Returning from the land of the dragon

When I left for China two weeks ago, I thought that I had some general ideas about this far away country. Looking back, I have to admit that my knowledge was very limited and that this study trip has changed my impression a lot. Several lectures at Jiao Tong University, company visits and cultural events taught me more about China, than I would have imagined. But what exactly have I learned? Let me share some ideas and key learnings with you.

Our very first lecture at Jiao Tong University – Chinese History, Geography, Culture, Values and Way of Life – was held by Jason Inch, who has many years of working experience in Asia Pacific. Besides introducing us to the Chinese way of thinking, which is characterised by a moderately high power distance, collectivism, masculinity and long-term orientation, we got to know two key cultural concepts: Guanxi and Mianzi. Guanxi means to have a personalized, long-lasting network of people with influence, while Mianzi stands for the concept of face – one should always assure to treat people with respect and to prevent your counterpart from losing its face. Both concepts are crucial to take into consideration when doing business in and with China and have been referred to during many other sessions. Furthermore it is important to know that wealth and economic activities are mainly concentrated in the eastern regions around super-cities such as Bejing, Shanghai, Hong Kong and Tianjin, while eastern regions lack infrastructure and economic opportunities. Even though the government tries to promote the economy in western regions, the gap between east and west is growing steadily.

When establishing a business in China, there are different legal forms to consider, as Dr. Lorenzo Riccardi taught us. Foreign investors can mainly choose between a joint venture (JV) and a wholly owned foreign enterprise (WOFE). Establishing a JV can be more difficult at first hand, because a suitable partner needs to be found and a unanimous approach is needed for many issues. However, since WOFEs can be more expensive and the business scope is very narrow, nowadays most foreign businesses are establishing JVs. Regarding the tax system one can see the difference in the regions again, since each province has their own local authority and therefore different types of tax. Several tax incentives exist in order to promote businesses to “go west” and to invest in environmental protection or energy saving. Overall one needs to take into consideration, that the government plays an important role in every business.

While visiting Baosteel and Volkswagen Shanghai, we were able to see some examples of state owned enterprises. Both companies made a really good impression, but it was interesting to see how the companies struggled to give out in depth information to visitors. Since I have been working in the automotive industry in Germany, I was able to find many similarities between the Shanghai Volkswagen plant and what I knew from German automobile plants. This shows that, even though the company is a joint venture between Volkswagen AG and SAIC Motor, there is still a huge influence from Volkswagen.

Simon Campostrini from the European Chamber of Commerce depicted the importance of European companies joining forces, in order to influence decision making in China. While decision making in the EU is very complex, in China there are only two lines: the government and the party. Since the country is so diverse, Mr. Campostrini advises new companies to start a pilot project, before moving on to new cities or districts.

Our visit to the Mondragon Group has been a good example of how European companies can benefit from each other in an industrial park just outside Shanghai. The companies here are close enough to the city, but can also benefit from lower salaries and property prices. This visit also showed that there are different dimensions when talking about business in China. While the Mondragon Group is the 7th biggest employer in Spain, it is not even under the top 100 in China.

As Allen Wan explained in his lecture on the Chinese Political and Economic System, Chinas economy is expected to face a hard landing. There has been a huge overinvestment in the east, while the west is missing out on the boom. The Gini coefficient ratio shows that the gap between rich and poor is growing steadily. Therefore the National Peoples Congress is trying to narrow the gap with different initiatives: The Hukou Reform, which allows migrant workers the same benefits as local workers, and Urbanization. However, both of them are linked with further problems and it seems as if these are only patchwork fixes, causing additional problems.

Prof. Jacobus Root from Jiao Tong University gave us a deeper insight about Negotiation and Partnership with Chinese Business People. He did not only refer to the important concepts of Guanxi and Mianzi, but also to the much broader context of culture and values which one has to understand when doing business in China. It is important that we, as foreigner, adapt to Chinese habits and do not expect them to change their way of doing business.

The same principle needs to be considered for Marketing in China. Foreign companies should adapt to the local habits and different target groups. Chinese are willing to spend more money on lifestyle-goods that are consumed in public and they want to display their status. Furthermore, they invest in their child as much as possible. However, it can be beneficial to a company when they have a foreign connection, especially when it comes to the Luxury Market. Key success factors are brand storytelling, experience, excellent communication and adaptation to the Chinese market. A good example for the adaptation to the Chinese market is Melia Hotels. They do not only consider the different consumer expectations, but also benefit from the quick return of investment in Asia-Pacific. Mann+Hummel Filters are a good example of how a company can benefit from the opportunities of the Chinese market and the need for customized solutions. They are developing more and more products in the automotive aftermarket and see a great opportunity in water filtration.

Since China is making huge efforts in education and internationalization, foreign students who are trying to settle down in the Chinese business world, need to be aware of the great competition. Even though there are great opportunities, one needs to work hard and differentiate themselves from others, as Intuuchina Co-Founders Fernando Zavala and Marc Ramon Hernandez explained.

As part of understanding the Chinese way of doing business, one should understand the historical and cultural value of the country. Therefore we have visited several cultural sites in and around Shanghai, such as the Shanghai financial district, Nanjing Road, Yu Garden and Suzhou. Additionally, some of us took the opportunity to spend the weekend in Bejing. Seeing the differences between these two cities was clearly a highlight for me. We have seen Chinese business world in Shanghai, while Bejing opened its cultural values for us. The Forbidden City, Tian’an men square, the Temple of Heaven and the Olympic Park had been stunning, but climbing the great wall was for sure the most breath taking adventure.

It has been a rich experience to dive into the Chinese world and I take back home, that doing business in China offers great opportunities but many things should be considered beforehand. To sum it up, I can say that China is not only the land of the dragon, but also the land of new opportunities; cultural beauty; where extremes meet and much more.

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