Cracking the China market

There are plenty of cultural pitfalls in China, along with lots of opportunity. Mark Graham gets some expert advice from those who have lived, learned and succeeded in business

Everyone who does business regularly in China has a baijiu story to relate, usually one that involves a scenario of cloistered smokey banquet rooms and early-hours karaoke sessions.

Despite the numerous changes in the country, and the increasing popularity of red wine, the instinct after a deal is sealed, or a friendship cemented, is to call for a celebratory bottle of baijiu. Ducking out is not really an option, unless the business visitor can cite a medical condition, or a teetotal disposition.

Although it is essentially a guy thing, women entrepreneurs are also expected to slug back the clear spirit.

Frenchwoman Helene Ponty, one of the new breed of nimble foreign entrepreneurs who have spotted opportunities in the China market and capitalised on them in a major way, does not really have a choice, given that she is peddling alcohol, albeit classy Bordeaux wine rather than rotgut rice-based spirit.

During three years in China, she has expanded the business so rapidly that sales there now account for more than half of the family vineyard’s annual output.

The savvy American business school graduate re-branded the wines Le Ponty to give more of an instant French connotation for Chinese consumers, and learned to speak the language.

“You have to toast many times to celebrate a business deal,” says Ponty. “But it is also important that people who are lower in the hierarchy stand up and toast to people who are higher on the hierarchy, or there as a guest. One time I had lunch with a potential client, with around ten people at the table, me and my assistant and him and his seven employees, and we were drinking … baijiu. “His employees, to be respectful to me, all had to come one by one and toast with me with baijiu. It was a mark of respect and part of the normal traditions, but it meant that I had to drink eight glasses of baijiu when they each only had one. As it was at noon, it did not make for a good afternoon! It was, of course, impossible to refuse, as it would have been seen as very impolite.

“Etiquette in general is important, although some aspects are becoming less important with the younger generation. But as a foreigner, some mistakes will be accepted.”

Etiquette in general is important, although some aspects are becoming less important with the younger generation

The number one rule for newcomers, she says, is to fully understand the administrative, legal and taxation landscape when setting up a company, or expanding an existing one. She adds: “China is a great market, but it takes a lot of time and financial investment to understand how things work here. If you do not have that time or money, you might want to consider another market. Estimate the time and money you will need to get started, and multiply it by two.”

PARTNERING UP

That sentiment certainly rings true with another, rather larger, wine importer. Miguel Torres, patriarch of the giant Spanish wine company, made an initial foray into China at the end of the last century. Myriad problems with partners and distribution channels, however, meant the company lost an estimated US$1 million.

But Torres persevered and the now-retired patriarch, who hired a tutor in Spain to teach him basic Chinese, was proved right: revenues now amount to more than US$20 million annually with offices in most major cities and a staff count of around 300.

“My advice is very simple,” he says. “Your own people are your most valuable asset, and choose the right partners. I remember experimenting by saying we will treat our partners as friends, and do everything like that, and it turned out to be a successful way of doing it, people became much more receptive.”

When Jim Spear first came to China there was not much in the way of fine wine, or fine much else for that matter. The former corporate warrior has travelled the length and breadth of the country, speaks fluent Chinese and knows all the potential pitfalls. Or thought he did.

During a post-retirement project to renovate the family holiday home out by the Great Wall, the American encountered a whole new range of challenges. In fact he learned so much about construction, land leases and dealing with rural officials that it metamorphosed into a whole new later-life career. The self-taught interior designer now specialises in turning once-derelict village homes into dream residences for city dwellers. The affable Spear cheerfully admits he was probably ripped off in the early days, but has now acquired the realpolitik skills necessary to deal with local officials, peasant farmers and tradesmen. As well as home conversions, Spear also runs the Brickyard boutique hotel, which boasts stellar views of the Great Wall from all of its rooms.

RESPECTING NATURE

An example he cites is a vivid – and amusing – example of the idiosyncrasies of China.

When Spear converted his first house, a neighbour complained that pear tree roots were being compressed and damaged by the

Every visitor will encounter the phrase “this is the Chinese way”, a homily that involves ignoring international protocols

newcomer’s jeep; the problem was solved with a small annual payment. A neighbour at another conversion property had a problem with building slabs being placed close to his chestnut tree.

“We had to have that case adjudicated in the village hall… it was urban meets rural, foreigner meets Chinese,” recalls Spear. “We eventually got a settlement that was fair. I originally thought it was just ripping people off, but these people are stewards of the trees. When you live out here you can see the other side of the story. People here are suspicious of city folk, as they come out and steal fruit from the orchard, it’s a lack of respect. I have seen people come out and bang on doors and demand that the peasants cook them lunch.”

The fruit-tree episodes took place in a small village, but similar scenarios are repeated daily, on a larger scale, in the big cities. Every visitor will, at some stage, encounter the phrase “this is the Chinese way” a homily that invariably involves trying to bodyswerve, or ignore, international protocols. The Chinese way tends to be a route that loads the dice firmly against investors from outside; it most certainly does not involve Western-style rule of law, as China, for all its superficial modernity, is, indisputably, a oneparty state.

GETTING CREATIVE

But as China the nation opens up, it finds itself increasingly having to adopt and accept outside influences and methods. Longterm China resident Dominic Johnson-Hill is an individual who manages to move fluidly between expatriate and Chinese societies, celebrating cultural similarities, rather than differences.

Johnson-Hill has even managed to find a commercial market for irony – not a commodity much evident in China at large – with his business, Plastered, which depicts Beijing icons, everyday consumables and memorabilia on colourful T-shirts. The founder of Plastered is a regular on Chinese television talkshows and The Apprentice- style reality programmes and has a store in the popular Nanluoguxiang hutong, which has seen a visit from rock god Jimmy Page, the Led Zeppelin guitarist.

“I’m fortunate enough to be in the creative market, which is really untapped,” says Johnson-Hill, a father of four who originally came to China as a backpacker .“We generate artwork for graphic T-shirts, and the more creative and bonkers we get the more we sell. In this very pragmatic society they love bonkers and they love creativity, so that’s what we try our best to deliver – it took a while to work it out, and it’s working. If we tried to compete in a numbers game, we’d be toast.”

Entrepreneur Campbell Thompson, who also boasts nearly two decades of experience in China, is equally bullish on the opportunities presented by the nation’s weakness in the creative industries. Savvy players can, he says, exploit areas such as new media and entertainment, as long as they are aware of the potential pitfalls.

“Anything involving culture is a double-edged sword,” says the Australian who runs the Wine Republic, which focuses on importing wine from family-owned vineyards. “On the one hand there are tremendous opportunities, but it can be a very sensitive area.

“I would advise people to take time, do some good research, don’t just rush in. The days are gone when China was seen as the El Dorado where nobody could wait and projects were rushed so you could get to market quickly.”

FINDING A NICHE

Former journalist Sarah Keenlyside developed her business along those lines, growing slowly and aiming for a niche market, in her case highend travellers looking for personally escorted tours. In the past year, clients have included Hollywood A-listers Johnny Depp, Matt Damon and Jennifer Connelly, and singer Katy Perry.

Corporate clients also appreciate Keenlyside’s deep knowledge of Beijing and Shanghai, information that enables the Bespoke Travel Company to put together itineraries that focus on art, history or food, featuring local personalities, little-known venues and Englishspeaking guides. There is also likely to be humour and quirkiness, elements guaranteed not to be found on any state-organised tour.

But, as Keenlyside and others can testify, it is rarely a breeze doing business in China. The regular moving of goalposts, and general opacity, are two of the prime inhibitors. “No matter what your industry, almost no one escapes the woolly changes to legislation – or the hardline ones!” she says. “Sudden closures, shutdowns, changes in public opinion, or the knock-on effect of any number of factors. One thing I do know is that no matter the issue, it can happen with lightning speed, rendering much that you’ve been working on or planning towards irrelevant in a heartbeat.

“Aside from that, cultural differences can be vast. In fact, time and time again I see newcomers being naive about just how different China is – repeatedly willing their own norms and ways of doing things onto the local population because ‘surely that’s just the common sense/ fair/ the most obvious way of operating, right?’ Everything you think you know is wrong – I can’t put it more simply than that. If you have the patience and fortitude to deal with the fact that China is not the West, though, you may just crack it and learn to be more open-minded in the process. Oh, and I’m still working on that: it takes a conscious daily effort.”

No matter what your industry, almost no one escapes the woolly changes to legislation – or the hardline ones