Doing Business in China

A current survey being conducted by IACCM reveals that contract and procurement specialists find China one of the hardest countries to deal with. It scores especially low on the topics of ethics and business culture and local laws and regulations.

This will come as no surprise to the management of GlaxoSmithKline, currently embroiled in corruption charges by the Chinese government. As this week’s Economist points out, it is almost impossible to do business in China without some level of ‘enabling gifts’ and it is often equally difficult to know when these are deemed to cross a line into actions that the authorities might deem corrupt. Indeed, some may wonder whether the tortuous thinking of the political elite may in part encourage such behaviour because of the control it gives them. By turning a selective blind eye to bribery and corruption, those in power not only gain personal benefit, but they also have a stick with which they can selectively beat anyone when the moment is opportune.

Do the authorities actually care about the actions of GSK (and other Western firms they are now investigating)? Or is their action prompted by a wish to boost local competitors, or perhaps to send a wider message of fear to non-Chinese corporations? Certainly there will be many wondering whether they are next in line.

Ultimately, the size of the Chinese market makes it difficult for companies to ignore. But the difficulties of controlling local employees, the unpredictability of local laws, the challenges of understanding and the arbitrary behaviour of officialdom certainly represent high levels of risk – not to mention the traditional concerns over intellectual property. At what point will inward investment seem too unpredictable?

The Economist also ran an interesting analysis of whether major corporations benefit from exposure to the Chinese market. This year, the stock price of those with significant investment and sales in China has substantially under-performed. So perhaps the combination of factors will be causing many to reduce their exposure to this difficult market.

To participate in IACCM’s survey on ‘Doing Business Internationally’, visit https://www.surveymonkey.com/s/intcontracting2013