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Business Connections
Connect with Australia China businesses through our online marketplace. Job Connections
A new way for Australians and Chinese to find employment in each others countries.
Events Connections
Click images below for the many EVENTS in China and Australia
Book Connections
The site to find the many books on China.
Back Issues
| Big decisions | | Print | |
| Sep / Oct 2008 | |
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A recently published report on how Australian businesses enter the Chinese market raises the question of just how important is it to have a China consultant reports Sophie Loras. When Dr Mona Chung launched her report Doing Business in China: How Australian companies make their decisions when entering the Chinese market in Melbourne recently, she told her audience there was no other place in the world like China to do business. "China really is a unique and very challenging market - no other markets are like China and therefore to have the right people just for China - what's the answer?" It's a question heavily pondered in the report which was co-authored by Chung's fellow Deakin University colleague Dr Jane Menzies and Monash University's Professor Stuart Orr. Speaking to 40 Australian businesses across a range of manufacturing and services industries about their market entry strategies into China, Chung found that human resources issues were just one of several key obstacles in setting up a business in China and raised the important issue of how effective having a China consultant can be in the road to China success. Covering a broad spectrum of industries, from building, construction and engineering, to mining, transport, logistics, hospitality, government bodies and administration, agriculture, fisheries and forestry, higher education, manufacturing, legal services, information technology and publishing, Chung and her colleagues discovered the key obstacles for all sectors were very much the same, whether entering China through a Wholly Owned Foreign Entity (WOFE), Joint Venture (JV) or exporting to China through licensing and agents. MOTIVATION One of the major findings of the study was the motivations behind Australian companies seeking to enter the China market. "We found that Australian companies' motivation for going into China was largely passive and not pro-active," says Chung. The research showed that many companies first explored the China option after being "dragged along" by clients, suppliers and friends to have a look without any prior preparation. "It was a shock to us that the strategic plans for many of these companies was zero." While key motivations were growth and market development opportunities, a diminishing Australian market and a lack of competition in China, others reasons included cutting costs, following the industry into China or simply following suppliers, customers or clients. Only a minority of respondents had entered China based on a strategic plan. And while there did not seem to be a direct relationship between strategy and success, the findings of the report recommend that such ventures should be planned using appropriate strategic management and planning processes. CULTURAL GAP The other significant finding was the cultural gap between China and Australia. "The cultural gap has caught most of these organisations off guard," says Chung. "When people decided they were going to jump over the crack they didn't know how far they would have to jump." The Chinese culture is so different from Australian culture it can be referred to as "alien culture" and not surprisingly, many of the participants of the study perceived cultural issues to be important. Cultural differences extend well beyond the language barriers says Chung. "What I am talking about is behavioural differences, thinking processes, strategy and whom businesses are dealing with - I'm not talking about how to use chopsticks," she says. The report found that in terms of cultural differences, a greater understanding of Chinese cultural norms, particularly relating to language, communication and relationship building, would reduce the lead times and costs associated with establishing local Chinese operations. "Equally the Chinese don't understand Australians," says Chung. HUMAN RESOURCES One of the best ways to bridge the gap and combat cultural differences says Chung is to have bi-culture personnel. But finding good ‘bi-cultural' staff is another significant obstacle for Australian companies in China. It means finding people who can switch between cultures at all times. And says Chung, this doesn't have to be the exclusive territory of Chinese, but Australians can do it too. It is in this area where having a China consultant can be extremely helpful, either acting as an interface themselves between the two cultures or assisting companies to find the right employees for their China venture. "The traditional idea is that a bi-cultural person is just someone who can speak two languages, but it is really understanding the subtleties and the nuances of a culture." It is a common practice for Australian companies in China to employ returning Chinese students who have spent several years studying in Australia. "Many of these students don't really melt into Australian society," says Chung. "They go back to China and Australian companies take them on thinking they know Australian culture but they don't." CHINA'S LEGAL SYSTEM The main barriers to Australian companies in terms of legal obstacles related to difficulties understanding the law, lack of faith in pursuing legal cases through the Chinese courts, and weak implementation of intellectual property protection. Respondents said entry modes were often affected by local policies and regulations and the level of assistance they received from the Australian and Chinese governments. One respondent quoted in the report said: "At the end of the day if the relationship goes wrong, I question whether a legal document prepared by a Collins Street lawyer in Chinese, is going to rectify the problem." Some respondents stressed the importance of therefore solving problems based on good relationships rather than a Chinese court of law. To another degree, some respondents talked about using loopholes in China's immature legal system to get around obstacles impinging their ability to set up a representative office. FINANCE The financial capacity of firms also had a higher than usual impact on levels of success when establishing market entry in China. Australian companies entering China without proper strategic plans and very little preparation faced the issue of not knowing how much cash they would need to get themselves established, or what length of time the process would take. The recommendation from the report was for companies looking at China not to go in under-resourced. LOCATION Many of the respondents showed a preference for locating their business premises in the tier one cities of Beijing, Shanghai and Guangzhou with little consideration for smaller Chinese cities. There were varying reasons for this - many chose locations based on the level of growth and development, closeness to customers, clients and suppliers as well as choosing locations purely based on lifestyle options. One business said it had picked Shanghai as the base for its representative office because that was where the managing director had wanted to live with his family. "This would allow his wife to have access to a western lifestyle in Shanghai and his children to attend international schools," the report said. In concluding the report, Chung found most Australian companies did not have adequate market entry strategies and that many failed to do their homework. The two significant findings of the report - how to find and retain bi-cultural staff and how to bridge the cultural gap - were in many ways intertwined. There remains in China a significant shortage of middle management with local knowledge. "These people are not pure locals and they are not pure westerners either but people who have a knowledge in marketing and products etc, so perhaps consultants are the answer to some of these questions," Chung says. ■ For more information on the report findings or to obtain a copy of Doing Business in China: How Australian companies make their decisions when entering the Chinese market, contact Dr Mona Chung at This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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