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Title: Risk management strategies for China Peter Osborne, China Country Manager recently returned


1
Risk management strategies for ChinaPeter
Osborne, China Country Manager (recently returned
!)
2
Big country big differences
One country 30 different markets !
3
Finding you way through the crowd
4
Navigating the traffic
5
avoiding accidents
6
and catching the right taxi !
7
  • 0 to 35,000 km in last 10 years
  • 85,000 km in the next 30 years
  • Connect all cities gt 200,000 popn.
  • 18 logistics hubs

Railways
  • 17,000 km of new track
  • 90,000 km of track by 2010

Source China Economic Quarterly 2006 (Q2)
8
Emerging markets
9
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10
200 million people
Source The McKinsey Quarterly 2006 special
edition Serving the Chinese consumer
11
The diversity of Australian deals
Mining equipment Training services Safety systems
audits Sports surfacing
Hydraulic parts Woollen quilts
Mining chemicals Childrens books
Medical instruments
Potato chips Landscaping design Industrial
chemicals Olive oil
Sheep skins
Training
Engineering consultancy
Product design
Cut flowers
Fresh fruit Sports education products Granite
sandstone Pilot training
Pizza ovens Trees Pet clothing
Slot machines Salads
12
Hitting your target in China
13
????,????
If you dont go to the tigers cave, How can you
catch the tigers son


Chinese proverb
14
Proverbial truth
???????
The fierce tiger is inferior to the local worm
???????
When the tiger comes down from the mountain to
the plains, its bullied by the dogs
15
Sometimes its not a level playing field
16
and there are lots of things you cant do ..
17
and its hard to sell if you cant see where
youre going
18
So do your research
19
He who knows the enemy and himself Will never in
a hundred battles be at risk He who does not
know the enemy but knows himself Will sometimes
win and sometimes lose He who knows neither the
enemy nor himself Will be at risk in every
battle
Sun Tze, The Art of
War
20
Do your homework
  • Research, research, research
  • The internet is an amazing resource
  • www.austrade.gov.au
  • www.tdctrade.com
  • www.ccpit.org
  • . and 3 million Chinese-language websites in
    China
  • Soak up information like a sponge
  • Never rely on one source of information
  • be wary of overly gracious hosts
  • Markets in perpetual change - constantly update
    knowledge

21
Some good reading ..
22
Use Austrades network in China
  • 15 offices
  • 100 marketing staff
  • Strong local market
  • knowledge
  • Industry specialists
  • Customer contacts

23
..and remember its many different markets
24
Some Asian business basics
  • family oriented
  • price, price, price
  • face more on that later
  • business cards are essential
  • hosting toasting
  • gift giving
  • instant communications
  • punctuality

25
Operating environment is often not clear
26
Operating environment
  • Nothing is ever black or white
  • Asian people often prefer grey
  • often no rules or regulations
  • why go through the front door if you can try the
    back
  • Understanding of culture important ..BUT
  • culture is also a negotiating tactic
  • bottom line is still the transaction
  • remember your own cultural identity
  • never lose sight of your business purpose

27
With rules regulations dont try to do your
own wiring
28
In-market representation
29
and picking the right partner
30
In-market representation
  • Critical for success in China
  • Most people dont like doing business with
    strangers
  • Classmate network is a recurring theme
  • Contacts networks often more important than
    product
  • Spend time with your representatives
  • treat them like family
  • visit them in market but beware the overly
    gracious host !
  • bring them to Australia
  • To know people you must listen to them
  • but also get 2nd, 3rd opinions from your own
    sources

31
It takes time to learn the game
32
Chinese negotiating style
  • Only ever reveal a third of what you know
  • Tough negotiations Your floor is my ceiling
  • Good preparation is essential
  • Pace of negotiations slow
  • negotiations often extended past deadline to get
    advantage
  • just be patient
  • fast action once decisions made
  • Be firm, be polite, be creative be prepared to
    say no
  • Legal advice behind the scenes
  • Face

33
Flexibility is valuable
34
Australians are well matched to China
  • Flexibility
  • Patience
  • Respect
  • arrogance will get you nowhere
  • Friendship
  • Trust

35
Language
36
Language
  • Youll never do the deal if you cant
    communicate
  • English better spoken than understood
  • Use professional interpreters and translators
  • Have your own interpreter always !
  • Chinese characters expressions are different
  • Simplified (China) - full form (HK, Taiwan)
  • have translations double-checked in the market
    use Austrade
  • Chinese the language of law

37
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38
Smiling, happy faces the nuance of language
  • For Asian people negative replies are impolite
  • No maybe, Ill think about it, well see
  • Well give it our best efforts theres no
    hope !
  • Smiling enthusiastically saying No problem
  • there are still problems we have no idea what
    to do
  • Read the body language
  • Read the side conversations
  • Test the issue from different angles
  • Take it offline to get the real answer

39
Beware of strangers bearing guanxi
40
Beware of strangers bearing guanxi
  • Guanxi relationships, networks, contacts,
    obligations
  • one of the most overused expressions in China
  • only valuable if its useful to your business
    purpose
  • only valuable when the guanxi is current
  • so build a diversity of relationships - at all
    levels
  • remember the rule of reverse guanxi proportions
  • The more guanxi they tell you they have, the
    less they probably have if they have it, they
    should just use it to benefit the business,
    theres no need to talk about it !
  • dont be afraid to test the guanxi

41
Learn from the Japanese / Korean approach
  • In for the long haul
  • do the deal first and make money later (?)
  • Build personal relationships
  • Flexibility accommodate local processes
  • Contacts at all levels
  • High levels of trust
  • Low profile
  • Learn the local language

42
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43
Just dont do it !
In some spheres, corruption remains quite
serious. in particular, there are continued
cases of leading officials abusing power for
private gain, engaging in graft and bending the
law and falling into corruption and
dissolution President Hu Jintao,
30 June 2006 Speech to 85th anniversary
of the Communist Party
44
(www.transparency.org)
Highly clean
Highly corrupt
45
The bribe payers index
Source Transparency International
(www.transparency.org)
46
Just Dont Do It
  • You dont do it in Australia - so dont start in
    China
  • A road that leads to only one destination
    Trouble
  • Its illegal
  • Good business practice works just as well in
    Asia
  • Invest in long-term, mutually beneficial
    relationships
  • If you do decide to sell your soul and succumb
    to Chinas corruption, get a good price and focus
    on charity work in your old age James McGregor

47
Intellectual property - perception vs. reality
48
Do you recognise this Australian residence ?
49
. and here it is again - an hour from Beijing
50
Assume someone is going to ride off with your IP !
  • Assess the risks up front
  • Make IP an integral part of your China strategy

51
A pyramid of IP protection
Intellectual- Property (IP) awareness, culture
Government relationships
Nice to have
Careful selection of which products to develop,
sell
Separate business functions to keep technological
secrets
Ethical, reputable partners
Prosecution of violators with appropriate frequen
cy, vigor, prudence
Local registration of patents, trademarks copyrigh
ts
Physical, technological security measures
Compliance audits
Appropriate contract terms
Ethical employees
Must have
Source The McKinsey Quarterly, 2005, Number 3
52
IP Infrastructure
  • Abundance of IP infrastructure in China
  • increasingly being used
  • Well established procedures for registration of
  • Patents, trademarks, designs, trade secrets,
    domain names
  • All relevant international treaties and
    conventions
  • but
  • Enforcement adequacy of penalties is an issue
  • High incidence of home town decisions
  • especially but not exclusively away from the
    major centres

53
enforcement is the issue
54
Seek professional advice
  • Advice on the interrelated elements
  • IP
  • business establishment
  • due diligence
  • business partner selection
  • legal advice
  • taxation
  • Obtain technically relevant competent advice
  • IP Australia is a good starting point
  • Austrade can assist with referrals to
    professionals

55
Prevention is better than cure
  • Identify your main IP risks upfront
  • Is your IP registrable in China?
  • what are the costs and timeframes involved ?
  • Is your product or service at risk outside of
    China ?
  • e.g discovery by travellers, business visitors
    etc.
  • research your IP rights in key markets
  • Are you planning to sell
  • into the domestic market in China ?
  • export from China?
  • Understand your partners, agents, manufacturers
  • be wary of same bed, different dreams
  • make sure you hold the registrations in your
    name !

56
Prevention is better than cure
  • Would loss of control of IP compromise your core
    business ?
  • Ensure your IP does not leak out
  • conduct an IP audit - identify areas of
    potential attack
  • audit the entire supply chain
  • maintain secrecy of key elements in production
    process
  • provision of black box componentry
  • split manufacture in different locations
  • partial manufacture in China, part elsewhere
  • surf the wave of innovation
  • no single person has access to complete
    technology
  • contracts with staff/partners
  • increase transparency treat production like
    finance

57
Get out there !
  • visit your suppliers factories
  • compliance audits
  • meet with your business partners regularly
  • attend major sourcing events Canton Fair

58
Sometimes its better to wait for the next train
..or a slow boat
59
  • ?????
  • If youre in a hurry you will never get there
  • Chinas economic development wont stop tomorrow
  • Do your research, do some more, get comfortable
  • Go at your own pace apply the brakes regularly
  • The harder they push, the slower I go
  • Chinas a market not The Magic Pudding

60
Remember nothing is impossible
61
its a big market !
62
.. and sometimes pigs really can fly backwards !
63
8 is a lucky number
  • Halve your expectations, double your time and
    budget
  • Never ever assume research, check, monitor
  • Common sense goes a long way in China
  • Loyalty, fair play straight dealing work well
    in China
  • If it seems too good to be true it almost
    certainly is
  • Expect the unexpected, adopt and adapt
  • Partnerships same bed, different dreams
  • There are lots of trains in China

64
and most important of all - enjoy it !
Peter Osborne Email peter.osborne_at_austrade.gov.au
Tel 02-93902148 Web www.austrade.gov.au
65
8 pm on 8.08.2008
66
On your marks !
67
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