[INTERVIEW] Trade expert recommends partnership to survive in China's different environment

By Park Sae-jin Posted : November 3, 2017, 14:24 Updated : November 3, 2017, 14:24

[Photograph by Park Sae-jin]


South Korean firms doing business in China were cornered to a dead end after Beijing took retaliatory steps over the deployment of an American missile shield this year.

Their woes were exacerbated by a shift in Beijing's stance toward foreign capital that has been visible this year as China marks the second term of President Xi Jinping after a period of high growth. Experts suggest foreign firms should bolster their risk management, among other things, to cope with a changing business environment.

In the early 2000s, foreign companies rushed to Asia's largest and booming market. China treated them with incentives and eased regulations, but the situation has now changed, requiring South Korean firms to work out a completely new strategy.

"Things are not the same in China. It is not as attractive as it was," Choi Yong-min, a director of the analysis and forecasting department at the Korea International Trade Association (KITA), said in an interview.

China is not an ideal place for foreign firms to do business anymore because of rising costs and strict regulations, he said. "Wages have increased and foreign firms now have to bear the same responsibilities as local companies."

After a sustainable business plan was set up, risk management should follow mainly through cooperation with Chinese business partners, he said, recommending active "localization". "For risk management, joint ventures are recommendable."

Foreign firms used to treat China as a simple manufacturing base with little care about their local partners, but such one-sided business relationship has gone as Chinese companies are now armed with advanced technologies and excellent marketing, Choi said.

After their failed localization, many South Korean firms had to head back home or relocate their factories to Southeast Asian countries like Vietnam which provide relatively cheap labor. However, there is a loophole in moving into Southeast Asia because of insufficient infrastructure and technology, Choi said, ruling out any drastic capital flight from China, which is South Korea's largest trading partner in Asia.

Choi proposed "China Plus One" to find a diversified market in Asia, based on close relations with China.

To survive in China, South Korean firms need special research and development in all areas of product development, marketing and management strategy, he said. "When such efforts come to fruition, that can be the 'final weapon' of our corporations."

Foreign firms should have a clear head to think about whether it is a necessary skill or product in China as local firms there have improved their technology and competitiveness and Chinese consumers have better discernment than before in their choice, he said.

"The idea of going to China simply because there is no hope in South Korea is a shortcut to failure."

For a successful foray into China, Choi urged South Korean firms to find good partners and think about their social responsibility. "Strategic partnership with local companies with outstanding abilities in their own fields is vital."

"Foreign companies can stick to what they do best and leave the rest work such as marketing and distribution to trustworthy local partners," he said.

South Korea has a big advantage in 5G technology, IoT, medical, environmental and energy sectors, Choi said, recommending investments in mid-sized cities, not big cities like Beijing and Shanghai, in view of Xi's will to build a society where people enjoy basic welfare.

"China is a dinosaur because a huge state-owned enterprise leads the whole, and the government is advocating a strategy to strengthen competitiveness by injecting private capital into state enterprises," Choi said. He also called for attention to China's policy aimed at reforming suppliers and producers to enhance their efficiency.

 
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