffield, UK-based operation is already in 11 international markets and is hoping to set up an operation in the country soon.

"I have been on a China-British Business Council trade mission recently and I didn't get any sense among those on that trip that there was any lack of enthusiasm for doing business in China," he said.

Newey believes the company provides the sort of specialized service for which there is a gap in the market.

"We help people who are out of work get back into jobs and we believe we could play a role in China," he said.

Eric Schmidt, chairman of China Entrepreneurs, a Beijing-based organization which promotes entrepreneurship and works with a number of foreign companies, said in some aspects the market is tougher.

"The government is trying to promote local businesses and help them succeed and that can have an impact on foreign businesses, but it really depends on which sector," he said.

"In other technology sectors such as clean energy, however, there are a lot of opportunities for foreign companies."

Cheryl Tang, director of The Beijing Axis, a consultancy which works with many foreign multinationals, mainly in mining and natural resources sectors, said there are now more opportunities for small- and medium-sized (SME) companies than bigger companies in China.

"There seems not so much space for bigger companies to come to China. I see a lot of opportunities for SMEs to come here with unique products and services. Currently, we are helping an automotive lubricants company and they are doing well here because they have products their competitors simply don't have, " she said.

Wu at the Guanghua School of Management said one of the barriers to entering China - that companies had to develop different strategies for different regions of the country - seems to be disappearing.

He said a one-size-fits-all strategy for China would have a better chance of working now than ever before.

"It actually defies traditional theories of comparative advantage. As areas of the country develop they should in theory develop areas of specialization in particular sectors or industries. What seems to be happening in China is that everywhere is becoming more uniform," he said.

Tse, whose new book on tackling the China market, The China Strategy, has just been published, said for those who haven't entered the China market there are "leapfrogging" opportunities, where established companies in the country have yet to catch up with an international consumer trend or an advancement in technology.

"China's development is never a linear or incremental phenomenon but often non linear so that outside companies can always leapfrog over incumbents," he said.

He insists, however, that whether the market has got more difficult to enter or not, foreign companies have to have a more sophisticated approach than ever before.

"You can no longer put your B or C team in China but you have to send you're a team. It is not a matter of plugging them in and playing either. They have got to appreciate the local context and that doesn't come naturally to a lot of people," he said.

Source: China Daily


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