Doing Business with China: Avoiding the Pitfalls

This book is about understanding the differences and risks, ownership, culture and management practices when investing, managing or working with Chinese companies. It explores the progression of overseas listing of Chinese companies and the reasons behind theattitude shifts towards overseas Chinese stocks. The better and faster learner wins. That is the clear conclusion that the authors reach in this detailed analysis of why many Western companies fail in their attempts to succeed in China, one of the fastest growing markets in the world and why many Chinese companies encounter difficulties in their overseas ventures. Fundamental errors are made; lessons from the experience of others ignored and the lack of adequate advance planning are just some of the pitfalls to be avoided. This book is intended to help Western companies and executives avoid the common mistakes and to assist their understanding of what is required to make a success of venturing into China, and vice versa, Chinese companies and executives coming onto the world stage. Facts speak for themselves. The book draws on extensive interviews with both Chinese and Western executives and regulators and presents a series of detailed cases to illustrate what went wrong and why. The authors suggest what needs to be done to ensure success, particularly in terms of having learning and building corporate capabilities as the ultimate objectives for any proposed investment/venture. Understanding the Chinese approach to business and being conscious of rules of the road are just two of the key elements Cover......Page 1 Contents......Page 6 List of Exhibits......Page 9 List of Abbreviations......Page 10 Preface......Page 12 Acknowledgements......Page 13 Understanding China......Page 14 No simple solutions......Page 15 Understanding the "Chinese way"......Page 16 Getting on the ground......Page 17 Don't be evil......Page 19 Battling with the "Great Firewall of China"......Page 20 A new approach to China......Page 22 From container to content......Page 27 Pioneering spirit carried on by the son......Page 28 A long march in China......Page 29 Bumpy roads ahead......Page 31 Origins in a school-owned enterprise......Page 32 Strategic partnership......Page 33 Geographic expansion......Page 34 Restructuring and further diversification......Page 36 Zong Qinghou......Page 37 Formation of the Danone–Wahaha joint ventures (JVs)......Page 40 Non-joint-venture companies (non-JVs)......Page 44 Negotiations to gain a share of the non-JVs......Page 45 The public saga......Page 46 5 A Controversial Acquisition......Page 53 Robust in the making .........Page 54 Dare to be innovative......Page 55 Preludes to an acquisition......Page 56 Post-acquisition......Page 61 A 15-year cross-border love affair......Page 64 Standing next to global giants......Page 65 Details matter......Page 66 Mini-Case: Best Buy—A tough sell in China......Page 68 Partnerships......Page 71 Mini-Case: CICC—A true success?......Page 74 Mini-Case: Yahoo!'s Alibaba Dilemma......Page 78 7 All at Sea......Page 82 Strategic evolution and main turning points......Page 83 Organization, process, and management......Page 92 Risk management, governance and the regulatory environment......Page 99 The crisis......Page 105 What next?......Page 110 The extent of the problem......Page 111 Initial crisis management......Page 112 The quick fix......Page 114 In parallel, a search for strategic investors......Page 117 Legal issues......Page 118 The chosen option......Page 119 The public is still in the dark .........Page 120 A hidden problem......Page 122 The public announcement and media and market outcry......Page 123 The way forward......Page 126 The restructuring team......Page 127 Crisis management......Page 128 Debt restructuring......Page 133 Equity restructuring......Page 143 Rehabilitation and rebuilding......Page 151 Epilogue......Page 155 CITIC Pacific and the Yung family......Page 157 A wrong bet beyond needs and control......Page 158 A role model for corporate governance?......Page 159 The state bailout......Page 160 Pause for Reflection......Page 162 Mini-Case: CNOOC......Page 164 Mini-Case: Netease—the "Fantasy Westward Journey"......Page 169 Mini-Case: China Life......Page 173 Mini-Case: Gome: the Fall of China's Sam Walton......Page 174 The merit of "The Chinese Contract"......Page 181 Do the right thing......Page 182 Beware that "China issues" can turn into "crisis"......Page 183 A new imperative......Page 184 Develop a sense of continuity and direction for the future......Page 185 A few words of wisdom......Page 186 Notes......Page 187 Index......Page 200 Cover 1 Contents 6 List of Exhibits 9 List of Abbreviations 10 Preface 12 Acknowledgements 13 Prologue 14 The real question is when and how to go to China 14 Understanding China 14 No simple solutions 15 Understanding the "Chinese way" 16 Getting on the ground 17 1 In Search of a Perfect Answer 19 Don't be evil 19 Battling with the "Great Firewall of China" 20 A new approach to China 22 2 A Bumpy Ride in China 27 From container to content 27 Adventure begun by father 28 Pioneering spirit carried on by the son 28 A long march in China 29 Bumpy roads ahead 31 3 A Rising Chinese Champion 32 Origins in a school-owned enterprise 32 Small fish eats big fish 33 Diversification and expansion 33 Strategic partnership 33 Geographic expansion 34 Challenging Coca-Cola and Pepsi 36 Restructuring and further diversification 36 Zong Qinghou 37 4 A Bittersweet Partnership 40 Formation of the Danone–Wahaha joint ventures (JVs) 40 Non-joint-venture companies (non-JVs) 44 Negotiations to gain a share of the non-JVs 45 The public saga 46 5 A Controversial Acquisition 53 Robust and He Boquan 54 Robust in the making ... 54 Dare to be innovative 55 Preludes to an acquisition 56 Post-acquisition 61 6 A Chinese Perspective 64 A 15-year cross-border love affair 64 Standing next to global giants 65 Details matter 66 Pause for Reflection 68 Mini-Case: Best Buy—A tough sell in China 68 Partnerships 71 Mini-Case: CICC—A true success? 74 Mini-Case: Yahoo!'s Alibaba Dilemma 78 7 All at Sea 82 Strategic evolution and main turning points 83 Organization, process, and management 92 Risk management, governance and the regulatory environment 99 The crisis 105 What next? 110 8 Stormy Waters 111 The extent of the problem 111 Initial crisis management 112 The quick fix 114 In parallel, a search for strategic investors 117 Legal issues 118 The chosen option 119 The public is still in the dark ... 120 A hidden problem 122 The public announcement and media and market outcry 123 The way forward 126 9 Oil on Troubled Waters 127 The restructuring team 127 Crisis management 128 Debt restructuring 133 Equity restructuring 143 Rehabilitation and rebuilding 151 Epilogue 155 10 Lessons not Learned 157 CITIC Pacific and the Yung family 157 The currency debacle 158 A wrong bet beyond needs and control 158 A role model for corporate governance? 159 A sign of improvement? 160 The state bailout 160 Pause for Reflection 162 Mini-Case: CNOOC 164 Mini-Case: Netease—the "Fantasy Westward Journey" 169 Mini-Case: China Life 173 Mini-Case: Gome: the Fall of China's Sam Walton 174 Last but Not Least 181 The merit of "The Chinese Contract" 181 Adjust your mindset and perspective 182 Do the right thing 182 Build up a proven track record 183 Communicate, actively and proactively 183 Beware that "China issues" can turn into "crisis" 183 Don't walk in the dark 184 A new imperative 184 Develop a sense of continuity and direction for the future 185 A few words of wisdom 186 Notes 187 Index 200 "The better and faster learner wins. That is the clear conclusion that the authors reach in this detailed analysis of why many Western companies fail in their attempts to succeed in China, one of the fastest-growing markets in the world, and why many Chinese companies encounter difficulties in their overseas ventures. Fundamental errors are made, such as not learning from the experience of others, and inadequate advance planning. This book is intended to help Western companies and executives avoid the common mistakes and to assist their understanding of what is required to make a success of venturing into China. In the same way, it will assist Chinese companies and executives coming onto the world stage. The book draws on extensive interviews with both Chinese and Western executives and regulators, and presents a series of detailed cases to illustrate what went wrong and why. The authors suggest what needs to be done to ensure success, particularly in terms of having learning and building corporate capabilities as the ultimate objectives for any proposed investment/venture. Understanding the Chinese approach to business and being conscious of the rules of the road are just two of the key elements."--Jacket If you wish to learn about A" Doing Business with China A", buy. You'll read up-to-date, well written and varied real-life cases about foreign and Chinese companies doing business in this fast-changing and dynamic market. The overall message is be pragmatic, learn as you go, adapt. China's patriarch, Deng Xiao Ping said, 'learn from facts'. You can't fail to learn much from this excellent book. Jonathan Story Emeritus Professor of International Political Economy INSEAD 'As someone who has 'done business in China' during my career, I can highly recommend this book to anyone intending to do the same. Hamilton and Zhang have penetrated beyond cliches and theory to offer a real 'hands on' guide of what it takes to play and win in this increasingly critical market and, in turn, work with Chinese companies internationally. China offers a huge goldmine of opportunity in the 21st century but prospectors would do well to heed the pragmatic lessons of this book as they pursue their ambitions.' Peter Yorke, 'Global Marketing Director, Procter & Gamble' Understanding the differences and risks, ownership, culture and management practices when investing, managing or working with Chinese companies is fundamental to many Western companies. This book explores the progression of overseas listing of Chinese companies and the reasons behind the attitude