China's doors have never been more widely flung open, but there's a lot to learn before taking the plunge. E&T talks to the author of 'Business Insights: China'.
There's never been a better time to consider doing business with China. Recent trade discussions between UK and Chinese governments have stimulated and strengthened the relationship between the two economies. There are reports of large orders changing hands, shopping lists being scrutinised, and there's a general – if not unqualified – feeling that for those with the right products and technologies, there could be good times ahead in China.
These are the views of Jonathan Reuvid, author of 'Business Insights: China', a seminal work of business advice, statistics and other data written for the manager aspiring to set up a commercial enterprise on Chinese soil. On the face of it, this has always been a good idea, with ample opportunity for the adventurous – as in the case of Sir James Dyson – to exploit the labour-cost advantage and other benefits of manufacturing in China.
But when it comes to the Far East, things have a habit of moving fast and much of the emphasis has shifted from low-cost manufacturing for export to engagement with the virtually unlimited domestic market. To reflect this change, a much-needed expanded and improved second edition of 'Business Insights: China' has just been published. It radically differs from its predecessor in two crucial respects, making it a good investment for anyone interested in the territory.
First, there's the inclusion of a number of chapters relating to China's political situation, both internally and with reference to the rest of the world. The second reflects that 'the focus of opportunity has shifted in China somewhat'. When writing about China over the decades, Reuvid has observed that the best way to get a toehold on the market is via the joint venture route, which means that 'you put your money or technology into the joint venture which then got its approval and did well through exporting'. This was because the foreign currency element was of great importance to China, although that is now changing. Today, China is addressing the issue of developing its internal markets, improving standards of living and rolling that back from the coast westwards into more remote provinces. 'Therefore if you engage with China now, with technology products, the big opportunity for British or American firms is to gain a share in these domestic markets.'
Keeping it clean
The technologies most attractive to China at the moment are design engineering in the automotive sector, civil aviation, life sciences and chemical-related industries. Clean and low-carbon technologies along with nanotechnology are sought after, while renewable energy is high on the agenda. 'These are the areas where the UK can pride itself in being at the forefront,' says Reuvid, 'and I think these areas are where the biggest opportunities lie.'
Reuvid, a former economist, investment banker and international corporate development consultant, is now a prolific author on trade issues with China. Over the past two-and-a-half decades he's seen organisations make fundamental mistakes in their approach to dealing with this enigmatic country. He says that the 'paramount mistake' is simply not choosing the right partner to team up with in the first place.
'In an area such as banking it's not too difficult to get it right because there are a finite number of Chinese banks. People like HSBC, Barclays and Standard Charter have done very well in their alliances.' But more generally, for the widget manufacturer, it's harder to find a good partner. The solution is to narrow your search from the beginning by deciding in which technological sphere and geographical location you'd like to be based. That requires a lot of background knowledge. But there are plenty of organisations that will help you with this, and they are listed, along with contact details, in 'Business Insights: China.'
It's important to take advice because, says Reuvid, while you may think that you've found a company that you like and can do business with, they may be part of a state-owned or province-owned organisation. 'You have to look at the mother-in-law,' says Reuvid, because 'sometimes the mother-in-law is a horror.'
The real danger is that the upstream organisation may have no interest in anything other than getting as much as they can out of the western partner. '...if you get it right, you then have to be prepared to spend a tremendous amount of time building a relationship – far more than you would if you were trying to do it in most other countries.'
One approach to avoid is the classic American way. If you go into China with the attitude 'Boy have I got a deal for you – let me lay it out on the table' you won't get far. Says Reuvid: 'It works in quite a different way, rather like peeling an artichoke. You start with the general and get down to the particular.'
Putting the manager first
But doesn't that all sound a bit antiquated? 'It may do, but it's not really,' says Reuvid, 'because if you do it properly you'll start to explore the project with both parties sitting on the same side of the table.' One of the main differences between today and early business ventures into China is that managers are now more attuned to 'what they can make for themselves from performance bonuses or shares in private companies, which is all now allowed'.
Likewise, today's more open approach to commerce means that you might be dealing with managers who've been educated at business schools in the US or the UK. 'This means that they are very up to date and understand perfectly well how to run or develop an organisation.'
Although the doors are flung wide open for potential entrepreneurs wishing to invest in China, there's still the matter of the embargo on providing the Chinese with defence technology. 'So if you're talking aviation, you're talking civil aviation and not missile technology.' And what about the old chestnut of human rights? 'It's good to see that the UK government isn't going overboard. Yes, they've mentioned it recently, but they're not banging the nail on the head. You have to be pragmatic with China and put your prejudices behind you. When it comes to human rights they will get there in the end. They will do it in their order and in their time-span.'
'Business Insights: China' (second edition) by Jonathan Reuvid is published by Kogan Page, £24.99