Mixed contentment

A study by Gallup commissioned by the US embassy in Beijing, under-taken before the NATO bombing of the Chinese embassy in Belgrade, showed that American companies were, on the whole, rather more satisfied with their China investments than their European counterparts. The findings were not published because of the political fallout resulting from the bombing. However, Mr. Fang Xiaoguang, vice chairman of Gallup Research (China), says the general view of the 283 respondents from US companies in China was one of "cautious optimism."

Better relationships
Some 57 percent of respondents had earned a positive return on their initial investment and 43 percent were currently earning a profit. Differences are marked across sectors. For example, 80 percent of companies in the information technology industry are currently. earning a profit, while the more restricted areas of agriculture and financial services were singled out as sectors where profitability is more elusive.

US companies reported some changes in business environment over recent years. The greatest improvements have been witnessed in the availability and provision of telecommunication services, and in the quality of the labour force. In a previous Gallup study I the high cost of doing business in China.

Fang admits that many US investors are consolidating, particularly smaller investors. Even so, the majority of companies in the survey expect to expand slowly or rapidly in China over the next five years.

European investors
A report published in June by Fiducia, the greater China consultancy firm, showed that 53 percent of European investors were either not satisfied with their performance or found it lower than expected but still acceptable. This proportion was almost identical to the results of a Fiducia survey conducted in 1997. Exactly half said their profits were below expectation – an improvement on the 64 percent recorded in 1997. Some 45 percent of companies said they had yet to reach break-even point in China. However, the average time needed to achieve break-even has fallen from 3.5 years to only 23 months. Most of the joint venture companies said they were more or less satisfied with their joint venture partners, yet only 37 percent said they would establish a joint venture again if other legal structures were possible.

"We have seen a number of failures – companies struggling with a dead-end situation and the joint venture is struggling to find ways out of the crisis," says Fiducia's managing director Juergen Kracht. "Foreign investors opt for executing a restructuring or downsizing programme, buying out the local partner and restarting as a wholly foreign-owned enterprise, or simply walking away."

Increasingly companies are going it alone, having become fed up with poor partners or meddlesome bureaucrats, adds the report. Where a joint venture is still the preferred means of investment, there is an increasing commissioned by the American Chamber of Commerce, US investors said human resource issues were among the most difficult challenges that they faced. These human resources problems have since eased, said the respondents, and the relationship with Chinese partners and government officials has become more mature. Fang attributed this development to the emergence of a new crop of Chinese bureaucrats and executives.

Today's major gripes focus on the lack of legal transparency, the ephemeral nature of customs and foreign trade procedures, and preference to find a partner from a different field, so as to avoid the problem of competing products.

Kracht adds that the head offices of multi-national corporations have become intolerant of the ‘China is different' explanation pedalled by the first generation of managers in China which often leads to slack control or to sub-standard business practices. As a result accounting standards are weak, says Kracht, and more resources are now being devoted to improving accounting disclosure, personnel development and marketing and distribution practices.

Although no sectorial breakdown was provided by the Fiducia survey which received replies from 136 senior managers, the report acknowledged that different industries operate in very different conditions. First there is the ‘old China,’ where the authorities manage the competition to protect domestic industry. In sectors such as telecommunications equipment, auto-mobiles and chemicals, the government pulls the strings and places demands on multinationals, says the report. However, nearly all consumer goods markets are market-driven and characterised by intense and open competition.