Business In China Takes Mental Preparation

May 17, 2002
| By Katy Rent |
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GRAND RAPIDS — Doing business in China can be more difficult than simply placing an office there or setting up a manufacturing facility.

The key can often mean digging into China's long and intricate history to learn about political and social issues — plus, getting to know the locals.

John Holden, president of the National Committee on U.S.-China Relations, and Craig Meurlin, partner with Warner Norcross & Judd LLP of Grand Rapids and an expert on global trade and corporate law, recently outlined several tips for West Michigan businesses to focus on when looking to China as an additional market or as a place to manufacture goods.

The first tip — and according to Meurlin and Holden, the most important — is acquiring an understanding of China and its history.

"A business needs to acquire a deep understanding of China, how it has gotten where it is, its leadership approaches and why they do certain things," said Holden. "If you haven't done a study you may not understand certain things, such as the new meaning of socialism and communism to the Chinese."

Gaining a knowledge of China's laws is also essential.

Bribery laws and corruption laws are something Western business people may not be conscious of. Whereas in the United States bribery and corruption may be swept under the rug, the Chinese aren't so easy to forgive.

Meurlin said China's government recently arrested eight million people for corruption and some offenders were sentenced to death, among them a mayor, deputy mayor and more than 3,000 other officials.

For those businesses that may wish to break into the Chinese market slowly, Meurlin said some regions are more Westernized than others. He suggested that businesses new to China locate along the coast. But, he said, that doesn't relieve business owners of the necessity to study the cultural context of such regions.

"The areas along the coast tend to be more WTO (World Trade Organization) compliant," said Meurlin. "It is not an easy market, and the cultural disconnects can make communication difficult."

Meurlin added it is often not the language that stands in the way, but mistaken approaches to issues and contextual practices.

"Another thing to keep in mind is that the Chinese are not capitalists like us," said Holden. "The government plays a different role there, and different people have different motivations."

Holden said it is important for U.S. businesses to bear in mind that China has signed on to globalization and entered the WTO. "They have given the blueprint for their entrance into world trade, and this will be a major factor in most industries," Holden said.

Not only that, he said business people from around the world are already competing in China, and with China being a new member of the WTO, now is the time to seize the opportunity.

"If a company in the U.S. sees an opportunity in China, now is the time to take it, because with it becoming a global marketplace, everyone is going to want in," Holden explained.

When deciding whether or not China might be an important factor for a business, Holden said the next step is to determine whether it is better as a manufacturing location or an additional marketplace.

"It can often depend on the way you do business or what type of product you are producing," said Holden. "Manufacturing there can be much simpler than trying to conquer the market."

In addition to understanding China's marketplace and ways of business, Holden stressed a key factor in doing business with China is understanding the government and the important role it plays in business.

"One of the biggest problems can often be in working with the Chinese bureaucracy," Meurlin agreed.

"China is much more contextual, whereas we in the U.S. are more linear. That can be hard to adapt to or work with.

"We solve issues differently and we have to leave room for growth, of course. As China becomes more involved in the WTO and we become more involved in their market, both sides will know how to compromise and adapt to work together."

The same goes for business and government relationships. Holden said while government plays a large role in business and dictating operating principles, the relationships formed in business are also important.

"The connection is necessary in China," he said. "In many cases business relationships are formed from personal relationships. There is a heavy importance placed on trust, and they figure if they can trust each other with personal relationships, business relationships will work as well."

Finally, it is important to bear in mind China's policy on public companies. In China, even public companies are still private.

This means companies are tight-lipped about disclosing financial statements. The financial system and practices are not fully developed and some accounting and financial laws are still being regulated as they go.

"After the Asian financial crisis, it was hard to get companies to disclose that information," Meurlin said.

"And in some senses that hasn't changed much. You will find that the companies that are willing to disclose information do so in order to gain capital and attention from foreign investors."

After studying China's long history and deciding to make the leap into Asia, where should a business look for more information on how to get involved?

Holden advised businesses to do research on the Web, including industry associations, the U.S.-China business council Web site, www.ncuscr.org, and to attend conferences about doing business in China, and also consulting a law firm.

"We can help someone out with business law and consult on business law practices," said Meurlin. "On a case-by-case basis it is possible that we have information and advise on international business and how to do business in China."

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