Do you really want to start your business in China in the year of the Dragon?

Hello everyone, welcome to Crayfish 2020 Chinese New Year special event. It gives me great pleasure to introduce you to Jim James. So Jim is one of a few real China old hands I personally know, and when I met him a few years ago, he was the Vice Chairman of the British Chamber of Commerce. I still find more amazing stories, fascinating stories about his work and life in Asia. But I'm sure Jim will tell you more himself. So over to you, Jim.

Thank you. Ting and I met each other in Beijing, actually, as she was a pioneer, including getting Crayfish up and running in China. So thank you very much for inviting me, Ting, to share what I've learned. So basically, the idea of this presentation is to really talk about your readiness for China in the Year of the Metal Ox, the Yin Ox, as they call it in China. So Because you have all got such diverse businesses, I was trying to find a framework that would really be relevant for everybody and answer some questions and maybe lead us on to some further questions. Okay, so just a quick slide about why am I here. I started the PR firm EastWest PR in Singapore in 1995. So I went as a young man leaving Thatcher's Britain to, to find my fortune in Asia, and I think someone's still holding it for me out there because I didn't bring it back. But along the way, I've learned a few things and had some interesting experiences, one of which was I became the importer to China for Morgan Motor Company. You can see there's the picture of me. I actually drove the car into Tiananmen Square unannounced, no permits. And you could do that 15 years ago before the police got there. We got the photographs. Taken. So I was the importer for Morgan Sports Cars and built that from, from nothing into a multi-million pound business from 2011 through to 2018. Whilst I was there, I also became the interim CEO for Lotus in China, Lotus Cars. I started the British Business Awards in 2008 that you hopefully are aware of. I also started the British Motorsport Festival in China. and was the chairman of a digital company. I imported some British sports drinks and I was the vice chair of the Chamber of Commerce. So that's not because this is about me, but just in terms of the variety of experiences I've had. I've been living and working in Asia for 25 and in China for 13. There's a little article about me in the FT and about getting British brands into China. Okay, so What I wanted to do is to just illustrate the structure of the presentation. So I'm going to just talk a little bit about the Year of the Ox and some of the qualities that an ox has that I think an entrepreneur going into China needs to have. Also, just look at some of the considerations that you might want to look at when you're either entering or growing in China. So I understand that some of you are thinking about China, some of you already in China, So I've tried to build some presentation material here that speaks to both. And then I'm going to talk about 3 options for you when you're looking at how to enter the market and how to grow the market. I'm going to use this narrative of harvesting around seasons. I'm going to talk about 3 scenarios that I've seen and been involved with, that is crop failure, poor harvest, and bumper crop. Okay, so just carrying on that harvesting analogy. So first of all, the ox in China is considered, and as we know, is persistent. It's so stubborn animal, but it's also strong. It is the beast of burden throughout Asia. And if you want to work in Asia generally, I would say, but certainly in China, one has to be persistent. To have a half-hearted approach to Asia is destined to fail because the rewards never come quickly. The second is to be stubborn because whilst you have in mind what you think can be done, the chances are quite likely that it's not going to happen in the way that you think it's going to get done. So sometimes you have to be a bit bullheaded and carry on in spite of the people saying that it can't be done. And by the way, some of those people will be people here in the UK who say they think that it's easier to sell to America, for example. So being a little bit stubborn, not popular as a character, but essential, I think, as an entrepreneur. And to be strong, because being in China is very demanding physically and emotionally and professionally. And I won't go into all of those if you like, but if you're going to a country where even just the language is different, just the scale and the food and the time zone, even just from a physical point of view, taking China on takes some stamina. I'd like to just share a very simple framework for you that I thought might be useful, and that is this idea of renting the field Sharing the field or buying the field. The way I look at this is if you rent the field, you're in effect going in and maybe having an agent, for example, with you. You're not fully investing, you're taking an interim step, and you're going to see whether that field, that market, can generate some good crop. For you or not. The second is sharing the field, and that's where you might decide that it's important enough to develop that field, to develop that crop, but you might want to have a partner. You might say, I'm going to bring the seed, but I need some people to do the labor for me, so I'm going to share the field with somebody else. And that could be a form of a joint venture. And the third is where you're going to buy the field. Where you're saying, I like this market, I'm committed to this market, I'm going to invest, I'm going to buy it. Now, the point here of course is these are different strategies, different options, but they are also part of a continuum. On the whole, what happens is people start renting, then they share, and then they buy. So one of the other aspects of working in China is that it's not static. Your plan will change even by region because China is, remember, 1.4 billion people, the size of America. It's actually not one China. They have the same language and the same culture, excuse me, the same currency, but many of those are enforcements rather than actual cultural realities. Excuse me. Tony mentioned a little bit about risk. I've been running my own businesses since, since I was 26. When I first went to Singapore. And I know it's not popular from an MBA point of view, but I like to simplify business as being 3 elements. I think business is about risk. You're going to put a pound in or an RMB in, and you're going to hope you can get at least an RMB back or an RMB. So it's all about risk business. Do you do it or not? And what do you believe is going to be your takeaway? The second element of business is time. Your time, other people's time, the time of the company. So the second dimension of business is time, in my view. And the third is profit. It's a calculation. How much money you're going to make if you put this money in? That's assuming you've done your risk analysis, you've done your time. How much money do you think you're going to get in from the business? A consideration in China is not just making the profit; it's getting the profit back out of the country. But there's more than one person who goes, great, I've made all this money, but getting the money out is the reality, getting back to the shareholders. So I simplify business because I'm not, frankly, I'm not that smart. So I like to simplify it: risk, time, and profit. So you have a couple of choices, actually many choices. And what I've done here is to create a very simple graphic. So forgive me if, if this is too simple, but Because China is quite a complicated market, I like to try and bring it to some very basic concepts because it reduces the anxiety about doing business in China. Because doing business in China is like doing business anywhere with some complexities, but they can be managed. I'd just like to think here across the top I've put those 3 considerations of risk, time, and profit. And then I had this concept of rent, share, buy. So in this little matrix, I'm suggesting that if you rent, you have a relatively low risk because you're only committing a certain amount. You could be quite quick because the infrastructure is already there for you, and the profit could be medium. Now, if you decide to share, for example, do a joint venture, have a partnership, the risk is medium because a Chinese partner Will manage some of the risk for you. Chinese partner will manage some of the risk for you: regulatory, language, one she and so on. Time is medium because it takes time to find the partner and to educate the partner and to become aligned. And as we know, any joint venture relies also on cultural assimilation and. That is a fundamental challenge. And the profit— I'm saying the profit is low here. It's not that there's no profit, it's comparatively low because you're sharing it. Okay, it's not a judgment that you're gonna have a bad-performing joint venture. It says you're going to have a lower amount because you're sharing it with somebody else. And if you ask any of the automotive manufacturers that did joint ventures with Chinese companies, they'll tell you, no, you just get lower, you just get less money. Now the third option is to buy. Now that's a high risk, it takes longer to get all of the infrastructure in place, but of course you took a higher risk, you get a higher reward. Okay, I hope that's not insulting anyone with the simplicity of it, but it just maybe gives also a framework that also what one can do is one can migrate from renting to sharing to buying over time. Now I wanted to just carry on this harvest analogy that a business and China have seasons, and in the seasons we need to fulfill different functions in a business. And this is about China, but it's also about the fact that you all know how to run a business. So I'd just like you to remember, you know how to run a business, but it would need some local adaptation. So preparing the land, for example, making sure that where you're going, the market is ready. Tony mentioned about IP. I'm working with a client to help them get into China at the moment, and they have a software, and they bought a company, and the old company owns the intellectual property. So the new company doesn't have it registered in China that they own the IP. So they're going to start doing the marketing and the branding, without fully owning the IP. That happened to Tesla, Lamborghini, you can go on, Nike, Michael Jordan. So IP protection, but also it's about making sure your product is prepared, that it's homologated in this, in cars, for example, or even in the drinks business. There are lots of regulations. Now, sowing the seeds, this can be about going into the market by using different techniques of either some pre-marketing, finding partners in advance, finding resellers in advance. There are lots of different channels into the market. And now, in fact, there are channels— Royal Mail's got one, I'm working with a partner in China— where you don't actually have to be in China yourself. There's groups like JD, which is the large online retailer that will purchase your product from the UK and distribute to you in China. And that's how Green King beer, by the way, is now sold in China through an Englishman who has a relationship with JD, and all the purchasing is done through jd.com. Now there's harvesting, which is about bringing your products into the market and getting the money from the clients, the customers. That then takes a more considered distribution technique, if you like, some localized combine harvesters, if you like, that are ready. And that's because different parts of China will have also some local regulations. So in the case of cars, for example, the emission levels were different for Tier 1 cities and Tier 2 cities. They adopted national standards at different times. So you could sell certain cars in certain cities but not in others. So one has to look at the different markets because the harvesting of the business in the different parts of China isn't necessarily always going to be the same. Husbandry is about taking care of the overall premises. So you've got to feel it's not just about your plowing, it's the lanes that get there, it's the hedgerows, it's the fertilizer, it's all the people that are supporting the eco— ecosystem that keeps the field producing, government relations work, and so on. Now let's look at 3 scenarios. Crop failure. Now in my experience, I also founded a group called EO, which is an entrepreneurs organization, and then it's a global group for 30 years. And what it meant was we sat in forum with other entrepreneurs, and if you want to become a member, it's great because there are EO chapters now in Beijing and Shanghai to Partner entrepreneurs with entrepreneurs. I've simplified it, but stock means that what you're selling to the Chinese isn't really what they need. I take the example of Arga. I was engaged to do the PR and launch for Arga. They found distribution. It's a great product, but actually it's nearly 250 kilos of oil-fired, always-on Beautiful kitchenware. Most people in China live in apartments. Most of them live in places where it's hot most of the year. Most of them use cans of gas, not piped oil. Okay, I can go on. The product itself was fundamentally incompatible with the market. Pestilence. This is where you can have a business and somebody comes along. And often it's the government, sometimes it's a competitor, and starts to steal from you. So government regulation changes, and sometimes it's a bit pernicious, and you don't know what's going to happen next. So there's— there are people, organizations, and I can introduce you, and Ting has got them as well, that are often former government officials that now work in consultancies. across all manner of industries. Irrigation is about making sure that you've kept the crops watered. By that, I mean marketing. It's remarkable, you look at Marks& Spencer's who went into the UK— into China, sorry, in a fairly celebrated way, but they put the stores there and went, we're Marks& Spencer's, had a lovely launch at the British Ambassador's residence, but they didn't market Marks& Spencer's in China, they assumed that because everyone knows Marks& Spencer's in England, that everyone in China would know Marks& Spencer's. They didn't ever really get off the ground. And practices— different companies, if you look at Google for example, how Google wanted to run their business was fundamentally incompatible with the way that China treats media companies. And there are lots of different catalogs of different kinds of practices. So there are failures, and those are the ones you read about. But there are also poor harvests. There are companies that limp along, and those are companies where they are poor farmers, where they have an uncompetitive crop, or where they do poor husbandry. I'm mindful of the time, so I'm moving along a little bit quicker. But there are many companies in China that are limping along. Not just British companies, German, French, even Chinese companies, as indeed there are companies in their domestic markets that are not just doing very well at all. I call it husbandry. HSBC in China, the most miserable banking experience you've ever had going into an HSBC branch in China. Not necessary. It's got a license. It could be doing better. Now I want to also be encouraging. There are companies including Morgan— I sold 65 cars from a standing start— that are succeeding in China. There are bumper crops and there are many British companies, as Tony's mentioned, that are doing great business with China. There are some companies and organizations that are finding fertile soil. Manchester Business School, amazing, being run by a lady, a real powerhouse called Sherry Ting. If you don't know her, I must introduce you. She's fabulous. Manchester University has built an amazing campus in Shanghai around for MBAs. There are desirable crops. So fertile soil is about finding people who want already what you're looking for, in that case education. Desirable crop— JLR, for example, Dyson, the Cambridge Satchel Company. Okay, there are some products that we have in the UK that the Chinese just want. Range Rovers. Now, good seed. There are many companies that are winning in the UK with innovation. And if we look at people like— there's a company called Spar. I've got the list of them. Chinese business winners like Unilever, for example. And there are some smaller ones like Wood that have got— and even Ove Arup, which built all the airports in China. The engineering is by Arup and Zahid. Sarah Saheed, the architect. Okay, British throughout China. There are also some expert farmers, companies like BP, for example. So there are many great stories of British companies that have either rented or shared or purchased fields in China. The moral of the story is that there isn't a right or wrong. There's a what's appropriate for your business. for the timing and the location and the market in China. Here's the mind map. Now I'm not going to go through that with you there. Ting and Zhao have got this as a copy for interested, and this is also a presentation on SlideShare. But in there I put some more of the case studies. So just to show you there that China really is complex, but it is still just running a business. Now on a positive note, I want to just mention and share the British Business Awards run by the British Chamber of Commerce. Here is the list, or here's the stand-up winners 2020. It's a biannual event. We have the ambassador as the patron. We have the CBI, CBBC. We have Chinese partners and so on. I wanted to show you that these are winners in China that are British companies. A couple of interesting points to note. One is it's a mixed group, right? It's Chinese and foreign nationals, Brits, but it's also men and women. You can succeed in China regardless. There isn't one formula for success. The British Business Awards is a great example— companies that are winning. And that's why I started this in 2008, because I thought we should celebrate what I called innovation, enterprise, and endeavor. You see in the top right, those 3 qualities that I identified in 2008 as key characteristics of British companies anywhere in the world. I think those are hallmarks of British business: innovation, enterprise, and endeavor. And those can be taken into China with some consideration for strategy and local markets. So that's me. I didn't manage to keep the guys riding the bicycles awake while I was giving them my presentation, but hopefully I've kept you awake. long enough to share some of what I've learned after 13 years and 8 or 9 businesses in China. Ting, I hope that's covered some of the points that you hoped I would cover. So thank you.

Thank you, Jim. That's really, really great.