Doing Your Homework

Hands-down, the best way to begin to understand China is to spend serious time on the ground there. This idea is a test of your company’s patience and commitment. Is it willing to send people to China without very clear agendas? Ideally, at least one person can go to China several times for a few weeks at a time.

Of course, you need to do plenty of research before you step foot on China’s shore. This section tells you a bit about the research process and how people and published resources can help you find what you need.

Continuing research as you develop your plan

Planning and research are iterative processes. In other words, you come up with a plan. You research it and find out what the issues are. Then you go back to the drawing board to adjust your plan. You then research the revised plan, and so on and so forth. Going through the process once or twice would be nice, but that’s unrealistic. You encounter so many moving parts and surprises when setting up in China. Being able to accept a lengthy iterative process without becoming frustrated is important.

Be realistic about your company’s resources and commitment. If your company can’t make the full plunge, you can pursue China opportunities in alternative ways. Assuming you want to move forward, start with your company’s goal or idea (for instance, you want to manufacture widgets in China for export to Europe).

After you have your basic idea, look into Chinese law. As we discuss in Chapter 7, a host of legal barriers take place in various industries. Sometimes, foreigners are completely prohibited from doing certain businesses; other times, there’s a requirement to form a joint venture (JV) with a Chinese company.

If you’re allowed to have a wholly foreign-owned enterprise (WFOE), then think strategically about whether you want a WFOE or a JV. (Chapter 7 covers the tradeoffs of JVs; Chapter 14 discusses using a JV to sell in China.) If you’re not able to have a WFOE, then you need to think about whether you can tweak the idea so that it’s permissible.

After you have a sense of the broad outlines of your plan, you can move on to some real, detailed research. Your research will lead you back to your plan and then to more research.

Networking

Before sending someone over, your company’s employees should scour their networks for contacts they have in China. Hopefully, the person going to China can establish contact with these people and set up meetings before heading over. When that person does head over, he or she should hit trade shows, interview consultants and other professionals, and attend the myriad networking events found in major cities (see Chapter 15).

Somebody in this role ideally has good networking skills, knows your business well, and is able to ask good questions. Chinese language is a plus but not essential at this point. The overriding goal should be to meet other Western businesspeople who can give advice and potentially refer your company to good consultants and other advisors.

Especially in the planning stage, the best people to try to meet are people in similar businesses or industries. Also, people who are just six months to a year ahead of you can be excellent resources because their startup lessons are fresh in their minds.

Unfortunately, this somewhat primitive and costly process is the best way to approach China. One of the reasons networking is so important in China is that getting good information is hard. A lot of information is out there on China, and a lot of people are loudly advertising their advice. Much of the information and many of the contacts are of low quality. One telltale sign that someone can’t really help you is that he or she drops a lot of names or brags about connections. Another sign is constantly telling you how difficult and mysterious China is.

You may be thinking that you can shortcut some of the on-the-ground research process by going right to internationally recognized consultants and the like. That may not be a good idea. Many multinational service firms have good China operations; however, the quality isn’t nearly as consistent as in the West. Networking can lead you to the right people. We discuss working with consultants and other professionals later in “Hiring Consultants, Lawyers, and Accountants.”

Don’t give too much weight to what any single person advises. You can speak to two very successful old China hands on the same issue and get radically different opinions. You want to understand their logic and then see which view you think works best for you. The more sources you meet, the better.

Reading up

Numerous Web sites, articles, and books — including this one — can help you conduct your research from home. The problem is knowing the quality of the source. We’ve read pieces from Ivy League business professors on some aspects of doing business in China that we think are completely wrong. Similarly, pieces written by many consultants make China out to be much more mysterious than it really is (the reason, of course, is that the writers are trying to sell you their services). You can’t really know how accurate your information is unless you confirm it firsthand. Nonetheless, you can improve your chances of getting good information. When evaluating a source, consider the following:

✓	Author experience: Author credentials can be very iffy; however, an author based in China is more likely to be accurate than someone who just paid a visit to China.
✓	Where it’s published: Publications focused on China tend to have a better picture of what’s going on — even when compared to major international news sources. Academic journals sometimes have useful information, but we find that writings from businesspeople and practitioners usually contain better information and are more practical than academic writings. The China Business Review (www.chinabusinessreview.com) is generally very good. Your country’s chamber of commerce in China may have published a number of good articles and circulars on doing business in China.
✓	Date of publication: Information can quickly become outdated. In the West, three years may not be that ancient, but China changes so quickly that three years in China can equal a lifetime in the West.
✓	Tone and objectivity: Popular media frequently tend to be either ebullient or nightmarish in their portrayals of China; finding well-balanced reports from these sources is hard. Look for neutral language and balanced coverage, and check whether the author uses evidence to support the claims.
✓	Content: Even when you come across a good piece on doing business in China, it may not be applicable to the part of China you want to do business in. China is very diverse, so look for info that pertains to you.

Reaching out to organizations

Many governments have agencies and affiliates that specialize in helping smaller companies with research and planning. Here are the major organizations in Australia, Canada, the U.K., and the U.S.:

✓	Australia: Australia China Business Council (www.acbc.com.au)
✓	Canada: Canada China Business Council (www.ccbc.com/home)
✓	United Kingdom: China-Britain Business Council (www.cbbc.org); U.K. government’s trade and investment site (www.ukinvest.gov.uk/gateway/index.html)
✓	United States: US-China Business Council (www.uschina.org); U.S. Government Export Portal (www.export.gov/china); U.S. Commercial Service China (www.buyusa.gov/china/en); American Chambers of Commerce (Amcham) in Beijing (www.amcham-china.org.cn) and Shanghai (www.amcham-shanghai.org/AmchamPortal)

Some of these organizations specialize in providing export services to small companies. Many are staffed with experienced people who’ve been doing business in China for many years. Check with your government’s commercial service sector to look for support for your China business. They provide valuable services, with competitive fees, to companies seeking to enter the Chinese market. Many countries also have chambers of commerce in China that provide referrals and valuable information, as well as networking opportunities.