Business in China has potential and pitfalls

Containers full of goods wait on the quayside at Yantian port in China Keystone

Swiss entrepreneurs who want to enter the booming Chinese economy should be bold but well prepared for a market with more than its fair share of risks.

That was the message from a packed day of discussions this week at the Swiss International Business Forum in Zurich devoted to “Fascination China”.

The importance of China as a trading partner was not underestimated, with keynote speeches from two of Switzerland’s seven-member cabinet – Economics Minister Joseph Deiss and Foreign Minister Micheline Calmy-Rey (see related story).

Deiss said that China had become a “good partner” for many Swiss firms, which took the Chinese market seriously.

“This is why so many firms are currently jockeying for position in this growth market,” he said.

Fears

But he added that he was also aware of the fears that Swiss companies might want to relocate to China for short-term gain.

“I cannot accept a situation where know-how and jobs are relocated abroad just because of the lure of short-term gain.

“This causes Switzerland as a workplace to suffer; indeed it causes the whole of society to suffer,” he said.

He firmly believed that only those companies that still had a foothold in Switzerland could attract customers with Swiss quality and “Swissness”.

Chinese firms could also be very successful on the European market from a base in Switzerland, as the country was now the leading location for the European headquarters of foreign firms, he added.

Statistics show that China has developed a robust economy over the past years with growth rates of about nine per cent the norm.

Paradise?

But can everyone who enters the Chinese market be successful? Is the country really a paradise for economic development? Is this El Dorado?

The answer seemed to be that it was not easy and that the challenges were great, particularly for small- and medium-sized enterprises (SMEs).

“The biggest challenge in getting going as an SME in China is the amount of leadership time it takes going over there, exploring and understanding the market, and starting to negotiate a way into the market,” Gordon Orr, chairman of Mckinsey in greater China told swissinfo.

He said it was tough to build trust and establish quality partnerships through fleeting visits.

“It takes face-to-face time, investment of your energies and that’s taking time away from running the day-to-day business,” he commented.

He urged SMEs to seek help from some of the bigger companies operating in China to gain market access.

“They, you will often find, are very ready to have this conversation because they’re struggling to build their own network in China,” he argued.

Corruption

No one who considers doing business in China can ignore two threats – corruption and the theft of intellectual property. The Chinese are very well aware of that.

“Corruption is still widespread and the Communist Party of China has acknowledged this problem,” Swiss journalist in Beijing Peter Achten told swissinfo.

“They said it was a cancer of society and this is why they try to wipe it out, but of course this is very difficult because corruption has been a problem for hundreds of years.”

He called the theft of intellectual property in China another “very big problem”.

“The access to the Chinese market is basically that Western companies bring technology to China where it’s very often copied. This even goes for big companies like Switzerland’s Schindler elevator company. There are even some Schindler copies in China.”

“But I have to say that in the past few years the Communist Party has tried to give more impetus to protection of intellectual property.

Innovative and creative

“The reason of course is that the Chinese are more and more innovative and creative [themselves], and they also want their own intellectual property to be protected. I would say that in ten to 20 years’ time, this problem will be solved.”

The consensus seems to be clear. You have to have a good partner in China, you need to do your homework well and you have to be very patient.

Up to a half of foreign investors in China have yet to see a return on their investment. But Swiss SMEs should not be deterred.

“At the end, for someone who has done his homework and has money, China is a big opportunity because of the huge market,” Achten said.

swissinfo, Robert Brookes in Zurich

Key facts

Overall economic growth in China remains at more than 9% per year.
Import and export growth is matched at 20%per year.
Inflation is stable at 1-2%.
Foreign direct investment is stable at $5 billion ($3.8 billion per year).

In brief

Swiss Economics Minister Joseph Deiss, who was in China in July, describes ties between China and Switzerland as a “win-win relationship”.

There are about 700 Swiss companies active in China.

Foreign Minister Micheline Calmy-Rey announced this week that Switzerland would open a general consulate in the city of Guangzhou next year.