There is no nation or business entity in the world today that is not directly or indirectly affected by China. China’s government estimates its population at somewhere between 1.3 and 1.6 billion persons—note that the margin of error is as large as the entire population of the United States, or most of the European Union.

China’s average annual growth rate in the manufacturing sector has been in excess of 14 percent, and its annual growth rate in the services sector has been in excess of 8 percent—growth rates that are second only to India. During the past 10 to 15 years when new construction was centered in and around Shanghai, it was estimated that Shanghai accounted for more than 50 percent of the total number of construction cranes that were in use in the world. China is a market that is so hungry for growth that it is virtually sucking up the world’s financial and material resources. And its Confucian-rooted culture places a premium on hard work, self-improvement, and learning—characteristics that ensure that every professional certification, training, and educational program that is offered in that country is oversubscribed.

Isn’t this market ideally suited to the roles typically played by trade associations and professional societies? Indeed so. If yours is a membership-based association, you have undoubtedly seen growing membership interest over the past few years from China, and your leadership probably is developing a strategy for better serving this market or is puzzling about how to do so.

In this case, it is prudent to “puzzle” because for all the incredible opportunities China represents, no one who is familiar with China would characterize it as an easy market to penetrate. This is particularly true of associations that do not have any sort of sanctioned legal status in China—but more on that later.

Traditionally there are four ways of working with or in China:

• The first, which is the least expensive and least risky, is to export your products or services there—in other words, to serve the market from a distance. The advantage of this arrangement is the relative lack of risk while the disadvantage is that you are handicapped in being able to grow and expand into all the opportunities that China offers.

• The second is to take advantage of China’s relatively new franchising laws to develop an in-country presence by licensing or franchising arrangements. The Chinese government officially encourages this mode of entry, and any visitor to China cannot help but notice the enormous success of virtually every franchise you can think of—they are all there.

• The third is through equity or joint ventures—a risky arrangement that used to be the only method of foreign investment sanctioned by the government. It is risky because if the joint venture fails, there is little the foreign owner can do to prevent its assets—including intellectual property—from later being used by its former Chinese partners.

• The fourth is through wholly owned foreign enterprises (WOFEs—pronounced “woofies”) through which the foreign investor sets up its own government- recognized presence in China. The advantage of this approach is that you have total control over your operations in China, but the disadvantage is that you have to make a relatively important investment of capital and time to get started—and unless you have done a thorough job of researching the market and found just the right people to staff your operation, you could lose a significant amount of money and time before your investments pay off—if they ever do.

These four modes of market entry are not mutually exclusive. Many foreign investors can and do use a combination of approaches to crack this fascinating market.

But as noted, associations have a special problem. Communist governments (even former communist governments, as can be seen through recent developments in Russia where the government summarily closed down all NGOs operating in that country) are particularly interested in controlling any and all membership organizations—especially organizations that offer education and training programs. For this reason, the only official associations in China are those that are quasi-governmental.

Literature—both hard copy as well as digital versions transmitted through the Internet—that is imported into China is closely examined and sometimes blocked. Membership fees in organizations that are not officially recognized are difficult to
collect—particularly if funds have to be transmitted outside the country. And, technically, any unofficial gathering of more than a handful of people anywhere in China is against the law. This situation presents an interesting dilemma for Western Hemisphere membership-based associations.

Those few associations that do have a presence in China do so through “rep” offices. These are offices that promote the association and its programs, but which do not collect dues or officially organize membership meetings.

Official recognition of associations could take many, many years. In the interim, Western associations need to be innovative, and they need to have recourse to the single most important factor for success in China: “guanxi”—(pronounced gwan-chee). China is a culture of relationships. In marketing terminology, China would be referred to as a “high context” culture—as opposed to our American “low context” culture that allows us to do business with strangers fairly easily. The Chinese typically do not casually enter into business arrangements. Foreign entities need to choose a Chinese partner that has “guanxi”—the relationships needed to help launch your endeavor successfully. Bear in mind that there is “good” guanxi and “bad” guanxi. Good in this case means knowing the right people to make a business venture work, while bad refers to graft and corruption—which is a problem in China and to be avoided at all cost.

Apart from these cultural considerations, local contacts are crucial because of China’s sometimes overbearing bureaucracy and because of the many languages spoken throughout the country.

Have all of these considerations frightened you yet? They should! But turning away from a market this big and growing this fast is not an option. China does not offer easy success, but it does represent tremendous opportunity to those with flexibility, intelligence, hard work, and persistence—all qualities highly valued in China.

Steven Worth is president of Plexus Consulting Group, LLC, Washington, D.C. E-mail: steve_worth@plexusconsulting.com