China Market Access Blog

Health Care in China: Everybody Wins

A common theme in this blog is the opportunity for Western companies to participate in the next wave of China's, and the world's, advance in standard of living and quality of life. Nothing brings this into clearer relief than that most basic of services: the improvement of human health.

Yesterday Helen Wang posted this insightful essay to her blog. In it she traces the outlines of a fascinating and exciting story line in China's ongoing economic boom.

The theme of the piece is that apparent bad news about the state of China's consumer economy is actually great news. First, the bad news: Chinese consumers' saving habits pose an obstacle to the growth of China's consumer economy. She points in particular to the need of consumers to save a large portion of their income for unforeseen health care costs, since the days of the "iron rice bowl" social safety net are long gone, and without the ability to pay for medical care, anyone could become impoverished in virtually no time.

The good news is that the Chinese government has made the improvement of health care a strategic priority. The government is dedicating $124 billion to improve health care, with the eventual goal of extending basic coverage to 90 percent of the Chinese population. Ms. Wang summarizes the opportunity:

There are many opportunities for technology companies, health-services providers, insurers, and pharmaceutical companies in China’s fledging healthcare industry. The Wall Street Journal reported that IBM is deploying technology to help thousands of scattered hospitals in China standardize medical records. The market for health care software is expected to reach $2.4 billion by 2013. Dell and Microsoft are racing to secure a slice of this huge potential market. Analysts also predict 16 to 20 percent growth in China’s medical devices market from 2010 to 2015.

There is perhaps no clearer win-win scenario than the provision of basic health care to 90 percent of the people in the world's most populous nation.

China Surpasses Japan: Worth a Moment's Reflection

Stories like this one from Sunday's New York Times seem to be a dime a dozen these days. But this one is different, quoting experts on just how astounding China's growth has been. Most stories of this ilk have presented China's passing Japan as just the latest in a long series of impressive accomplishments by the Chinese. As the years have passed and the achievements have mounted, the tone of such articles has gotten ever more blasé. It is easy to lose sight of just how extraordinary, and unprecedented, China's rise has been.

As I read the Times piece, I thought back to a controversial cover story in the Economist, from the early 1990s. The story came out soon after Deng Xiaoping's 1992 "Southern Tour," which shored up central government support for the "reform and opening" policies — policies which, in the wake of Tian'anmen in 1989, many had feared were in danger.

The gist of the Economist story was that China was poised for a long period of rapid economic growth, the likes of which the world had never seen. Many, myself included, were skeptical. After all, in the early 1990s China was obviously just beginning its development. No Westerner traveling to any part of China would have mistaken it for a developed country. Shanghai's now-ultra-modern Pudong district, for instance, was nothing more than a few docks along the Huangpu River.

Almost 20 years later, it is clear that the Economist was prescient in its bold predictions. Even more extraordinarily, there is no end in sight. From the Times piece:

“This is just the beginning,” said Wang Tao, an economist at UBS in Beijing. “China is still a developing country. So it has a lot of room to grow.”

As discussed here and elsewhere, the next big area of explosive growth for China is in value-added services. As startling as China's growth has been over the past three decades, opportunities continue to open up for companies the world over who want to hitch their wagons to the star of China's still-astounding economic growth.

The Perils of Going it Alone in China

This photo is of Dalian, a major port city in Northeast China, known for its clean air and pleasant beaches. Last week, though, Dalian showed a seamier side.

Steve Dickinson of the China Law Blog offered up this sobering post yesterday about just how quickly the ground can shift in China, and just how little foreign companies can do about it on their own.

In sum, the government of Dalian decided to institute new registered-capital requirements for any company, foreign or domestic, that wants to hire foreign nationals in Dalian.

As Mr. Dickinson delves more deeply into the implications of this requirement, both for Dalian and for China generally, he offers up the following two tidbits (at different points in the article):

1. "Clearly this new rule is contrary to Chinese law."
2. "Other people have asked me: will the Dalian bureau really be able to get away with this? The answer is: yes. The Labor Bureau can pretty much do whatever it wants in their regulation of foreign workers and it is not unusual at all for local labor bureaus to have their own special requirements."

My point in referencing this post is not to complain. This is simply the sort of problem that has been the norm in China for as long as anyone can remember. Two lessons are to be drawn.

First, it takes a particular kind of equanimity to do business in China. You have to be level-headed, or you stand little chance of success.

Second, don't go it alone. Partner up with organizations that know the ropes, especially the local ropes, and are ready to turn on a dime with you when things like this happen.

China's "Demanding" Workers: Good News for Everyone

This recent post on BSR's blog caught my eye. Entitled "Keeping up with the New Generation of Workers in China," it cites a Chinese report with interesting demographic information on how the "typical" Chinese worker is changing. The blog post summarizes:

This new generation has a greater awareness of their rights and therefore higher job expectations. Besides wages, they are also more concerned with other benefits such as employment contracts and social security insurance, the safety of their working environment, the company’s reputation, and opportunities for self and skill development.

The general theme of rising wages and more demands has been gaining traction in the Western press in recent months, usually in the form of stories about striking workers and the alarm this is causing in the C-suites of Western multinationals with a presence in China. There is a distinct "bad news" flavor to these articles.

What is rarely discussed is the enormous "good news" side of the story. These "demanding" workers are a function of the rise of over 300 million people out of poverty in China over the past three decades, who are now ready to consume value-added services. No longer concerned with merely surviving, these consumers are insisting not only on better working conditions and wages, but on cleaner air, better health care, more educational opportunities, more security for their finances, and a host of other needs.

This is truly good news, not only for those 300 million people who can turn their thoughts toward a better future, but for anyone able to provide these value-added services. This is the next great "China opportunity."

Doing Business in China: Is Seeing Believing?

A bit of a deeper dive here into an issue touched upon in the last two posts: Why is it so difficult for people to adjust their behaviors in new and unfamiliar cultural contexts? It turns out there is some amazing psychological research that sheds light on this.

The study was conducted by Li-Jun Ji, Kaiping Peng and Richard E. Nisbett (Culture, Control and Perception of Relationships in the Environment, Journal of Personality and Social Psychology, 2000, vol. 78, No. 5, 943-955). For anyone who might have thought that culture is some sort of cognitive "extra" or "window dressing," I suspect this article might change your mind.

Two groups of subjects — European Americans and Asian Americans, all undergraduates at the University of Michigan — took the "rod and frame" test. The apparatus looks like this:

What subjects see when they peer into it looks roughly like one of these configurations:

One of the uses of the test is to detect "field dependence": to what extent is perception of the rod's orientation affected by the orientation of the frame? That is, how able are people to "factor out" the frame and make accurate judgments about the orientation of the rod?

If we take a common understanding of how "East" and "West" differ, we might think that "Easterners" would be more field-dependent than "Westerners," since "context" is said to matter so much more in the East. Relationships matter more than individuals.

But this is just a metaphor, so the claim is absurd. Vision is vision, right? There's no way actual perception could differ culturally.

Except that's exactly what the researchers found: the European Americans were less field-dependent than the Asian Americans. Not only were their judgments of rod verticality more accurate irrespective of the frame, but they got even more accurate when given control of the rod. The East Asians tended to see "rod and frame" together, and gave less accurate judgments when given control over the rod.

To me this finding is absolutely astonishing. It show that "culture" goes to the very root of who we are as human beings: if how I literally see the world is partly a product of my cultural background, then how could any part of my life not be touched by culture?

It also serves as a stark reminder to anyone operating in an unfamiliar culture that we'd best be on guard against assuming our own perceptions are right and others' are wrong. Chinese and Westerners actually see the world differently. Knowing that brute-force fact can help us immensely if we're willing to distance ourselves from our own perceptions.

Puts a new spin on "seeing is believing."

Selling in China: Word to the Wise

Picking up on last week's theme of being a "friend of China": some excellent China sales advice in the latest issue of the China Business Review. I cannot link to it because it is subscriber-only content (and worth every penny — everyone should subscribe). Highlights:

• "Foreign companies should highlight their commitment to the China market, product quality, and after-sales services."
• "Chinese companies will select suppliers who they like and trust personally, not just professionally."
• "Respondents frequently said that Western companies do not listen well, indicating to the Chinese buyers that the supplier is not interested in their needs. This perception can be particularly damaging, and it often stems from the way Western companies conduct pre-sale negotiations."
• "Chinese buyers want suppliers that are easy to deal with and that engage them on a personal level. Westerners' abilities are seen as lacking, however, in terms of interpersonal contact. This manifests itself in a perceived unwillingness to attend events, visit the client's workplace, or even to make phone calls. One of the most commonly mentioned grievances is that Westerners tend to think that "work is work" and therefore limited to the workplace. Companies that are unwilling to take the discussion outside the workplace are often seen as unfriendly, and—more significantly—hard to get to know, perhaps willfully so. This perception can be fatal in an environment where gaining trust is crucial to success."

In the West we grow up with a much greater trust of institutions and processes than is found in China, where historically disaster after disaster (flood, famine, drought, war, political upheaval) have led to a distrust of institutions and have created the need for tight social bonds to achieve group goals. In today's business climate this means establishing trust and friendship. To some Western leaders this comes naturally, but to many it takes extra work and attention.

Business is not just business and work is not just work. Attending to and respecting global differences in business practices is the only way to gain enduring success. Savvy leaders give themselves and their companies a significant advantage in a crowded, cutthroat marketplace by taking these issues seriously.

"Friend of China" or…Other?

This fascinating little piece appeared recently in the Financial Times. In it Lenovo Chairman Liu Chuanzhi has this to say about Apple: "We are lucky that Steve Jobs has such a bad temper and doesn’t care about China. If Apple were to spend the same effort on the Chinese consumer as we do, we would be in trouble."

What's this all about? Does he mean what he's saying? Was this just a slip of the tongue? How might people respond? Will he be expected to issue an apology?

Intentional marketing ploy or not, I expect this quote has been well received by most people in China who caught wind of it. Why? Because few things are more important in China than being a "friend of China". I would explain this myself, but friend and colleague Dr. James Chan has done such a beautiful job of it in a speech he delivered, expounding on his "C.H.I.N.A." principle of doing business. Here he explains the last letter:

Finally, 'A' for Acceptance. 'A' stands for acceptance. There is one thing many Westerners don't think about when they walk into China. What the Chinese people really want from Westerners is "acceptance." If you want to sell anything to the Chinese or, for that matter, build relationships with the Chinese, you must make your customers, contacts, associates, and partners feel you are not behaving that a "barbarian" or "marauder." This is a key perception that is deeply-rooted in the Chinese psyche based on thousands of years of mistrust and distrust of the "outsiders." There is one thing about "acceptance" that only you can do: you have to be able to accept the Chinese as they are. You want to do business with the Chinese; you don't want to change the Chinese. The moment you make people feel that you're going to China to make the Chinese look and act and adopt the same values that you fine "superior," you'll be perceived as the age-old "barbarian" and "marauder" whom they've learned and taught to distrust. You cannot make all 1.32 billion Chinese to trust you. But you can find and groom the one or two persons, the "insiders" who feel that you respect them and that you listen to their advice. If you can do this, you will make money for as long as you desire in China.

You can see the original video of Dr. Chan's speech here:

He is an engaging and entertaining speaker, and this is worth seven minutes of your time.

Dr. Chan is spot on, and it's one of the very hardest challenges for Western leaders to overcome. We could blame it on specifically Western cultural arrogance, but truly "cultural arrogance" is a human phenomenon, not a Western one. Prejudice is wired into the human psyche, which is what makes these issues so challenging. All the more reason to work hard at seeing things from others' points of view. Doing this hard work offers great rewards in every arena of life, not least of which is more successful business ventures.

China's Next Five Years: Glimpses of Things to Come

Citing senior government officials, this article in the China Business Review gives readers a glimpse of the overall shape of the 12th Five-Year Plan (FYP), which will guide China's economic development from 2011–2015. There are no big surprises; rather, the FYP looks to continue trends that are already in place. The main trends are:

1. The continuing shift from export-based manufacturing to a more service-based economy. Outsourcing, financial services and insurance figure prominently.
2. Greater emphasis on domestic consumption, through the growth of China's consumer market.
3. New sources of energy: nuclear, hydroelectric, wind, solar.
4. An ongoing push for greater innovation, continuing the gradual shift from "made in China" to "invented in China."

The article concludes with the following recommendation: "As companies form their corporate objectives, identifying areas in which their business can align with PRC government priorities can result in long-term government support." Certainly any companies looking to do business in China over the next five years should study the FYP carefully and craft their strategies to fit as well as possible with the priorities of the FYP.

China Market Access: Cracking B2G

When we talk about China Market Access, we are talking not only about B2C and B2B, but also B2G. Given the gargantuan procurement budget of the PRC government, it's no surprise that companies the world over have long been salivating over the possibility of grabbing even a tiny fraction of the Chinese B2G market.

This piece from The China Business Review is a clear, concise summary of some of the challenges to accessing this market, and some concrete suggestions for ways to overcome the challenges.

The central issue is China's Government Procurement Law, or GPL, which came out in 2002. Essentially the GPL states that Chinese government entities must procure from domestic vendors. There are, though, certain exceptions, and foreign companies might be able to take advantage. The article goes into some good detail on this.

The one best practice that caught my attention is "buy local": "Strengthening relationships with local partners and officials will increase foreign companies' procurement opportunities at the provincial, county and municipal levels."

The opportunity here is tremendous. Think about how many government entities exist at the provincial, county and municipal levels. Indeed, the article estimates that 75% of spending under the PRC stimulus is controlled by local officials. A carefully plotted strategy that is heavy on cultivation of local contacts could be a "blue ocean" strategy that opens up untold opportunities.

China's New Currency Policy: What Does It Mean?

The short answer to the question posed in the title of this post is: probably not much, at least in the short run. Possibly more in the long run.

Take a representative sample of economists' opinions from this post to the WSJ China Real Time Report. What I appreciate about this particular selection of opinions is their guardedness. Nobody is proclaiming that the sky is or isn't falling.

We should all take a cue from these measured responses. Nothing dramatic is likely to happen any time soon.

From a longer-term perspective, one implication of the decision to de-peg the yuan from the U.S. dollar is the further embedding of China into the global economic system. From the standpoint of connecting global markets, this could be seen as a major step forward, even if the implications are slow to understand, and possibly even slower to take root.

Also, slightly ironically given the lack of consensus about the meaning of the de-pegging, the decision actually means more certainty for anyone doing business with China: no longer will people have to sit back and guess if the Chinese government will act. The Chinese government has acted, and now a process is underway. More visibility, more transparency, more certainty.

Meanwhile, companies considering expanding into China should keep an eye on the exchange rate, and on news reports about China's currency policy.