This document provides an overview of doing business in China, including cultural differences, the importance of guanxi or relationships, China's regulatory landscape, and economic and cultural facts. It presents a case study of Koncept International, a US-China joint venture company, highlighting both challenges like cultural dynamics and benefits like lower costs. Key points are that relationships are critical for success, China's laws are unpredictable and changing, and its major cities like Shenzhen, Beijing, and Shanghai are growing rapidly in population and economic importance.

1. Doing Business in China
Anything is Possible
(Nothing is Easy)

2. Bio
USA Today/NASDAQ/Ernst & Young
Entrepreneur of the Year recipient,
successful USA Entrepreneur since 1982 and
experienced China Entrepreneur since 2004

3. Topics
Case Study
Chinese Business Culture
The importance of ‘Guanxi’
China’s Regulatory Landscape
Chinese Economic and Cultural Facts

4. China Facts
Worlds Second Largest Economy
Average Double Digit GDP growth >20 years
1.3 billion Population
Excellent Infrastructure
Nascent Business Environment
Changing Economic Landscape

5. Case Study

6. Koncept International, Inc.
Founded in 2004 by Kuang Peng (George) and Jeff
Holtmeier
Developed global VoIP platform
Koncept Shenzhen Technology, Ltd. (PRC entity) and
Koncept International, Inc. (DE-C) owned by an off
shore holding SPV
R&D, Customer Support in China, Sales/Finance in US
Customers on 6 continents within 3 years

7. Case Study
Challenges
Cultural dynamics
Building trust
Operational/Managerial differences
Time zone management
Lack of formal plans
Does ‘yes’ mean no?

8. Case Study
Benefits
100 person R&D team at ~15% of USA cost
Young, smart, hard working
Customer focused
Low taxes (special economic zone)
Low OPEX

9. China Facts
More than 100 cities of more than 1m population
6 million fresh University graduates from 2009
42% with engineering, math or science degree
Labor force >800 million
Worlds largest auto market-17m in 2010
China and HK own nearly ~$1t of US treasuries
Chinese save >50% of income
There are more than 420m Internet users in China
Only 140k Lawyers in China!

10. Business Culture

11. Chinese Business Culture
China Cultural (Expression) USA
Spiral Logic Linear
Difficult to say no Disagreement Argumentative
Indirect Communication Explicit, Direct
Subtle, Non-verbal Honesty Overt
“We” oriented Self “I” oriented
Context of the moment Thinking Rule based (Laws)
Preservation of harmony Individual Need for achievement
Guanxi, long lasting Business Relationship Superficial
Loose Meeting Time Rigid
Win-Win Conflict Results Winner and Loser

12. Chinese Business Culture
China Value Differences USA
Relationship first Interpersonal Economics first
Virtue Humility Sign of weakness
Accountable by generation Time Horizon Accountable by the quarter
Seniority, Wisdom, Ability Command Respect Success, Achievement, $
Not righteous to bully Strong & Weak WIN! Weak preyed upon
Strong Discipline Depends on person
Openly receptive but… Openness More open
Long memory, need to Shame Tends to be superseded by
exonerate business priorities
Mixed: business, individual, Priorities Tend to be all business
nationalistic

13. Chinese Business Culture
Basic Etiquette
Business (Name) Cards
Use of names
Displaying emotion
Guest-Host relations
Using intermediaries
Lunch, Dinner, Socializing

14. Guanxi
‘Relationships’
Chinese rely on Guanxi
Critical to business success
Build trust with Chinese partner
Invest in the relationship
Chinese prefer to do business with ‘friend’
Once Guanxi is established, more doors open

15. Guanxi
How to build
Treat them nice
Do what you say
Be dependable, reliable (like a friend)
Frequent contact to establish bond
Western companies need to ‘invest’

16. Guanxi
Is Not
Bribery
A replacement for how to conduct business
A reason to avoid proper due diligence
Something that a Foreigner can learn
Transferrable from an Employee

17. China Facts
China is almost identical in land size to the US
An estimated 3-500m people are unaccounted
Chinese invented paper, ice-cream, compass,
gunpowder, printing, and toilet paper (1300)
Great wall is 5,000 km long and built 2,500 yrs ago
Mandarin is spoken by more people than any other
language (there are 200 dialects in China)
China has more English speakers than USA

18. Regulatory Matters

19. Regulatory Matters
China’s laws
Opaque
Inconsistent
Often arbitrary
Unpredictable
Constantly changing

20. Regulatory Matters
Different than USA
Impacts how you do business
Every industry has unique regulations
Central, Provincial and Local regulations
Change in regulations occur quickly
Businesses do not rely on lawyers like USA

21. Regulatory Matters
China Structures
Representative Office
Joint Venture
Wholly Foreign Owned Enterprise (WFOE)
Foreign Invested Commercial Enterprise

22. China’s Constitution
CHAPTER II. THE FUNDAMENTAL RIGHTS
AND DUTIES OF CITIZENS
Article 35. Citizens of the People's Republic of China enjoy freedom of
speech, of the press, of assembly, of association, of procession and of
demonstration.
Article 36. Citizens of the People's Republic of China enjoy freedom of
religious belief. No state organ, public organization or individual may
compel citizens to believe in, or not to believe in, any religion; nor may
they discriminate against citizens who believe in, or do not believe in, any
religion….
Article 51. The exercise by citizens of the People's Republic of China of
their freedoms and rights may not infringe upon the interests of the state,
of society and of the collective, or upon the lawful freedoms and rights of
other citizens…..

23. More China Facts
‘Show me the Money’
China 2009 USA
$4.9 T GDP $14 T
$7,500 GDP per Capita $47,000
$428 B Debt $13 T
$891 B Consumption $8 T

24. More China Facts
‘Show me the Money’
China has 128 Billionaires in 2009 to USA 403
In 2000, China had 2
China has 477k Millionaires in 2009, 4th in the world
Bentley will sell >400 cars in China this year
BMW sales in China have surpassed Germany
Mercedes will sell 300k units/year by 2012
Audi will sell 200k in ‘10, doubling sales of ‘08

25. Chinese Food

26. Chinese Food

27. Chinese Food

28. Chinese Food

29. Chinese Cities

30. Shenzhen

31. Shenzhen
Population: 13,300,000
Deng Xiaoping ‘Capitalism Test Market’ 1978
One of the fastest growing cities in the world
90% of the computer parts sold in the world are made here
Pioneer in liberalization, both in terms of trade and politics
Beneficial policy to attract foreign investment
Lower cost of living than Hong Kong

32. Beijing

33. Beijing
Population: 17,430,000
Political, cultural and educational nerve center of China
Major transportation hub of the country
Spent $40b in Beijing for 2008 Olympics
Adding 15,000 new cars per week. 1 million in 2010

34. Beijing Traffic

35. Shanghai

36. Shanghai
Population: 18,884,600
Became the largest cargo port in the world in 2005.
Center of finance and trade in mainland China
Has 56,347 foreign entities as of March 2010
Attracts 10.09% of foreign investment in China
Preparing to allow foreign companies to list shares
and sell bonds in the domestic financial markets

37. ?

38. Thank You
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