It is important to build relationships of trust with Chinese business partners and maintain regular contact, including going to China. Ensuring the most senior executive of the Australian company is available to meet the Chinese partner helps avoids insult. If this creates difficulty, one way to deal with it is to give the individual with the most knowledge on the issues a high-status title. Some Australian businesses have also found that using Skype or video conferencing, rather than telephone calls, has helped them to develop trust with Chinese partners and business contacts.
Chinese entrepreneurs are becoming increasingly confident and business savvy. They are growing successfully on their own and many feel they don’t need foreign partners, particularly when it comes to serving the rapidly expanding domestic market. Those that fared well during the last Asian financial crisis can be particularly demanding in negotiations. For Australian businesses, these changes can mean that Chinese companies in general are more reluctant to enter partnership or are demanding higher priced and higher value deals. Locals are also reluctant to give up majority control or a large share of future profits when they feel that their own product offerings or business models are as good, if not better, than those of their foreign investors.
Therefore, to find willing partners, Australian businesses need to offer more than just deep pockets. These days, Chinese companies have numerous alternative sources of domestic financing available to them, including domestic private equity. Australian businesses that offer technology or know-how may fare better when seeking Chinese partners, particularly in fields currently being promoted by China as ‘encouraged industries’. These include high tech, green-tech and new energy, as well as certain segments of the auto industry. Australian businesses may also attract Chinese partners by offering access to a strong brand or to foreign markets to help their partners gain a competitive advantage in China or to expand overseas. There is a growing focus on emerging markets in central and Southeast Asia, as well as Africa.
To find the right partner, it may help to have a designated team including on-the-ground professional advisers and agents to seek out appropriate targets. The team’s primary functions will include conducting a market analysis of players, meeting stakeholders and officials, and building the relationships necessary to begin discussions for any deal. Knowledge of Chinese business culture and etiquette are thus key to making the most of these opportunities.
When seeking partners in China, Australian businesses need to think ahead to issues that may occur post-deal finalisation such as local talent recruitment, management and retention, and building flexibility and adaptability into their business models. Seek out partners that have enough experience in the local industry and familiarity with differences among local consumers and industry segments to see how to carry through with ideas. Above all, these partners must possess the resources and relationships that complement yours. But alliances come with their risks. The importance of trust and regular communication cannot be over-emphasised.
Case Study: Bundaberg Brewed Drinks
Australian beverage producer Bundaberg Brewed Drinks discovered that in China, choosing a business partner can make or break a business. Bundaberg entered the Chinese market in the early 2000s and took on a local partner with little research and preparation. It quickly found that the relationship was very one-sided, with the partner’s lack of transparency on sales, distribution and customer details causing issues, as well as different values, business ethics and a lack of control.
Since acquiring knowledge of the complexities of the Chinese market, Bundaberg has focused on finding Chinese partners that meet its stringent selection criteria. It has considered having several partners across various regions of China. The search for a partner that supports Bundaberg’s values is an ongoing challenge.
“I want a partner who I would gladly invite to come and stay at my house as a guest,” says CEO John McLean.