Doing Business in China

Western companies invest China will face the difficulty of making money in a competitive landscape that differs significantly from what they're used to in the Western economies.

Market forces

China's consumer market already ranks as one of the world's largest, with plenty of room to grow. However, the consumer e-commerce market has only begun to form. The footing can be treacherous, as many Chinese dot-coms have found. They went through a severe shakeout in 2001 much as U.S. dot-coms did in 2000. Before companies jump into this arena, they must understand the forces controlling the shape of the market. Knowing that will help them develop business models with a greater chance of success.

Just as important as what the business will do in China is finding the right partner. The Chinese government wants to develop strong domestic vendors and prefers that Western companies form partnerships with Chinese companies to transfer specific business skills and approved technologies to them. This preference becomes a mandate for certain key markets, such as communications, although China's membership in the World Trade Organization (WTO) will loosen restrictions.

E-business opportunities

Another way to spot good opportunities is to consider what China will need as it builds up its infrastructure--for example, the wireless networking sector. However, mobile technologies represent just one aspect of a much larger movement to embrace e-business in all of its various aspects. Opportunities abound here. External service providers that carefully choose the areas in which to concentrate their skills and marketing efforts could overcome the customary reluctance of Chinese companies to outsource.

Intellectual property

Finally, Western companies must guard the rights to their intellectual property created or deployed in China. China's traditional understanding of knowledge as free of charge for the common benefit has led to widespread piracy of software. However, the Chinese government recognizes that it must do a better job of upholding Western standards of intellectual property protection. Whether these efforts will work remains unclear, but in concentrating on this threat, companies should not overlook the much larger threat to intellectual capital--the global economy.

The best advice for Western companies is not to treat China as an isolated case, but to view IT investments in China as a critical part of a worldwide strategy.

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