How far is too far when it comes to graft and corruption in China?
Last week’s post on MNC bribery scandals in China sparked a bit of indignation and claims that “red envelops” were the only way to do business in China. Several members of the China Solved LinkedIn group challenged me to provide alternatives to paying bribes.
5 Shades of Gray
Borrowing a page from a wildly popular best seller, ChinaSolved offers up 5 Shades of Gray – a very sexy guide to MNC corporate governance in China.
- The Missionary Position. Straight and narrow. Follow the rules, do your own paperwork, wait on long lines, and pick non-sensitive service industries. Avoid the spotlight. This is the slow and infuriating route to growth, and it will always look like the locals and savvy expats are eating your lunch. For the multitude of start-ups, entrepreneurs and boot-strappers who can’t afford to pay bribes, this has always been the path of choice.
- Make them say your name. Build end-user support through advertising, branding or promotion using traditional pull marketing techniques. Focus on branding and name recognition. Use bribes and pay-offs as needed to secure permits, approvals and to clear set-up bottlenecks, but not for regular marketing. The downfall of the Euro drug and formula makers was that they relied on a complex, permanent structure of pay-offs that left an indelible trail For small businesses, building a positive reputation in China has never been easy – and with more and more high quality locals scrambling for mindshare and shelf space, it’s getting even tougher. Focus on niche markets and specialized products or services. Successful models include Apple and Android.
- Flog it yourself. Sell your goods directly to consumers by building your own distribution channels. Some western brands have been successful in building their own retail infrastructure. IKEA. GM. And super-luxe brands like Hermes have used this model successfully. While this is another option that seems like it’s only for the giant MNCs – smaller, nimbler actors can make this work in the 3rd and 4th tier cities. Building your own distribution channels in China is extremely difficult and cumbersome – but it gives foreign brands greater control over their sales and marketing.
- Find your sugar-daddy. Partner with the influential and connected — and pay dearly for it. Find distributors and partners who already have channels and pay them for access. A lot. Years of bribery and relationship-building should be priced in to the deal terms, so be prepared to spend. The bad news is that this usually means working with an SOE. The worse news is that they may not want to work with you. If you are in sensitive industry like education, media or transport, there probably isn’t any other option. NYU and Disney followed this path with great success.
- Who’s a dirty boy? Pay bribes and take your chances. This used to be the smart money, but it is looking increasingly dumb. Your Chinese consultant and head of marketing has been pushing this forever. Maybe it’s time to push back.
The Writing on the Wall
Anti-graft campaign against foreigners has been tremendously successful for Xi and the Beijing bureaucracy – you will see more and more of it in the future. The first wave of prosecutions has focused on European companies with the muscle to dominate markets – to the detriment of local Chinese consumers. Look for autos, F&B, premium liquor and maybe even hotels to start getting more unwanted attention.
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