European Investment In China

Source: China-Britain Trade Review
Date: September 1999

Why are some companies successful in the Chinese market whilst others are not?

In what way are these companies different from each other? What are the current operating conditions for foreign companies in China?

Fiducia, a management consultancy firm with offices in China and Hong Kong, has been searching for answers to these questions.

Fiducia conducted a survey among top managers of European companies in China on wholly confidential basis (i.e. neither the participants nor the companies are known to Fiducia).

"Even though there is no ideal approach to a China investment, this analysis reveals certain success factors from which fundamental recommendations may be derived," says Jürgen Kracht, Managing Director of Fiducia.

Results summary

The results of the survey, in which 136 managers participated, can be summarised as follows:

• Making profit or increasing profits is the most important target of European companies, followed by the task to increase turnover. This constitutes a marked-change in strategy; previously market presence had first priority.

• 47% of the participants are satisfied with the general performance of their companies, 42% state that the performance is worse than expected, and 11% are not satisfied at all.

• 55% of the participating companies have reached the break-even point while 45% have not (basis: companies which started investing in 1997 or before)

• Only 9% of the unsuccessful companies are satisfied with the measures adapted during the market entrance phase, compared with 38% of the successful companies.

• Unrealistic expectations, incorrect data material, insufficient preparation and an over-estimated market volume were pinpointed as the major risk factors (46% of the successful companies, compared with 70% of the unsuccessful companies).

• The market conditions were characterised as disadvantageous in the following areas: complicated administration and approval processes, weaknesses in the legal system, discrimination against foreign companies compared with local companies (affecting such issues as product approval, customs).

• Successful companies are manufacturing products in China, which comply largely to European standards, with respect to their manufacturing processes as well as quality. At the same time, such companies are closely co-operating with local suppliers (also for semi-finished products) to reduce costs. In order to reach an international quality standard they strive for enhanced human resources development programmes.

• Successful companies achieved far better sales results in the domestic Chinese market than unsuccessful companies.

• In the participants opinion successful companies are concentrating their activities on industries and product groups which are less affected by competition. 75% of unsuccessful companies’ competitors are Chinese companies whilst only 26% of successful companies’ competitors are Chinese.

• More successful companies are implementing human resources development programmes, e.g. staff training, performance evaluation and Management by Objectives systems, than unsuccessful companies (44% compared with 34%).

Contents Of The Survey

• Participating Managers’ and Companies’ Profile

• Market Entry Strategy and Results

• Proposed corporate success factors

• Market situation

• Evaluation of the results

• Marketing

• Financing, accounting and controlling

• Sales

• Product selection, technology and equipment

• Human Resources

• Purchasing

Participants’ Profile

Companies from 12 European companies; from 12 industries and 6 service sectors. The survey is complemented by reports from notable authors about foreign investments in China and the Chinese economy.

The survey was conducted with the support of the Delegation of the European Commission in Beijing and the Embassy of the Federal Republic of Germany in Beijing.

This study is a follow-up of a study which was conducted in China in 1997 among European companies with the same objectives.

The publisher is the management consultancy firm Fiducia, which has offices in Beijing, Hong Kong, Shanghai and Shenzhen, concentrating its activities on Greater China (China, Hong Kong and Taiwan).

European Investment in China, (£96) a confidential survey about strategies and findings, the present situation and trends. Published by: Fiducia Ltd. Hong Kong July 1999, ISBN 962 85227 2X.

The 155-page survey is available for purchase from China-Britain Business Council, 4F, Abford House, 15 Wilton Road, London SW1V 1LT. Please address enquiries to Rashila Patel. In Asia: Fiducia Ltd. Hong Kong, 12/F Fortis Bank Tower, 77 Gloucester Road, Hong Kong Tel: (852) 2523 2171. Fax: (852) 2810 4494, E-mail: info@fiducia-china.com