Chapter 9
Are You Ready for China?
Necessary Traits and Expertise
“To do business in China, you have to really want to be here. Otherwise, you will just get tired or frustrated. Even if you want to be here, you’ll get tired! On top of the traits you have as an entrepreneur, you have to have a genuine affection for China.”
Steven Ganster (USA), Founder and Managing Director, Technomic Asia
Introduction
In warning students of the hardships of entrepreneurship, business school professors around the world like to quote sobering statistics on the challenges of launching a business, such as the “theory of thirds,” which holds that among all new business startups in their first year of operation, one-third turn a profit, one-third break even, and one-third fail.
For expatriate business pioneers dreaming of starting a venture in China, the odds are stacked even further against success. Many promising ideas never even make it to the stage of applying for a business license, because so many daunting obstacles—cultural, social, financial, legal, logistical, and bureaucratic—must first be overcome.
Yet, despite all the odds, thousands of international entrepreneurs have started business ventures in China. Each of the 40 such adventurers we interviewed has successfully launched a business in China, and many of these are flourishing. What elements, then, separate those who succeed from those who don’t? The key “ingredients” necessary in a foreign entrepreneur in China are the subject of this chapter.
Long-time China consultant Josep Giro summarizes the layers of challenges that foreign entrepreneurs must be ready to face when launching a business in the Middle Kingdom. “[Foreign-owned] companies fail for several reasons. The first reason is that companies adopt the wrong business model. The second reason is internal problems. The third reason is that China isn’t an easy country for a business venture. You have all the world’s competitors here, and you are operating in a very different culture. It’s also a challenge to find the right management. It takes a lot of resources.”
In this chapter, our interviewees share the necessary personal characteristics, professional background, and preparation needed to launch a business in China. The chapter covers five main topics:
Must-have Traits for China Entrepreneurs
No matter how brilliant a businessperson is back in his or her home country, there is no guarantee of success in China. The chaotic business atmosphere, the language barrier and cultural differences, the constantly changing regulatory and business environment, the fierce competition, the lack of human resources, and rapid shifts in domestic consumer expectations all combine to create an extremely dynamic, but also extremely challenging, situation.
For all these reasons, whenever consultant Josep Giro meets Westerners who are eager to work in China, he offers them some simple advice: visit China before you decide to relocate. “I tell them, ‘Just take a plane and come here. Don’t waste your time thinking about it until you have come to China.’” Only after a would-be entrepreneur has visited and gained a sense of whether he or she can live and work in China, does it make sense to consider actually making the move. “Planning to move to China before you have visited the place is a waste of time,” Giro says. On the other hand, he believes that those with a truly entrepreneurial spirit will likely catch China fever once they arrive. “If you are really a businessperson, you will be seduced by what you see in China.”
Must-have Trait #1: Sense of Adventure
The first quality our interviewees agreed was a necessary ingredient in a successful expat entrepreneur in China is a sense of adventure. Danish furniture entrepreneur Simon Lichtenberg says, “There are multiple business opportunities [in China], but it depends on how adventurous you are. The opportunities for new businesses here are so many because there are so many things that are not here yet. A seriously good sandwich shop in Nanjing, maybe it’s not there yet. Go and open one!”
Surviving in the Middle Kingdom requires a sense of adventure and a genuine affection for China.
Consulting startup Steven Ganster agrees: “To do business here, and to live here, you need a sense of adventure, as well as an interest in and genuine affection for China. As an entrepreneur, you can’t be too risk averse.”
Describing working in China as “a great adventure,” Israeliborn business developer Jordan Zilber explains the sense of enthusiasm needed in order to succeed. “Coming to China was extremely exciting from a cultural point of view. Chinese people are very open and warm. If you know the language, things can be perfect. I am traveling a lot in China. I enjoy it. If you are not open-minded, don’t come to China.”
For Japanese entrepreneur Fumito Suzuki, choosing to start his accounting company in China meant rejecting a stable, financially secure life in his home country. “If I wanted to make money, I would work for large companies in Japan. I chose to work on my own because I like to take risk. These are precious experiences in my life. . . . Actually, few Japanese people will think of starting a business on their own. They are used to serving big companies their whole life.”
Must-have Trait #2: Passion and Commitment
The personal characteristics our interviewees named as the second-most necessary in China are passion and commitment. Italian consultant Ruggero Jenna, who has seen hundreds of foreign businesspeople struggle to succeed in the Middle Kingdom during his four years of working in China, explains: “When you talk about entrepreneurs, 90% of the final result depends on the qualities of the person. I think energy is one necessary quality. Persistence is another one. . . . They should be willing to sacrifice themselves. . . . this is a prerequisite. They must be serious about it.”
“There are multiple business opportunities [in China], but it depends on how adventurous you are. The opportunities for new businesses here are so many because there are so many things that are not here yet. A seriously good sandwich shop in Nanjing, maybe it’s not there yet. Go and open one!”
Simon Lichtenberg (Denmark), Founder and CEO, Trayton Group
Import/export entrepreneur Juan Martinez explains the personal commitment he has made in launching his China-based business: “First, you need to be 100% convinced of what you are going to do and be sure you want to do this business in China. You cannot have any doubts. You can’t be thinking, ‘Maybe I could try to do this, or that.’ No, you have to be totally committed.”
In his case, Martinez began by studying for his MBA in China (at the China Europe International Business School in Shanghai). “I have been doing this step by step. I have been anchored to China. I got my MBA in China, and I studied the Chinese language. Then I married my wife from China. If you don’t have this full commitment, after two or three years, you might say, ‘It’s too much, I feel tired,’” he says. “I think if you come to China, you have to come to stay. You have to accept that you’re going to stay in China for as long as it takes to make your business successful—maybe even never go back to your home country. You need to have real roots in China.”
American construction startup Phillip Branham advises Westerners launching a business venture in China as follows: “You need to have passion. You need the expertise in your area, or to be able to get the expertise, but you also really need to have the passion for it. You have to be thrilled about the idea. You can’t do it half-heartedly.”
Irish internet language site founder Ken Carroll offers similar advice: “What drove us was a passion to do something. I still have the same passion. I see that there is something wrong with the existing business models, and I think I can do it better.”
Demonstrating your passion for the business by working hard can be a key method of winning the support of employees, customers, and clients, especially in China, adds U.S. software entrepreneur Eric Rongley. Asked to identify the qualities needed in a successful entrepreneur in China, Rongley responded: “You’d better be bright and hardworking, first of all. Chinese are very competitive. If you are not bright and hardworking, you’ll have problems. Your staff needs to respect your intelligence and your vision, and they need to see that you work at least as hard as they do. I think a lot of expats have the going-home-at-5:30 mentality. That will get entrepreneurs in trouble here.”
“You’d better be bright and hardworking, first of all. The Chinese are very competitive. Your staff need to respect your intelligence and your vision, and they need to see that you work at least as hard as they do.”
Eric Rongley (USA), Founder and CEO, Bleum
Making a business fly in China requires passion for the venture and a serious commitment to China. Be ready to work 24/7.
A 24/7 work mentality is familiar to entrepreneur Marc van der Chijs, who co-founded the video downloading site Tudou (similar to YouTube). He explains his work ethic in China this way: “Never give up. You can succeed in China if you continue. Eventually, you’ll be successful and you’ll see the light.” He warns new China-based entrepreneurs to expect to work harder than they did back home. “It’ll be much tougher. You have to work harder, because Chinese people work hard. Before I came to China, it would be very unusual to get a phone call from somebody at midnight. Now I keep my cell phone on all the time and I’m available 24 hours a day. I also check my emails anywhere and at any time. It’s very different from the situation in Europe. In Europe, people rest on weekends. To me, now, work goes on. Persistence is really important.”
Wendy Tai, a manufacturer of high-end interior decorations, moved to eastern China from her native Taiwan in 1989. After two decades in China, Tai agrees that succeeding there requires a full personal commitment. She warns that some of her Taiwanese peers wrongly consider China to be an easy win. Instead, she recommends putting your best effort into China business ventures. Her specific advice to newcomers to China: “First, do only what is legal; never do things that are against the law. Second, you have to start your business on your own. Don’t just put your money in it, or attract others to help and then walk away. Third, you have to be confident and have a clear mindset. Many Taiwanese think they can easily make money in the mainland—which is totally wrong. Instead, they have to perform at their best to make it here.”
Must-have Trait #3: Persistence and a Thick Skin
Our seasoned China entrepreneurs were unanimous in warning: be prepared to fail. Nearly all of our interviewees had met with serious setbacks in China, and several had weathered near or even total bankruptcy. All agreed that perseverance and a thick skin are needed to survive.
“Expect to spend one or two years before you’ve worked through these Chinese riddles. If you find success after two years, that’s quick. It depends on how fast your trigger is.”
Bruce Robertson (USA), President, Asia Pacific Real Estate
You need determination and a thick skin to survive the first years. Don’t give up when you encounter the initial obstacles.
Veteran businessman Olaf Litjens explains the attitude he has adopted after 28 years and a series of business adventures in China. “All the things you do, teach you something and are important in coming to the next step—so if you make the wrong judgment, that’s part of the learning process. I don’t regret the decisions I have made. They were all part of the process of becoming a more knowledgeable person and building a better company.”
Building materials supplier Onder Oztunali describes the thick skin he has developed, especially in working with Chinese customers. “Take nothing personally; it’s only about money! Chinese customers will hammer you all the time. But as long as you know that, you’ll be prepared for it.”
Real estate businessman Bruce Robertson warns China startups to be patient and expect setbacks. “Don’t be down on yourself, or on the Chinese, when you meet an obstacle that is causing you problems. Recognize that the system isn’t going to function [in China] as it does where you come from. You’ve just got to be really creative and innovative.” To avoid total frustration, he recommends spending time working and studying in China before launching your business. “Expect to spend one or two years before you’ve worked through these Chinese riddles. If you find success after two years, that’s quick. It depends on how fast your trigger is.”
After five years in China, Canadian Chinese flooring supplier Chee-Chin Wu gives this advice on surviving tough times: “Try to be both persistent and consistent. Don’t keep changing directions. Determination does talk. In fact, many entrepreneurs have tasted failure many times before they reached success. It’s partially wrong to say they’re lucky. Actually, opportunity flies up in the air and whoever catches it is the winner.” In particular, she advises targeting only those opportunities you feel sure will bring a worthwhile reward. Finally, she stresses the importance of winning the government over to supporting your project. “In China, the government can also offer you good support with the whole infrastructure.”
Prerequisite Expertise
No newcomer succeeds in China without learning the ropes and adapting to the local environment. Consultant Josep Giro tells his clients to expect a steep learning curve at first. “When you come to China and do the wrong things, you cannot blame China. You need to learn from your mistakes. China will help you to improve yourself as a human being and as a company.” The two areas of knowledge needed before anyone should plan to launch a business in China are, not surprisingly:
- Industry expertise
- China-specific expertise
“First, you have to have some kind of experience in your industry. Then you need a relationship with the first client, which really reduces the risk and the ramp-up time. Third, even if you have a good initial business idea, you need real experience in China. Get some real experience—even if you have to work for pennies to get it.”
Jeffrey Bernstein (USA), Founder and Managing Director, Emerge Logistics Shanghai
Industry Expertise
Our entrepreneurs agreed that success in launching a venture in China depends first upon gaining a clear area of business expertise. American logistics entrepreneur Jeffrey Bernstein offers this advice: “First, you have to have some kind of experience in your industry. Then you need a relationship with the first client, which really reduces the risk and the ramp-up time. Third, even if you have a good initial business idea, you need real experience in China. Get some real experience—even if you have to work for pennies to get it.”
Moroccan gift item supplier Aziz Mrabet warns fellow entrepreneurs that the opportunities in China have narrowed. Today, success is much easier for those coming to China with sought-after skills or expertise in the current government-promoted value-added fields. “Six or seven years ago, there were so many opportunities here in China. However, now the situation is changing and trading is becoming tougher as more Chinese are getting into it.” Today, he says, the opportunities for foreigners are declining. “If you come to China without any expertise or any network, it’s going to be very tough. The situation will be better if you are a doctor or engineer, or have acquired some other valuable or unique skills.”
China-specific Expertise
Consultants Jan Borgonjon and Steven Ganster warn that expertise back home is only the first step in adapting a business to China. “Even now, people still come to China thinking they can use their entrepreneurial instincts that worked so well in Belgium or Germany and do the same thing in China,” Borgonjon says. “Well, it’s not going to work, because the rules are different.” Borgonjon adds that learning what rules make a business successful in China is easier now than in years past. “The rules are quite well known.” He stresses that newcomers can now seek information on their industries from consultants, banks, embassies, lawyers, accountants, and other companies. “The rules of the game are very different in China, but anybody who really wants to know can find out.”
The number of business opportunities for foreign entrepreneurs is shrinking as competition from Chinese entrepreneurs grows.
Of course, one of the most critical types of China-specific expertise is mastering the Mandarin language. (The importance of learning Chinese, as well as tips for surviving in business without Mandarin fluency, were covered in detail in Chapter 8.)
In terms of learning to understand Chinese business culture, our interviewees warn newcomers or first-time entrepreneurs to plan to invest time and effort in getting up to speed. “You must do your due diligence and understand exactly what it’s going to take to succeed,” says construction entrepreneur Phillip Bran-ham. He points out that, even after having worked for MNCs in China, he still deliberated before launching his own business in 2005. “I’ve been in the [construction] industry for a long time, but I still took several months to think before setting up my own business in China. I spent a lot of money investigating it, and I still changed my business plan several times.”
Many of our interviewees advised committing to a period of living in China and learning the ropes, before venturing into a business. Leadership training entrepreneur Marjorie Woo put it this way: “Come to China and do your research. Get involved in the international chambers, and read up [on China]. More importantly, come to China with an open mind. Whatever notions you have about China, leave your assumptions at home. Even after you get here, you can expect to see a different country every year.”
Prepare to see a different China every year, as the economy expands and society adapts.
Plan to spend several years simply learning to adapt, advises internet businessman Marc van der Chijs. “If you really want to do business in China, live here for a few years first. During that time, you can develop your guanxi [business/social network]. You also need a year to understand China and to gauge whether or not your plan is feasible here. If you don’t want to do the experiment, you’re doomed to fail.”
Talk to other entrepreneurs with experience in China. Learn from their mistakes and achievements.
Another point raised by our veteran entrepreneurs is that work experience gained elsewhere in Asia cannot be a substitute for working in China. Macedonian trader Oto Petroski explains, based on his personal experience: “For my first six months here, I wasn’t working, I was mostly scanning the situation. No matter that I had lots of experience with Taiwanese and Singaporeans. This was China, and it was very different from Taiwan and Singapore.”
Similar advice was offered by Scottish entrepreneur Jonathan Di Rollo: “Take your time building networks and getting prepared, and keep looking for when the time is right. Don’t make your move too soon. For me, it has taken six years.” He began in China as a student, then worked for two companies before laying the foundations for his publishing company. “You need at least five or six years to gain a deep understanding of China—its culture, the language.”
Investment advisor Chun In Kyu also warns his fellow Korean clients to expect a learning period when they first arrive in China. “It’s not possible for foreign companies to succeed immediately as soon as they come to China. They have to go through a hard period of two or three years, and they have to pay their dues. It’s not good if they expect to succeed as soon as they come to China. They have to learn for some time first.”
A final word of advice voiced by our interviewees is that, no matter how much effort a foreign businessperson puts into learning about Chinese culture, the work is never finished. Despite having launched a highly successful furniture business, 15-year China veteran Simon Lichtenberg explains his humble attitude toward understanding China: “I have two pieces of advice for entrepreneurs. One is: Listen. Listen to your employees, listen to the customer, listen to the supplier, listen to the Chinese and try to understand what they are really saying, what they really want, or what they are really doing. Listen. My second bit of advice is: Remember that China is very, very big. Don’t think that you know China because you know Shanghai or Beijing. China is way beyond that, and there are so many opportunities and differences. Don’t look at China from wherever you sit in China. It’s much bigger than that.”
Tools for Surviving the Tough Times
Since all China entrepreneurs face critical points in the course of launching their businesses, we asked our interviewees what had pulled them through the worst of times. They identified the following four survival tools:
Survival Tool #1: Find the Right People
The single most repeated survival strategy heard from our 40 China entrepreneurs was: find the right people to work with, especially local employees or trusted partners.
Finding local experts you can trust and rely upon is a necessary short cut if you wish to understand the Chinese and survive in business in China, said many of our interviewees. Business development entrepreneur Jordan Zilber explains the frustration that many foreign businesspeople feel at their relative lack of understanding of China, even after many years spent trying to get to know the country and its people. “I have already been six years in Shanghai, but I still know so little. The path to understanding is so long. The best way to do business in China is to find a Chinese partner in every field of industry you want to explore. I share my revenue with them, but it saves me a lot of mistakes. The partner has connections, experience, and knowledge—all very important.”
Zilber gives an example of how local partners can help. “You have to be open to discovering why things are different here, and how to adjust to the Chinese ways. For example, some [foreigners] will say that the Chinese are not polite. But that’s not the case; they just have a different type of politeness than we do and you have to learn to understand it.”
Spending time and energy on building up local relationships has been critical to the success of Irish entrepreneur Ken Carroll. “You really need to understand a lot about China and be very lucky to connect with local people who really understand you. You need to have great connections and great relationships.”
Consultant Jan Borgonjon emphasizes to his clients the importance of hiring the best possible local Chinese employees, and practices what he preaches in his own business. “Choosing the right people is very difficult for foreigners who have been here for only a few years. It took me more than 10 years to be able to assess people more-or-less correctly. Now I feel comfortable. If I choose somebody, in most cases I know what to expect. I also know who else’s judgment I can trust.”
Working with the right foreign partner can also be a huge help in times of crisis. A case in point is entrepreneur Olaf Litjens, who says he has survived more than 20 years spent in China—and several near failures of his businesses—mainly because he has the right business partner, a fellow expat from The Netherlands. “I started in China with my classmate and we are still in business and we are still friends, which is exceptional. Three times, we lost all the money we had and we are still friends. I think it has to do with an attitude. We believe it is useful to share when you are successful and also when you are not successful. Then you are not alone.”
Internet entrepreneur Marc van der Chijs says it is important to develop an instinct about people, though he concedes that this is a skill that takes time and experience. “It doesn’t always work. Normally for me, though, I can tell after two minutes whether I can work with this person or not. Since I’ve worked with so many different Chinese people for quite a long time, I’m able to recognize their characters.”
Survival Tool #2: Have Focus and Vision
Another critical survival tool that our interviewees said helped them get through the bad times is a clear direction and strategy. Many of our entrepreneurs warned about the danger of being overwhelmed by the scope and size of China as a business environment. “You have to have a very clear vision, but that’s more easily said than done,” says consultant Jan Borgonjon. “There seem to be a lot of opportunities; but then, amid all those opportunities, you have to find one clear vision and stick to it. Then, of course, you have to be patient and persevere.”
A critical skill is to attract the right Chinese employees to your business, a skill developed only after years of experience in China. Or hire a China-savvy HR director who can handle hiring.
China veteran Olaf Litjens agrees: “The most important thing is that you are focused. This country is too big, and there are too many opportunities, or what look like opportunities. If you want to do everything, you will achieve nothing. Try to do one thing.” He advises fellow entrepreneurs to “keep it simple” and to remember, “You aren’t Chinese, and never will be Chinese” (so, rely on local experts when needed). Finally, he says, “Don’t give up. If you have an idea and you stick to it, anything can be done here.”
Fashion retailer Valerie Touya says there are two big mistakes that foreign businesspeople make in China. “The first mistake is total lack of preparation. For instance, a European meets a Chinese guy with connections in some Chinese city and starts sending him information about starting a business—something the European would never do anywhere else. Typical mistake! You don’t invest based on the “opportunity of the moment”; you invest on the basis of a clear idea of what this market is, the challenges it will present, and the resources you will require.” Too often, Touya says, foreign businesspeople take big risks because they rush into a China business deal thinking they are grabbing a limited time opportunity.
The second common mistake, Touya says, is not collecting enough information on your business venture. The good news is that there is no reason these days to suffer from this mistake, she says. “There are no more secrets about China. How many foreign companies are in China? A few hundred thousand or more? There’s enough experience accumulated here now, and there is no need to repeat the mistakes of others. You can learn a lot from the information out there, so learn it. Invest the time and understand the market. If you’re not willing to commit the resources, stay where you are.”
Don’t invest in China based on the “opportunity of the moment”; invest based on a clear business plan, and an understanding of the challenges.
Survival Tool #3: Be Adaptable
While arguing that focus is important, our interviewees warned against becoming rigid, as the China business environment is in constant flux. Business development and investment strategist Aviel Zilber explains the need for both vision and a humble, open-minded attitude: “As an entrepreneur, you have to have vision and the ability to learn and to struggle. You also need to be humble; to know that you don’t know everything.”
Don’t skip the due diligence you would conduct back home.
British psychotherapist and arts entrepreneur Mark Pummell explains the need for both skills in this way: “Entrepreneurs are a different type of animal, a different kind of person, from company men. In my opinion, you must be very hardworking and very driven. You must have a bit of vision, but you also cannot become obsessed with the small details.” He explains how he uses this attitude in running his businesses: “My job, as the boss of the company, is not to get obsessed and is not to get stuck, but to adapt to changes and move quickly. I need to evaluate the business and do whatever we need to do to keep the whole animal running. . . . You have to make lots and lots and lots of decisions, thousands of micro decisions every day. For me, it’s like the TV series Prison Break. It’s like a maze; it’s very complicated and you must find the way.”
Tracking China’s volatile business environment is crucial to success, says Taiwanese serviced office supplier Maggie Yu. “Laws and regulations are changing all the time, as a result of China’s rapid economic growth. This means that systems and government policies are constantly being reformed. Due to inexperience and the complexity of some issues, it’s understandable that the government adopts some temporary measures and makes adjustments to others from time to time. In some cases, there are discrepancies in their interpretation and implementation by different levels of government, which adds to the confusion. Therefore, it’s vital that companies have ongoing communication with the relevant government authorities in order to stay up to date with all the regulatory changes.”
Be humble. Be aware that you don’t know everything about the business situation in China.
Survival Tool #4: Control Your Costs
Finally, many of our interviewees said that weathering the bad times requires controlling costs and focusing on profitability. “What drives your business is having a little bit of a shortage of resources. By having a shortage, you keep yourself resourceful and innovative. It keeps you focused and efficient,” says field-marketing entrepreneur Olaf Litjens.
Based on his 15 years of helping foreign businesspeople to operate in China, consultant Jan Borgonjon advises clients to set a goal of short-term profit, since a long lead time before turning a profit is risky in China: “As an entrepreneur, you must have a very clear long-term vision, but you also have to make sure that in the short term you make money. If you don’t make money in year one or year two, you’re never going to make money in China. It is very, very important that you don’t get carried away by the China dream. The money has to be there.”
“If you don’t make money in year one, you’re never going to make money in China. It is very, very important that you don’t get carried away by the China thing. The money has to be there.”
Jan Borgonjon (Belgium), President, InterChina Consulting
Endgames
One aspect of success as an entrepreneur anywhere—and especially in China—is to have a clear idea of the end goal for your venture. The adage that “you can’t get to where you want to be unless you know where you want to be” is especially true in the vast and complex China market. As American startup Mark Secchia puts it: “An entrepreneur must always have an exit strategy somewhere in the back of his mind. It’s not that you want to leave, or to quit your business. You have to think about the end, when you start something; otherwise, you’re going to end up in a bad place.”
Our 40 interviewees had specific end goals for their companies in China. These ran the gamut from growing the business in China, to expanding internationally, to selling the business and returning home.
Business Goal #1: Conquer China
Most of our interviewees focused their business goals simply on growing the business within China. Steven Ganster is typical in his plans to keep his consulting company and entrepreneurial projects China-focused: “I personally don’t have any desire to conquer another world. China is big enough for me to go forward. That’s our business; we’re not going anywhere else.”
South African consultant Kobus van der Wath also intends to focus on growing his China business into the foreseeable future. “I will stay in China for many years. I have no plan to retire; I have a mission and agenda to deliver. My engagement to China is a long-term one. I plan to venture again into new businesses; I see opportunities in many areas. This is a vast country with an 11% economic growth rate every year. This dynamism is a huge opportunity for business. I never regretted coming here, but only that I didn’t do it earlier.”
Business Goal #2: IPO, or Build and Sell?
American businessman Mark Secchia’s end goal for his delivery service company in China is an IPO. “Our ultimate goal would be going public. We have to be present in 10 to 15 cities and get to 200 or 300 employees, and earning revenue of RMB15 million [US$2.14 million] per month—something like that. We can go public and increase the management team, their salaries. . . . That will be our long-term future goal.”
Others plan to build up their company, and then sell it. Software entrepreneur Eric Rongley explains his professional and personal goals with Bleum: “I expect to be here [in China] for five to 10 years. The goal is to build Bleum into a billion-dollars-per-year company.” The plan may or may not involve an IPO, he says. “The goal is to build a billion-dollar company so that I can move to the [U.S. West] Coast and hang out for the rest of my life. I suspect that once I get married and have kids, at least by the time they enter high school, I’ll want to go back to the States.”
Internet startup Ken Carroll is now attracting purchasing offers from potential buyers in the U.S. and Europe. “We have a lot of options. I like to stay lean and hungry; mean and lean. But at some point, we will make a decision whether we are going to stay here. It’s great, it’s fun; and we’ll see what happens.”
Susan Heffernan is another whose mid-term goal is to make her company sellable. “People want to buy small companies like mine. I have the expertise; I can do things much faster than they can, and I have the team already supporting it. I had [buyers] talk to me in the past, but I didn’t have the legal status then, so I wasn’t able to sell the company. Now I do.”
Create an exit strategy, whether you want to remain in China or to sell out and return home.
Another type of exit plan is to keep the business, but turn operations over to a new top executive. After six years of running her business in China, Marjorie Woo is already planning to license her leadership training business to a successor. “I have a succession plan in process,” she says, explaining that her potential successor is a Chinese PhD who was one of her clients. He is now joining the company with the goal of learning the business in order to take it over.
Italian consultant Ruggero Jenna has a similar exit plan: “My goal is that the company here grows, and is able to sustain itself without me. So, I have to create the necessary Chinese leadership that can take care of the business and run it independently. The office has to be able to work without me. That’s my major goal. We will see.”
China’s Future
No matter how well your business is executed in China, if the domestic economy fails or if political turmoil erupts, your China-based venture may be at risk. With this danger in mind, we asked our interviewees—both entrepreneurs and representatives of major international business associations (see the Appendix to the book)—this question: Will China remain a viable environment for launching a business? Their responses ranged across the spectrum, from pessimism to optimism.
Voices of Caution
Among those investors who were cautious in their predictions was Macedonian importer Oto Petroski. Pointing to China’s weak spot as a recipient of foreign direct investment, he explains: “China is losing its advantage because labor isn’t so cheap and living is no longer so cheap, in Shanghai especially. My clients are already remarking that China is not as attractive as before.” For his China-based trading business, Petroski takes a short-term view. “Nothing is forever. I can’t say that I will be in China 10 years from now. Probably I will stay for the next three years. You have to have the attitude that whatever you make in China can just disappear at any time.”
“China has been very, very focused, high energy, and moving for the last 20 years. But the economic model right now isn’t sustainable, because it’s driven by exports and by investments in fixed assets.
Simon Lichtenberg (Denmark), Founder and CEO, Trayton Group
Also cautious is Danish furniture entrepreneur Simon Lichten-berg. “China has been very, very focused, high energy, moving for the last 20 years. But the economic model right now isn’t sustainable, because it’s driven by exports and by investments in fixed assets. Too much money is being spent on infrastructure, which doesn’t guarantee a return. Also, if something happens suddenly to the U.S. economy, then China could be hurt very badly. China needs to boost its internal consumer economy.” Another factor that impacts on Lichtenberg’s business is China’s rising labor costs. “China’s labor cost is no longer competitive. Bangladesh, India, and Vietnam are much cheaper than China for labor now.”
Other interviewees noted potential areas of concern but were generally optimistic about China’s future. Among these were Israeli businessman Aviel Zilber, who observes several economic and social difficulties from his vantage point in Shanghai. “The main challenge China is facing is the inequality; the gap between the poor and the rich.” One factor operating in China’s favor, Zilber believes, is that the Chinese government is aware of the rising threats to competitiveness. “If they don’t solve it, it’ll be a big problem. But the Chinese government knows about the problem very well; government leaders have been talking for two years about social harmony. They know they should direct a lot of attention to the underdeveloped parts of China,” says Zilber. He points out that the Chinese government can be very efficient and effective: “Not being a democratic regime has its advantages, because you don’t always have to think about the next elections. China’s leaders are planning for the long term.” Overall, Zilber is “more positive than negative about the future of China.” He explains his thinking: “What is happening in China now has already been happening for 25 years—during a whole generation. It’s a challenge to manage a country with 1.3 billion people, but I think they are doing a good job.”
A similar cautiously optimistic view is expressed by Dutch internet entrepreneur Marc van der Chijs: “On one hand, I think that China will continue to grow. On the other hand, they have to take drastic measures to control pollution.” He also commends the Chinese government on its ability to act efficiently. “The good thing for China is that the government can make decisions quickly. For example, if the government wants to say that nobody can drive a car from tomorrow, they’ll do it! In China, the government is able to interfere if necessary. Furthermore, efficiency here is higher than in Europe. I don’t see political risks here in China. In general, Chinese people are happy about the government.”
“China will continue to grow during the next 10 to 15 years. As for the dark clouds, so far I see challenges, such as limited resources and pollution, but I don’t see any really critical issues arising.”
Marjorie Woo (USA), Founder and Chairwoman, Leadership Management International (China)
American leadership consultant Marjorie Woo is also conservatively bullish about the future of China. “China will continue to grow during the next 10 to 15 years,” “As to the dark clouds, so far, I see challenges, such as limited resources and pollution, but I don’t see any really critical issues arising.”
Confidence in the Top Leadership
Among the more unreservedly optimistic entrepreneurs we interviewed, one key reason for their confidence in China’s future as an investment destination was their belief in the top levels of the central government—a sentiment that surprised us authors. The thinking of Brazilian trading company owner Winston Ling is typical: “I’m optimistic about China. In general, the Chinese government is doing more right things than other governments in all the other countries. You go to other countries to see what the government is doing. The Chinese government is doing well by comparison.”
South African consultant Kobus van der Wath agrees. “China is on an unstoppable trajectory. Unless we face some tragic events, China will continue its rapid development.” Van der Wath advises recognizing the potential threats to stability, but not being unduly concerned. “China will encounter a crisis at some point,” he says, but he believes the bad times won’t be devastating. “We are unlikely to have social unrest, pension fund problems, state bank collapses, environmental meltdown, political deadlock or crisis, and currency instability—all at once.”
“The Chinese leadership puts a lot of emphasis on economic progress. So, I’m very optimistic about China, because China’s leaders want to get things done with care, and they don’t want to interfere too much with economic progress.”
Prakash Menon (India), President, NIIT (China)
Van der Wath points to the outbreak of the SARS epidemic in China—a health scare that came and went without any lasting impact. “I have this theory that China keeps rolling onward. An example of this is SARS in 2003. I was wearing a [protective] face-mask like everyone in Beijing. I was also scared and didn’t know what would happen. FDI dropped to zero in one month—no new JVs, no new contracts, no foreigners coming, and no people on the streets. I went to the airport in Beijing, there was only me, no one else. It was everyone’s view that SARS would kill China. But two months later, it was business as usual.”
Boosting Van der Wath’s confidence is the fact that, in recent years, China’s top leadership have set aggressively pro-business policies. “Chinese policies are very pragmatic,” he says. “They have moved from ideology to pragmatism. Deng Xiaoping set a new trend, Jiang Zemin has done the same, and Hu Jintao is doing the same. If you look at the young leaders, a lot of them have a PhD from overseas.”
The government’s ongoing economic development plans, especially the series of “five-year plans,” was another reason for confidence, our interviewees said. Indian academic consultant Prakash Menon explains: “The Chinese leadership puts a lot of emphasis on economic progress. So, I’m very optimistic about China, because China’s leaders want to get things done with care, and they don’t want to interfere too much with economic progress.” Menon does recommend, however, that the government address two key issues: the wealth divide between rich and poor, and the education system. “The Chinese educational system needs a big reform. It shouldn’t be just about passing exams; instead, people really need to understand how to compete in today’s world.”
The past decade has changed the mindset of 25-year China veteran Jan Borgonjon: “I haven’t always been that positive about the future of China. If you had asked me 10 years ago, I would have been more preoccupied. But now, many issues are going in the right direction, and you have a relatively competent government that is moving in the right direction. So, I don’t see big, imminent risk factors. We are quite positive about the future.”
Changing Opportunities
Several of our interviewees cautioned that the period of the best business opportunities in China may, in some cases, already have passed. One such business pioneer is Taiwanese food and beverage entrepreneur Michael Yang. “Several years ago, I read an article in which the CEO of an international company said, ‘Doing business in China is very risky, but if you don’t come to China to do business, you will bear more risks.’ I agree. Of course, you should come to China to do business. But it’s more difficult now than 10 years ago for foreign entrepreneurs to start a business here. The environment is now more mature. Ten years ago, it was better here; but even now, you still have a lot of opportunities.” He adds another reason for optimism: “During the short term, contrary to what everybody thinks, I don’t think costs will go up. I expect that costs for food will remain basically the same, at least in Euro terms.”
Swiss consultant-entrepreneur Nicolas Musy agrees that China’s business environment is changing, but says that there are plenty of new opportunities still emerging. “There are always possibilities for unexpected things to happen, but I think China will continue to see high growth levels, as before. This will last for another 20 years, minimum.” Musy advises incoming China investors to look to emerging sectors. “The other thing that will happen in the next 10 years is that China will become a technological innovation power. Scientific research will reach global standards, focusing first on applied research. In 10 years, Chinese companies will be capable of innovation research at low costs. That will be the biggest challenge Europe will face.”
Bullish on China
Others among our China hands were frankly bullish on China as a business environment. China veteran Olaf Litjens, despite a series of near bankruptcies among several of his China ventures, summarized his outlook for China as follows: “There is no better place for business in the world,” he says. He and his partner started their field marketing business around five years ago and were immediately successful. “Can you tell me of another country where, within five years in a new industry, you can work with Gillette, Unilever, Mars, P&G... ? If I had started the business in Europe, none of these companies would work with me.” If you can start here and if you do it right, there is an incredible opportunity. It is a fascinating country. It’s unbelievable, considering the history, to realize how innovative you can be now.
“Can you tell me of another country where, within five years in a new industry, you can work with Gillette, Unilever, Mars, P&G... ? If I had started the business in Europe, none of these companies would work with me.”
Olaf Litjens (Netherlands), Founder and CEO, Unisono Fieldmarketing (Shanghai)
When asked what advice he would give to a fellow Korean national relocating to China, financial investment startup Chun In Kyu says he would “strongly recommend them to start a business in China.” The reasons? “First, the Chinese market is very big and is developing very fast. Everybody can tell this. The most important thing is that Korea also went through the developing phase. Thirty years ago, Korea was very poor. Now that China is developing, most Koreans have recent similar experience. People from America, Europe, or Japan have forgotten the developing period in their home countries, so Koreans are really competitive in this regard.” He adds that China and Korea “share a lot of cultural similarities”, which offers Korean entrepreneurs an advantage.
Many of our interviewees voiced their belief that now is the time to be in China, and urged fellow entrepreneurs to ride the wave while it lasts. Calling China a “great place to start a business,” project management entrepreneur Shah Firoozi says the country now offers “lots of opportunities.” He adds: “I don’t say that everyone will succeed. Many companies fail, and many expat families fail, too. But still, we are predominantly proponents of coming to China.” Firoozi explains why he is generally bullish on China. “During the past 10 years, the growth and transformation in China has created a unique environment that likely will not be repeated elsewhere in the world.”
Spanish consultant Josep Giro expresses his optimistic outlook this way: “I don’t plan to leave unless the government throws me out. Living here is exciting. First, the coastal cities were developed; now we are developing the second-and third-tier cities. There are no limitations because China is challenging the world now, and is complementing the world. China is now a very big player—everyone must take China into consideration. This will only increase in the future.”
Perhaps the most telling “bullish” statement comes from American real estate executive Bruce Robertson. Asked what he would say to a fellow Western entrepreneur contemplating heading to China, he replied: “I would say that you are going to be part of one of the greatest business revolutions in the history of mankind. So many things beyond your imagination will occur, but you can achieve your goal. I’m very positive about that. You will probably be successful. Do it!”
Conclusion
As one of our entrepreneurs told us: “Don’t think twice. Come to China and explore the place for business opportunities.” Despite the many challenges that may stand in the way of being successful in China, our interviewees all spoke of their satisfaction in starting something new. The results of their efforts compensated for all the sleepless nights and long working hours, they said. Our entrepreneurs all agreed that, while it wasn’t easy to be successful in China, they had no regrets about embarking on the adventure.
This last chapter has distilled the combined 500 years of experience our entrepreneur interviewees have amassed in China. Hopefully, their insights will help you to avoid repeating some of their mistakes and increase your chances of making your China venture a success.