Often in China, the fundamental barrier to success is less about identifying the opportunity and more about the inability to execute the plan more effectively than others. One's own management team, the team's relationship with corporate headquarters, the role of and relationship with joint-venture partners—all play a key role. Joint ventures have been part of doing business in China for more than 30 years. In many sectors, they remain the only way to participate, often in a mandatory minority position. But there are a number of clear lessons:
Establish the right strategic positioning.
If regulations require you to have a joint-venture partner and a minority position today, assume it will be that way forever in the core business activities. From automotive to financial services, the lesson is that it won't change. If that model is not attractive today, do not invest in the hope that it will change.
Follow the evolution of government policy and align your stated intent with such policy as far as possible. Using the words from government statements in your own statements communicates your commitment to China.
Be clear if you are in China for the opportunity in China, or if you are in China for the opportunity that China creates for you in the rest of the world. This can lead to a very different presence in China.
Many potential joint-venture partners are highly successful and very large within China, who sees international partners as little more than a temporary accelerator of growth.
Increasingly, China's mind-set is that there are fewer and fewer things to learn from foreign partners. China doesn't need the capital, it can hire the skills, and it has the customer relationships, insights, and, most critically, the government relationships. Even state-owned enterprises now hold this mind-set.
Simply stating that "this is how we do it in America/Germany/Japan" will not win friends. What one can do today is make a long-term commitment to help a Chinese joint-venture partner expand internationally. This may well be at a cost to the international partner's existing business and needs to be seen as part of the total China investment.
Establish from the outset a clear hierarchy of who interacts with whom at the joint-venture partner and with relevant government officials. Chinese partners like the certainty this provides. Ensure that the committed executive shows up for board meetings and the like, and don't delegate.
Place a trusted senior colleague in China with a commitment to have him or her be there for the long term.
He or she is your go-to person when things get volatile in China, someone whose viewpoint the global management team will trust, and someone the head of your joint-venture partner will also learn to trust. Usually, this person will be very strong in people development, with skills almost overlapping with a head of HR. And he or she will need to be 100 percent trusted to enforce compliance and to role model required behaviors. Typically, make this person chairman of your Asia or China operations, as senior a title as possible.
Talent acquisition and development, at all levels, remains highly time consuming and often frustrating for multinationals. Loyalty to an employer is often low on an individual's priority list. Turnover will likely be high and should be planned for.
Hiring midcareer executives is increasingly common, and in almost all industries the available talent pool is deepening. Both Chinese and global search firms have rapidly growing businesses that serve local and international companies. It is imperative to complete thorough background checks. Getting people to leave quietly in China often involves being silent on the cause of separation.
At the entry level, many graduates are available. However, many lack workplace-relevant skills, including even those with MBA qualifications, which are more often bought than earned and often come with a lack of self-awareness that can lead to a mentality of entitlement. As a result, many corporations hire and then weed out aggressively during the initial probation period. Once on board, retention of high performers often depends on a highly variable compensation structure and dismissing underperformers.
While you will likely have to work with "sons and daughters" of government officials as business partners, it does not mean that you have to employ them. Outside of some companies in financial services, few international firms do.
If protecting intellectual property (IP) in China is a concern, consider it very hard if that IP needs to actually come to China. Some companies in the technology sector have been very successful, even while not bringing core IP into China. Secondly, consider if the cost of loss of IP could be contained solely in China. Again, in technology, multinationals have aggressively and successfully sued Chinese companies outside China that have taken IP from multinationals in China and used it outside China. China is evolving fast on IP protection, with more and more Chinese companies suing other Chinese companies. It is becoming increasingly likely that a Chinese partner will recognize the value of IP and be willing to protect IP developed jointly with them. A practical means of making it harder for global IP to leak into China is to establish a stand-alone IT architecture for China that has no access to servers at headquarters.
China is likely to be a more volatile economy. Taking a through-cycle viewpoint rather than a "quarterly performance versus plan" mind-set is key to motivating your China team and to convincing them that you are committed to China for the long term. Indeed, downturns in China have proved to be attractive moments to double down. When partners or governments are under stress, new partnerships and licenses can become available to foreign partners that are willing to step up and invest. Even after 30 years, few multinationals adopt this mind-set.
Don't do anything to compromise your global brand and reputation. If you can't do business the way you want to, then don't do it at all. There may be opportunities to make money in the short and medium term, but shortcuts will eventually be made transparent. The Chinese government will be well aware of how you are operating, and the anticorruption campaign is not going to go away. Don't assume that because your suppliers are international companies that they are automatically operating to the global standards you expect; verify that they are.
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Ten principles for doing business in China
Foreign companies in China must learn that respect is paramount