China

For the flexible and patient, China’s $2.8 billion market offers extraordinary sales opportunities.

In the early years of the 15th century, about sixty years prior to Christopher Columbus’ arrival in the Americas, Chinese explorers built large sailing vessels that could carry up to 500 people. These intrepid Chinese sailors ventured as far as Africa to explore opportunities for trade. But then a new Chinese emperor frowned upon such ventures. He felt that these journeys brought home more troubles than treasures and ordered all seagoing ships burned. He banned all Chinese from leaving their country and let it be known that all who tried to act against the new policy would face beheading.

Thus for centuries, China remained an inward-looking nation, cut off from prosperity and progress. Today, after hundreds of years of isolation, 1.2 billion Chinese readily embrace economic change. The simple idea of opening the door to foreign trade had been introduced by 19th century reformers and it has slowly swept across the country with a force that not even the most conservative Chinese politician could resist. When Premier Deng Xiaoping proclaimed in 1978, “Let foreign things serve China!” the entire world paid close attention.

China’s Mighty Market

Today, China is the world’s third largest economy with a projected gross domestic product of $2.6 trillion for 1994, according to the World Bank. What makes the China market so attractive is the rapid rate of economic growth. While industrial production in the Western half of China showed modest increases in 1992, the Eastern coastline from Canton to Peking enjoyed dramatic increases ranging from 25 to 45 percent. On a national scale, China’s economy grew at a rate of about 12 percent in 1992 and at a slightly higher rate in 1993. According to economic experts, China’s economy will continue to pick up steam to the tune of 7 to 10 percent each year for the next decade.

Although these growth rates and the purchasing power are open to conflicting interpretation, many experts predict that China will become the world’s biggest economy within the next ten to fifteen years. The U.S. Department of Commerce reports that in 1992 China imported $80 billion worth of goods and services. That’s a healthy 28 percent increase from the previous year. Gan Ziyu, China’s Vice Chairman for State Planning predicted in 1992 that China’s imports for the next five years will be “well over $300 billion.” No wonder foreign companies want to get their fair share of the happily booming China market. Rajendra Nath, Beijing general manager for GE Aircraft Engines, told a Business Week reporter, “The only thing comparable to what’s going on in China is the reconstruction of post-World War II Europe.”

The possibilities of serving a market of 1.2 billion consumers (that’s more than four times the population of the U.S.) are staggering. Just imagine what could happen if every Chinese adult would purchase a six-pack of American beer each week. After a few weeks, and a few gulps, Chinese beer drinkers would have outstripped the annual production capacity of every single American brewery. Or let’s take the show on the road. What if just one in a hundred Chinese decided to purchase an American car? That would be 12 million cars on China’s highways and 60 million Goodyear tires.

China’s Unlimited Business Opportunities

China’s open door to doing business in a new way is not limited to foreigners. When the Chinese Government accepted the idea of a free enterprise system in designated economic zones, reports of surprisingly successful Chinese entrepreneurs reached the West. Take Liu Ming, a 34-year-old former steel worker. Last year he opened his second restaurant in Shanghai. Not used to sudden wealth, he exclaimed, “We’re shoveling money now!” He takes home about $10,000 a month, which is a hundred times more than he made before. Today, he wears a three piece suit, white lacquer shoes and sports a cellular telephone. Shanghai grew at a rate of 18 percent in 1992 and Liu is happy. While his affluent customers take delight in dining out, Liu has tasted capitalism and he wants more.

Take Wang Junjin, a 23-year-old who founded an airline with his brother. According to the New York Times, Wang was a traveling salesman and learned about the need for inexpensive airline travel in his country. Wang chartered several Boeing 737s and started Sky Dragon Charter Airline. In 1992 he offered seven flights a week and posted annual sales of $2 million.

Take Chen Yuguang, a 45-year-old real estate developer in China’s southernmost island Heinan. When Chen dropped out of school at age 15, he made ends meet as a construction worker and later became an electrician. He soon started his own business and came to Heinan in 1988 with an eye towards investing in real estate. He struck a deal with the largest landowner to develop a prime parcel of land next to the airport. Since he had little financing, he showed his blueprints to investors and within five days he raised about $20 million. Chen completed the project on time and produced record profits for his backers.

Encouraged by his success, Chen leveraged his borrowing power and went on to build apartment and office buildings. Today he is Heinan’s largest real estate developer with a net worth of over $200 million. He considers himself to be China’s first Donald Trump. Like The Donald, Chen occupies a lavishly appointed suite in a flashy 15-story office building. Between his office towers, which resemble a Bavarian castle, he installed an air conditioned jogging track and a tennis court.

A former Chinese tennis star has moved in to become Chen’s personal trainer. Li Ruihuan, a member of China’s power-elite (a former carpenter who worked his way up to become the head of propaganda and cultural affairs), likes to stop by occasionally to play tennis with Chen.

Chen’s latest coup: only a few days after his company was listed on the stock market, its market value quadrupled making him China’s first billionaire (when measured in Yuan).

How The Fortune 500 Grow Sales In China

In 1992, American companies sold $9 billion worth of products and services to China and invested $1.6 billion in Chinese enterprises.

Although growth has been impressive overall, seasoned Fortune 500 executives know that the Chinese economy has experienced repeated cycles of bust and boom. Social discontent has surfaced as the rich got richer and the poor more resentful. China is in the midst of an uneasy political transition. American companies are challenged to cope with an undeveloped legal system, restrictions on trade and investment, a limited ability to sell in hard currency, and rampant corruption.

Even as they counsel that a strong sense of realism must accompany any sales effort, experienced China hands remain optimistic.

Today, thousands of American companies are competing to take advantage of the booming China market. Avon is selling cosmetics door to door. Texaco opened gas stations. Xerox has captured 45 percent of the copier market. AST computers hum away in schools and factories while Keystone valves are finding their way into infrastructure projects. Boeing keeps its assembly lines at peak capacity through lucrative aircraft sales to China. Experts estimate that China will purchase 50 to 60 large aircraft per year for the next three years to meet the rapidly growing demand. Motorola built a plant in China that produces 10,000 pagers a week that retail for $200 with a one-year service contract. The market for pagers is estimated at 4 million a year.

AT&T has publicly stated its Chinese business may eclipse its U.S. business after the turn of the century. While most of the country’s 400,000 entrepreneurs view cellular telephones as a necessity, 95 percent of the people in China look with envy at the communication toys used by their rich cousins.

The insurance giant AIG has hired 140 salespeople who are knocking on doors in Shanghai. According to the Wall Street Journal, in eight months they sold more than 12,000 policies.

Byron Wu, president of the U.S.-China Chamber of Commerce, a newly formed group trying to help American companies market in China, estimates at least 10 percent of the Fortune 500 already have a presence in China “and the rest are trying.”

Smaller Companies Make

Sales Calls In China

Even companies with less than $50 million in sales can find profitable market niches. “It is no longer a question of ‘what I have to offer,'” said Dr. P. Richard Bohr, former executive director of the Minnesota Trade Office who has helped a wide range of companies in China. “In many cases and in a variety of fields medium and small sized companies have a great deal that China needs and is willing to buy. The real challenge is learning about the opportunity.”

A few years ago, Diebold Inc, an Ohio based manufacturer of banking equipment learned that China was in the process of upgrading 100,000 bank branches. The company sent a lone sales representative, Edgar Petersen, on a two-week trip to China. He visited a number of banks, found a need for safe-deposit boxes and returned with orders for safe-deposit boxes equal to a year’s worth of Diebold’s manufacturing capacity. Today, Diebold has captured 60 percent of China’s ATM market. Diebold’s chairman, Robert W. Mahoney, estimates the Chinese market for ATMs to grow to 5,000 units per year within a short time. (That’s about one-half the size of the U.S. market).

To help American companies seize selling opportunities in China, the U.S. Embassy in Beijing recently put together a shopping list of products and services that have the best chances of succeeding in the Chinese market. At the top of the list in recent years have been aircraft and aircraft engines, transportation and related equipment, chemicals, and plastics. China also needs medical products and pharmaceutical products.

Perhaps the greatest demand has come for products and services related to the infrastructure: energy, water, telecommunications, transportation. As Don Forest of the U.S. Department of Commerce said, “With China’s intent to invest more in its infrastructure and the need to deal with its woes in telecommunications, energy and transportation, there is obviously a good market for U.S. exporters since we are very competitive in these fields.”

Three Market Entry

Strategies To China

More and more companies realize they cannot be global competitors without being in China. Their strategies have a common blueprint for sales success: finding a way to adapt to the Chinese environment yet retaining control over sales.

Xerox began selling copiers in China in the early 1970s through their Hong Kong distributor. The next step was to operate a joint venture. William Daley, now manager of operations and control in the Americas Division but intimately involved with the company’s China ventures since the mid 1980s, explained, “We got hooked up with an absolutely wrong partner [a shipbuilder assigned by the government] so we disengaged for a while.”

The project became active again in 1984 when Xerox signed a joint venture with a more suitable partner in Shanghai. The next hurdle was to find suppliers willing to upgrade their products to meet “Xerox Quality Standards.” The goal was to build the copiers with 70 percent local content. “We’re very close to that as well as projected volume,” said Daley. Although it took Xerox two years longer than expected to achieve the production goals, the joint venture was profitable two years earlier than the feasibility study predicted.

General DataComm, a mid-sized Connecticut company supplying the telecommunications equipment, made its first sales calls in China through a Hong Kong distributor. To show its willingness to help China upgrade its own manufacturing capabilities – virtually a political necessity then and now – it established a licensee and sold products locally but not under the General DataComm name. At the same time, the company developed direct distribution through dealers in Hong Kong and Beijing.

Gary Bacon, General DataComm’s area vice president, Asia Pacific, told Personal Selling Power, “The Chinese have a massive need to develop their commercial enterprises, and they must build a communications infrastructure to accommodate it.” To back up their commitment, the company recently announced it would open a new and expanded regional office in Singapore to service China and other Asian markets. Bacon will relocate there to oversee the company’s rapid expansion in the region.

When DataComm started its marketing efforts in China, sales didn’t take off immediately. A massive education effort was required to bring people up to speed.

General DataComm consistently targeted two potential customers: the provincial-level branches of ministries seeking to upgrade their telecommunications capabilities within China, and the large, international data communications companies such as Northern Telecomm. The results have been brisk sales. As sales grew, so did the company’s interest in creating a joint venture production facility.

The company recently signed a three-year, $12 million agreement in 1993 to supply networking and transmission equipment to other parts of the country. Much of that equipment will come from the company’s joint venture.

Raymond LeBlanc, chairman of Keystone, has high hopes for selling in China. “China is probably number one and Southeast Asia number two in terms of growth as far as Keystone is concerned,” he says. Keystone International is a Houston based manufacturer and supplier of flow control equipment. With 30 manufacturing plants and 90 direct sales offices in 16 countries, Keystone is truly a global company with $528 million in sales (1992), 55 percent of which come from overseas.

Keystone decided to capture the Chinese market through a direct sales office in 1989. There is a sales force of 15 people in Beijing and smaller offices in Shanghai and Shenzhen. A Hong Kong regional office covers booming southern China and serves as technical, sales and training back-up for all three China offices.

Initially, Keystone had looked into finding a vendor in China to replace an increasingly non-competitive one in South Korea. But the potential partner “could not prove their capabilities,” said LeBlanc, “and we decided the only way to successfully bring material out of China would be through our own plant.” The result was the establishment of a wholly- owned enterprise in Shenzhen, a special economic zone on Hong Kong’s border. Parts for production are still sourced around China. These are then brought to Shenzhen, where the company adds some critical components, finishes the product, and prepares it for delivery.

Most of the energy is focused on the sales effort, however, which takes place both in and outside of China. Some 60 percent of Keystone’s China-bound sales are actually made outside of China, to international contractors who have their own projects in the areas where Keystone is active.

“Sales in China have doubled every year for three years and they’re expected to be close to $12 million in 1994,” says Robert J. Hodgson, Keystone’s group president, Asia Pacific. “There is so much business (in China) that to hire and train people fast enough is probably our biggest challenge.”

How To Compete In China

Competition in China is getting fierce. Flexibility and the ability to quickly respond to potential leads has become an essential ingredient to success. This is why companies hire retired or semi-retired officials from the ministries they do business with. These are savvy people who continue to be able to walk into their old offices and get wind of projects long before they become general knowledge.

Consider the story told by Keystone’s Hodgson. A competitor had also heard about a potential project and did the normal thing: a delegation organized by headquarters went to China to hold meetings with all the right people to introduce the company’s capabilities and determine what needed to be done to organize a proper bid.

Keystone found a better way. “We had our local Chinese salespeople on the ground,” explains Hodgson. “They were the people who talked to the local office of the Ministry. They were the people who set up the initial presentation and who determined what level of expertise within the company was required for the technical discussions and negotiations. We sent one person who absolutely knew the product, and he went in with our Chinese staff and cemented the deal. We spent a whole lot less money and got a whole lot more business.”

China has become an accessible and rational place to do business. Success in selling to China largely depends on our perception and our perspective. If we perceive China as a sleeping market, we’re bound to be caught napping while global competitors chalk up record sales. If we put the numbers of the China market in perspective – almost equal to the size of the U.S. – then our chances for selling in China are going to be excellent. n