Having spent almost my entire adult life working in China, I am frequently reminded of how far my mother ship has come, and how far it still has to go.
When Xi Jinping came to power in 2012, he declared that the Communist Party would lose credibility and risk being overthrown if it did not root out corruption. I was ecstatic to see the crackdown on corruption that began in 2013. Today, doing business in China is much easier, more transparent, and less unethical for those who are now in good graces. But if by some accident you cross the ever-changing and often hard-to-distinguish line of rules and regulations set by the Party and fall out of good grace, doing business in China can be just as difficult as it has ever been.
Many foreign companies in China, including L’Oreal, to which I sold my cosmetics company in 2004, have special departments dedicated to dealing with government issues. I doubt that L’Oreal would have been as successful as it was without the passion and business acumen of Lan Zhenzhen, vice president of L’Oreal China.
Additionally, I have served on the IMAX China board of directors since 2015 and played a key role in guiding the company through the complex process of going public in Hong Kong in October 2015, alongside senior executives such as Chen Chien-de, who really understood China and had all the right connections with the government to get through the bureaucracy.
I am so grateful that I had Sam, Shelley, and several other key people at Yue-Sai Cosmetics who guided and protected me every step of the way, preventing me from making any huge mistakes. Tenacious and loyal people are a valuable asset in China; without them, navigating the business world can be confusing, frustrating, and ultimately soul-crushing.
Business in China
To do business in China, it is essential to learn the language or at least master the basics. Knowing even a little Chinese gives you exposure to many aspects of the culture that can help you in your dealings. I was born in China, but as a child I only spoke Cantonese, not Mandarin, the official language of China. Initially I was not able to communicate directly with Chinese decision makers and everything I said had to be translated in both directions. A lot of the communication was through body language, and although I could understand many nuances that way, I had to work hard to learn to speak Chinese as well as possible. For example, I found it difficult for Chinese people to say “no” clearly.
It took me several years to become completely fluent in Chinese, but dedicating my time and resources to this mission has been the most precious gift I have ever received.
Foreign business aspirants must learn and adapt to the culture. Foreigners looking to work in the Chinese market should have a local by their side who can guide them through the ins and outs of Chinese culture, from the unfamiliar to the shocking. Communication in China almost always has hidden meanings. Hank Greenberg, the brilliant man at American insurance giant AIG, was lucky to have Rick Niu by his side to translate the language, culture and political nuances.
After all, China is a very complicated country with a complicated history, and a lot depends on the nature of human relationships. Foreigners trying to do business are prone to make mistakes. Therefore, having a trusted local person (I call them a guru or rabbi) by your side is invaluable. For me, assistants are essential in China. They can pick up conversational cues and nuances, and as an added bonus, officials and people in authority often divulge things to locals that they wouldn’t divulge to outsiders. But these basic principles apply to any country. In any foreign country, business must be done locally. Globalization is localization. Do all you can to learn about and adapt to your new environment. Otherwise, you won’t know what’s going on around you, and you’ll never be successful in the business world.
Second, build your network. Every foreigner working in China learns at least one Chinese word: guanxi. Guanxi means relationships. Personal relationships are much more important in China than in the West. For example, there is no “cold calling” in China. In most cases, it is people you know who help you solve a problem or get your foot in the door. In this respect, foreigners are at a disadvantage starting a business in China. When Chinese people have questions or troubles, they turn to their parents, uncles, cousins, or former classmates for help. This cultural concept is why MBA programs are so popular in China today. It’s not the studies that matter, it’s the guanxi that you can cultivate when you attend these prestigious schools. In China, you have to put in a lot of time and effort to build interpersonal relationships, but understand that there is a payoff. If you scratch my back, I’ll scratch yours.
How difficult was it?
People who complain today about the difficulty of doing business in China don’t know how tough it was when I started out in China in the early 1990s. I was a well-known figure, but I still faced a lot of problems. The business environment was just starting to open up, and officials foisted one regulation after another on me without the resources to succeed. Government laws required companies to fund all kinds of employee insurance, including endowments, medical, maternity, employment injury, and unemployment. While that’s often a lofty expectation, it’s the very expectation that makes it so hard for a business to grow and thrive.
Moreover, we had no logistics companies, almost no banking services, and laws and regulations, especially commercial codes, needed to be more mature. We were constantly negotiating with the government. We were making retail products, but we didn’t have a chain of stores. In the US, I could sell to Saks Fifth Avenue and hopefully my products would soon be in 45 beautiful stores with the same business rules across the country. In China, Yue-Sai Cosmetics’ products were sold in 800 stores across the country, but we had to negotiate and mediate individually; each with their own outdated rules and regulations.
Traveling within China was also difficult. The planes were old, the trains were even worse, the hotels were dirty and old, and the food was awful. People would steal and infringe on my trademarks. At one point, sanitary products and medicated wine were being sold under my name. There were very few experienced, English-speaking business and technical managers in China at the time. I had to bring in many Americans to set up the industry and train local staff. There were none, let alone good lawyers.
Advantages for foreign companies today
I admire those who have succeeded in doing business in China, especially in the early days when it required superhuman perseverance, exceptional resourcefulness, hard work and fearlessness. Those who started in the 1980s and followed through were rewarded. The government wants to open up, and despite the warnings stated here, things have improved year after year over the past 20 years.
It is now easier to hire bilingual, experienced staff and the initial procedures are much smoother; setting up a company takes just nine days. In 2019, the government implemented several reforms to make it easier to do business in China, including lowering value-added tax for some companies and enacting the country’s first Foreign Investment Law, which clarifies the governance of business capital from outside China.
According to the World Bank’s 2023 “ease of doing business” ranking, which compares 190 countries around the world, China has improved significantly from 91st place in 2006 to 31st place. This does not mean that it is now easier to do business in China, but the situation is improving.
Yet, for Western executives accustomed to relative transparency and the power of business journalism to explain what is really going on in the industry, doing business in China can be very frustrating. One of the most incomprehensible elements of Chinese business is the general inability to determine why certain things are done the way they are. Without that ability to discover, it is difficult to adjust business strategies. I serve on the board of directors of IMAX China. The astute CEO of IMAX Corporation, Richard Gelfond, has repeatedly emphasized that he does not understand why Chinese censors would ban certain films from entering the country. For example, the latest Spider-Man movie, which was a box office smash hit everywhere in the world in 2022, was not allowed to be screened in China. No one could explain to Gelfond why.
Sometimes I look back at the constant stumbling and wonder how I managed to persevere and persevere. But with sincerity and unwavering purpose, you can wade through murky waters and push desperately against the current. And that was all I was able to do. Though perhaps in a much more intangible way, millions of Chinese of my generation and before them swam against the overwhelming times, trying to see what was on the other side. And they found it: an existence full of lights, cameras and prosperity. The China of the 1980s I remember is a far cry from the China of today. Physically there is no comparison, each city filled with neon lights, six-lane highways and one majestic high-rise hotel after another.
excerpt The most famous woman in China Author: Yue-Sai Kan (Copyright 2024 by Yue-Sai Kan), published with written permission from Di Angelo Publications. All rights reserved.
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