The China puzzle: Panel outlines steps for success in the east - Business & Finance

Electronic News, Feb 4, 2002 by Heidi Elliott

PHOENIX -- A foreign company can succeed in China, provided it takes the right steps.

A panel of executives and China experts shared their experiences and insight on how to effectively expand into the Chinese market last week at a seminar titled, "Doing Business in China" at the Phoenix Art Museum. The seminar here, sponsored by distributor Avnet Inc., shed light on how businesses should approach expansion plans for China. "It's a continual learning experience," said Avnet Electronics Marketing/Global President Brian Hilton, who led his company's push into the region.

The panel cited a few stumbling blocks for success in the region, primarily the lack of governance over intellectual property (IP) rights, the volatile nature of local politics and the question on the future of Taiwan.

"It's a very encouraging picture," said attorney Robert Jewkes, partner in the Hong Kong law firm Bryan Cave. Success in the region can be found by taking the time to learn how it's done. "The rewards are indeed there for companies who take that extra step," he added.

Companies fail because they do not do the proper planning and research on such topics as labor regulations and transportation. Jewkes also recommended embracing the Chinese culture. "Relationships are desperately important in China. There will always be a time when you need good relations with the local government, and there will always be a time when your goods are held up from shipping," he said.

Panelists pointed to two positives in recent Chinese history that will help foreign companies looking to tap into that country's considerable market opportunities: China's entry into the World Trade Organization (WTO) and its selection as an Olympic city. Entry into the WTO means that China agreed to a set of international standards on trade--which will benefit foreign companies that venture into the country. Hosting the Olympic games will require investments in infrastructure and technology.

Former U.S. Representative Matt Salmon, who served on the International Relations Committee, outlined six steps to remember to attain success in China. First, patience is a virtue. "This is a place that is very difficult to do business," Salmon said. It is also important to do research ahead of time on the local government, culture, political issues, etc. "You've got to realize you're going to be there for the long haul. It will take at least two to three years to see a payoff."

Next, you need to have connections in business and government. Salmon suggested talking with existing businesses in China to get their blueprint for success. Third, he recommended finding a local joint-venture partner. Among its benefits, this would result in more favorable tax terms and an important link to the local government.

Fourth, China is actually three distinct regions: mainland China, Hong Kong and Taiwan. Each of the three regions require a different strategy. Fifth, "face" is important. To the Chinese, saving face in a negotiation is very important. "We call that win-win," Salmon said. "Nowhere is it more important than in China."

And, finally, the future of China remains uncertain. While some businesses have thrived, others have failed miserably. "There will continue to be some major political differences," Salmon said.

ON Semiconductor President and CEO Steve Hanson spoke about his company's accomplishments in the region, boasting that ON is one of two fully integrated foreign companies in China. Two years ago, ON recorded less than $10 million in sales in China. This year, the company's goal is for $175 million in China revenue. If it meets that goal, China will represent 17 percent of the company's revenues this year. Hanson expects that figure to grow to $400 million in 2005.

ON thrived in the region by forging local alliances, having all but four of its 1,200 employees as locals, and by being patient with the local culture and government. The company benefited from government tax breaks by putting its plant in the underdeveloped western region of China. As a result, said Hanson, "We've had 44 consecutive months with no quality issues [from that plant]."

Meanwhile, distributor Avnet has experienced a larger learning curve on its foray into China. Avnet made its first acquisition in China in 1995, purchasing Hong Kong-based WKK, which did not do much for the company's expansion into the Asian marketplace. "We were perceived as an outside company with no local presence," said Harley Feldberg, president of Avnet Asia. In May 2001, the distribution company purchased Sunrise, a 15-year-old company with stronger ties to mainland China. The Sunrise acquisition has been the most beneficial, creating a significant boost to Avnet's Asia operations. "There's no question (China) will be one of the leading economies going forward," Feldberg said.