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Doing business in China involves more than a passport and a product

East meets west

Dec 1, 2010

by Stephanie Sparks | Photography By David Dean

“Canadians love to do business with their friends. In China, it’s even more so. We’ve had prices drop 40 per cent after we’ve gone out and drank beer with the factory owner.”
– Jim Dunn, president, Dunn Global

Jim Dunn has already guzzled back three cups of coffee and attended three meetings, and it’s only 9 a.m. All of a sudden, choosing a coffee shop as the location for an interview doesn’t seem like such a smart idea. But while he’s clearly no stranger to the miracles of morning coffee, it’s his excitement about China that really gets him going.

As if to demonstrate his passion for the Far East, Dunn quickly scans the coffee shop and points out all the objects that were made in China. He’s almost overwhelmed by how much he finds, the way a drug-sniffing dog might feel at one of Vancouver’s infamous pot cafés. But he zeroes in on a large mat with a bright red maple leaf printed in one of the corners. Without a doubt, he says, it was manufactured in China.

He would know. Dunn is the Devon-born president of Dunn Global, a Shanghai-based procurement company that’s in the business of shortening the supply chain between factories in China and firms in Canada. Instead of a coffee shop buying a rug from a carpet store that bought it from a wholesale supplier that in turn bought it from a factory in China, the shop can go to Dunn Global, which will work directly with the rug manufacturer. Taking it a step further, Dunn Global can also co-ordinate the production of several factories so an entire “store-in-a-box” can be shipped to companies with province- or nationwide locations like convenience stores and coffee shops. For Dunn, the business possibilities in China are almost endless.
“It’s an economy that’s just brand new, raw. It’s the wild, wild West.”

While the Communist Party maintains its grip on the country, Dunn says the economy is “every man for himself, truly capitalist.”

David Wong, the managing director of the Alberta China Office (ACO) in Beijing – one of the nine global offices of the Department of International and Intergovernmental Relations – wants to ensure that archaic views of the country as a communist, third-world nation do not deter those who are interested in working with Chinese companies. “For anybody that hasn’t been here and seen the big cities of Beijing and Shanghai, they would be very impressed by how modern they are.”

The market is driving this modernity. In a quarterly update released in June, the World Bank predicted that China’s gross domestic product growth for 2010 would be 9.5 per cent, but decrease slightly to 8.5 per cent in 2011. Canada, by comparison, is forecast to see 3.0 per cent GDP growth for 2010 and just 2.3 per cent in 2011 according to Scotia Capital. In August, China replaced Japan as the world’s second-biggest economy, and the word “superpower” is commonly tossed around in discussions of the country’s geopolitical influence. Not bad for a developing nation.

But while the economy might still be speeding along – the country barely felt the recent global recession – the business relationships on which it depends are conducted at a more deliberate pace. “In China, you have to learn to be patient,” says Joel DeBlock, president of DeBlock Consulting Ltd., a firm that offers consulting and interpretation services for Canadian, U.S. and British clients. “Patience is the biggest virtue you can have.”

DeBlock explains that it may take several trips and meetings with business owners before any deals are finalized, and “That’s to get to know them and them to get to know you.” In that vein, it’s probably best at the beginning to leave the accounting and finance team back at the office. Numbers, statistics and money are secondary to forming and strengthening relationships, which are essential to making any deals.

“Canadians love to do business with their friends. In China, it’s even more so,” says Dunn. “We’ve had prices drop 40 per cent after we’ve gone out and drank beer with the factory owner.”

Success in business is dictated by guanxi (pronounced “gwan-shee”), the Mandarin word for “relationships.” The guiding principle is to treat family and friends with respect and avoid disappointing them, while in some circumstances it’s a reciprocation of favours and gifts to reinforce the connection. In the case of Dunn Global, the company aims to create guanxi with Shanghai-area factories.

Developing this connection is hard enough, but you also need to tend to your business and its clients, whether they’re back in Alberta or around the world. When companies from Alberta seek advice from the ACO, Wong wants them to reflect on why they are considering China as a place to do business. If they say they’re having difficulty in the North American market and want to tap into China’s growing market and its billion-plus consumers (“They figure that if they can sell to 0.1 per cent, they’ll be quite successful”), that’s a bright red flag for Wong. “Usually after that kind of response, I tell them they shouldn’t consider China because I don’t think they’re ready for it.”

If a company can’t compete locally, the chances of it dying a quick death are about the same as those of a chicken in a Chinese butcher shop. Competition is fierce, and the array of business opportunities in China is no secret to the rest of the world. The 2008 Olympics in Beijing showed the world that China was officially open for business, and companies are lining up to try and cash in.

As always, multinational companies have game-changing resources at their disposal. Small- and medium-sized companies must rely instead on their network of contacts. That said, organizations like the Canada China Business Council and the Hong Kong-Canada Business Association (HKCBA), which has chapters in Calgary and Edmonton, can bring those businesspeople together.

The HKCBA, according to Frankie Lee, the immediate past-president of the Edmonton chapter, bridges the connection between the hubs of finance and trade that are located in Hong Kong and Canadian companies. Association members can participate in forums, network with Chinese corporations and government officials and make use of the HKCBA’s many contacts.

“By doing that,” says Lee, “we bridge the culture and the business and trade traditions between the two continents.”

DeBlock thinks those kinds of bridges can make all the difference between success and failure. “To go there directly as a small- or medium-sized business, there’s a lot of learning that you have to do, whereas you can find the people in the know in Hong Kong, and that’s what we did.” With DeBlock’s son Matthew and executive assistant Nicole Bee making contacts out of their newly opened Nanjing office, the company is filling the role of referral service for its clients.

The New West Partnership Trade Agreement (NWPTA), which came into effect on July 1, takes this idea even further. Expanding Alberta’s Trade, Investment and Labour Mobility Agreement (TILMA) with British Columbia to include Saskatchewan, the NWPTA is a collaborative effort to remove barriers that prevent trade, investment and labour mobility.

“We’ve got 10 per cent of the people in Canada, but 28 per cent of foreign investment comes to Alberta alone, another eight per cent to British Columbia and less to Saskatchewan,” says Iris Evans, minister of International and Intergovernmental Relations. The three provinces are “a very viable, attractive market for people, and when we get out on the world stage together, we’ve got lots to offer people from other parts of the world.” In celebration of the partnership, the premiers of Alberta, B.C. and Saskatchewan opened the Western Canada Trade and Investment Office in Shanghai, one of the world’s busiest port cities and a place with connections to a variety of economic activities.

Government partnerships between the provinces, as well as between countries, serve two purposes: to clear a path for businesses from either country and to dispel the mystery and misconceptions surrounding China. Human rights violations, almost non-existent environmental practices and reports of cheap, dangerous exports have all tarnished China’s reputation, but a country of 1.3 billion people cannot be painted with a single brush.

Dunn is proud to say that of the hundreds of factories he has worked with, he has yet to witness a case of workers being physically or mentally abused. That’s not to say he doubts the existence of such practices, though, and in order to avoid making deals with dubious employers, western companies need to do their due diligence. Dunn visits potential new factories during every stage of the manufacturing process to develop a sense of the working conditions before offering a price and signing a contract.

Enforcing strict rules about how potential business partners treat their workers is one thing, but encouraging green practices in China might require more of the patience that DeBlock preaches. In 2007, according to reports from the International Energy Agency, China released approximately six billion tonnes of carbon dioxide emissions, a figure that amounted to 21 per cent of the global total and exceeded even the output of the U.S.

But for developing countries, decreasing pollution and carbon emissions isn’t nearly as pressing as solving the poverty issue. “The rest of the world, as they were developing, didn’t have to think about the environment first,” says Dunn. “It’s a tough argument to make.”

As for the media’s focus on shoddy and sometimes hazardous merchandise coming out of the country, China’s (perhaps undeserved) reputation is what brings Dunn home once a quarter to meet with clients. His customers are 75 per cent Canadian-based, with the majority of those located in the West, and he tries to educate them on the possibilities associated with doing business with China. “With new clients, China’s scary to a lot of people,” he says. “They hear China and they think dollar store. If you want dollar store quality, we can get it for you, but if you want a Porsche, we can get you a Porsche.”

Dunn thinks the quality control issue is a case of a few bad apples – or, more specifically, children’s toys with trace elements of lead – spoiling the whole bunch. Besides, when the majority of Canada’s economy imports Chinese products, poor quality goods have better odds of sneaking through. Quality control is vital and, as with ensuring that proper working conditions are in place, the business owners are also responsible for performing their due diligence on the products they’re planning to sell before making any deal.

Despite the complexities of working with a massive and and sometimes massively confusing – country, China still beckons. The relationships that governments continue to foster will open doors for all Albertan businesses, from the large corporations right down to the plucky entrepreneur armed with just an idea, a Chinese-English phrasebook and the patience to start building guanxi.

“We build a better planet for our children and our grandchildren when we take advantage of liaisons with people in other countries as well as at home,” says Evans, who doesn’t see the relationship between Alberta and China as one that will suck investment away from the province but instead draw it in. “They need our resources … and they’re here because they know that this is the second most secure supply for oil sands and fossil fuels.”

From Beijing, Wong admits the Chinese economy can be complicated. That complexity is part of the reason the ACO recently released Establishing a Presence in China, a publication that explains the lengthy process of opening a new business, which, according to the World Bank, can average 35 days versus just three days in Canada.

Complex or not, global interest in the Chinese economy continues to grow, which is why Wong encourages interested businesses to take their time and do their homework before trying to make the leap across the Pacific. “I just want to emphasize to people that if they’re really interested in doing business here, they do have to look at their strategy and really commit to doing it, in time and resources.”

Dunn made that commitment, and it’s one that has worked out well for the Alberta businessman. He has no regrets about making the move, nor any fears about competition coming from the thousands of new businesses that try to crack the Chinese market every month. “I love China. To me, it’s my home.”

Facts on Alberta and China Relations

Currency:
C$1 = CNY6.65 yuan/renminbi
(as of November 2010)
Trade:
China is Alberta’s second
largest international trading
partner and the world’s
second largest consumer
of oil
Geography:
In 1981, Alberta’s twin province
became Heilongjiang in
northeastern China
Imports:
Alberta Imports from China (2005-2009)
Machinery, iron pipes and tubes and consumer products
Value: $1.37 billion
Exports:
Alberta Exports to China (2005-2009)
Ethylene glycol, plastic, sulphur, canola seed and oil and nickel
Value: $2.55 billion
Consumer Stats:
In 2009, Canada imported $39.7 billion worth of merchandise from China,
while China imported $10.9 billion worth from Canada
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One Response to Doing business in China involves more than a passport and a product

  1. Ken Smoley says:

    Hey Ruth: Great article, your team is on a good run of great articles! Jim Dunn is Mickey Dunn’s Son. (Mickey past owner of Cardium Supply) Mickey long time Edmonton Business man, John Howard used to facilitate his annual meetings and provide accounting services. They are good friends, I have met Jim at Johns office. If you would like to get together let me know and maybe next time Jim is in town John and I can get you out for lunch?!

    Cheers

    Ken Smoley