Q & A: Doing business with China - what you need to know

Expatriate New Zealander David Mahon has worked in Beijing for more than two decades. His private equity firm Mahon China Investment Management Limited has been in operation through the time of China's emergence as a true global economic power.

His company represents the China-based investments and interests of a variety of international financial and industrial groups.

Mr Mahon himself has direct responsibility for the management of 19 Chinese companies. He also advises a range of companies across a variety of sectors on all aspects of their China operations, from strategy development to facility establishment and partner negotiations.

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Q: China is a big, growing, complex market. Where do the opportunities lie for New Zealand companies?

DM: New Zealand companies are often relatively small businesses, and they can feel that China is just too large to take on. Yet there's a great deal of 'know how' in New Zealand and that's the thing that is most required in this market at the moment. China is developing very rapidly, particularly in areas such as food and beverage where products are taking on an entirely different quality and type, presenting opportunities for large and small food companies or those developing food related technology.

The size of a business shouldn't be a major barrier to considering China.

Q: What are some of the key things to keep in mind when exporting to China?

DM: A company has to have a good sense of scale so that their ambitions in the market and objectives are realistic. To really do things well in China takes tenacity and patience. The Chinese are very hospitable people and have a positive view of their own future to the extent that a company can be misled into thinking that money is going to be made very quickly.

Probably the greatest issue for any company to consider is how much of its existing human capital it can commit to developing the China market. If you are looking to produce something in the market, you must have people on the ground that can recruit good local Chinese staff into the culture of the New Zealand company. When that is done well, the results can be impressive.

Q: What are some of the barriers to succeeding in China?

DM: The biggest barrier is the agenda that people bring to China. The inability to look at things with fresh eyes; projecting your own expectations onto the market.

China is a very big market, a market that is changing rapidly with all sorts of opportunities, and a complex market. It is a market with great development and great backwardness too. New Zealand companies have to be careful they are seeing exactly what is there.

Q: Does being a New Zealand company hold any sway in China?

DM: Your Chinese hosts will tell you that New Zealand is unique in the way it has dealt with China, but in reality we are no more significant than any other foreign country trying to do business here.

New Zealand firms in China tend either to be very humble and lacking in confidence or tend towards being overconfident because they come from a smaller country and like to think they are special. We should rank ourselves by our product and the need for it in the market.

Q: Why are relationships so critical in China?

DM: Relationships and trust are fundamental to doing business in any market. But in China where the legal system is not as swift to act when there is conflict, relationships play a larger role in getting things resolved.

Given the considerable cultural differences, the depth of relationships is important. A lot of business people go to China and are wined and dined and treated as never before by their hosts and they then refer to those Chinese as close friends. Don't mistake Chinese openness and warmth for something it isn't. Forming real friendships takes a great deal of time and effort. Then, when there are issues, that real friendship can be an unshakeable thing and can mean the difference between success and failure.

Q: Do you need to employ someone with the right 'personal' connections?

DM: Everyone will tell you that they have networks in China and that commercial requirements are secondary to personal networks. Although networks are critical this can be a misleading suggestion. If you have a good product and you are a commercial person with good human insight you should be able to form the relationships and have 100 per cent of what is possible. Too often people think if they recruit the right official's son or daughter it will crack the market; it doesn't work that way.

Q: Do you see companies making some common mistakes?

DM Too many New Zealand companies are being blinded by the big city and coastal story. They think there's so much growth and wealth there that they are the only markets they should be in. The real opportunity for New Zealand companies is to go to the more inland cities, areas where 80 per cent of Chinese live and where they can make a real impact.

Tips:

* Make a real effort to understand the market from a strategic perspective - talk to people in the market and learn from them, particularly other Kiwis.

* Don't go into the market with perceived ideas - opportunities often manifest in ways you don't expect.

* Any company or individual serious about a long term commitment to the market should make some attempt to learn the language.

* Get a thorough understanding of the regions of China including the big cities and coastal regions and go to the area in which you can get a business of scale that will make an impact - not just where other competitors go.

* Build strong and enduring relationships, and understand that this will take time.

* Don't think just because someone is Chinese they are the right person to represent you in the market; they need recent, relevant experience and networks.

* Tenacity and patience are indispensable qualities - without them you are better off in a developed market.

David Mahon is Chair of the China Beachheads Advisory Board. The Beachheads programme is the practical way in which NZ Trade and Enterprise (NZTE) assists New Zealand companies to branch out abroad into new markets.

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