Entrepreneurs take on China: large North American corporations have taken advantage of the changing Chinese market, but the advances capitalism has made in this country now mean that entrepreneurs of all stripes can do the same.

When China's annual legislative assembly convened in March this year, Premier Wen Jiabao introduced a program that would continue to actively promote capitalism in China. Focusing on social policy, he acknowledged that China's rural population had been neglected and that his government would strive to redress the income disparities. The government for example passed a constitutional amendment at the end of the 10-day annual meeting guaranteeing individual's inalienable right to private property.

Premier Wen reaffirmed the government's objective to privatize the Chinese economy and to create 14 million jobs in 2004. That's all good news for Western entrepreneurs who want to invest in the biggest market in the world. With the introduction of this amendment, the buying power of 1.4 billion Chinese should only get better.

Though companies regard China as the hot spot these days, one mustn't think that entering the market without adequate preparation will be easy. Some use the services of management consulting firms like Montreal-based Guerra International, which specializes in the Chinese market. Founded in 1984, the firm started dealing with China only in 2002.

The firm promotes exchanges between China and the West, often through joint ventures and cross-border investments. Its main areas of activity are the services, real estate, high tech, natural resources, distribution and manufacturing sectors, but partner Nelson Guerra also notes that governance has become a critical issue as well, as Chinese state industries are gradually being privatized. He suggests that they are all areas worth exploring for small, medium and large businesses in Canada.

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Honing in on China

China's share of the world export market has risen from 1% in 1980 to 6% today, and this upward trend is accelerating. Massive industrialization has created a new class of consumer in China--at least in the country's six coastal provinces. These statistics speak volumes: China is clearly the market of the future.

When a company decides to do business in China, it should first carefully look at its needs as well as its perceptions of the country.

Importing and exporting, for instance, are equally active, whether the objective is to find a distributor or supplier in China. It's crucial, of course, to develop feasibility and marketing studies before making a move in such an area, and Guerra recommends a very careful review of government regulations. Gaining access to state and industry officials are an important part of this process.

Currently, certain sectors, such as the aerospace, high tech and automobile industries, are currently particularly dynamic in China. But there are broader sectors where investors can take advantage of growth in the country as well: exporting, domestic consumption, infrastructure expenditures and natural resources.

Although China is a huge target, Guerra insists that even small businesses can get involved and benefit from its rapid development. "Everything's booming in China, and the pace is so fast and strong that the whole of Chinese society is involved," he says.

China is often associated with outsourcing because of the country's manufacturing strength and low labour costs. While this gives the country a competitive edge, it has much more to offer. Obviously, 1.4 billion potential consumers are by no means insignificant.

But entering the market isn't a simple process. "China is a highly complex market," Guerra says. "People talk about it without fully recognizing the extent of the laborious work needed to achieve one's goal."

Market moves

This isn't to say that success is beyond reach. Doing business abroad always requires a certain amount of adaptation, because every country is different. In the case of China, however, the situation is particularly delicate. "You have to know who to talk to, and how to use Chinese networks at every level--federal, provincial and municipal--as you would in the West, but with other complexities and maneuvering that exist for a range of historical reasons," Guerra explains. To establish commercial relationships in China, you really need to know how to network, in a way that goes well beyond what entrepreneurs do here.

Foreign investors are welcome, of course. The process is not deliberately made complicated to thwart the efforts of entrepreneurs. It is simply that the Chinese state is in the midst of a significant transition. Its privatization efforts continue in the industrial sector and elsewhere. In addition, the consumer credit industry remains in its infancy, as does the stock market, which only opened to foreign investment in 1998. Obviously, there are regulations in place and anyone who wants in on the action has to be well informed before jumping in.

However, China is not for sale. It intends to build its own cultural, social and economic prototype, while acknowledging that it has things to learn from the West, just as the West has things to learn from China. The opening up of China to foreign investors is not the only reason for a company to be interested in this country. There are many advantages to doing business there.

The cost of preparing to do business in China depends on the size of the project but will likely be reasonable considering the potential profits to be made. Guerra International's focus is on promoting Quebec initiatives, especially projects spearheaded by small and mid-size companies.

The opportunities for small and medium-sized enterprises (SMEs) in China are unlimited in Guerra's opinion. He strongly recommends joint ventures, which eliminates the need to set up a base in the country. There are multifaceted challenges, but according to Guerra, the biggest--even if the stereotype leads us to believe it's the bureaucracy--is to have the courage to embrace the adventure. Good judgment, confidence and discretion are other necessary qualities.

The lead time needed before you actually start doing business will depend on a number of factors, but with assistance from someone who can demystify the Chinese bureaucracy it will take considerably less time. The process will take a number of months at least, as it would for someone wanting to set up a business in Canada.

Canadians have some catching up to do to make a dent in this market. Our European counterparts have already entered the market in a more convincing manner. But with the right support on the ground, anything is still possible in such an environment.

Julie Demers ([e-mail]) is associate French editor of CMA Management magazine.