Crossing the Great Wall:
Doing Business in Chinese Second-Tier Cities
Case Studies
PM Group
PM Group is an international engineering, architecture and
project management firm with 1600 employees worldwide.
Specialists in the delivery of complex projects, the Company
works across the life sciences, food and beverages, advanced
manufacturing and energy and environmental sectors. Headquartered in Ireland, PM
Group operates from a network of offices across Europe, Asia, the US and the Middle
East, and is currently working on projects in over 25 countries worldwide.
Into China
PM Group opened its first Asian office in Singapore in 2007. From there, we worked on a
number of major multi-million dollar facilities for clients in China but it became
increasingly obvious that to service our clients more fully we needed to establish an
office in China itself.
At present, PM Group's clients are mainly multinational corporations who decided to
invest in China to capitalise on the increasing purchasing power of its 1.3bn population.
With tight time-to-market requirements, multinational corporations want to deal with
companies who understand their business and have a proven track record of successfully
delivering their projects. Our clients also want partners with an excellent knowledge of
China who can be competitive locally. The Chinese market is extremely diverse and it
became apparent to us that we needed an office there to become more intimate with the
Chinese culture and legislation, in particular, legislation governing construction design
activities, which is very specific. PM Group opened its Shanghai office in 2011 and is now
working on a number of major projects across the country.
Challenges of Doing Business in China
China is growing rapidly with a crowded and highly competitive marketplace. A common
mistake made by European companies entering the Chinese market is to try to do too
much, too quickly. For PM Group, it was important to maintain our focus on specific
sectors where we have a competitive advantage i.e. designing and building facilities for
clients in the life sciences and food and beverage sectors. Our strategy is to continue this
focus and to build on our success to date.
Another major challenge on China's highly competitive east coast is finding and retaining
good engineers with foreign language skills. Due to a booming economy employee
turnover can be very high and Shanghai's wage levels are increasing rapidly. It can be
even more difficult to attract people to work in second tier cities where wages tend to be
cheaper but where there are no international schools and cultural activities are more
limited. All of these factors should to be balanced against the need to deliver a service to
your clients. For PM Group, we made a strategic decision to set up our office in Shanghai
because it was the best location from which to service our market.
Tips for Irish Companies
To be successful in China you need to understand the market. Spend some time
conducting market research and looking at the opportunities. You can learn more in 12
months on the ground than in five years dealing with the market from outside the
country. If companies are serious about the Chinese market there is no substitute for
being there on the ground.
Use all the available Government resources – particularly agencies like Enterprise Ireland
and our embassies who have provided PM Group with invaluable support as we have
expanded across the world.
Cultural and language differences also present significant barriers to doing business in
China. It’s not enough to have a good business plan. You need to understand and
respect the culture. Consider hiring local Chinese nationals who might have spent some
time studying or working in Europe or the US. We have found they have made an
important difference to our team as they have an understanding of both the local culture
as well as our client’s way of doing business.
In essence, China is a highly complex and competitive market. One of the key essentials
of operating there is to be focused and specialised.
Niall O'Loughlin, General Manager - China, PM Group
Cornerstone International
Cornerstone International was set up in 2002 and initially specialised in software
development and IT Training. Cornerstone's IT training is targeted primarily at the
outsourcing sector in China and is officially endorsed and supported by the China torch
centre of the Ministry of Science and Technology who, operate some 85% of all software
parks in China, as a key element in building an English language outsourcing capability
in China. However, different between BPO and ITO took some times for the Chinese
companies and government to make some distinction. Cornerstone has now further
developed into a software engineering company specialised in Semantic eAssessment
engine with Ontology and related platform development & deployment, for the training,
educational eLearning sector as well as financial services in Financial Markets.
Cornerstone was the he first Irish company successfully registered with the Copyright
Authority of China in Beijing in 2006 for their accredited ICDL (ECDL in Europe)
courseware.
Challenges of Doing Business in China
The Chinese market is a huge market, each region and even in some case, a given city,
is more than twice as big as the Republic of Ireland. Each region has its own culture,
sometimes its own language and that's something that is difficult to understand for Irish
companies. However, if you are serious about doing business in China you need to invest
time in understanding the culture.
The government, political structure is also very alien to the Irish people and business as
whole. In business, Irish people is not as close to the China market and Chinese people
as other bigger trading nations, nor Ireland having the means to invest into or resource
to support the Irish business in this market.
Tips for Irish Companies
To do business in China, one must have some form of contact with the government
there, more than the usual kind of process and procedures as we know it in the West.
Then there is a distinction for central government, regional government and local
government.
As a very small nation with small economic foot print in the world economy, but focused
sectors that is fore front in the world markets, Irish business will best consider not to go
into China directly (with few exceptions) but as a secondary partner and / or via a local
partnership to include Hong Kong Special Administrative Region (HKSAR).
To engage in Chinese 2nd tier cities is a long and tiring process, not least that one
good relationship with central government and larger player in its sector, but also
to understand how the 2nd tier cities environment works. You may think that you
secured a business with central or regional entities but the situation could be
different on the ground.
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If you are serious about the Chinese market, you need to be there! However going to
China has a cost: Count €3K to €5K for a 10 days to two weeks business trip, and
remember that three to four trips a year are a must, regardless what you have on the
ground acting for your interest. Any businesses interested in this market should make
sure that they have the resources to invest in that market: Can you afford it? Where is
the return? When? Bear in mind that Chinese business people most likely will take a
much longer time to get to know you. I think that you need at least 50% more time than
when you go into the US or other European countries.
Since the European economic and banking crisis, China continue to grow in a rate seems
abnormal, and China is looking outward, to enter the European and other markets with
financial and governmental supports.
There are business and financial models that can accelerate the process for an Irish
company to engage with their Chinese counterpart, for the China market as well as the
European markets. Renewable energy sector is one example.
In brief, Irish businesses interested in this market must be very clear: Are you the world
leader in your business? Do you have deep pocket to do business there? If not, go
indirectly.
Kraken Yu, Director, Cornerstone Research International
Note: This page was created with the support of the Understanding China Programme.
For further information on doing business in China please click here or contact
[email protected].