Growing Business by Going Global

This Month
Market Intelligence
The People's Republic of China is the world's third-largest economy. U.S. companies have invested some $6 billion in more than 2,000 Chinese projects. How hard is it to break into this huge market? (below)

Company Profile
Barely a month old, NovaSoft Systems was down to its last $250. The founders agreed their best marketing opportunities were overseas. They embarked on an unusual launch, introducing their software systems abroad before testing U.S. waters. (page 3)

On the Road
Ensure that your computer is equipped to use any phone system. (page 5)

The Global Perspective
"There will be over 2 billion teenagers in the world in the year 2001. That's five hundred times the number of teenagers in America in the peak years of the baby boom. All of these future teenagers are already born. Most of them live in Asia and Latin America; a smaller but still sizable and rapidly growing percentage live in Africa. In Europe, North America, and Australia, meanwhile, there will also be a mini-baby boom, but...[that group's] percentage of the global teenager population will be minuscule....[The complete group is being called] the "Global Teenager" -- not just because this new baby boom is worldwide, but because its members will be far more interconnected....The global teenager will have his greatest impact as...a new form of consumer."

-- Peter Schwartz, The Art of the Long View (Currency/Doubleday, 1991)

"Companies, not nations, are on the front line of international competition."

-- Michael Porter, The Competitive Advantage of Nations (Free Press, 1990)

"Young man, there is America -- which at this day serves for little more than to amuse you with stories of savage men, and uncouth manners; yet shall, before you taste of death, show itself equal to the whole of that commerce which now attracts the envy of the world."

-- Edmund Burke, British statesman, in a speech on conciliation with America, March 22, 1775

"A map says to you, 'Read me carefully, follow me closely, doubt me not.' It says, 'I am the earth in the palm of your hand. Without me, you are alone and lost.'...Here is your map. Unfold it, follow it, then throw it away, if you will. It is only paper. It is only paper and ink, but if you think a little, if you pause a moment, you will see that these two things have seldom joined to make a document so modest and yet so full with histories of hope or sagas of conquest."

-- Beryl Markham, aviator, West with the Night (North Point Press, 1987; first published in 1942)

IN THE CHINA SHOP

By Hal Plotkin

How big must a company be before it considers setting up operations abroad? Not very. Tiny Conveyant Systems Inc. has gobbled a 3% slice of the enormous Chinese domestic market for digital private-branch-exchange (PBX) products, thanks to its 60% ownership position in Tianchi Telecommunications Corp., in Tianjin, China. With only 16 employees, Conveyant Systems, based in Irvine, Calif., seems an unlikely match for China's burgeoning market. Nonetheless, the small distributor of PC-based telecommunications gear is stealing some thunder from its larger, better-known competitors, such as Northern Telecom, Alcatel, Siemens, and AT&T.

Conveyant Systems' Joe Leonardi says his willingness to cut a generous deal over licensing rights, back in 1986, was the key to nosing out the big guys. The 53-year-old founder and president stitched together a complicated joint venture with Tianjin's local municipal government, the state-owned postal and telecommunications authority, and a local economic-development group. For fiscal year 1993, the venture's 90 Chinese employees will produce about $10 million worth of PBX equipment in a 22,000-square-foot factory located in Tianjin. And China's businesses, starving for communications equipment, eagerly devour 90% of that output.

The news wasn't always so good, though. In its first year, Tianchi Telecommunications' sales fell far short of targets. But Leonardi fought back with a truly revolutionary idea. He proposed a commission structure for the Chinese sales force. Responding to his Communist partners' demands for recognition of every employee's contribution to a shared goal, he agreed to provide incentives to the factory workers as well, and sales of PBXs took off. Now the company's 12 sales offices stretch from the Heilongjiang province in the northeast to the Guangdong province in the south.

From Joint Venture to Controlling Interest
As part of its economic-reform program, China recently began permitting wholly foreign-owned enterprises -- an approach that has grown in popularity. The number of such concerns swelled from just 18 in 1986 to more than 1,800 in 1990. Still, a joint venture is helpful and often necessary. Like Leonardi, most foreign entrepreneurs do business in China through joint ventures by providing capital, technology, or global-marketing savvy. Leonardi credits his business's smooth operation to his well-placed Chinese partners. "The power never goes off, we always have running water, and we always have fuel to heat our building," he notes.

Currently, 3,000 Chinese businesses are authorized to deal with foreigners, and the Chinese government has also designated more than 300 "open cities," in which residents are free to conduct business with foreign traders and investors.

Resources: The National Technical Information Service of the U.S. Department of Commerce (800-553-6847) offers more than 40 modestly priced reports on doing business in China, including the 1993 edition of Country Marketing Plan: China ($19.50). The National Trade Databank (800-USA-TRADE) provides information on how to use the Commerce Department's free database, which includes up-to-date commercial reports from U.S. embassies in China.

Market Niches
There's a long-cherished fantasy that you could easily make an enormous fortune if you could sell just one pair of shoes to every man, woman, and child in China. But that dream remains on hold. Protectionist measures make tapping into China's domestic consumer market an elusive goal for most foreigners. But there are opportunities to participate in a variety of government-driven economic-development plans designed to build up China's domestic infrastructure. "Understanding the customer is the key," says Leonardi. Combing through turgid government plans to identify real and ready markets is worth the effort. "Just counting feet is pretty nave," Leonardi says.