Globalization hit its high watermark just before the economic crisis hit, and now officials and corporate leaders on both sides of the Pacific are wondering if things went too far too fast during the good times. For international managers in China, the time for hand-wringing and tea-leaf reading is over. Western owners and managers already invested in the PRC have to figure out how to ride out the storm. But for American and European businesses that haven’t yet taken the plunge – or are considering upping their China exposure – the question is far broader:

If you are not in China already, does it make sense to enter the market?

Last week we looked at what international managers already in China can do to control their risk. But what about those still considering entering China for the first time?

The New China Price
As recently as 2 years ago, senior managers who questioned the wisdom of entering the China market were regarded as addle-minded flat-earthers who were missing the greatest commercial opportunity of the generation. Since then the situation has changed a bit – but just how much? Sure, China has grown more expensive, more risky and decidedly less friendly to Western business. But is this a sign that opportunities in China were merely a mirage that has vanished – or is it a second chance for those who missed the low-hanging fruit but can compete effectively in a tougher market environment?

Parallel Universe
The bad news is that tried & true emerging market strategies no longer work in China. In smaller, poorer developing economies savvy entrants could stake out a position just beyond the reach of the existing market and wait for progress and momentum to carry buyers and partners into their waiting arms. In some ways China is breaking that pattern. Its state planners have effectively short-circuited traditional development patterns by developing parallel structures – media, internet, banking, education – that are carefully managed to avoid converging with the international main stream. The bureaucrats understand that by controlling the images people see, they can control the path the market will take. Will it work in the long term? Who knows? Is it working now? Yes. The China market is moving faster than the West, but it is also moving along a different path. In China, product localization is not a matter of finding a clever set of characters to name the company and translating the instructions on the box. It often means redesigning a product from scratch and discovering new uses for existing services.

How much China do you want?
The good news is that after 30 years of economic opening, it has never been easier find experts to help you approach the market. The days of shady characters offering up their “special connections with officials” are long gone. International-level consultants and outsourcers are available who can handle every phase of your China business – but at prices that match or exceed those in NY and London. The question for international managers used to be “How much do you want to be in China?” The new question is “How much China do you want to be in?”

The New China Price – Risk Management
If you are not in China already, should you plunge in to the deep end or wade gently in from the shallow side? You now have a choice – but it isn’t cheap.

How much China do you want? Here are your options:

1. Maximum exposure: The WOFE option.
Still the ideal option for some firms, but lawyer-up and plan carefully. This is no time to cut corners or learn as you go.

2. Functional Partnerships
While many experts turn thumbs down on traditional US-China JVs, there is plenty of opportunity for those who do it right. Know what you are getting into , and expand your horizons about what a JV really means. International service providers like PTL Group can help you control risk and avoid mistakes. Consider partnering with expat or international companies already operating in China who have successfully jumped through the regulatory hoops and learned about market risks the hard way.

3. Manage China as a series of projects.
Project management approach may suit those who need to have a limited exposure to China but aren’t willing or able to commit to a full China branch. Professional outfits like Jeremy Gordon’s China Business Services or Technomic Asia have the experience and firepower to optimize your China operation – but don’t look for bargains.

4. Contractors, consultants and high-level outsourcers.
There are plenty of expats and reliable local service-providers that can remove a lot of the risk and opacity of transacting in China. Value added sourcers such as Silk Road International can ensure that you actually get what you pay for in China. On the service side of the equation, staffing is more important – and more expensive - than ever. RPOs (recruitment process outsourcing) like Frank Mulligan at Accetis can assist in acquiring your most important China asset – good managers.

5. Pass for now.
Yes, it’s possible. Do your research, bide your time and wait for things to settle. In 3 years, either everyone will be doing China or no one will. For those who find the risk-reward equation just doesn’t add up, it may make sense to wait out the uncertainty.

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