Doing Business In China:

An Overview

Shawn He Yuxun MeetChinaBiz.org

Background

To Inform, Educate…

…And Enable

The 3 Waves of China

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Low Costs-driven Exports (since 1980s)

– Low-cost everything – – Enabled by government policies and/or direct subsidies Labor, land, materials, utilities, taxes/tariffs/duties, environmental… •

Discounted Assets-driven FDI (2001-2008)

– Fire-sale of state assets – Multiple forms: New plants, IPOs, Asset Management… •

Resources-driven Acquisition (2008 - ?)

– Natural vs. Man-made – Tangible vs. Intangible

What’s New

LatAm Is The New China

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China-like high economic growth and market expansion

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Level of business unpredictability resembles that found in China

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It is a new strategy to embrace the China market

Created to triangulate our networks in all 3 continents

Chicago · Wash, DC · Beijing · Shanghai Buenos Aires · Lima · Sao Paulo

China Tradeshow Stats

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China Accounts for 33.5% of Total Asian Market

– – Japan: 22% , S.E. Asia: 12.5% 2007-2011: 30% Growth

Recession-Proof

– Net Space sold grow 4.3% in 2010, following dip in 2009

2010 Capacity & Growth

– 96 int’l standard venues – 4.1 Mn sq.m. in capacity – – 212K sq.m. more by 2013 World’s largest venue planned in Shanghai: 400-500 sq.m.

2010 Performance

– – – – 517 Tradeshows 8.5 Mn sq.m. sold (vs. 1.9 Mn in Japan) Total Revenue: US$1.2Bn

Avg: US$2.3Mn per show

1 sq.m. = 10.76 sq.ft.

Source: Exhibition World

Major Players

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Major Organizers

– – – China Foreign Trade Centre (CFTC) 52% China Council for the Promotion of Int’l Trade (CCPIT) 16% Reed Exhibitions China, UBM Asia, Messe Frankfurt , Messe Koln

Top 5 facilities (by floor space & no. of shows)

– – – – – – – – – – – Beijing New Int’l C & E Ctr Shanghai New Int’l C & E Ctr Guangzhou Pazhou C & E Ctr Shenzhen Int’l C & E Ctr China Nat’l Convention Ctr (Beijing)

Top 6 world shows (by no. of attendees)

Beijing Int’l Auto Show Shanghai Int’l Auto Show Guangzhou Int’l Auto Show Canton Fair (Guangzhou) Bauma China (Shanghai) Beijing Int’l Broadcast Show Guangzhou Beijing Shanghai Shenzhen

Source: Koncept Living Exhibition Pte Ltd, 3D Exhibits

Top Cities

Chengdu Beijing Shanghai Ningbo Shenzhen Guangzhou

Based on 2009 figures. Source: CCE Magazine

The 3S’s of China

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Sourcing

– Low cost labor – – Low cost materials Lax rules and regulations (e.g., environmental) •

Supply Chain

– Be part of clients’ supply chain – Be part of industry clustering •

Selling

– China imports rapidly increasing – US trails behind Japan and EU

Opportunities

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China doesn’t have everything

– Natural Resources: Conventional vs. Non-conventional – Intangible resources

China can’t make everything:

– Utility vs. Futility – Experiential (e.g., degree, brand equity, perception) – Complex techno-human systems

China doesn’t know everything (yet!)

– New models and concepts – New-found needs

Demographic Trends & Shifts

– One child policy – Displacements (urbanization, un/re-employment)

Emerging Middle-Class

– Life Style Changes: Health / Energy / Space / Security

The 3C’s of China

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3 Fundamental Challenges

– Not related to • Language • Culture – – • Etiquettes Cannot easily overcome No one is immune

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Constant Change

– Fast moving target – – For better or worse Long ways to go

The 3C’s of China

The 3C’s of China

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inConsistency

– Theory vs. Practice – – Ubiquitous  Contradiction Result: Lack of Transparency / Predictability

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Complexity

– East vs. West – – – Old vs. New Internal / Intrinsic Always Exceptions

The 3C’s of China

The “Big Picture”

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Area

– 9.6 mil sq km: comparable to the US •

Population

– 1.3-1.5 B – (US + EU) x 2

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Population Density

The “Big Picture”

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Cultural Diverse

– 56 nationalities – – – >90% being Han 100s of dialects Analogy: EU

The “Big Picture”

The “Big Picture”

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Geographically Diverse

– East: hills, plains, deltas – – – – West: mountains, high plateaus, deserts Arable land: <20% 4 natural time zones, but 1 Beijing Time 4 climate zones • Tropical • • • Sub-tropical Temperate Sub-arctic

Dynasties & Legacies

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The Chinese "Genesis"

– Mythological figures (Pan Gu, Nv Wo, Shen Nong, Hou Yi, Da Yao Shi, Yan & Huang...) – The Big Flood (Yao, Shun, Yu)

Xia, Shang and Zhou (2000-771 B.C.)

– Bronze Age – – First written texts (oracle  I Ching (Yijing) characters) •

Spring Autumn & Warring States (770-221 B.C.)

– Confucius and other philosophers (Taoism, etc.) – – – – Sun Tse (The Art of War) The Legend of Qu Yuan and Duanwu Festival The legend of Xi Shi and West Lake Geographic footprints (nicknames for provinces)

Dynasties & Legacies

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Qin (Chin, 221-206 BC)

– Unification of China and The First Emperor – – – Origin of the name "China“ The Terra Cotta Warriors of Xi'an The Great Wall of China •

Han (206 BC – 220 AD)

– A Golden Age of Chinese history – – – Giving rise to the name of the majority nationality Embodiment of the Confucius Teaching Silk Road •

3 Kingdoms, Jin, 16 Kingdoms, Southern/Northern (220-581)

– A period of disunion with several rulers – Increased interest in Taoism & Buddhism

Dynasties & Legacies

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Sui (581-618), Tang (618-907), 5 Dynasties & 10 Kingdoms (907-960)

– Short-lived Sui Dynasty united warring states – – – Tang: a high point in Chinese civilization--equal or even superior to the Han Buddhism became a permanent part of Chinese traditional culture Block printing was invented •

Song (960-1279)

– Emphasis on Confucianism and a revival of traditions of Chinese antiquity – Two phases: Northern Song and Southern Song, caused by the nomadic invaders – Competing Dynasties/Kingdoms: Liao, Western Xia, Jin

Dynasties & Legacies

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Yuan (1279-1368)

– Mongols, led by Genghis Khan, conquered China and established capital in Beijing – Marco Polo wrote his book, Travels of Marco Polo •

Ming (1368-1644)

– Founded by Zhu Yuanzhang – Construction of the “Forbidden City” in Beijing •

Qing (Ching 1644-1911)

– Manchus captured Beijing – – The Opium War Treaties & concessions

Revolution & Civil War

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Sun Yat-sen & ROC

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Mao & CCP

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Chiang Kai-shek & CNP

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WWII & Anti-Japanese War

Mao & Communism

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The Establishment of PRC

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The Land Reform & Communes

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Great Leap Forward & The Great Famine

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The Cultural Revolution

The Post-Mao Era

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Deng Xiaoping & Reform

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The First Decade 1979-89

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The Second Decade 1989-1999

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The New Millennium

As A Result…

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From Rule of “Lord” to Rule of Law

– Are we there yet?

High- / Low-Trust Society

– Is China a high- or low-trust society?

Integrity

– Why seemly such a precious commodity nowadays?

Guanxi

– Sufficient and/or necessary condition to do business?

– – Status of Guanxi Today: • In more open/marketized industries and sectors: Guanxi is neutralized and resembles normal business relationship in the West • But still critical in highly regulated / government-controlled industries/sectors Google “Shawn Guanxi” for more in-depth analysis on the topic

First Encounter

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Always a formal meeting

– Dress formally even if the Chinese don’t

Biz card exchange Sit with feet on the floor Seating arrangement The Chinese:

– Indirect, subtle, and sensitive – – – Avoid straightforwardness, esp. with regard to monetary negotiations Avoid confrontation, embarrassment, criticism (e.g., never say ‘no’) Don’t ask questions during a presentation

“Conspicuous Consumption” vs. Credibility

Wine and Dine

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Meeting over meals

– Karaoke, drinking, etc.

– – “Crash course” on relationship building Seek to know you inside out (Equivalent to a job interview)

Mixed in Friendship / Family Ties

– To further cement the business relationship

Negotiation & Contracts

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The “Principal” Principle Translation

– Beyond words – Your eyes and ears

Intermediaries

– A third party – A sympathizer or ‘advocate’ on the other side

Due diligence Plan B

China Biz 101

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Sign a contract first, then start negotiating!

Thank You!

Shawn He Yuxun [email protected]

617.633.3806