China is a key market for multinationals, but it is also a challenging and confusing place to do business, especially because the Chinese government is eager to protect local companies in key areas.
Global financial firms, for instance, are limited in the services they can offer Chinese consumers. And last month, the government officially withdrew support for foreign capital in auto manufacturing, putting global automakers on edge in the world's largest car market. Consumer marketers such as Unilever have been blocked by the government from raising prices to avoid creating market disorder. And few global internet companies have succeeded in China, where government policies favor local giants such as Baidu, Sina and Alibaba.
Whether multinationals enter China through joint ventures, direct investment or acquisitions, companies often rely on their home government to help smooth the road -- or at least level the playing field -- through trade policy. This is especially true in U.S.-Sino relations, fraught with disputes about exchange rates, tariffs and quotas that can wreak havoc on the ability of foreign companies to expand operations in China.
Trade agreements "unequivocally" affect multinational marketers and their ability to succeed in China, said Ken Jarrett, chairman of PR firm APCO Worldwide, Greater China, on "Thoughtful China," a weekly online marketing-affairs talk show produced in Shanghai.
"China's accession to the World Trade Organization 10 years ago opened up the Chinese market to many multinationals, and to this day, it still shapes how they operate there," said Mr. Jarrett, who also heads the board of the American Chamber of Commerce in Shanghai and is a former U.S. Consul General in Shanghai.
The WTO agreement "set equity caps to how much they can invest, it has removed tariffs on many products, which opened entire sectors to the foreign business community and it did so according to a very elaborate schedule," Mr. Jarrett said.
Through various measures, the Chinese government interferes with private trade initiatives, including requiring companies to do joint-ventures with a local partner and imposing tariffs.
To Western marketers, it's a clear case of government meddling in private markets, said P.T. Black, Thoughtful China's senior creative director. "To Chinese officials it's their responsibility to protect the nation's best interests."
While governments play an important role in foreign trade and business opportunities, global companies should do more to understand the Chinese market, said Frank Lavin, chairman of Edelman's public affairs practice, Asia-Pacific as well as the former chief trade negotiator for the U.S. in China.
"They need to look at their entire business model and see how [things like price points, product features and distribution] should be adjusted for China," Mr. Lavin said.
Foreign companies also need to focus on developing relationships, known in Chinese as guanxi.
"The application and consistency of the rule of law [in China] is not nearly as well accepted as the role of relationships and networks of relationships," said Brian Cronkhite, managing director of Burson-Marsteller, Shanghai. "Over time, I think things are changing and China is developing a more contract-based society, [but] guanxi is still quite critical."
Normandy Madden is senior VP-content development, Asia/Pacific at Thoughtful China, and Ad Age 's former Asia Editor. See earlier episodes of Thoughtful China at www.thoughtfulchina.com.