Entrepreneurship in China:
Stimulus for Discussion
Jim Cook
Cook-Hauptman Associates, Inc.
Sponsored by : The Kauffman Foundation
Can America Do Better?
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Contents
 Qualifying for the China Challenge
 Chinese Society/Culture Basics
 China’s “Chinese Characteristics”
 Meet the People, Generation by Generation
 Opportunity Segmentation of China
 Sourcing/Selling Opportunity Templates
 “On the Ground Nitty-Gritty” Tips
 OK, let’s open up China (to discussion)!
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Yes, America can do Better!
 How’s our chances (as Americans) in China?
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Decision must come from deep inside you, not infatuation
Get a native partner who has bonded to you and your goals
Understand, respect , and exploit the cultural differences
Be ready to substitute “trust” for contracts and recourse
Use “Chinese Characteristics” to build competitive advantage
Flow with the government policies and serve ignored markets
Be prepared for setbacks, delays, and disappointments
 Getting Started
 Sourcing or selling, you must understand your market
 Acquaint yourself with the legal/administrative landscape
 Raise value adding investment capital, not just cash
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Chinese Society/Culture Basics
 Every Chinese difference has an implicit advantage potential
 It’s an empirical, not theoretical, society (toss aside tedious projections)
 Politics trumps economics, so read policy signals and shifts
 Social instability will not be tolerated at any price (e.g., 1989)
 Business is relationship activated, not contract activated
 Communication is not what it seems, it’s richer than that
 If you’re not an “insider,” what you receive is show
 Image is important; Face is crucial; Ignoring this is fatal
 Generational differences are marked with opportunity indicators
 Your intellectual property (IP) is only as safe as you make it
 The regulatory environment has its own “Chinese Characteristics”
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
“Chinese Characteristics”
 Central policies pick favorites; currently it’s the Emerging West (and “green”)
 Land, buildings, capital, accommodation, and taxes are cheap for policy favorites
 State Owned Enterprises (SOEs) are a 1/3 of GDP (and all have a “Party Secretary”)
 Infrastructure (e.g., power, plastics, steel) is world class and usually economical
 Technological universities are a hub of connections and can be used as such
 Today, there’s a surplus of college graduates; China isn’t yet a Symbol Economy
 China doubled Japan’s economic miracle and could land a family on Mars first
 Returning Chinese (who have succeeded in the West) are welcome (“turtles”)
 Chinese institutions and SOEs don’t find, direct, nor motivate talent well
 Productivity figures are sometimes shockingly low, often despite very hard workers
 Trust through “guanxi” does the work of contracts, credibility, and character
 Chinese save over 30% of their gross salary and have large reserves as a result
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Generational Demographics
DOB
Age Defining Event Consequence
+ Characteristics
- Characteristic
1948-
60 Cultural
50 Revolution
No/low university
education
Ethical, pragmatic Unsophisticated
1959-
49 Open Door
39 Policy
Experienced
struggle
Tough, hard
working
1970-
38 Spectacular
28 Rise of China
Expects automatic Educated, bisuccess
lingual, global
Cocky
1981-
27 One Child
17 Policy
Spoiled, focus of
family pressure
Weak social
skills
19922002
16 2008 Olympics Electronics/Media/ Wide open to the
6
Material addicted whole world
Career focused,
globally astute
Not international
Overwhelmed (by
expectations)
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Opportunity Benefits Summary
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Gov’t favorite #1: Emerging West (Sichuan, ChongQing, NE, …)
Gov’t favorite #2: “Green” power, conservation, substitution
Ignored markets: 2nd tier of over 100 cities > 1 million people
Sell to the SOE’s (e.g., training – ISO, Deming, Finance, Law …)
Manage “trust” for speed and risk-capital benefits
Use “trust” instead of plans, projections, and contracts
Make universities a connections hub (copy Obama)
Tap the frustrated unemployed, talented, college graduates
Convert the enormous savings into something very secure
Alleviate the pressures or shortcomings of the Generations
Sell future success of the kids, each has 6 parents to buy/pay
Sell productivity enhancements that increase employment
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
China - Five Distinct Opportunity Segments
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Affluent Coastal regions: e.g., JiangSu, FuJian, GuangDong, …
Second Tier Cities: e.g., LuoYang, WeiFeng, ZiGong, …
Emerging “Western” provinces: e.g., SiChuan, ChongQing, JiLin, HLJ, …
Undeveloped provinces: e.g., GuiZhou, YuNan, GanSu, …
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China Sourcing Template
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November 19, 2008
China Selling Template
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November 19, 2008
Sourcing/Selling Summary
 Emerging West for skill intensive production and selling infrastructure and second
wave of upscaling (repeat of Affluent coastals of the past twenty years)
 2nd Tier Cities for labor intensive sourcing and selling American product
access/franchises (below the Western radar)
 Gov’t favors: Emerging West (central gov’t), green technology (central gov’t), and
centers of excellence (local) [Note: this “West” includes North East and Central China, too]
You can count on:
 High receptivity to locating in government industrial/technology parks
 Every consumer having a cell phone, credit card, and access to the internet
 Typically, college graduates having had over 8 years of English schooling
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
“On the Ground Nitty-Gritty” Tips
 Commerce is conducted by “trust”; 30% down/70% on delivery T/T
 Checks never, I’ve only see Wire Transfers, Credit cards, and Cash used
 Employment law requires insurance (Retirement, Unemployment, Hospital, Maternity,
Work injury, and Union dues) costing employers 40% and employees 10%
 Employers must pay severance of a month’s salary for each year served
 Customs is a mixed bag with some egregious gouging and delaying
 Contracts should be rare, bi-lingual, and specifying remedy by arbitration
 Corporate Structure Options: Cooperative Joint Venture (Chinese Partner +
$1,000 fees), Wholly Foreign-Owned Enterprise (minimum of $15,000 + $5,000 fees)
 Registration can require proof of suitability, resume, business summary,
references/agent, by-laws, directors, translated into Chinese (see:
http://www.jljgroup.com/index.php?id=75&lang=en#section2
 IP protection suggestions: log access to databases, withhold key process
parameters, design “black boxes” in, disburse suppliers and key people,
imbed logo holograms and the like into products, and assemble offshore
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008
Finally China’s Open (for discussion)!
Questions and Comments
Thank you, again.
On the Internet (roughly 460 KB) at:
http://cha4mot.com/entrepreneurship-in-china.ppt
Entrepreneurship in the International Community
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November 19, 2008
Jim Cook’s Journeys
 President, CEO of NASDAQ Listed Company (Software Tools) and on the board of
two publicly held and numerous private companies, all high technology
 President, CEO of Exxon-Mobil financed venture (Electronics)
 President, CEO of Globatech, Inc. in Beijing (Japanese financial portal)
 Vice President (Technology) Computervision, Fortune 500 Company (CAD/CAM)
 Taught MBA courses at UCSD (Economics of Mfg.), Worcester Polytechnic
Institute (Advanced Mfg.), and U. of Melbourne (Entrepreneuring)
 Lectured on management at: MIT, NU, People’s University, and Chinese Academy
of Sciences; BS math RPI, graduate math MIT, on CCTV news with Jiang ZeMin
 Consulted on management to: DuPont, Motorola, Bell Labs, D & B, …
 Interviewed 6 times on FNN (now, CNBC Financial) about High Tech investing.
Entrepreneurship in the International Community
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NU School of Technological Entrepreneurship
November 19, 2008