Operational Environment

There are many obstacles to doing business in China any one of which can result in financial loss for foreign companies.  Restrictive government regulation of foreign investment, problems protecting company intellectual property rights, the need to overcoming differing cultural & business norms, the need to adapt technology to local needs or tastes and nationalist sentiments governing consumer buying choices not to mention other foreign competitors and flourishing domestic competition.  All of these make the China market the most difficult to tackle in the world.

However, China has been called the Economic Miracle of the 21st Century, it is the number one market for mobile phones, the world's largest online community and the World's 2nd largest consumer of high-end fashion products, accessories and other luxury goods. China has lifted two-thirds of its people out of poverty and 7 of the worlds 10 most populous cities are in China! It has overtaken Germany as the biggest exporting nation and now has a car market bigger than America's. As the consumer market with the largest untapped potential in the world, it presents an opportunity so alluring western businesses find it hard to turn and walk away.

However, the tech transfer model of the last 20 years is increasingly becoming less effective and more unworkable.
Previously foreign businesses would export directly or licence technology products and where joint ventures took place, foreign companies would typically contribute their brand, product and technology as their investment and the local company would contribute human resources, land & buildings and local market networks.  While these approaches may still be appropriate for certain types of technology and companies at the moment, as China becomes able to research, discover, manufacture and market it’s own products and technology, the need to buy from foreign companies will decrease. Both as a natural progression of economic development and through direct government policy China has moved up the production chain. Mature Chinese companies now exist able to make sophisticated, quality driven and technologically advanced products to international standards. They have made achievements in areas such as manned space flight, bio-pharmaceuticals for global epidemics such as H1N1 strain and as early as 2005 China's hi-tech industry was experiencing rapid growth, accounting for over 15% of the manufacturing industry. They now have a highly educated population able to engage in their own domestic R&D and will soon be the second biggest spender on R&D the world. In addition China both at government and business level has the financial clout to speak as an equal at the negotiating table. Where they were once called the workshop of the world they now plan to become the Laboratory of the world.

We believe that from now on, foreign companies achieving success with China technology transfer will need to think more and more in terms of fair, co-operative and equal partnerships between foreign and local players, the co-development and sharing of results from R&D and joint efforts to implement common international standards for marketing both domestically and globally.  This is particulary poignant in the hi-tech and Bio-tech fields. Critical factors for sucess will include taking a longer term vision regarding operating in China, entering into longer term partnerships, the founding of new jointly joint stock companies for co-operation structures and the marketing and sales of R&D results and related technology not only in the Chinese market but also globally.

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