Doing Business with China Business Economics Politics Culture
Doing Business with China Business, Economics Politics & Culture Neil Blakeman Associates Ltd 9 th November 2010
Doing Business with China CHINA ssss Bohai Rim Yangtze Delta Pearl River Delta Three Main Centres of Economic Gravity
Doing Business with China [Source CBBC, Leeds University, UKTI]
Doing Business with China Economic Highlights § § § § World’s 2 nd largest economy Annual growth c. 10% for 25 years [forecast 8% to 2015] World’s largest exporter & manufacturer GDP growth: 2000 -09 = 80% of US : 2010 -19 F = 2 x US Inflation: 3% [rising to 4%] Per capita GDP (at PPP) c. $7, 800 [rising to $13 k] Of 1. 3 bn, 200 m+ (? ) live on < $2 / day Overtake US in GDP (PPP) terms by 2030? [Source: EIU, Goldman Sachs, various]
Doing Business with China § § § § 833 m mobile phone users, 420 m internet Huge investment in Motorways, Airports, Metro, Rail 89 million cars. By 2020, 140 million? 1998: 1 million university places. Now: 6 million+ 200 - 600, 000? engineering graduates a year 16 of world’s 20 most polluted cities are in China 50% of Chinese GDP: savings Saw the world’s largest ever IPO
Doing Business with China Asia's Share (%) In World GDP (at PPP)
Doing Business with China POLITICS § 4 th generation leadership –> 5 th in 2012… § Harmonious, balanced, sustainable development (Party legitimacy) § Domestic challenges; demonstrations, human rights? unemployment § Foreign Policy; N. Korea --, Taiwan ++, US(+), Japan G 20+, [G 2? ] § Democracy?
Doing Business with China Economically, three transformations: Planned Economy Market Economy Closed Economy RURAAL Open Economy Rural Urban Other factors: – WTO (Distribution, Financial Services & Retail) – but recently? – Olympics, EXPO 2010, Asian & Student Games 2010 -11 – Foreign Exchange Reserves >$2. 5 trillion – FDI $100 bn in 2010 ? ; $120 bn+ 2015?
Doing Business with China § Soft landing? Will high growth be sustainable? § What about the currency? § Protectionism (US, EU, China)? § Energy usage, security, efficiency, shortages § Environmental impact § Growth drivers; exports, investment … consumption
Doing Business with China Short-term impacts: global economy, credit crunch & recent trends? § Global Economy – exports (& imports) China: slowed in 2009, bounced back in 2010 – cost (& domestic pressures) : competitiveness ? – protectionism ? : is a concern (e. g. use of anti-monopoly laws in China) – product safety, reputation for quality & consistency (? ) – UK exports to China are more competitive § Consumer / Business confidence (stock market, property market) – Consumption ? : retail sales are up – ‘Indigenous innovation’ : = more technology transfer ? § Huge fiscal stimulus ($586 bn) …how effective / over-stimulus? Infrastructure, ’Pillar’ industries, science, health, education § Effect on Chinese Banks : limited § Outward Investment (FDI & sovereign wealth fund(s)? ); Outward direct investment $44 bn in 2009, rising to $137 bn in 2015? § >>> Fundamentals good (but, inflation (recent interest rate increase), unemployment? )
Doing Business with China UK China Trade 2001 -2009 [Source: UKtradeinfo, British Embassy Beijing]
Doing Business with China Britain’s Main Trading Partners in 2009 (Avg. Annual Growth 2002 -09) [Source: UK trade info]
Doing Business with China UK China Trade & Investment Key Facts § UK Exports of Goods to China : £ 5. 1 billion in 2009, up 5%. YTD Aug 45% (HMRC) § UK Exports of Services to China : £ 2. 5 billion in 2008, up 60% : UK is 2 nd largest § China = UK’s 2 nd largest non-EU export market § China = 3 rd largest source of UK imports § UK is China’s 15 th largest trading partner (8 th largest importer) § UK No. 1= EU Investor in China § 580 + Chinese Companies Invested in UK § UK is no. 1= destination for Chinese investment into EU [Source: British Embassy, Beijing] 6639 projects US$16. 9 billion realised (400 Mainland, 180 Hong Kong)
Doing Business with China Impact on Global Economy § Impact on shipping costs § Drawing in raw materials and energy: oil, cement, steel, construction…. (and retaining rare minerals? ) § Fuelled Japanese & Korean economic recoveries § Following ‘Asian Tiger’ model of moving up value chain § Huge pool of skilled and unskilled labour (some upward pressure on wages – as low as 10% of Europe) § Innovation § IPR
Doing Business with China Key Challenges in doing business with China § IPR protection § HR issues § Regulations, and dealing with Chinese government § § Legal, tax, accounting, certification (and resolving disputes) Partner selection, relationships Corruption Handling people / relationships (‘Face’, ‘Guanxi’, hierarchy) § § Official trade & investment limitations Route to market, physical distribution Risk management (company, personal) Size, diversity, cultural ‘distance’, language § § Sales, marketing, branding Negotiating, pricing Remitting funds, getting paid Scarcity: power, water etc
Doing Business with China Intercultural Communication & Understanding Influences § Long history § Confucius, Daoism, Buddhism § Women (father, husband, child) § Elders § Pictographic language § Study / education § Family ties § Zhongguo (middle kingdom) § Patriotism Behaviours (business context) § Patient § Group orientation § Hierarchy § ‘Guanxi’ (networks/relationships) § Bonding § Modest § Decision-making - Simplicity v’s complexity - Employment, technology § Contract (only the beginning) § ‘Face’ § Personal relationships Practicalities: Mandarin v's Cantonese, business cards, interpreters, banquets, design / promotion, gifts, hotel cards etc. Acknowledgement: input from Eugene Chang (formerly at CBBC)
Doing Business with China Business Challenges • Regulatory, market and operational challenges • Some issues are more acute in regional cities [Source: CBBC, Leeds University, UKTI]
Doing Business with China Creative Industries: Chinese government engagement § Beware sensitivities: film, media, content etc… § Discuss with UK Trade & Investment § Important to understand & potentially engage: – – – Ministry of Culture MOFCOM (Ministry of Commerce) SARFT (State Administration of Radio, Film & TV) MII (Ministry of Industry and Information Technology GAPP (General Administration of Press & Publications) Other (SIPO, SAIC etc. )
Doing Business with China Areas of Opportunity § Exporting - Agent or Distributor § Establishing a local presence (Rep, JV, WOFE, FICE) § Sourcing, Outsourcing (goods, business processes) § China going global § Consumer spending § Infrastructure development § Increased manufacturing output
Doing Business with China Areas of Opportunity § § § § Energy, including efficiency Environmental protection Financial Services Information & Communications technology Creative Industries/Design Enhanced public services - health & education Innovator, R&D World Student Games 2011, other major events
Doing Business with China Market Entry Drivers • Build your own market-entry strategy • Focus on business objective and priorities [Source: CBBC, Leeds University, UKTI]
Doing Business with China Doing Business in China § Leave your preconceptions at home § Keep hold of your business sense as tightly as you would anywhere else § Do your homework on the market and on potential partners § Patience is a virtue; need commitment and open mindedness § Take a long-term approach, but do not stick rigidly to your plans § Obtaining good quality independent legal and professional advice is essential § Protect your IPR § Carry out due diligence § Importance of personal relationships
Doing Business with China CHINA THREATS? § § § IPR, Tech. Transfer § Energy, raw materials § Manufacturing § Pace & extent of change Complexity Source of competitors OPPORTUNITIES? Innovation, R&D § Labour, skills § Environment § § Exports, investment, partnering Sourcing, outsourcing Design, science/ research, marketing, branding Services, solutions (eg. BPO) § Depends on your sector, stage of development, strategy …. § Must factor China fully into your strategy
Doing Business with China
Doing Business with China
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