Safeguarding Success in China

What to do when your business in China attracts the wrong attention for the right reason.

Your Chinese stakeholders and counterparties have a Plan B. They have, naturally enough, made contingency plans for the possibility that your joint business in China goes badly. But what many

China exit strategies — for when things go too well.
Western entrepreneurs and managers don’t understand is that success brings its own challenges and dangers. When your very foreign brand starts gaining traction and doing well in their very local markets, it isn’t cause for celebration all around. Unless partners, suppliers, distributors, staff and

You need a China exit-strategy for when things go too well.
You need a China exit-strategy for when things go too well.

even customers feel they have a stake in your success, they might feel threatened and resentful at your good fortune. Soon after that, you start running into regulatory and bureaucratic roadblocks.

Success is a curse in China.
In the old days, when China was still a land of shortage, savvy Taiwanese companies would practice elaborate maneuvers to look poor and struggling. It was partially a tax dodge, but they also remember the old stories of wealthy landlords and bourgeoisie getting into trouble. Garish displays of wealth are a recent phenomenon in China. Chinese have a long tradition of hiding wealth behind brick walls and humble countenances. There is a good reason for modesty in China – but the WSJ and CNN have rendered such behavior impossible. You need to face up to the fact that all the wrong people will know about your good fortune – right away:

Management strategies for managing runaway success in China:

1) Share the wealth. It’s harder for local Chinese to call you out as a “foreign exploiter of noble peasants” when they are making most of the profit. Successful international brands have been enticing the right partners to defend their interest by giving up majority stakes within the Mainland. GM does it. Disney does it. Western brands earning less and keeping more will be the new thing.

2) Look and act Chinese. Play local rules. Keep a low profile, and follow the local customs. I don’t mean just follow the customs you like – like banqueting, keeping ernai and tons of servants. You also have to follow the traditions you DON’T like. (See the Chinapology.) Keep you head down, look as local as possible, and get along.

3) Be the harmony guys. Successful foreign enterprises should support local Chinese charities, educational efforts and community groups. Give money, support kids and education; hire lots of locals – especially poor and economically challenged. It’s of limited effectiveness on its own, but works well with these other strategies.

4) Cozy up to the near-Chinese. Taiwanese make the best partners, Singapore is ok. HK has too much baggage, but will do in a pinch. These guys know how avoid sticky conflict. Look at Foxconn (Hon Hai) – they routinely get caught violating Chinese labor laws (and a few UN Human Rights guidelines), but they are Teflon as far as government regulators go. Companies of a certain size should have arrangements in place in case they run into real trouble with Beijing.

5) Always be ready to bail. It’s happened before. Don’t be a hero, Johnny. You may have to pull up stakes someday. Have a go-bag by the door, copies of your passport, and multiple exit routes prepared. Every China plan should include an exit-strategy – and for successful MNCs and entrepreneurs that means developing a contingency for when you (or your country) fall from favor.

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