Growing Business by Going Global

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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.

Resources: The Office of China, Hong Kong and Mongolia of the U.S. Department of Commerce (202-482-3583) offers free advice. The nonprofit U.S.-China Business Council (202-429-0340) offers an excellent for-members-only list of market opportunities. A year's limited-services membership is $700 for companies with sales of up to $10 million. Larger companies pay a membership fee that ranges from $2,000 to $12,000 a year.

Currency Exchange
Buying Chinese currency can be easier than selling it, but it all depends on market fluctuations. China's government discourages the repatriation of profits, in part, by limiting the amount of hard currency available through the currency-swap exchanges. Currently, sellers of renminbi (RMB, "People's Currency") recoup roughly half their original hard-currency cost. But businesses like Leonardi's joint venture require a pool of hard currency to buy computer chips and other parts and equipment from outside China. So the company's Chinese customers are obliged to pay for 25% of their purchases in hard currency. Not long ago, Chinese authorities indicated that there is a long-term objective to scrap the swap meets and make the RMB freely convertible, but the government hasn't announced a timetable for the implementation of such a plan. "Businesses would be wise to make contingency plans to balance their foreign exchanges," advises Richard Brecher, director of business-advisory services at the U.S.-China Business Council. He says it may take as long as seven years before the anticipated reforms are enacted.

Resources: The Bank of China (212-935-3101) provides a daily update on currency-exchange rates.

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