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We speak with Kim Zhu, Head of the China practice at Global Intelligence Alliance.
What do foreign investors often ask about regarding finding success in China?
“Now that China is maturing more and more as an economic power, most foreign companies are keen to establish new massive production plants for higher added value goods in China. With more than a billion euros of investment in more than 50 factories in China between 2011 and 2015, BASF is a good example of that trend, as are Unilever or Volkswagen who also unveiled plans for multi-billion euros investment in China in 2011.
However, penetrating deeper into Chinese markets requires more and more sophisticated market intelligence and segmentation nowadays. Each of its 32 provinces and 5 autonomous regions have an extremely high level of independence from each other, ranging from their own regulations and policies to their consumer preferences.
The available resources, differences in development, culture and mentality all contribute to blur the picture and make it difficult for foreigners and locals alike to understand and predict what is seen as necessary or welcomed by local authorities.
You have to ensure you understand all the dynamics of the market and establish a comprehensive list of potential local partners. Mergers, ventures or acquisitions will require careful investigation as the Chinese market is fairly divided between companies all boasting high sales numbers but representing in reality a fairly small market share.
Moreover, the change in party will mean that there will be a test period where local governments will test the length of the autonomy that the new central authority is ready to give them. As a result, new opportunities might arise locally but with the risk of seeing them cancelled a bit later. The best advice to foreign business is probably to adopt a waiting stance to see where the wind blows before making any major strategic investments.”
What impact will the transition to new Party Leaders have on businesses, if at all?
“It is difficult to predict the exact outcome of the transition on business as there is no published political program associated to it. However, a few facts can be gathered to make some forecasts.
First of all, the new generation of leaders was brought up in a very different context compared to the current one. Having been raised during the Cultural Revolution, the new generation is likely to be protective of Chinese national interest. Secondly, while we saw a stronger development of private businesses in the last few years, the new leadership is likely to seek to empower SOEs.”
What are some commonly mentioned impediments to operating in China?
“Reliable information and clear frameworks can be a challenge for many companies.
Decision makers and businessmen in China retain traditional business approaches based on Confucian values. For this reason, information is not easily publicly disclosed but rather given through a very tight network of friends (guanxi) within which one needs to be accepted to receive accurate figures and insights: a process requiring time and skill. Local businessman will only consider establishing any business relationship with people they know, as opposed to companies.
China has a legal system that comprises both traditional as well as some Western elements. The market reforms spearheaded by Deng Xiaoping led to the integration of some international systems and standards. As a result, two systems coexist within China: the traditional system having a stronger legacy within state owned enterprises and the new one more followed by private businesses. However, in both cases, it is necessary to comply at least partly with both systems.
Most countries work under the Common law or Roman law. China has its own legal logic that is extremely different. First of all, the laws themselves are not that easy to come by and are dividing according to a complex hierarchical architecture. The highest level of decisions can be based on guidelines that leave local governments some margin for interpretation. As a result, even with the text of the law or guidelines, it is extremely difficult to assess the level of enforcement region by region, and the exact meaning and philosophy of the text.
While the old structures and traditions may at first look like obstacles, they can if correctly played, allow a new market entrant to have a head-start that would not be possible elsewhere.“
What can we expect from the Market Intelligence for China webinar?
“The webinar will start off with an introduction to the key economic indicators in the country’s key regions, as well as provides some of the most recent and relevant insights and opportunities locally. We conclude with a few market intelligence best practices within the Chinese market context and several cases to illustrate them.”
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