Entrepreneurship in China: Stimulus for Discussion Jim Cook Cook-Hauptman Associates, Inc. Sponsored by : The Kauffman FoundationThe Kauffman Foundation

Entrepreneurship in Entrepreneurship in China: Stimulus for China: Stimulus for DiscussionDiscussion

Jim Cook

Cook-Hauptman Associates, Inc.

Sponsored by : The Kauffman Foundation

Entrepreneurship in the International Community

NU School of Technological EntrepreneurshipSlide 2 of 14

November 19, 2008

Can America Do Better?Can America Do Better?



November 19, 2008

ContentsContents

Qualifying for the China Challenge Chinese Society/Culture Basics China’s “Chinese Characteristics” Meet the People, Generation by Generation Opportunity Segmentation of China Sourcing/Selling Opportunity Templates “On the Ground Nitty-Gritty” Tips OK, let’s open up China (to discussion)!



November 19, 2008

Yes, America can do Better!Yes, America can do Better!

How’s our chances (as Americans) in China? Decision must come from deep inside you, not infatuation Get a native partner who has bonded to you and your goals Understand, respect , and exploit the cultural differences Be ready to substitute “trust” for contracts and recourse Use “Chinese Characteristics” to build competitive advantage Flow with the government policies and serve ignored markets Be prepared for setbacks, delays, and disappointments

Getting Started Sourcing or selling, you must understand your market Acquaint yourself with the legal/administrative landscape Raise value adding investment capital, not just cash



November 19, 2008

Chinese Society/Culture BasicsChinese Society/Culture Basics

Every Chinese difference has an implicit advantage potential

It’s an empirical, not theoretical, society (toss aside tedious projections)

Politics trumps economics, so read policy signals and shifts

Social instability will not be tolerated at any price (e.g., 1989)

Business is relationship activated, not contract activated

Communication is not what it seems, it’s richer than that

If you’re not an “insider,” what you receive is show

Image is important; Face is crucial; Ignoring this is fatal

Generational differences are marked with opportunity indicators

Your intellectual property (IP) is only as safe as you make it

The regulatory environment has its own “Chinese Characteristics”



November 19, 2008

““Chinese Characteristics”Chinese Characteristics”

Central policies pick favorites; currently it’s the Emerging West (and “green”)

Land, buildings, capital, accommodation, and taxes are cheap for policy favorites

State Owned Enterprises (SOEs) are a 1/3 of GDP (and all have a “Party Secretary”)

Infrastructure (e.g., power, plastics, steel) is world class and usually economical

Technological universities are a hub of connections and can be used as such

Today, there’s a surplus of college graduates; China isn’t yet a Symbol Economy

China doubled Japan’s economic miracle and could land a family on Mars first

Returning Chinese (who have succeeded in the West) are welcome (“turtles”)

Chinese institutions and SOEs don’t find, direct, nor motivate talent well

Productivity figures are sometimes shockingly low, often despite very hard workers

Trust through “guanxi” does the work of contracts, credibility, and character

Chinese save over 30% of their gross salary and have large reserves as a result



November 19, 2008

Generational DemographicsGenerational Demographics

DOB Age Defining Event Consequence + Characteristics - Characteristic

1948- 60 50

Cultural Revolution

No/low university education

Ethical, pragmatic Unsophisticated

1959- 49 39

Open Door Policy

Experienced struggle

Tough, hard working

Not international

1970- 38 28

Spectacular Rise of China

Expects automatic success

Educated, bi-lingual, global

Cocky

1981- 27 17

One Child Policy

Spoiled, focus of family pressure

Career focused, globally astute

Weak social skills

1992-2002

16 6

2008 Olympics Electronics/Media/ Material addicted

Wide open to the whole world

Overwhelmed (by expectations)



November 19, 2008

Opportunity Benefits SummaryOpportunity Benefits Summary

Gov’t favorite #1: Emerging West (Sichuan, ChongQing, NE, …) Gov’t favorite #2: “Green” power, conservation, substitution Ignored markets: 2nd tier of over 100 cities > 1 million people Sell to the SOE’s (e.g., training – ISO, Deming, Finance, Law …) Manage “trust” for speed and risk-capital benefits Use “trust” instead of plans, projections, and contracts Make universities a connections hub (copy Obama) Tap the frustrated unemployed, talented, college graduates Convert the enormous savings into something very secure Alleviate the pressures or shortcomings of the Generations Sell future success of the kids, each has 6 parents to buy/pay Sell productivity enhancements that increase employment



November 19, 2008

China - Five Distinct Opportunity SegmentsChina - Five Distinct Opportunity Segments

Affluent Coastal regions: e.g., JiangSu, FuJian, GuangDong, … Second Tier Cities: e.g., LuoYang, WeiFeng, ZiGong, … Emerging “Western” provinces: e.g., SiChuan, ChongQing, JiLin, HLJ, … Undeveloped provinces: e.g., GuiZhou, YuNan, GanSu, …



November 19, 2008

China Sourcing TemplateChina Sourcing Template



November 19, 2008

China Selling TemplateChina Selling Template



November 19, 2008

Sourcing/Selling SummarySourcing/Selling Summary

Emerging West for skill intensive production and selling infrastructure and second wave of upscaling (repeat of Affluent coastals of the past twenty years)

2nd Tier Cities for labor intensive sourcing and selling American product access/franchises (below the Western radar)

Gov’t favors: Emerging West (central gov’t), green technology (central gov’t), and centers of excellence (local) [Note: this “West” includes North East and Central China, too]

You can count on:

High receptivity to locating in government industrial/technology parks

Every consumer having a cell phone, credit card, and access to the internet

Typically, college graduates having had over 8 years of English schooling



November 19, 2008

““On the Ground Nitty-Gritty” TipsOn the Ground Nitty-Gritty” Tips Commerce is conducted by “trust”; 30% down/70% on delivery T/T

Checks never, I’ve only see Wire Transfers, Credit cards, and Cash used

Employment law requires insurance (Retirement, Unemployment, Hospital, Maternity,

Work injury, and Union dues) costing employers 40% and employees 10%

Employers must pay severance of a month’s salary for each year served

Customs is a mixed bag with some egregious gouging and delaying

Contracts should be rare, bi-lingual, and specifying remedy by arbitration

Corporate Structure Options: Cooperative Joint Venture (Chinese Partner +

$1,000 fees), Wholly Foreign-Owned Enterprise (minimum of $15,000 + $5,000 fees)

Registration can require proof of suitability, resume, business summary, references/agent, by-laws, directors, translated into Chinese (see: http://www.jljgroup.com/index.php?id=75&lang=en#section2

IP protection suggestions: log access to databases, withhold key process parameters, design “black boxes” in, disburse suppliers and key people, imbed logo holograms and the like into products, and assemble offshore



November 19, 2008

Finally China’s Open (for discussion)!Finally China’s Open (for discussion)!

Questions and Comments

Thank you, again.

On the Internet (roughly 460 KB) at:

http://cha4mot.com/entrepreneurship-in-china.ppt



November 19, 2008

Jim Cook’s JourneysJim Cook’s Journeys President, CEO of NASDAQ Listed Company (Software Tools) and on the board of

two publicly held and numerous private companies, all high technology

President, CEO of Exxon-Mobil financed venture (Electronics)

President, CEO of Globatech, Inc. in Beijing (Japanese financial portal)

Vice President (Technology) Computervision, Fortune 500 Company (CAD/CAM)

Taught MBA courses at UCSD (Economics of Mfg.), Worcester Polytechnic Institute (Advanced Mfg.), and U. of Melbourne (Entrepreneuring)

Lectured on management at: MIT, NU, People’s University, and Chinese Academy of Sciences; BS math RPI, graduate math MIT, on CCTV news with Jiang ZeMin

Consulted on management to: DuPont, Motorola, Bell Labs, D & B, …

Interviewed 6 times on FNN (now, CNBC Financial) about High Tech investing.

Documents

Entrepreneurship in China: Stimulus for Discussion Jim Cook Cook-Hauptman Associates, Inc. Sponsored by : The Kauffman FoundationThe Kauffman Foundation