The perils of doing business in China have come into focus again recently, with allegations that staff from the British pharmaceutical giant GlaxoSmithKline paid $500 million in bribes over several years.
Four executives from GlaxoSmithKline were arrested in July, while its British-born head of China operations has been prevented from leaving the country.
There are now more than 40 Australians in Chinese jails – at least five of those are believed to have been jailed over commercial disputes.
Earlier this year, the Department of Foreign Affairs and Trade issued a briefing paper, warning the jailing of Australians was putting considerable strain on relations with China.
Sinogie Consulting managing director Bruce McLaughlin says many of the people who have fallen foul of the law in China have wrongly assumed that business is still done as it was 20 years ago – when connections would go a long way to getting deals done.
“If anybody comes to you and says ‘Oh I’m really well connected’, without saying ‘I’m really good at making stuff’, or whatever it is that you want, then they’re selling you something you don’t need,” he said.
Hayes Knight corporate advisor Paul Dubois says foreign firms operating in China need to play by the same rules as they would in their home countries.
“I think you’re just as likely to get burnt on a business deal here in Australia,” he said.
“The important thing is, like everything, you’ve actually got to go and spend the time there. So if you go and want to just make money and have a quick kill in China, you’re probably going to end up losing.”
China full of scam companies that ‘don’t exist’
Mr McLaughlin says foreigners trying to do business in China often fail to do their due diligence – getting the right advice from lawyers and accountants, and doing background checks on the companies they plan to deal with.
“About a third of the companies that we look into don’t exist,” he said.
“Another third of the companies that we look into are not what they claim to be.”
Despite those risks, China is still an attractive destination for Australian firms.
Compumedics, which makes diagnostic equipment for sleep disorders, has seen 30 per cent sales growth in China over the past year and is now outsourcing part of its manufacturing to China.
Compumedics chief executive Dr David Burton says it has taken a long time to build strong relationships.
“We’ve had to really find the companies and we’ve done that through the knowledge and integration in the region,” he said.
“We certainly haven’t been able to do that through finding opportunities off the internet.
“It’s been a long process and it’s been testing runs in small steps.”
Martin Cooper, managing director of Sota Tractors, imports hundreds of Chinese-made tractors each year.
He says there are many cultural differences that can make business in China difficult.
“One thing which we’ve found in Asia, particularly in China as well, is that they will say ‘yes’, yes they can do it, and not because they want to lie or not tell you the truth. They don’t like saying ‘no’ to you. They want to make you happy,” he said.
“What you need to ensure is that the infrastructure is in place that when they say ‘yes’ that they can actually make something happen.”
Sota director Bruce Cooper says a mistake that many foreign firms make is to not visit China regularly.
“I think it’s a big mistake. If you’re in it for the long haul then I think it’s very important to go over,” he said.
“I know people who deal with China without ever visiting China. That’s something which is unusual to them and they say that. They sell to customers who haven’t ever visited and they can’t understand why that happens.”Source: The Australian – Foreign firms flock to China despite business risks
- Australia and China resume free trade talks (chinadailymail.com)
- Australian Foreign minister on trade tour of China (craighill.net)
- VIDEO: Glaxo replaces China chief amid corruption probe (marketcurator.com)
- The Australian Economic Nightmare In One Chart (businessinsider.com)
- Is Big Pharma Addicted To Fraud? (forbes.com)
- GlaxoSmithKline’s Ex-Head to Return to CN as 18 Others are Detained (biospace.com)
- Glaxo faces investigation into alleged corruption in China (independent.co.uk)
- GlaxoSmithKline says executives ‘breached Chinese law’ (guardian.co.uk)
- Glaxo chiefs facing probe in China over drug prices ‘bribes’ (standard.co.uk)
- GlaxoSmithKline faces bribery probe in China (telegraph.co.uk)
- Free-trade push may open door to China | The Australian (rajcairnsreport.wordpress.com)