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Advice From a Chinese Business Expert

© George Hammerstein / Corbis

Q&A on doing business in China.

Chris Devonshire-Ellis is founder of Dezan Shira & Associates, Asia’s largest independent business advisor and tax consultant firm, with 12 offices across China. He has advised numerous multinational companies on foreign direct investment in mainland China and Hong Kong, and shares some thoughts on doing business in the Middle Kingdom.

Q: Why do business in China?

A: In China today one sees internationalization everywhere. The truth is, Chinese consumers like and respect foreign products and are used to them. McDonald’s and KFC are on nearly every street, and the gigantic growth of Starbucks—in a nation of tea drinkers—is a lesson in how not to be overawed by the size and cultural differences. A good product in Europe or North America remains a good product in China.

In 20 years of advising international businesses in the Chinese market, some 50 percent of my clients have been from the United States, itself a testament to American entrepreneurial instincts and business skills. With the current rise of second- and third-tier cities such as Chengdu and Chongqing, every American CEO should be assessing China for ways to penetrate what will become an ever more lucrative consumer market.

Q: How important is doing the groundwork?

A : If there’s one truism about doing business in China, it’s adherence to the 6 Ds: due diligence, due diligence, due diligence. Public records are almost nonexistent, and licensing and financial records can be incredibly opaque. For anyone thinking of investing large amounts of money in China, either on your own or as a venture, the six Ds are incredibly important.

It’s at this stage that consultants can play a part—but choose those who have years of experience, are extant in the country and know what they’re doing. Common business problems revolve around the actual status of land, the real cost of assets, labor issues and, of course, financial records. Experience can help sort out the truth from the smoke screens.

Q: What about tips for high-tech companies?

A: Generally speaking, American businesses are more advanced in innovation and technology than their Chinese counterparts. Although this can lead to the well-known problem of intellectual property (IP) infringement, this can be avoided by having your trademarks and patents registered.

It often pays to have patents registered in China well before market entry; the registration process can take between one to two years, and it’s certainly advisable to preempt the need. It also helps at times to protect your own IP by going it alone rather than with a partner. If your IP is vital to your business model, then the more control you exert over it the better.

Daniel Allen is an award-winning writer and photographer based in London and Beijing.

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