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Trade & Investment

Perils of doing business in China – an Australian perspective


China Handshake

China Handshake

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.

The most high-profile case involved the former Rio Tinto employee Stern Hu, who was found guilty in 2010 of accepting bribes and stealing state secrets.

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
 
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Discussion

8 thoughts on “Perils of doing business in China – an Australian perspective

  1. The book the China Dream by Joe Studwell provides a great account of all the foreign companies (and even foreign governments like Singapore) that have gone into China in the dreams of riches by only found a graveyard. From what I’ve seen, China is a place to save money, but not make money. Furthermore, there is no future in a business that attempts to compete with a Chinese business. As for this line,

    “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.”

    China operates under different rules, or more specifically, rules will be applied selectively based on guanxi, which refers to a social network. Although social networking exists in developed countries, it operates very differently.

    Like

    Posted by artofchad | October 4, 2013, 9:47 am
    • Not true. Many smart foreign frms and foreigners go to China and make fortunes. Those who are stupid enough not to comply with Chinese regulations and use local tracts face perils like the author of this article is facing.

      Editor’s Note: In response to the many emails about this poster, we do suspect he’s a paid Chinese internet commentator. However, we believe that all people should be allowed to voice their opinions, not just the ones that agree with our agenda. Therefore, at this stage we will not ban him.

      Like

      Posted by Mark Chan | July 24, 2014, 1:40 am
  2. There is a simple solution for Australia…stop trading with China..don’t buy don’t sell…look elsewhere to sell your iron ore and gas.

    Like

    Posted by silversurfer | October 30, 2013, 2:11 am
  3. I find myself uncomfortable with words like “Perils” in discussions about China (which, in a grasp for a better description of such an enormously diverse nation I think of like, “Chinadom”). But then again, i have experienced only minor discomfit with dealings with Chinese business in my life. I am not a businessman.

    When one considers that the entire Western Hemisphere [population] plus that of Japan packed into the approximate land area (much not arable) of the United States is about equal to that of China, it is obvious that corruption and catastrophes are to be seen (and nowadays globally) in a “concentrated” state, as are the potentials for commerce and modernization—even democracy.
    As China stumbles and wobbles toward a hybrid society, let’s hope the rule of law and an ebbing of the Chinese trope of manifest injuries suffered at the hands of the Western World will make working with China as a full partner in a global future is less perilous.

    Like

    Posted by suptweet | November 10, 2013, 12:39 am
    • Sorry I pressed the wrong botton. I meant to say thumbs up. Some people simply cannot quit the bad habit of using excessive language to criticise China and using excessively modest langauge to prise China. The reverse is true when they talk about the West.

      Editor’s Note: In response to the many emails about this poster, we do suspect he’s a paid Chinese internet commentator. However, we believe that all people should be allowed to voice their opinions, not just the ones that agree with our agenda. Therefore, at this stage we will not ban him.

      Like

      Posted by Mark Chan | July 24, 2014, 1:44 am

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  1. Pingback: Australian law firm says world offers China shallow legal services | China Daily Mail - August 4, 2013

  2. Pingback: China’s internal conflict over yuan reform rattles foreign firms | China Daily Mail - August 6, 2013

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