Chinese authority Dr. Kerry Brown on China's issues and western ways

In this exclusive interview, VentureOutsource.com speaks with Kerry Brown, Ph.D., committee member with 48 Group Club (www.48groupclub.org), a business network committed to promoting positive relations with China. Dr. Brown is also an associate fellow at Chatham House (www.chathamhouse.org.uk), a world-leading institute for the debate and analysis of international issues.

Dr. Brown is the author of Struggling Giant: China in the 21st Century and, The Rise of the Dragon: Chinese Inward and Outward Investment in the Reform Period.

Learn about three common mistakes western executives make when engaging Chinese executives, protecting your product design, Dr. Brown's ‘must-do' checklist, and more. Transcripts from that discussion follow.

VentureOutsource.com: You have considerable expertise regarding business engagements with China and China's private sector. On this note, executives from western manufacturing companies that engage Chinese companies must be cognizant of business protocol when navigating the Chinese business environment. What three (3) common mistakes regarding business protocol, or etiquette, do you often see western executives make when engaging their Chinese counterparts in the Far East?

Brown: Mistake #1: Viewing the Chinese business environment as similar to ours, and to assume the division between government and the commercial sector is as clear cut as it is in developed countries in the EU and North America.

China has changed radically since the death of Mao Zedong in 1976, and the beginning of the Opening Up and Reform period in 1978. China has become much more integrated into the global economy, has constructed, pretty much from scratch, a rule of law, contract law, bankruptcy law, investment regulations, etc.

But the bottom line is that it is still a one party state, and the Communist Party is very much in power. China is a government-saturated environment.

Kerry Brown, Ph.D.
Committee Member, 48 Group Club
Associate Fellow, Chatham House

Government exists all around, which is why it is best to talk about the `non-state' sector in China (ie, with the word `state' still very much present) rather than `private sector'. So, any company going into China needs to have an almost dual-track approach, building government relations into what they do, even if it is only to make sure government officials are aware of the projects companies are involved with, and that some efforts have been made to keep them informed. This pays good dividends if, somewhere along the line going forward, problems occur.

Mistake #2: Misunderstanding the highly fragmented nature of the Chinese economy. There are massive differences between the urban coastal cities (like Shanghai and Guangzhou) and the inland provinces, with the former operating on nearly separate economies.

Indeed, as U.S.-based scholar Yasheng Huang pointed out in his very good study of Chinese inward investment, Selling China: Foreign Direct Investment During the Reform Era, it is as hard for a Chinese business person in one province to invest in, or do business operations, in another province, as it is for them to simply operate abroad. There are different tariffs; regulations, markets, technical levels and consumer bases.

Assuming China is more integrated than it is can lead to massive disappointment when it is clear that, in fact, there are multiple markets, and multiple dynamics. Business plans have to be adopted to take this into account.