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Martin van Roekel took over as CEO of BDO International Limited on 1 October 2011.

CEO INSIGHTS is a forum for online conversations about the accountancy industry in general, including accountancy around the world, standards and regulation and high growth markets

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Martin van Roekel is the global CEO of BDO. BDO is an international network of independent member firms that provides advisory services in 138 countries, with 54,933 people working out of 1,202 offices worldwide.  Martin is based in the Netherlands and has over 30 years’ experience in the accountancy profession.

 

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Martin van Roekel - CEO INSIGHTS

CEO Blog/CFOs put eggs in BRICs basket - but China is not easy to crack
7 December 2012
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CFOs put eggs in BRICs basket - but China is not easy to crack

As part of our series of guest blogs on CEO Insights, Martin van Roekel invites Kim Hayward Kim Hayward, BDO LLP’s International Liaison Partner, and Jingru Liu, Head of BDO’s Europe-China Desk, to share their views on doing business in China.

CFOs put eggs in BRICs basket - but China is not easy to crack

The risk-reward dynamic is changing for companies pursuing investment opportunities overseas. And, as a result, CFOs face a quandary.

In 2011, red tape and bureaucracy topped the list of CFOs’ concerns when investing abroad - but in 2012 the focus is set firmly on the threats presented by currency fluctuations and geopolitical risk. CFOs are telling us that they face greater risk for the same reward.

So, what to do? Go for broke and take a gamble abroad, or stay home and hoard the cash? Driven by pressure to grow, the consensus is to do something in between and take a ‘better the devil you know’ approach to investing.

Based on a survey of over 1,000 CFOs from mid-sized companies across 14 markets, we know that two thirds of CFOs planning foreign expansion are setting their sights on the BRICs, the US, the UK and Germany. When it comes to the BRICs specifically, nearly half of CFOs interviewed are now investing in or planning to enter these markets, compared to only three out of ten in 2011.

China comes out as the frontrunner. It tops our Global Opportunity Index of most attractive investment destinations, and has done so for three consecutive years. However there is a disconnect – according to the World Bank’s latest ranking released last week, China is the 91st easiest place in the world to do business, lagging behind the likes of Rwanda and Kazakhstan.

So what are the main challenges of doing business in China and how can businesses meet these head on?  

The culture challenge: Multinationals need to have a clear understanding of the country’s unique etiquette and ceremonies. A nuanced understanding of Chinese business, culture and ethics is of paramount importance for any organisation wanting to conduct business there. It’s impossible, for example, to expect to carry out formal business discussions with any Chinese company during the first meeting. Building trust in each other is the first step of any business relationship in China.

You need a local, not a country, strategy: China is made up of 23 provinces and 56 ethnic populations, all of which have very different sets of beliefs and values. Companies wanting to succeed in China must therefore tackle the challenge at a city or provincial level when developing their market entry strategies and ground operations.

Local target markets are also important. For instance, a major British retailer has seen Western-style desserts fly off the shelves in Shanghai, but it’s been harder to shift clothing despite giving it much more floor space. The opposite would be true in Beijing if it was to open a store there.

Working within the regulatory environment: Chinese regulation is uniquely complicated and is often dictated at provincial or municipal level. This means that it is essential for CFOs to recognise, understand and address these issues at the planning stages of their China strategy.   

A particular challenge is knowing the required general and industry specific permits, licences and certificates in the region or municipality in which you are operating.  For example, a well known advertising agency recently used the ‘wrong’ quality paint for their upmarket office interiors. This resulted in a fine and the office had to be closed for improvements.

So on-the-ground knowledge is absolutely key when planning expansion in China. A good understanding of culture, business etiquette and customer behaviour can make all the difference.

Kim Hayward, BDO LLP’s International Liaison Partner, and Jingru Liu, Head of BDO’s Europe-China Desk.

This post originally appeared on The Financial Times Beyond Brics blog: http://blogs.ft.com/beyond-brics/2012/10/29/guest-post-cfos-put-eggs-in-brics-basket-but-china-is-not-easy-to-crack/