landscape, increased business regulations and laws, and Xi Jinping's fight on graft, what can multinational corporations (MNCs)  learn from Gerard Kleisterlee's experiences of dealing with China over a thirty year period?

The message, delivered to an audience of business insiders at KPMG's London building, may not have brought anything new but it did serve as a reminder that working in China is very different to working with China.

The key to potential success is one of guanxi, --relationships-- and deciding whether your company is wanting to work in China or, more importantly, with China.
 

Philips had a presence in Asia  in Hong Kong and Taiwan long before breaking in to Mainland China. Management level employees were largely well educated people who had come from the mainland. This source of high quality insiders would later help seal deals through guanxi.

As CEO of Philips in the mid-to-late nineties, the high quality Chinese management and their guanxi would be beneficial to the company. When Kleisterlee took the reins Europe had several anti-dumping cases running against picture tube and light bulb companies, some of which were Chinese. Through one of the Chinese management Kleisterlee was afforded a ten minute meeting with then Prime Minister, Zhu Rongji. After the initial formalities, conversation quickly turned to how Philips would help Chinese companies resolve the dumping problem.

Philips worked with China to educate them on how the World Trade Organisation worked, and what was expected in international trade. Philips also worked with Europe to reach a resolve on the matter.

Key to the issue is mutual understanding. On an international level China had opened  its doors to the world, but what was the world going to do for them? This message remains true, but as China has changed so have the circumstances. China wants less direct investment from MNCs, but what do they want? Understanding, and more investment in society from international companies.

MNCs now need to go to China with less of a mindset of how much they can make, and more of an attitude of finding partnerships with state and privately owned companies that will prove equally beneficial for all parties.

On the subject of understanding and on the topic of Intellectual Property (IP) rights, MNCs should understand that China is increasingly aware of regulations regarding IP, and is in fact now one of the driving forces behind regulation in a national and international capacity. However, it may be a slow process as lower government officials and police forces are less likely to want to enforce rules that could hurt the local economy.

For mutually beneficial relationships, MNCs need to think of China less as a homogenous market and see it for its diversity, not only between western and eastern provinces, but between tiered cities. After all, 140 Chinese cities have populations of over 750,000, which is comparable to the urban landscape of entire continents.

Products need to be increasingly specific to these markets, and they need to be affordable to the population. A product that sells well in Beijing or Shanghai is not necessarily going to sell well in smaller cities, especially in the interior. MNCs need to find products that are affordable to these other markets within China in order to raise their presence in the country and to be ready to compete with local businesses already existing in these markets.

MNCs can invest in the country by understanding the diversity of the market and by creating products or services across the board. The wider social benefit is that better market awareness will create revenue in smaller markets, employ high-end talent in these far flung places, and raise more of the population up to a middle class consumer base.

Kleisterlee in his years in China learned that working with China is better than working in China. Awareness of why things may take longer, or why there is more red tape is crucial. MNCs Should understand that China is at a point that European countries were fifty or seventy years ago. Looking back, would we expect things to be any different when Europe was developing? The answer is probably no. Patience, cooperation and consistency is crucial.

With changing regulations and increased tackling of graft and corruption MNCs can expect to be challenged by the financial and regulatory environment in China, but being patient and working with China through this period is crucial to the success of all.