Vancouver Sun: Secrets to building business in ChinaMay 13, 2014
Huge potential for B.C. companies that are willing to invest the time and adapt to culture differences.
The following article was published in the Vancouver Sun on May 9, 2014, and features comment from Beedie School of Business Professor Rosalie Tung.
By Jim Morris.
The prospect of doing business in China, and potentially gaining a share of such a huge market, can create kid-in-a-candy store enthusiasm for some executives.
The head of a Vancouver-based biochemical company says opportunities do exist in China for B.C.-based businesses. But Neil Belenkie warns before anyone can taste success in the Chinese market they must learn patience, do their homework and adapt to a different business culture.
“I did a lot of research into why deals fell apart (in China) before I went and tried to do ours,” said Belenkie, chief executive officer of Sirona Biochem Corp. “My opinion is deals have fallen apart because people had unrealistic expectations of how deals needed to be structured.
“You have to manage your expectations based on how we do business in our culture versus how they do business in their culture. If you can’t accept the way business is being run in China … you’re going to be leaving yourself open and creating additional risks.”
Last August, Sirona Biochem announced it had completed an exclusive licensing agreement with Wanbang Biopharmaceuticals of China. Sirona Biochem will provide an exclusive licence to Wanbang to develop and commercialize Sirona’s anti-diabetic SGLT2 inhibitor in China. In exchange, Wanbang will provide royalty payments for product sales in China and milestone payments of up to US$9.5 million.
Belenkie said reaching the “pretty big and long-term deal” took seven trips to China over an 18-month period. He hired his own translators to help with the negotiations and learned the importance of building personal relationships with the people he was doing business with.
“I made sure I understood all the cultural norms across the board,” he said. “Then I made sure I never gave up on the things that were important to us.
“I was very clear on how I represented our values and our goals. Having met a lot of different Chinese companies I found the ones that were the best cultural fit. I was respectful and I knew what different things meant as they were introduced into either the negotiations or as part of the discussions.”
According to provincial government statistics, Mainland China was ranked as the number two destination for B.C. origin exports in 2013. In total, 16.6 per cent of B.C. commodity exports where shipped to China.
Topping the list of B.C. goods heading to China was $1.4 billion worth of lumber. Next was chemical wood pulp, soda or sulphate at $1.3 billion, followed by coal ($1.2 billion) and copper ores ($822 million).
The top imports from China into Canada include automatic data processing machines ($5.3 billion), telephones ($5 billion), motor vehicle parts ($1.2 billion) and toys ($1 billion).
Belenkie said China’s size and growth potential offers plenty of opportunities for B.C. businesses.
“There is no question that it may not be the highest dollar volume economy yet, but it’s certainly the largest growth opportunity for a target economy to get involved in,” he said.
“China has to be on your radar if you’re going to go international because it has the biggest upside.”
Rosalie Tung, a professor of international business at the Simon Fraser Beedie School of Business, said taking a North American mindset into negotiations with a Chinese company can be problematic.
“We are making assumptions about other people based on what we assume others to be like here,” said Tung, who was the co-author of a paper on Sino-Western business negotiations.
One example is the signing of a contact. A western businessman might consider a legal document sacrosanct.
“In Asia … a legal document is treated as more of an organic document,” said Tung. “If conditions should change, there is an expectation that the terms will change as well.”
Doing business in China usually involves many dinners and social evenings to build a personal relationship.
“The relationship takes time to develop,” said Tung. “Once people do know you, things do move a lot more smoothly.”
Companies should also look to make long-term investments.
“If a Vancouver company wants to go in there and make a quick buck, that may not be a sound strategy,” said Tung.
Belenkie said being Canadian does have advantages.
“They love Canadians,” he said. “The Canadian brand is trustworthy and it’s synonymous with quality. When you bring that brand it automatically means you can charge a premium for something over what the Chinese would normally purchase if it’s made in China.
“It doesn’t mean you can charge more in China than you would charge for the same product here in Vancouver. But if they are making it over there, they may be able to manufacture it more cheaply so you can maintain the margin and still make lots of money in a larger marketplace and grow the business.”