A still growing, but more complex China

China has been a must-be investment location for many Finnish companies due to its massive growth and low cost opportunities in past three decades. However, the growth rate is reaching a more sustainable level (7,3% in Q3 2014), owing to government´s intention to redefine the growth model and economic structures. The rapid change in business environment, market volatility as well as recent government antitrust investigation involving few foreign companies have also brought certain concerns to foreign companies. Is China losing its attractiveness? 

During the past few years I have assisted many Finnish companies with a variety of issues in China. Some of these complexities are commonly seen in organizations regardless of size, industries or regions they are in. There can be peculiarities as a result of certain arrangements which have been taken in use during the business establishment. These arrangements often stay functional for several years, but its adverse effect could emerge when new rules and regulations were introduced or long-built government relationship was interrupted by new appointments.

On one hand, companies are struggling to build sustainable growth strategy in China given the changing business environment. On the other hand, there are concerns about fading advantages and beneficial treatments that foreign enterprises have long been enjoying. Competition, for both international and domestic players is fiercer; Chinese companies are catching up in terms of technologies, know-hows and managerial skills. Besides, they know the market and are able to manage costs more effectively. Added to these, there are a tougher enforcement and a higher emphasis on compliance in an already complex regulatory environment.

How to survive in China?

Many Finnish companies still see China from a helicopter view and try to find a landing point, while there is a considerable number of companies already on the ground trying to expand the business and survive. The reality is usually different when investors go beyond “how to exchange a business-card” as the first lesson of doing business in China.

Running business in China is not only about replicating a successful formula, but rather localizing, adapting and being flexible and creative. Sometimes companies also face dilemma of finding the right balance between compliance level and “common practice”. There are situations when local authorities would accept “non-mandatory and voluntary basis” for compliance requirements. Later it may become huge contingent liabilities. Although managing business in China may require certain pragmatism, it is equally important to understand what government´s agenda is as well as what the actual implementation on the ground level means.

Everything changes, nothing stands still

No doubt, these aspects and keeping pace with changing rules and regulations are challenging many organizations. It is true that some Finnish companies are savvy on managing business in China and mitigating risks, but many still navigate in grey areas and are unaware of potential risks. In recent months, I have discussed with few Finnish companies with operations in China regarding the new Company Law which took effect in March 2014. Only few of them knew about the change. The truth is in China, as stated by Heraclitus, the Greek philosopher – everything changes and nothing stands still.

One thing is sure. You cannot neglect China when you are looking for global business opportunities and investing for the longer term growth.

Please, read also my previous blogs “China enters a new era of growth” and “The promising future is NOW in Brasil”.

Kelly_Luostarinen_100x100Kelly Luostarinen is a Director in T&R Strategy Group and Head of China Practice and Brazil Desk in KPMG Finland. She was born in China, raised up in Brazil and has been working in Finland for the past 13 years.

On her own time, Kelly enjoys reading, watching movies and spending time with her three Chartreux cats.