The China Challenge seminar in the Netherlands
Wednesday, 10 February 2010 16:45

Thursday January 27 a seminar titled ‘China Challenge’ was held at country estate ‘De Horst’ in Driebergen. The seminar was organized by de Baak and consisted of a presentation by Zvi Shalgo, CEO of the PTL Group (a management company active in China), followed by a panel discussion led by Harry Starren (director of de Baak). The panel consisted of Zvi Shalgo (PTL Group), Helmy Koolen (Benelux Chamber of Commerce in China) and Taco van Someren (Ynnovate).

This article aims to give a summarized overview of what was discussed in the presentation of Zvi Shalgo and a grasp of topics discussed during the panel discussion. Zvi Shalgo starts his presentation by giving an overview of the current economic status. China can beviewed as a post communist emerging market with the following characteristics:

  • A privatization of markets (instead of privatization of state owned enterprises)
  • Ongoing opening of markets to increase competitiveness
  • Co-optation in enterprises (The Chinese government gives credit to both state-owned as well as private companies)

Even though the Chinese market is more open now, approaching it still has different challenges than you will find on many others. First of all, specific ‘entry fees’ are present. An example of this is that for a multinational to get foot on the ground, it needs to give up particular technology in order to get permission from the Chinese government. Besides this there is, perhaps unfair, competition by local companies supported by the Chinese government (examples of this support are a more flexible application of Chinese law and government funding for investments needed).

Despite drawbacks for international companies, the huge (and fast growing) Chinese market is still offering huge potential. Zvi shares that most multinationals neglect the lower and middle segment of the market, or in other words, are not selling to Chinese consumers but merely to the government or other companies and MNE’s. The reason for this is that most companies simply find it too demanding to manage direct selling. In this segment huge growth of local enterprises is witnessed. The entrepreneurs that are most successful (in this segment and in general) will nowadays be ‘adopted’ by the government. This means huge credit lines for investments and such. An interesting fact is that an ‘entrepreneur’ is, only since 2002, accepted as a decent person by the Communist Party. Successful entrepreneurs nowadays are viewed by the government as important ingredients for growth of the Chinese economy. The presentation continues with some examples of these very successful (and often quite young) entrepreneurs:

Name
Company
 Industry
Wuang Chuanfu BYD Autos, Mobile phone parts, batteries
Zong Qinghou & family
 Suning Household appliance, retail, property
In the Hurun list, which summarizes the 1000 richest Chinese, the number of billionaires increased from 3, only 5 years ago, to 130 today. Only one of them inherited his wealth.

When asked what (and when) mistakes are mostly made by companies interested in China, Zvi. Shalgo answers that most mistakes are made in the home country during preparation. A big mistake is the approach of many companies with the ambition of entering the Chinese market. According to Zvi the right approach is a long term vision, that includes, at least in the longer run, production in China. Simply going there to sell without monitoring closely is not advisable. Even though foreign
companies might hire Chinese agents, closely monitoring the developments of your business is a must. Furthermore, many companies that go to China have a short breath and expect to make a profit quickly. This is often not the case. Although presence on the Chinese market might be very fulfilling for a company as a whole, making a profit is often not easy.

Finally, an interesting approach of the mentality of the Chinese workforce. A standard critique is that although Chinese workers might be excellent listeners, in successful companies you also need independent thinkers. However, as Zvi Shalgo puts it: ‘You don’t need a lot of independent thinkers. If only 0,5% of the Chinese are intelligent and independent, that’s already a larger group than the population of my home country Israel!’

To download presentation of Zvi Shalgo "The China Challenge" click here.
 
This summary is written by Harmjan Oldenbeuving, a Economics and Law student at the University of Amsterdam who is currently active in the FSA Research Project 2010 – China. A group of twenty talented master students (UvA/VU) will perform field research in China in the months July and August, tailor made for companies with activities or an interest in China. For more information on this project, please visit: www.fsaresearchproject.nl or www.fsa.nl