2021 is the year of the Metal Ox in the Chinese Lunar calendar. On the 7th day of the Chinese New Year, Crayfish.io CEO Ting Zhang hosted an exclusive roundtable event for some UK SME business owners discussing UK-China business outlook and business strategies for this coming year. Jim James, Founder of EASTWEST PR Group spoke of his unconventional methods of analysing risk vs profitability for foreign business operating in China, and illustrated ultimately how the qualities of the Ox Zodiac are relevant to a successful year ahead. Here is a write up of his talk by Avery Winningham.
In China, the Ox is considered to be persistent and stubborn, but also strong and determined. When doing business in China, one has to be persistent: to have a half-hearted approach to Asia may lead to failure, as reaping the rewards of successful businesses take time. Secondly, though you may know what needs to be done in order to get your business off of the ground, the chances are it may not happen in the way that you want. So, sometimes, one needs to be stubborn, or ‘bull-headed’ and carry on in spite of those saying it cannot be done. Additionally, working in China is very demanding physically, emotionally, and professionally, so these qualities are essential From a linguistic, dietary, time zone, or physical point of view, taking on China really takes stamina. Overall, one must be determined and focused on ploughing that furrow until the harvest is sown.
Understanding China: Jim James’s Field Framework
“If you rent a field, you are, in effect, going in with an agent. You are taking an interim step to assess whether that field, and market, can generate good crops.”
This strategy is accompanied by a relatively low level of risk, as you are only committing a certain amount. Profits may be medium and with a quick return as the infrastructure is already there for you to utilise.
“If you share a field, you are deciding that the field is important enough to warrant development. You may want a partner, or associates to do the labour on your behalf. Sharing the field may take effect in the form of a joint venture.”
Joint ventures and partnerships have a medium level of risk, as a Chinese partner will manage some of the risks for you. It takes time to find suitable partners to educate and align with. One must also consider the fundamental barrier of culture, so one must expect comparatively lower profits as it is being shared.
“If you buy a field, you are expressing commitment to the market.”
Owning the factors of production in China increases the risk, takes longer, but of course delivers 100% of the profits. It does take the skilled purchase of the land, full husbandry and a long term vision for the importance of the market within the over a portfolio of the company. It’s not for the faint hearted either as disposal of assets in China also carries risk, time and challenges of profit repatriation. However, companies of all sizes have made China their home and very successfully.
This analogy reflects three different strategies for doing business, but are also parts of a continuum. People may begin by renting, but then change to sharing or even buying. Plans can change frequently, as working in China is not static.
Essential Considerations for doing business with China
“I like to simplify business as being three elements”
Firstly, business is about risk: assessing why to act and the potential takeaways. Second is the element of time. Whether it is your own or that of others, time is money. Therefore, the third consideration must be profit. Investment, following risk analyses, requires an assessment of how much money will be made. One must also consider not only making profit in China, and also getting the profit back out of the country.
“I like to simplify it: Risk, Time, and Profit”
Images: Jim’s basic framework of the Chinese market
Functions of Business: Harvest analogy contd.
When “preparing the land”, All businesses require local adaptation; ensuring your product is prepared despite the regulations in China. Sometimes, clients will buy companies, despite the old company still owns the intellectual property. So, in some cases, businesses will begin marketing and branding without owning the IP (This is what happened to Tesla, Lamborghini, Nike, etc.). Overall, this preparation must include an awareness of the essential regulations that accompany China entry.
Businesses must also “sow the seeds”. This can be done by entering the market by using many different techniques, pre-marking, finding resellers in advance, and locating channels. Nowadays, there are many channels into this market – even Royal Mail has one, so not all has to be done from inside China. Similarly, JD.com purchases products from the UK for distribution in China, and is how products such as Green King Beer are sold in China.
When “harvesting”, businesses bring products into the market and get money from clients and customers through a considered distribution technique (localised combine harvesters); taking into account China’s local regulations. In the case of cars, for example emission levels differ based on the city’s tier level. So, business can sell certain cars in certain cities, but not in others. So, one has to assess different markets because the harvesting of the business in different parts of China is not necessarily the same.
“You’re plowing the lanes. All of the people supporting this ecosystem keep the field producing crops.”
Crop Failure – Case Studies
“AGA: It’s a great product, but is a 250kg of oil-fired, heat storage cooker. Most people in China live in apartments, where it’s hot most of the year and instead use cans of gas, rather than oil. The product itself was fundamentally incompatible with the market.”
“Irrigation is about making sure that you maintain your crops through marketing. Taking Marks and Spencer for example, in assuming that the brand was well known in China rather than investing in marketing strategies, they were unable to successfully get off the ground.”
“How Google wanted to run their business was fundamentally incompatible with the way China treats media companies.”
These are just some examples of failures, but therer also exists a stream of companies with poor farmers. With uncompetitive crops, some continue to limp along. With that being said, when searching for fertile soil, you must find people who already want what you’re looking for. For example, businesses with desirable crops such as the Cambridge Satchel Company, Dyson, JLR, Range Rovers are having great success in China. Expert farmers such as these have either rented, shared, or purchased fields in China.
“The moral of the story is that there is no right or wrong, there is only what is appropriate for your business. There is no one formula for success.”
Watch Jim’s full presentation below, which shares 13 years of his experience as a foreign entrepreneur in the Middle Kingdom.
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