Doing Business in China – Managing Risk to Create Success

The risks of doing business in China are well documented, and foreign firms often find themselves leaving the country with their tails between their legs. Having said that, with booming economic conditions, the temptation to do business with the Chinese is a strong one. One of the factors that will define the success of your business relationship is risk management here are a couple of ideas to get you stated.

Conduct a Complete and Thorough Risk Analysis

It’s amazing how many companies fail to do a little planning before they run into trouble. Risk analysis is difficult in China but not impossible, you need to rely on more than local media and representatives of the firm (and local government) to understand the market position of your prospective partners. Your industry body and or your chamber of commerce will be a good help in finding out more, or you could engage a specialist consultancy to do the digging for you.

Before you enter into a relationship determine how much risk you are willing to bear and if the deal exceeds that threshold – walk away. If you have a risk management policy for other countries you should apply exactly the same high standards to dealing in China and not lower them because you are salivating at the thought of higher profits.

Develop a Problem Prevention Culture

As well as filling in lots of beautiful balance sheet predictions at the start of the project, spend some time planning around problems that may arise during the course of things.

Develop a full set of contingency plans for each and every eventuality including practical solutions to be used for workarounds. Ensure you have set milestones for each stage of the project, and an exit strategy for every place in that plan too even if you don’t intend to use one.

Never forget that business in China is based around personal relationships and Chinese suppliers may mislead or even outright lie to you if there is another personal relationship (outside of yours) that would be damaged by the truth.

Many Chinese businesses are also not unconstrained entities as they are in the West and local political issues may have a significant impact on their capacity to do business with foreign organisations. This may be very difficult to gain visibility of and enquiries in to what’s happening may be brushed off, particularly if there is any “loss of face” associated with keeping you in the picture.

Ideally you should develop contacts and relationships in local government and central government who may be able to intercede on your behalf if things look to be progressing towards failure.

The complexity of the business culture in China means that you need to spend more time and effort understanding working practices before you move into partnership and it makes a risk management strategy an essential part of managing relationships successfully.

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