How to make money in China (and how to lose it)

By Ernie Tadla

It took Microsoft twelve years and billions of dollars in lost revenue to learn how to do business in China.

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In 2003, Microsoft's global revenues were $35 billion USD. In China, the largest and fastest growing market on the globe, Microsoft's 2003 revenue was just $300 million, less than 1% of their total global revenue and they are still operating at a loss!

These are things gleaned from experience (mine and others') that are useful in planning business in China. This article will briefly and informally touch upon the tip of the iceberg.
Source: Newsweek, Asia edition.

How to make money in China (and how to lose it) Several quotes from the article:

• ...struggling to turn a profit, the brash American software giant is no longer trying to change China. Instead China is changing the company

• Microsoft started to heed the critics and to embrace China more fully. It is now broadly co-operating -- even flying engineers to Redmond for training

• Ballmer has credited his very well-connected China CEO with improving Microsoft’s relations with the leadership in Beijing

• Even top Redmond executives are now sounding almost Confucian, certainly more patient than their norm, about profit in China

We recognize this is a long journey , comments Kevin Johnson, Group VP of Worldwide Sales. From China Business Culture: Strategies for Success, Wang, Zhang and Goodfellow, 2003, Talisman Publishing Understanding changing business values and the characteristics of Chinese business culture is a challenging project.

It is a process of accepting differences, adapting to change and adopting new ways of managing across cultures. Unfortunately, for every one cross-culturally-based commercially viable project that proceeds to the formal stage of business-to-business negotiations, it is estimated that up to nine out of ten fail because of misunderstandings. Cultural risk factors have been not taken seriously enough by many businesspeople.

On the other hand, here is an example of doing business in China the successful way, and not as a multinational with deep pockets, long staying power and vast global resources to finance expensive twelve-year learning curves. One year after Bill Gates came to China in 1993, a young New York entrepreneur, Dan Mintz, came to China via Los Angeles.

He started, in typical entrepreneurial fashion: on his dining room table in his Beijing apartment, a film production house called Pacesetter Pictures International (PPI)

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Now, 13 years later, his growing group consists of three companies, PPI, Dynamic Marketing Group, (DMG), and Integrated Creative Network (ICN) with offices and studios in Beijing, Shanghai, Los Angeles and New York.

With its 250 employees it has acheived a growing international reputation as recognized by international TVC film awards and an umbrella advertising branding contract with Volkswagen Germany for all their models in China. This includes producing the VW Olympics advertising campaign and entertainment. He is receiving requests for interviews by Adage, Media Magazine, and other international publications.

He has succeeded where many others fail because he quickly figured out the Chinese way of doing business. This is not a secret -- thousands of books and articles have been written about it, not to mention a great many web pages.

But knowing something is one thing. Actually accepting it, adapting to it and adopting new and different behavior is whole different ball game. I worked with Dan between 1999 and 2004, ending up as Group General Manager of his three companies. I witnessed first hand how the systems work.

Doing Business in China

Preparing to do business in China, from a cultural perspective, consists of understanding, accepting and changing your attitude, behavior and policies to encompass these factors:

• Have an open mind. This is China, not the USA. Are you prepared to change your way of thinking and not just pay lip service?

• Think of the implications of living and working in a culture that is 5,000 years old! The USA is only 228 years old

• Become aware of the basic tenets of Confucianism, which deeply influences all things Chinese. This is not a religion, but a code of behavior -- how people should treat one another

• Really understand and accept the concepts of face and guanxi, incredibly important aspects of doing business in China! These wonderfully powerful tools must be used and taken advantage of on a day-to-day basis

• Changing your North American way of thinking about time. Throw away your to-do lists and tight schedules. Understand the Chinese perception of time.

• Be prepared to negotiate -- Chinese style

• Understand why Chinese people won’t and can’t say "no"

• Why true negotiation begins after the contract is signed

• The power of the word "reciprocity"

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• The importance and rituals of business dining

• Communications in a high context society with a high context language

• In addition to all your hard data, studies, research, market analysis, plans, strategies, etc, what you really need to make this work is the right people! This is not unique to China

• The rituals of gift giving, business cards and seating

• The importance of hierarchy and its origins in this 5,000 year old culture

• Understanding and respect for Chinese cultural, corporate and family values: harmony, avoiding conflict and embarrassing others, enhancing and uplifting others, respect for hierarchy (family, corporate, governmental, societal), respect for age, tradition, honor and reciprocity

And so, after your lawyers and accountants have presented the perfect business plan and you are ready to get on the plane, just before you do, consider Chinese arithmetic -- 2 + 2 = 1/2. Whatever your expectations are, it will take at least twice as long, cost at least twice as much, and you'll end up with half or less of the profit. If you can live with that, come on over. If not, save yourself a lot of time, money and frustration and stay home, letting the biggest, most exciting happening in business history pass you by.

Ernie has 30 years of Western business management experience with Johnson & Johnson and Bristol Myers-Squibb in Canada and over six years managing US companies in Shanghai, China.