Chinese firms are content: survey

Updated: 2013-02-22 14:04

By Chen Weihua in Washington (China Daily)

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Chinese firms are content: survey

The logos of Chinese electronics companies TCL and Huawei Technologies are shown at the Consumer Electronics Show in Las Vegas. Chinese companies have shown an increasing interest in investing in the US. Wang Jun / China Daily

Top executives say experience has been successful in the US

Despite unfamiliar regulations, cultural barriers and high operating costs, most Chinese companies doing business in the United States describe their experience as successful and are optimistic about the future, according to a new survey.

Among executives polled, one-third said their companies' entry into the US market had been "very successful", while 61 percent described the experience as "somewhat successful". Only 6 percent of respondents answered "unsuccessful" or "very unsuccessful", according to the survey.

The survey was conducted in November and December by China Daily and APCO Worldwide, a global public relations and business-strategy consulting firm based in Washington, to better understand how Chinese companies in the US have fared.

"China Daily is pleased to partner with APCO on this important survey," said Larry Lee, China Daily USA president and editor-in-chief. "As more Chinese companies go global and come to the United States, they add a dimension to the close economic and trade relationship between the world's two largest economies."

The joint survey's sample consisted of 51 top executives - CEOs, presidents, vice-presidents and managing directors - from 46 China-domiciled enterprises with at least 10 employees in the US. The respondents represent a cross-section of locations, years of US operation and industries, including sales, manufacturing, professional services, banking, real estate, and research and development.

The survey's largely positive tenor contrasts with the result that 71 percent of respondents said their US market entry had been hard. Of this group, 18 percent described the experience as "very difficult" while 53 percent said "somewhat difficult".

For 10 percent of the executives polled, bringing their companies to the US was "very easy". Another 18 percent answered "somewhat easy".

Nearly three-quarters (73 percent) said their companies had ventured into the US primarily to expand their share of an industry market. For 14 percent, the top goal was to increase brand recognition, while 8 percent said they had been seeking access to new technologies.

"Entering a new foreign market is challenging for any company, however large or small," said Margery Kraus, founder and CEO of APCO Worldwide, whose business includes helping Chinese companies expand in the US and US companies expand in China.

"Wherever you go, there will be differences in culture, language, regulations, consumer habits, infrastructure, human capital, so on and so forth," she said. "It takes time to adapt to this new environment."

To succeed in the US, a Chinese company must have experienced personnel in both markets who can detect nuances, understand how business is conducted across cultures and identify key stakeholders.

The China Daily-APCO survey is intended to provide in-depth understanding drawn directly from experiences of Chinese enterprises in the US.

"We feel there is more to the story of Chinese investment in the US than the stories you hear in the media," Kraus said.

Lee said that since late 2011, China Daily has made coverage of Chinese companies in the US a top priority. This spring, the newspaper will publish an illustrated book, Chinese Companies in the United States, that includes more than 60 stories by China Daily reporters as well as outside experts.

"We hope the survey and the book help Chinese companies enjoy smooth sailing in the US and foster understanding among the American public about Chinese direct investment," he said.

Chinese firms are content: survey

In the survey, 92 percent of executives agreed that overcoming cultural differences in doing business was an obstacle for their companies. For 45 percent, the culture gap was a "major challenge" to entering the US market.

More than one-third (37 percent) of respondents said general economic conditions in the US posed a "major challenge" for their companies, while 28 percent said complying with US laws and regulations fit that description.

In the United States, many industries are highly regulated and foreign companies should appreciate this to avoid mistakes that could damage their reputations or cause delays, Kraus said.

"It will naturally take some time for a new market entrant to fully grasp the range of new regulations and standards they face in any new market," she said, citing differences between the US and China in accounting standards, marketing regulations and advertising.

American politicians and pundits often talk of threats to US national security posed by Chinese direct investment, while Chinese officials and media outlets accuse the US of fear-mongering. However, only 22 percent of business leaders in the survey cited the US political climate or a general bias against Chinese companies as a major challenge.

Last September, US President Barack Obama signed an executive order requiring Chinese-controlled Ralls Corp to abandon a wind farm project near a military base in Oregon and divest all of its related assets. It was only the second time a US president formally blocked a foreign acquisition; the first was in 1990. Ralls executives are pursuing a civil lawsuit against the Obama administration.

In October, a report by two members of the House of Representatives Intelligence Committee alleged that Chinese telecommunications-equipment manufacturers, Huawei Technologies Co and ZTE Corp, could be a national-security threat.

The cases have been portrayed by Chinese officials and citizens as signs of hostility toward investment in the US from China.

Kenneth Jarrett, who served as chairman of the American Chamber of Commerce in Shanghai and is APCO's chairman for greater China, said he was pleased that survey respondents didn't mention political attitudes or bias as major problems.

"The report is positive in terms of Chinese experience in the United States. Even if they have challenges of market entry at the beginning, their market entry is a success and the vast majority said it's easy to do business in the United States," said Jarrett, a former State Department official whose diplomatic career included serving as US consul general in Shanghai.

"We hope that this survey will help counter some misperceptions about Chinese investment in the United States," he said.

Executives who described their companies' US experience as easy credited factors such as transparency and fairness in the marketplace, the hiring of local personnel to help navigate the US business environment and culture, and strong demand for their products and services.

The optimism of Chinese companies operating in the US matches the sentiment of US companies in China - around 90 percent, according to recent surveys.

The 92 percent of Chinese businesspeople surveyed by China Daily and APCO who expressed a positive outlook for their company included 53 percent who were "very positive" about the next five years. Only 6 percent and 2 percent, respectively, reported feeling "somewhat negative" or "very negative" about the outlook.

Among those executives who anticipate growth for their companies, a big reason is a belief that the US economy will expand at a faster pace in coming years. They also say their experience from being on the ground has positioned them for success in the US.

Another finding in the poll is that 6 in 10 executives said it's "very easy" (28 percent) or "somewhat easy" (33 percent) to do business in the US. It has been "somewhat difficult" for 35 percent and "very difficult" for 4 percent.

Four out of five executives identified competition from existing US companies as a challenge, with 53 percent describing it as "major" and 31 percent calling it "minor". Only 14 percent said this isn't a challenge.

According to Kraus, attitudes about competition are shaped by the industry a company is in. Some are fiercely competitive, dominated by entrenched players with long histories and strong brands.

"I think it also has to do with the fact that Chinese brands are not very well known in the US," the APCO chief said. "Chinese firms inevitably will have to do more to build awareness and promote their products to US consumers. This takes time and money."

Although the US is generally known for its skilled work force, a third of Chinese executives said finding qualified people is a major challenge.

Respondents were splintered when asked to compare the challenges they face with those of other foreign companies in the US. A total of 18 percent said Chinese firms face more challenges, 39 percent said "somewhat more". To 41 percent, Chinese companies and their non-US counterparts face about the same number of challenges. Only 2 percent had faced "fewer" or "a lot fewer" challenges.

Those surveyed offered insight into what is crucial for success in the US market: hiring or contracting local experts and staff, understanding cultural differences, knowing the regulatory environment, patiently investing for the long term, and focusing on high-quality products and services.

Among the words of advice imparted by executives who responded to the survey:

Hire Americans to run the business in the US, and understand how to do business in America.

Localize; you have to operate as a US company and not as a China company.

Recognize the culture and mesh with it instead of fighting it.

Make sure all have good communication with regulatory bodies.

Hire someone from the US as a company representative to manage the business. Chinese don't know the people or have the expertise doing business in the US since it is so different from the way business is conducted in China.

It takes time to get success - at least five years.

Look for the long term, and look for major investment or don't bother.

Have control of quality and production standards.

APCO's Jarrett said the survey shows that Chinese companies can succeed and shouldn't feel hesitant about a foray into the US.

"They should do very careful preparations," he said. "They should assess the risk and understand the business environment. They should be aware of the community they invest and operate in, and build relationships with the media, the community itself and various regulators.

"The learning curve could be accelerated if they do more to engage a broad range of stakeholders."

Karl Sauvant, a Columbia University professor and an expert on Chinese and international foreign direct investment, believes Chinese can learn from the experience of Japanese firms that began entering the US in the 1980s.

Back then, US-Japanese relations were characterized by trade frictions, controversies over currency exchange rates, concerns about the nature of the Japanese economy, fears of Japan's ascendance, cultural misconceptions and Japan-bashing among US media outlets and politicians.

Despite these conditions, Japanese direct investment in the US rose from less than $1 billion a year throughout the 1970s to a peak of $20 billion in 1990. That sparked scrutiny and a backlash in the US, Sauvant said.

"Yet today, Japanese firms are firmly implanted in the US. They have become an integral and valuable part of the country's economic and social fabric, and Japan remains an important source of FDI," he said.

"The basic answer is clear: Chinese firms, like those from other countries before them, need to become insiders in the US, and they need to build up a positive company brand name. Various strategies can be pursued to that effect."

These strategies, according to Sauvant, include scrupulous adherence to local laws and regulations, integration into communities and enhancing corporate social responsibility.

Viking Weiqiong Tao, of the Dallas law firm Kane Russell Coleman & Logan, said Chinese companies are paying more attention to that last principle.

"Some are purely pushed by outside pressure, because if you don't comply with certain codes of conduct, you are not even allowed to join the bid" for an investment, she said.

Many experts say greenfield projects - those involving new construction -provide a smoother move into the US market than does a merger or acquisition.

But Brion Tingler, a North Carolina-based spokesman for China's Lenovo Group Ltd, said in an interview last year that the computer maker has found, since buying the PC business of International Business Machines Corp in 2005, that Chinese companies can acquire and manage big, complex foreign peers.

He stressed that Lenovo's success followed a learning process in which the company navigated the challenge of integrating the IBM operation into its own. For example, after their deal, the two companies took several years to resolve differences in their business cultures, including divergent views of budgets and targets.

"We have continued to acquire companies in the last few years and we focused on culture from the very start. This is really important," Tingler said.

"It's like a marriage: Bride and groom get really excited about the wedding but fail to communicate about how they are actually going to make this marriage work after the honeymoon," he said.

He said Lenovo's IBM experience is a model not only for Chinese companies, but for any company from one of the world's emerging markets.

Chinese FDI in the United States hit a record $6.5 billion in 2012, up 17 percent from the previous high of $5.5 billion in 2010, according to Rhodium Group, a New York firm that tracks Chinese investment abroad.

These included blockbusters like oil producer Sinopec Group's $2.5 billion stake in Devon Energy Corp and Dalian Wanda Group's $2.6 billion purchase of cinema operator AMC Entertainment Holdings as well as smaller deals including China Wanxiang's $420 million equity investment in startup GreatPoint Energy.

"My vision is that in three or four years, the reinvestment will give AMC an edge over competitors," Wanda founder and chairman Wang Jianlin said in Los Angeles when the AMC deal was announced in September.

During his visit, Wang also said Wanda plans to invest $30 billion in cinemas, hotels and department stores outside China, with a third of that to be allocated to US companies in the coming decade.

"We have the will and capability to go global," he said.