China 103: The China Business Environment

Doing business in post-Revolutionary China has never been simple, but it has come a long way. Once the domain of the Hong Kong trading houses, it became the playing field of the Fortune 500, then the great-game territory for global business, the worlds largest factory and now, for the first time in history, a genuine market and a cradle for a new generation of entrepreneurs and trans-national corporations.

Understanding how that happened and comprehending the fundamentals that drive the Chinese business environment against a background of constant change an evolution is no simple task. Indeed, after living here since 1995 and doing business here since 1988, I have come to realize this is a lifelong effort.

As I have noted often in Silicon Hutong and repeated to the point of pedantry with friends and family, no single book or group of books offers a substitute for actually being here, learning from experience, and taking your lumps. But not all of us can afford the luxury of a degree at the Beijing campus of the School of Hard Knocks, and even if we can, we want to show up well prepared. This is especially true for the growing crop of small- and medium-sized businesses from around the world who are realizing that China is a part of their future, either as a source, a market, or a bit of both.

Having digested the important background material in China 101 and China 102, the following books will help you on your journey to understand the challenges and opportunities in doing business here:

James Mann wrote an enlightening account of what it is like to build and run a large Sino-foreign joint venture in his classic Beijing Jeep: The Short, Unhappy Romance of American Business in China.  I have said before and continue to believe that such joint-ventures are a dream for politicians and attorneys and a nightmare for the people saddled with turning these unwieldy structures into profitable and successful organizations that provide a decent return on investment. If you want to understand why, Mann’s book is a good start. But beyond that, Mann also reveals a lot of the fault lines that separate Chinese and Americans when doing business, lessons that are only going to increase in relevance over time.

Joe Studwell’s The China Dream: The Quest for the Last Great Untapped Market on Earth makes a well-documented case that the last two centuries are a history of foreign companies who come to China seeking fortunes, only to head home chastened and poorer for their efforts. Joe’s underlying thesis – that foreign companies making money in China is so rare as to be a matter of accident and luck – seemed to have been disproved in many respects as a growing number of multinationals learn to operate in this complex environment. Yet the shifting sands of the market and the policies and politics that govern it make this book evergreen. Read this ‘ere you enter.

Tim Clissold‘s Mr. China is an entertaining and telling book about how easy it is for experienced, intelligent and well-capitalized foreign investors to lose their shirts in China. The book is the story of the early stages of former Asimco CEO Jack Perkowski‘s initial foray into China in the 1990s, and the savaging he and Clissold suffered in the process. Clissold’s tale brings a smile to the face of those of us who did business in or with China during that period, and provides a host of lessons every investor and businessperson should try to learn before getting on the plane.

For all of its virtues as a cautionary tale of direct investment in the PRC, Clissold’s book only tells half the story of Jack Perkowski’s experience in China, a shortfall in scope and perspective that Perkowski himself seeks to redress in Managing the Dragon. Perkowski’s memoir is not without its shortcomings, but if you read it with the understanding that when Perkowski began his effort foreign companies were still trying to figure out how to run a business in China, much less make money here, you appreciate the perspective.

Less a memoir and more of a primer is Jim McGregor’s excellent One Billion Customers. If I were redacting a bible on doing business in China, One Billion Customers would be the book of proverbs. Through a series of cases and a list of lessons from each chapter, Jim distills the collective experience of foreign businessmen in China over 15 years into a series of guidelines that should be followed in almost any business dealings.

Finally, I need to put in a plug for Tom Doctoroff and his book Billions: Selling to the New Chinese Consumer. Even if you are not a marketer, anyone involved in business in China needs to understand the zeitgeist, because the likes, dislikes, habits, and culture of China’s consumers will be the defining factor of business in China in the 21st century in a way that the government was the defining factor in the 20th. More than any other marketer in the business, Doctoroff has used his senior position at JWT as an opportunity to do deep-dives into China’s masses, and the results are in the book. My sole caveat is that, as Tom knows, Chinese consumers are in a constant state of evolution, morphing and reforming every 18-24 months, so the book is a snapshot of a moving target. It is, however, the best snapshot of the subject yet taken, so well worth the read.

Next, in China 105 (we’re skipping 104 for superstitious reasons), we’ll look at the issues surrounding China’s “peaceful rise” and how they apply to business.

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