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Immersion Experience – Reflections on the China IXP Understanding a business environment

When I asked several of my co-students how they experienced the China IXP and what they took away from it, I got very diverse answers. Next to “a daring food experience”, “a love for Karaoke” and “new friends”, a few themes seemed to be common. I will come back to these throughout my story.

Many students were struck by the rapid development China has gone through in the last 20 years, despite its history and one party political system. “Beijing and Shanghai seem very similar to big cities in developed countries, the architecture in China might even be better”. Students were curious to know how China and the rest of the world will deal with the financial crisis and the existing large social inequality between city-, migrant and rural inhabitants. Furthermore, many were inspired and energized by the entrepreneurship they witnessed at all levels in the economy: “I was shocked on a daily basis by how many ÿentrepreneurs I met. From small store owners to folks who’d founded what ended up being multi-national corporations. The energy of the place was shocking and delightful to me” Finally, many students realized how complex it is to do business in China. “You better be there to stay, otherwise you will never understand enough in order to succeed and make use of a business opportunity”.

Our 10-day China IXP was led by professor Regina Abrami. Group activities existed of cultural activities, company visits, a panel and an alumni dinner. In project teams, we deepened our knowledge of “doing business in China” within a certain industry or functional business area. We did this through a real market lab, targeted company visits and interviews with people from our industry. Through these experiences we identified many challenges and opportunities. In our final presentations, we came up with solutions for these challenges or new business ideas.

Exploring historic and modern China in Beijing
Discovering Tiananmen Square, the Forbidden city and the great Wall at Mutianyu gave us some insight in China’s Imperial past. Our lunch-visit to local families in the Hutong allowed us to experience the hospitality of the Chinese people. They also displayed the entrepreneurial spirit of many Chinese: we learned that some of our local families actually made a lot of money by providing tourists with a “local lunch” experience, some of them entertain more than 140 people a day! Visiting the hypermodern Olympic park, was a big contrast to the historic sites and a testimony to China’s rapid infrastructural development.

After our initial exploration of Beijing, a knowledgeable panel composed of Regina Abrami, Michael Pettis and Russell Leigh Moses highlighted some major challenges that China is facing in the current economic crisis. How will China and the world deal with China’s large overcapacity problem? Will China be able to force some of its overcapacity on the rest of the world and will it be successful in using monetary policy and international collaboration to mitigate this problem? How will a consensus driven government that has never been challenged like this before, deal with severe economic problems? Will it blame capitalism and the West and retrench or will it listen to a growing voice in China of people that plea for further economic (and political) reform?

What I realized when listening to these insights was that the world now has a chance to help China in trying to solve their economic crisis in a way that does not rule out capitalism and can shape China’s involvement in the world economy and world politics going forward.

Discovering business challenges and solutions in Shanghai
Our Shanghai part of the trip was more dedicated to learning about business challenges and opportunities within our teams. To give you an example: my team, responsible for the non-luxury consumer goods industry, found out about holes in the healthcare system in China by visiting a migrant community with a local partner and by asking people from that community about their healthcare insurance, coverage and use. By talking to these people we found out that there is minimum or no healthcare for these migrant workers. This made us passionate about finding a micro-insurance solution for these people, an opportunity which we investigated throughout the rest of the trip.

Our group visits to companies like Lincoln Electric, Sealed Air, Corning and the Shanghai stock exchange. Interviews with companies specific to our research groups improved our understanding of business challenges and shed light on the complexity of doing business in China. Most international companies described they were dealing with severe margin pressures, IP infringement challenges and very severe talent attraction and management issues. Furthermore, they almost always highlighted the management of government relations as a challenge. Government support and buy-in is needed to conduct business, but communication and relationship building is a difficult art to master and takes a lot of patience. Some consumer goods companies, indicated some specific challenges around finding the right market in a fragmented market like China, creating brand loyalty with their customers and finding a way to create a brand image that provides a sense of identity for the younger generation with higher education and disposable income.

The intensive search for business challenges and opportunities allowed me to first, understand some of the root causes for social inequality. Second, it made me realize that the complexity of doing business in China makes it difficult to realize quick wins as an international entrepreneur. The international companies that have invested in understanding the complexity and are dealing proactively with this complexity however seem to have become more and more successful over time.

Coming back to China in the future
For me, this immersion in China has made me more invested in following China’s macroeconomic and political progress. Furthermore, the friendliness of the Chinese people combined with their drive to strive for the best were a great inspiration. I would be thrilled to go back to this country and look for opportunities that solve some of the fundamental problems posed to this fast growing economy.

January 26, 2009
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