By Adam Dupre

The process of reaching a decision whether to proceed with a business proposition can be difficult anywhere. In China physical distance and cultural differences make the process even more difficult and risky. So what is the answer?

Post WTO China is the world’s biggest new market. Much of this massive opportunity lies as yet untapped, but any Western business seeking entry into this market faces profound cultural complexities. The most dangerous effect of this cultural complexity for the western businessperson is that it makes it very much more difficult to assess commercial and financial risk realistically.

Of course the fundamental realities that drive a decision to proceed with a proposition are the same whatever the culture: the possible rewards must significantly outweigh the costs and the risks, and be realistically attainable. However, the process of deciding whether these conditions apply to a given potential deal is different in China and the West. The political parameters may be complicated, but they are relatively clear and navigable given readily available expert support. However, from a commercial perspective, businesspeople in each culture look for different kinds of ’signpost’ when considering a possible business opportunity. This is partly because some types of data that are taken for granted in the West are not easily available (if they are available at all) in China, and partly because of different views as to what is crucial in establishing a business relationship. These differences can be a danger for the unwary Western businessperson.

In Western to Western business the basic structure of this intelligence gathering process is clear. Much of it we simply take for granted as a natural part of our commercial culture - like the existence of audited and generally trustworthy accounts.

Probably the most significant difference between doing business in the West and doing business in China lies in the role of ‘relationship’ in the mix. The West’s regulatory system, its contractual framework supported by a powerful legal system, is so well developed that business could theoretically be initiated and conducted by telecommunication without the parties meeting physically at all. While few people would contemplate doing serious business without knowing the key people in the company they are dealing with, the regulatory structure in the West means the personal relationship can be less central to the mix.

In China, it is impossible to do business without the development and maintenance of firm personal relationships. Where available and trustworthy information and enforceable contracts are not the basis of a business culture, personal relationships and trust have to be the essential bedrock for business dealings.

For foreign companies looking to develop in the Chinese market, this can be a major problem. There are many consultancy companies and organisations (including CBBC) that specialise in helping with cultural differences and making introductions and recommendations. But the fact remains that if you want to do business in China you have to go there personally, and you may have to meet up with and develop relationships with several companies and individuals before you find the right business partner. Once you have selected the business partner of your choice (usually several delicious, if expensive, banquets later), what you spent on all the equally expensive nights out with the non-selected potential partners is lost money. Additionally, most of the actual data you will have gathered on your prospective counter parties will have come from the counter parties themselves and may be scant and will be heavily edited.

Is it possible to obtain reliable and comprehensive third party information and assessment of companies in China, which suits Western business demands for both reliable content and incisive and relevant analysis and assessment? If so, it would provide a firmer basis for decision making, and it would also cut some of the costs of developing business in China by eliminating inappropriate potential partners before having to spend time and money cultivating them.

For some time now, all companies in the growing Chinese private sector with capital of RMB 5 million and above have been obliged by law to file their accounts and other corporate information (Directors, Shareholders, outline of activities etc) with the local provincial authorities. Technically these records are available for public inspection. However, there is no centralised ‘Companies House’, nor can you take copies or notes of papers in a company’s file, and it is necessary to visit the relevant locations to view the files in the first place. And of course everything is in Chinese. However, there are organisations in China with increasingly sophisticated networks of contacts throughout the country, which can source this information on companies in China. In addition, some of them have the ‘journalistic’ skill and experience to identify and interview people in the Chinese companies, and also their suppliers and customers, to add to and sometimes correct the official data and produce a clear, accurate and rounded profile and analysis of a Chinese business. It is very difficult for foreigners to do this. Ideally, this locally sourced intelligence needs to be subjected to a more rigorously Western analysis and assessment, and the translation into English checked for misleading idiomatic inaccuracies. Close collaboration between Western and Chinese experts is key to this process.

There are currently a number of companies, both Chinese and foreign, offering information on Chinese businesses. For the Chinese companies, the challenge is to appreciate that Western decision-makers place greater emphasis on objective analytical data than matters of relationship and commercial connection. For the Western companies offering information on Chinese companies, the primary problem is precisely that they rely on the existence of trustworthy publicly available data with which to feed their sophisticated analytical software systems. They are not geared to question their data gathering processes - indeed the cost of employing local researchers who would spend time supplementing and correcting officially sourced data would drive up the price of their products. Their products also tend to be structured to support one type of business decision (e.g. setting credit levels) and are not ideal for others (e.g. assessing joint-venture prospects).

Inevitably, a new type of information provider will begin to appear, sensitive to the needs of its customer base and with access to the best available information locally sourced in China. Its hallmark will be a careful combination of high quality local Chinese research with experienced Western company analytical expertise. With this type of service, reaching the point of optimum intelligence as the basis for a sound business decision will become a safer, simpler and more cost-effective matter.

Adam Dupré is managing director of China Company Research Services Ltd, which offers high quality information on Chinese companies. Working with skilled Chinese researchers, and applying Western rigour of analysis to locally sourced data, CCRS provides company information in a format geared to support the Western commercial decision-making process.

First published in CBBC in Jan ‘03