How to Succeed in Doing Business in China: The New Paradigm is the Old Paradigm

Got an email last week from a loyal China Law Blog reader who wanted to know whether I thought a speech Steve Dickinson (our lead China lawyer) gave at a big Chicago event in 2006 (15 years ago!) that we discussed in The New Paradigm for China Market Entry, “still held up.” The below is our blog post regarding that speech:

China Law Blog’s own China Lawyer, Steve Dickinson, was one of the featured speakers at the recently completed Doing Business in China seminar in Chicago. Steve’s talk was entitled, “China: The New Paradigm for Market Entry” and it focused on the idea that China today is not the China of ten years ago and business success in China now depends on the following following five paradigms:

1. Company Formation. Going into China as a wholly foreign owned entity (WFOE) is almost always preferable to going in as part of a joint venture (JV).

2. Management. Foreign companies doing business in China should use international best practices. This means responsible, ethical leadership and, above all else, this means following both China law and your own country’s laws. For example, if your company is based in the United States, you need to follow the Foreign Corrupt Practices Act (FCPA).

3. Sound Business Practices. Steve spoke about one of our law firm’s clients that had set up its business in a particular city in China only because that was where the son of a purported Chinese general with whom the company was connected lived. Steve emphasized that businesses going into China must make their China decisions based on their “own business economics, internationally accepted business practices, and the law, not necessarily who they know with alleged power in China. Steve described guanxi as overrated and no substitute for good business.

4. Branding/Trademarking. Do not to wait until you are successful in China to establish your brand in China. Due to China’s first to file trademark laws, you must be first to trademark your brand in China and if you are not, someone else will get it. Steve told of our law firm constantly getting calls from companies seeking our help in prosecuting trademark cases in China even though they do NOT even own a Chinese trademark because they never registered anything there. Steve also emphasized the need for foreign companies to create and trademark a Mandarin brand name because that is the name by which most companies in China (including such biggies as Coca Cola and Dell Computer) are known.

5. Intellectual Property. IP enforcement in China is improving and if a foreign company is going to take advantage of this, it must register its intellectual property (i.e., its trademarks and patents) in China. Foreign companies also must protect their IP (including their copyrights which need not be registered, but which often should be) by prosecuting IP violators.

The overall theme of Steve’s talk was that China’s legal system has advanced to the point where it now makes sense to conduct business in China pursuant to international best practices.

My response to the reader was that Steve (as always) had been incredibly prescient about doing business in China (and with China as well) and that the above five paradigms are still the sine qua non for succeeding in doing business in China. In other words, pretty much nothing has changed in terms of what YOU can and should do to succeed in/with today’s China.

BUT, due to COVID, China’s weakening economy, and increasing nationalism and xenophobia, there has been somewhat of an arc in terms of the effectiveness of the above. Back in 2006 (when Steve gave this speech), doing all five of the above well gave you a good chance of avoiding China problems and succeeding with your business in China. But in, let’s say 2012, doing all five of the above gave you a really good chance of avoiding China problems and succeeding in China. But today, doing all five of the above well has gone back to giving you only a good chance of avoiding problems and succeeding in China, not a really good chance.

But one thing about these five things has not changed one bit; you essentially have no choice but to do these five things, because as our China lawyers so often tell our clients on so many things China: “though we cannot guarantee that doing things right in China will guarantee your business will succeed in China, we can virtually guarantee that doing things wrong will guarantee your business will fail in China.”

What are you doing to ensure your success in doing business in China/with China?