China is a glittering prize for Western CEOs, but Google, Facebook and thousands of other big businesses fail there. Here are 9 tips that helped one startup exec succeed against the odds.
- Mikkel Hippe Brun is the co-founder and SVP for APAC at Tradeshift. He just spent five years establishing the company's presence in China and says he made every mistake possible along the way, including the ones he was warned about.
- China is arguably the world's toughest market to break into, he writes - just ask Google, Facebook and thousands of other Western businesses that have failed here. But the potential upside is huge when you consider the company's vast and expanding digital market.
- Here are 9 tips he says will help anyone who hopes to do business in China. One key piece of advice: Master the art of guanxi, the Chinese system of trusted and highly transactional relationships.
- Visit Business Insider's homepage for more stories.
There's a scene in "The Empire Strikes" back where Luke's X-wing fighter sinks into the Dagobah swamp and Yoda encourages him to use the Force to retrieve it. Despondent, Luke says he'll give it a try. "Do. Or do not," Yoda says. "There is no try."
I was reminded of this line often over the past five years as I set up my company's business in China. When you realize that another potential joint-venture partner only wants your IP, or the regulations for your industry change for the third time in a year, it feels a lot like you're sinking into a mire. But in China, there are no points for trying.
This is arguably the world's toughest market to break into - just ask Google, Facebook and thousands of other Western businesses that have failed here. But the potential upside is huge: China's astronomical growth may have slowed, but it still produced a new tech unicorn every 3.8 days last year. This is a vast and expanding digital market.
No amount of advice will make launching a company in China easy - I took courses, read books, and still made every mistake I was warned about. But our business is finally on firm ground. We have three local offices and 100 staff, and we're helping brands like Volvo, Valeo and Kering (owner of Gucci) to navigate China's Byzantine trading system.
Here are nine lessons I learned about setting up a business in China. I hope this list will allow others to learn from their mistakes quickly, and perhaps avoid a few altogether.
1. Choose a JV partner with great care; many just want your technology and ideas
We were approached by one suitor who asked us to be the business service layer for a satellite broadband network they were launching. At one point they asked us to install an instance of our software in one of their data centers - a huge red flag in China, where IP theft is rampant. After running around in circles for months, we realized they were using us to explore new ideas for themselves.
2. Appoint a tenacious leader
Whoever runs your China business will fall on their face a dozen times and feel like giving up. Luckily I'm a cofounder of our company, so I didn't really have that option, but I certainly felt like it. In China, you learn by doing, and that takes resilience. Appoint a local leader who will be committed to the task and won't turn tail when things get tough.
3. Hire a government affairs expert
A government affairs expert can advise you where to locate for the most favorable tax benefits and conditions. We were advised to locate in Suzhou, a "small" industrial trading city outside Shanghai with 11 million inhabitants.
4. Give up your quaint "win-win" mindset
In China, it's all about leverage and getting the upper hand. That means having a big stick to go with your carrot. Our stick is a stock warrant in Tradeshift globally - a partner of ours can only exercise that warrant if they continue to give us what we need, including use of their brand and help with licensing and regulatory issues. Their success depends on ours, and that gives us control of the relationship.
5. Appoint local managers, and give them the authority to succeed
"Seagull managers" who fly in, dump on everyone and fly out, don't work in China. Your people on the ground need the autonomy to make decisions fast or they'll be outrun by local competitors. As general manager, I set the strategy but our local leaders make their own decisions. Layers of bureaucracy will slow you down. Your local team knows best how to operate in China, so give them the power to do so.
6. Replicate all global functions locally
It's important to replicate all global functions, such as sales, HR and professional services, locally. These divisions report up to me and have strong dotted lines to the global organization, but they have their own rules and procedures. China is the only region in the world where we do this, but it's necessary because the environment is unique. Your global teams won't understand how to operate in China.
7. Master the art of guanxi
This is the Chinese system of trusted relationships, and it's highly transactional. Someone helps you, and a year later their brother-in-law asks you to repay the favor. It's like an invisible scorecard of who helped whom. It's a useful system for solving problems and opening doors, but you have to play the game.
8. Budget for significant legal costs
Different cities in China have different rules and regulations, from forming a wholly foreign owned enterprise (WOFE) to employment law. That adds a lot of red tape, and you will need Chinese lawyers to help you navigate it.
9. There is no secrecy in China
Assume everything you write is on a postcard for all to see. There's no expectation of privacy, so handle sensitive communications offline.
China is a glittering prize for Western CEOs. It's a thrilling environment in which to operate, but it requires a combination of local knowledge, good contacts, flawless execution and patience to succeed. Most of all, you need to master the balance of deep partnerships with a strongarm approach that allows you to retain control. Don't be deterred, but don't be half-hearted either. There is no trying in China. Be committed and you can succeed.
Mikkel Hippe Brun is the co-founder and SVP for APAC at Tradeshift, which democratizes business through technology.