Coatings World - August 2011

Personal relationships (“guanxi” in Chinese) are a significant driving force for sales and cooperation among the Chinese firms. It is important to remember much of the decision making related to Chinese industrial cooperation and alliance are driven by short-term gains. Consistent with the culture of reciprocity and the short-term mentality, Western companies are often expected to provide extra incentives to “sweeten the deal” in order to make them happen in China.

Successful Taiwanese and Hong Kong-based firms are sharp, realistic and hands-on. Because they incorporate expectations of both Western and Chinese business culture, dealing with Taiwanese or Hong Kong-based firms is perhaps the most difficult of all “Chinese firms” for Westerners. Companies wishing to conduct business with them must be professional and reputable by Western standards, but must also effectively demonstrate their capabilities, while building a relationship. Simply being Western is not enough to get their attention.

In addition to ethnic differences in ownership, there are legal differences as well. Companies can be described as either owned by the military, by the government or by a private entity. Businesses or sectors that are deemed important to the security of the state tend to be military-owned. State-owned companies are often those that are central to the planned economy and the current Five-Year Plan. Privately-held companies tend to be those where there are either opportunities for rapid growth or opportunities to gain access to foreign technology, or both. Companies wishing to invest in China should remember that despite recent progress in opening its markets, China remains a communist country that acts in a mer-cantilist manner rather than a free market manner.

Personnel differences

Despite the large population in China, there is a shortage of qualified manpower. This tightening of the labor market has tended to drive wages up in China, and has led to other challenges in the marketplace. Chinese employees sometimes lack loyalty to their companies and change jobs frequently for better opportunities. The lack of loyalty coupled with the high demand for employees has led to a situation where employees sometimes do not feel compelled to work hard of efficiently since other opportunities can always be found. Some companies are run by a core cadre of leaders, who carry most of the company workload as opposed to distributing work down the chain of command or working as a team.

Another challenge for Western companies is the wage disparity between Westerners and the local Chinese. The differences in cost of living and salary standards combined with the low profit margins of many Chinese companies make it difficult for them to remunerate at the same level. When special accommodations are made to Western employees, this often generates jealousy among their Chinese counterparts. In addition to the wage disparity, there is often a disparity in professional practices between Westerners and their local counterparts. This can also be a source of tension if Westerners try to force their practices onto their local employees.

Market differences

In comparison to other developed nations, the Chinese coating mar-
ket is more focused on the low-end segment. An emphasis on low
cost and low priced products and the limited R&D capabilities result
in a lower overall level of product quality. The situation is further
compounded by the current supply situation. The continuing growth
in coatings demand, coupled with ongoing raw material shortages
and price increases has created a conflict between pricing and re-
sources. Price is often the first priority, followed by product reliabil-
ity or quality. Large enterprises that win the price war or resource
war will emerge to dominate the Chinese coating market. Small-scale,
lower-level corporations are expected to close down or be acquired.

Summary

The Asia-Pacific region is an important and growing part of the global coatings marketplace. Unlike other regions of the world, the Asia-Pacific region has continued to grow, even in the face of the global recession. In particular, China and India have shown the greatest levels of growth, with China becoming the world’s largest coatings market in terms of volume. Over the next five years these growth trends are projected to continue with China and India leading the way. From a market segment standpoint, wood, powder, packaging, and industrial maintenance and protective coatings are forecast to experience the greatest rate of growth to 2014 in the region.

Due to the market size and continuing growth, many Western companies are looking to expand in Asia-Pacific and specifically in China. However, to be successful in China, Western firms need to learn about the Chinese culture. They need to be aware of the different types of Chinese firms and the differences in companies, personnel and markets as compared to Western countries. Western companies should uphold their professional protocols but need to understand how to build relationship when dealing with Chinese firms. Maintaining good relationships and communications should be a top priority when dealing with the Chinese. Companies looking to expand in other parts of Asia-Pacific such as India and Vietnam should expect there to be significant cultural and operating differences in these countries as well. CW

About the Authors: Orr & Boss, Inc. is a U.S.-based, international management consulting firm that specializes in the global specialty chemicals and coatings industries. Scott Detiveaux is a senior consultant with Orr & Boss and was the project manager for the recently published IPPIC global coatings market study on which this article was based. Allen Tsaur is a Shanghai-based consultant with Orr & Boss who specializes in the Asia-Pacific marketplace.