By Keith Norbury
Any company wishing to do business in China should start early, says a senior executive with Canadian National Railway, which has five offices in China, including Shanghai, Beijing, and Shenzen.
If you haven’t started yet, you might be late, or too late,” said Jean-Jacques Ruest, CN’s Executive Vice-President and Chief Marketing Officer.
Do more than pay the occasional visit, he said. Open offices. And hire local people. CN has about 30 employees, mostly Chinese locals, at its Chinese offices.
Hire locals before ex-pats
“Just don’t send a bunch of ex-pats,” Mr. Ruest said.
About half of CN’s mission in China involves freight-forwarding, which is people-intensive, Mr. Ruest said. The other half of the mission is to represent CN to Chinese buyers of Canadian products – such as potash, coal, and grain – and to advise Chinese companies looking to invest in Canada.
Mr. Ruest, who has visited China two dozen times, said 25 years ago, cities like Shanghai were like third-world backwaters. Now Shanghai resembles New York City, he said.
“Executives of companies who are trying to understand China, but don’t visit regularly enough, can’t quite get it,” said Mr. Ruest. “It will be the biggest economy in the future, so spend as much as time there as you would spend at a market that you would want to develop.”
Understand the legal restrictions
Joyce Lee, a Vancouver lawyer with McCarthy Tétrault, and Co-Chair of the firm’s China Group, said companies should perform their due diligence before setting up shop in China. “You have to understand the restrictions locally in China for your type of business,” Ms. Lee said.
China has three categories for foreign business: not allowed; encouraged; and businesses requiring a local partner, she said.
Even if a business is in the encouraged category, she advises hooking up with “a trustworthy local partner to start off.”
Ms. Lee also cautioned that China has an “approval system” as opposed to a registration system for new businesses. “Whether it’s a rep office or a subsidiary, unlike incorporating a company here, you actually need approval of the government to do that,” Ms. Lee said.
While the process has been streamlined in recent years, it’s still not as simple as filling in a few forms and being registered within a few days.
Local connections are also crucial when hiring, she said.
“If you send a bunch of ex-pats over, what good are they to the company if they don’t know their way around?” Ms. Lee said. “And it’s not going to be very efficient.”
Connect with immigrants in Canada
Cultivating contacts over the long-term is the key to success in China, said Dr. Keith Head, HSBC Professor of Asian Commerce at UBC’s Sauder School of Business. “The Chinese are all about the Rolodex, the handshake, and all those things. And they are only gradually going to come around to seeing someone as a reliable supplier.”
Investing in those relationships takes time — months and years, not days and weeks, he said. “And the other thing is that China is now accounting for the largest share of Canadian immigrants,” Dr. Head said.
Research he and UBC colleague Dr. John Ries conducted in the late 1990s found a strong association between where Canada’s immigrants come from and what countries Canada trades with. The link applied to imports and exports. Other researchers have found similarly robust patterns all over the globe.
“So, if I were looking to open up or to expand my Chinese market, I would look at hiring some Canadian residents who have immigrated from China and who could connect with China culturally, linguistically, etc.,” Dr. Head said.
Seek help from trade commissioners
Michael Broad, President of the Shipping Federation of Canada, said he has only one piece of advice regarding trade with China. That is to contact Foreign Affairs and International Trade Canada and its “tremendous” trade commissioners.
“They have people in China that are really on the ground and have a lot of good contacts,” said Mr. Broad, whose organization represents 250 to 300 members, primarily foreign-flagged shipping companies and agents doing business in Canada.
“I used them once and they were terrific,” Mr. Broad said.
Learn the culture and the language
David Howse, who has a marketing firm in Calgary, offers a variety of tips on his Web site. They include 14 steps for importing goods into Canada. On another page, he says his best advice for doing business in China “is to learn the culture and the language.”
In an interview, Mr. Howse said he finds learning the language is the easier part.
“You know how sometimes you have to give yourself a timeout, take a deep breath, and then assess the situation? That’s China sometimes,” he said.
For example, a Westerner might ask a seemingly simple question of two Chinese colleagues, who will then break away for a five-minute conversation before returning with the simple answer.
“I’m kind of relaxed now and I know going in to always give yourself more time than you need,” said Mr. Howse, who has been to China three times and also has a business importing bridal accessories from China.
Among his other pieces of advice are: open a bank account in China because international banking can be a pain; obtain liability insurance; if applicable, find a reputable manufacturer with good testing facilities; and if importing clothing, obtain a CA number from Canada’s Competition Bureau.
Understand the degree of decentralization
Peter Harder, President of the Canada-China Business Council, cautioned that China is a very sophisticated environment.
“Thinking you can arrive and immediately be a success is naive,” said Mr. Harder, who has visited China about 30 times.
“There is not a monolithic China. There are many Chinas. And the degree of decentralization often surprises Canadians.”
Respect the culture
For Dr. David Fung, Chairman and CEO of the ACDEG Aspect Group of companies, and a former senior fellow of the Asia Pacific Foundation, the first rule of doing business with China is “respect the culture.”
We get into trouble going to China mostly because our business people kept wanting the Chinese to behave like Canadians,” said Dr. Fung, who came to Canada from Hong Kong 46 years ago. “But we have always had the saying ‘when in Rome do what the Romans do.’ So we need to follow that advice ourselves.”
“One key difference is in attitudes towards contracts,” he said. “North Americans tend to explore all avenues of possibilities in complex and inflexible contracts, whereas the Chinese want to be able to adjust to changing circumstances.”
“Now, you can say, ‘How do you operate that way?’ On the other hand, the Chinese say, ‘I don’t understand how you guys can operate because the world keeps on changing,’” Dr. Fung said.
The solution is to be prepared to make adjustments to deal with the way Chinese people operate, he said. However, in making major investments, it might be necessary to convince a Chinese party of the need for a North American-style contract to ensure certainty.
“Let’s not go and dictate what the Chinese need to do, but educate ourselves so we can become more knowledgeable and be able to adapt to a different system,” Dr. Fung said. “I think the important part is to take the fear out of trading with China.”