Foreign Perspectives of doing Business in China

on April 2 | in Expat Life, Global Information, leisure, Shanghai | by | with Comments Off on Foreign Perspectives of doing Business in China

Marketing in any overseas country is difficult because of differences in culture, local laws and regulations. China is particularly troublesome for many companies, such as Whirlpool, a US white-goods manufacturer that lost more than 260 million RMB in a series of joint ventures, and the multinational food company Kraft, which was forced to close its loss-making dairy business after eight years – finding life uncomfortable in the Chinese market.

In order to succeed, overseas companies need to recognize a number of guidelines. First, they must appreciate the market diversity. A country with 1.3 billion people speaking over 100 dialects is vastly diverse, and the need to segment the market is essential. For example, Samsung discovered that consumers living in humid Guangdong province needed larger refrigerators than those in the more temperate north so it started marketing bigger fridges in the south. To understand customers, domestic and multinational companies are conducting focus groups and surveys. For example, the Grey Global Group, a Chinese advertising agency, has segmented Chinese consumers into 11 categories based on their lifestyle and aspirations. These groups range from independents that do not follow consumer trends to shoppers on the cutting edge.

Western firms often enter China by means of a joint venture, but they need to be aware of the different business scenarios there. In China there is no effective rule of law governing business. One potential drawback is that western companies can fall prey to intellectual property theft. Bureaucracy and governmental interference can also bring difficulties. Thames Water reportedly had to pull out of a 20-year water treatment project in Shanghai after the government ruled that the guaranteed rate of return to investors was illegal. Technical problems can also hamper joint ventures. For example, Chrysler ended its small car venture with Cherry Automobile because of their failure to bring the cars’ safety and environmental performance up to western standards. For Ericsson, the world’s largest telecommunications equipment producer, entering into a contract with China’s two biggest mobile phone companies – China Mobile and China Unicom – the reward of a joint venture could be enormous. The deal is worth $1.44 billion to help supply China’s mobile networks.

Western companies also need to understand the importance of Guanxi networks. Guanxi is a set of personal relationships/connections on which a person can draw to obtain resources or an advantage when doing business. Guanxi is one reason why working with a Chinese partner is usually better than doing it alone. When entering into business relationships the Chinese seek stability and trust more than intimacy. They want to feel comfortable that western companies will not spring surprises that may hurt them, but they do not need to feel that they are the company’s best friend.

The media also have to be handled with care. Chinese reporters need to be educated about the western company’s business, treated with respect, and regular contact to develop personal relationships is recommended.

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