The Law School Magazine  ·  Spring 2012 :

Doing Business in China

By - Spring 2012
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Steve Mortinger on …

Chinese Business Culture: “In China, culturally, going to government offices and giving people business gifts has been the norm for a very long time. But for a U.S. company, it is very likely a violation of the Foreign Corrupt Practices Act. As we saw in Egypt, bribery can be very damaging to a society and can even be a factor in the downfall of a govern­ment. The Chinese government realizes this and needs to change. As China becomes more of an economic power, this type of culture will go away because it is so damaging to a country’s reputation, in the business community.”

Negotiating Deals: “There are a lot of assumptions that Chinese companies are not business-savvy and that U.S. companies have an advantage. That is not true anymore. Chinese companies are very savvy; they know international business; they are very sophisticated; they know what they want and are tough negotiators.”

Opening a Business in Chine: “A Western firm is a Western firm. You have to be comfortable with who you are. You are not going to get all of the same opportunities as a Chinese firm. Western clients are cracking into business here. China is an up-and-coming economy, with many emerging companies and a lot of pride. Ten years ago, the West was really looked up to, but not as much today. The best workers now aspire to work for the top Chinese firms and not neces­sarily the Western firms. It is hard to find good employees. Chinese nationals with U.S. training are a hot commodity.”

Stephen Vogel on…

Understanding the Chinese Market: “Is there capi­talism in China? Yes. Is there a free market? Can anyone operate a business? No. But, that is not unique to China. Many Asian countries have similar restrictions. But, compa­nies certainly do compete in China. We have to remember that in the United States in the late 19th century there were huge tariffs.”

Selecting a Chinese Partner: “Due diligence is abso­lutely essential. Companies need to be doing on the ground — real due diligence. They need to trust and then verify and continue to monitor everything. Especially in manufacturing, companies just cannot take the lowest cost option. Compa­nies need to come to China and get to know their partners firsthand. You cannot think, ‘Well, we have a contract so it will work out.’ It takes continued monitoring, involvement, and face-to-face time. Companies should be asking for ob­jective references that demonstrate a reputation of quality. They should be looking at product examples and be talking to other customers and clients. And, of course, they have to run financial due diligence. Finally, companies have to make a personal assessment of the people they are dealing with directly. Companies cannot just rely on ex-pats. You need to build a Chinese executive base.”

Opening a Firm in China: “A principal requirement for these offices is excellent lawyers. In China in particular, the demand for people with quality Chinese lawyering skills, English language skills, and who are internationally educat­ed exceeds the supply. Chinese nationals who earned their first degree at a Chinese institution of higher education and then went to the U.K. or U.S. for additional legal training are in high demand.”

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