Observations after 17 years of doing business in China and 75 business trips
30.3.2015 - Bart Horsten
I consider myself a privileged witness of China’s impressive development since I joined my father’s company in the summer of 1998. Over the past 17 years of doing business in China and getting ready to leave on my 75th business trip to China mid April, I have been involved in numerous investment and trading projects between Western and Chinese companies and I have seen the fast changing trends which have significantly changed the way of doing business in China.
When I think about my first trips to China in the late nineties and the early years 2000 I vividly remember two main things: (1) the friendly, almost submissive way how I was welcomed after my arrival in China and (2) the eagerness of Chinese business people to set up a joint venture with me or with my European customer.
Although difficult to imagine now, there was a time when Chinese companies were very much dependent on European or American investors, entering the Chinese market with their technologies, brands or money, so that the Chinese companies could learn from it (sometimes simply copy, I have to admit…). China didn’t have the equivalent research capacities or management skills yet, not to mention the money or level of education, to be able to manufacture the same high-quality products as their Western counterparts.
As a result, after having announced my arrival, they would pick me up from the airport and sometimes a young skinny Chinese lady would even offer to carry my heavy luggage. Then, without having had the chance to check in my hotel room and take a rest, the Chinese company would – after only a short introduction – start talking about the possibility of setting up a joint venture company. Apart from the fact that through this joint venture the Chinese partner would have direct access to the above-mentioned keenly looked-for ‘values’ (technology, money, etc), the joint venture would also benefit from interesting tax incentives, more favourable than the tax regime for Chinese domestic companies at that time.
Additionally, the reasons for coming to China in those days were quite different from today. Mostly, the main objectives of my numerous China trips were to work on projects for my customers in view of a possible investment in China. In those days the investment requirements, salaries and costs were still extremely low and China was called ‘the factory of the world’. Most of my customers in those days would use China’s resources to manufacture cheap products for the domestic Chinese market or for export to Europe.
How this has changed over the years …
First of all, since 2008 foreign-invested and domestic companies are treated in the same way from a tax perspective. Furthermore, today most Chinese businesses do have the money and the knowhow in house, and if not, they have the ‘power’ to buy in whatever they want. As a result, when I announce my arrival to China these days, there’s nobody to pick me up from the airport and I need to manage my transportation by myself. And if I want to have a meeting with a potential Chinese partner, I really need to come with a strong case before they are even willing to meet with me.
Moreover, mostly the objective of my China trips is no longer to look for investment opportunities for Western companies in China, now I am mostly looking for distribution partners for my European customers that want to sell their products to the fast developing Chinese consumer market. Or I’m looking for Chinese companies that could be interested to invest in Europe.
It’s clear that China and Chinese companies are now in the driver’s seat when talking about doing business between Western countries and China. Doing business in China today and being successful is becoming a greater challenge than ever. However, we shouldn’t necessarily see this as a threat to our Western companies. Being involved in helping many Western companies, most of them SME’s, for their business in or with China, I am convinced that, if we keep an open mind, there could also be a lot of opportunities for SME’s in China.
Oh yes, one more thing, now the first thing a Chinese business person would ask me when he or she meets me for the first time is not “shall we set up a joint venture?”, now it’s “what’s your WeChat ID”?