Doing Business with China Neil Blakeman Associates Ltd 9th November 2010 Business, Economics Politics & Culture

Doing Business with China

Neil Blakeman Associates Ltd

9th November 2010

Business, Economics Politics & Culture


Three Main Centres of Economic Gravity

Bohai Rim

Yangtze Delta

Pearl River Delta

CHINA ssssssss


[Source CBBC, Leeds University, UKTI]


World’s 2ndWorld’s 2nd largest economy Annual growth c.10% for 25 years [forecast 8% to 2015][forecast 8% to 2015] World’s largest exporter & manufacturer GDP growth: 2000-09 = 80% of US : 2010-19F = 2 x US Inflation: 3% [rising to 4%]3% [rising to 4%] Per capita GDP (at PPP) c.$7,800 [rising to $13k]c.$7,800 [rising to $13k] Of 1.3bn, 200m+ (?) live on < $2 / day Overtake US in GDP (PPP) terms by 2030?2030?

[Source: EIU, Goldman Sachs, various]

Economic Highlights


833m mobile phone users, 420m 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


0

10

20 30

40 50

60 70

1820 1870 1913 1950 1973 2001

China India Japan Other Asia

%%

Source: Angus Maddison

Asia's Share (%) In World GDP (at PPP)


POLITICS

4th generation leadership –> 5th in 2012… Harmonious, balanced, sustainable development

(Party legitimacy) Domestic challenges; ; demonstrations, human demonstrations, human

rights? unemploymentrights? unemployment Foreign Policy; N. Korea --, Taiwan ++, US(+), Japan -; N. Korea --, Taiwan ++, US(+), Japan -

G20+, [G2?]G20+, [G2?]

Democracy?


RURAAL

Rural

Economically, three transformations:

Other factors:– WTO (Distribution, Financial Services & Retail) – but recently?– Olympics, EXPO 2010, Asian & Student Games 2010-11Asian & Student Games 2010-11– Foreign Exchange Reserves >$2.5 trillion$2.5 trillion– FDI $100 bn in 2010 ?; $120bn+ 2015?$100 bn in 2010 ?; $120bn+ 2015?

Planned Economy

Closed Economy

Market Economy

Open Economy

Urban


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


Short-term impacts: global economy, credit crunch & recent trends? Global Economy

– exports (& imports) China: slowed in 2009, bounced back in 2010China: slowed in 2009, bounced back in 2010– cost (& domestic pressures) : competitiveness ?– protectionism ? : is a concern (e.g. use of anti-monopoly laws in China): is a concern (e.g. use of anti-monopoly laws in China)– product safety, reputation for quality & consistency (?)– UK exports to China are more competitiveUK exports to China are more competitive

Consumer / Business confidence (stock market, property market)– Consumption ? : retail sales are up: retail sales are up– ‘Indigenous innovation’ : = more technology transfer ?

Huge fiscal stimulus ($586bn) …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 $44bn in 2009, rising to $137bn in 2015?

>>> Fundamentals good (but, inflation (recent interest rate increase), unemployment?) good (but, inflation (recent interest rate increase), unemployment?)


UK China Trade 2001-2009

0

4,000

8,000

12,000

16,000

20,000

24,000

28,000

01 02 03 04 05 06 07 08 09

(£m

)

Year

UK imports from Chinafrom China

Via HK

Total

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

01 02 03 04 05 06 07 08 09

(£m

)

Year

UK Exports to Chinato ChinaVia HKTotal

[Source: UKtradeinfo, British Embassy Beijing]


Britain’s Main Trading Partners in 2009 (Avg. Annual Growth 2002-09)2009 (Avg. Annual Growth 2002-09)

[Source: UK trade info]

Country

Total Exports

£bn

Av. Inc. pa. Country

Total Imports £bn

Av. Inc. pa.

USA 33.6 2% GERMANY 39.7 3%GERMANY 24.8 2% USA 28.4 1%FRANCE 18.0 0% CHINA (3rd) 22.9 16%NETHERLANDS 17.6 3% NETHERLANDS 21.5 4%IRISH REPUBLIC 15.5 0% FRANCE 20.5 1%BELGIUM 10.5 1% NORWAY 15.1 13%SPAIN 9.0 1% BELGIUM 14.9 3%ITALY 8.2 0% IRISH REPUBLIC 12.2 3%CHINA (9th) 5.1 17% ITALY 12.1 1%SWEDEN 4.1 1% SPAIN 9.1 1%SWITZERLAND 3.9 2% HK (11th) 7.2 3%CANADA 3.6 2% JAPAN 6.2 -4%UAE 3.6 10% SWITZERLAND 5.7 2%HK (14th) 3.5 5% SWEDEN 5.4 3%JAPAN 3.4 -1% CANADA 5.3 5%INDIA 2.9 6% POLAND 4.6 17%


UK China Trade & Investment Key Facts

UK Exports of Goods to China :: ££5.1 billion in 2009, up 5%. YTD Aug 45% 5.1 billion in 2009, up 5%. YTD Aug 45% (HMRC)(HMRC)

UK Exports of Services to China :: £2.5 billion in 2008, up 60% £2.5 billion in 2008, up 60%:: UK is 2 UK is 2ndnd largest largest

China = UK’s 22ndnd largest non-EU export market

China = 3rd largest source of UK imports

UK is China’s 15th largest trading partner (8th largest importer)

UK No. 1= EU Investor in China 66396639 projects US$16.916.9 billion realised

580 + Chinese Companies Invested in UK (400 Mainland, 180 Hong Kong)

UK is no. 1= destination for Chinese investment into EUUK is no. 1= destination for Chinese investment into EU

[Source: British Embassy, Beijing]


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


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


Intercultural Communication & UnderstandingIntercultural Communication & Understanding

Practicalities: Mandarin v's Cantonese, business cards, interpreters, banquets, design / promotion, gifts, hotel cards etc.Acknowledgement: input from Eugene Chang (formerly at CBBC)

BehavioursBehaviours (business context) (business context) PatientPatient Group orientationGroup orientation HierarchyHierarchy ‘‘Guanxi’ (networks/relationships)Guanxi’ (networks/relationships) BondingBonding ModestModest Decision-makingDecision-making

- Simplicity v’s complexity- Simplicity v’s complexity- Employment, technology- Employment, technology

Contract (only the beginning)Contract (only the beginning) ‘‘Face’Face’ Personal relationshipsPersonal relationships

InfluencesInfluences Long historyLong history Confucius, Daoism, BuddhismConfucius, Daoism, Buddhism Women (father, husband, child)Women (father, husband, child) EldersElders Pictographic languagePictographic language Study / educationStudy / education Family tiesFamily ties Zhongguo (middle kingdom)Zhongguo (middle kingdom) PatriotismPatriotism


Business Challenges

• Regulatory, market and operational challenges• Some issues are more acute in regional cities

[Source: CBBC, Leeds University, UKTI]


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.)


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


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


Market Entry Drivers

• Build your own market-entry strategy• Focus on business objective and priorities

[Source: CBBC, Leeds University, UKTI]


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 ; 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 relationshipsImportance of personal relationships


CHINA THREATS? OPPORTUNITIES?

Depends on your sector, stage of development, strategy ….

Must factor China fully into your strategy

Exports, investment, partnering Sourcing, outsourcing Design, science/ research,

marketing, branding Services, solutions (eg. BPO)(eg. BPO)

Innovation, R&D Labour, skills Environment

IPR, Tech. Transfer Energy, raw materials Manufacturing Pace & extent of change Complexity Source of competitorsSource of competitors



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A management consulting firm specialising in international business, trade and investment- we advise clients on the development of their international strategy and practical implementation, to

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Doing Business with China Neil Blakeman Associates Ltd 9th November 2010 Business, Economics Politics & Culture