Successfully building business in China requires a strategic orientation built on mutual trust, not a quest for quick financial returns. Professor Simon Chadwick, a keen observer of the Chinese sports industry over many years, explains.
In many respects, it appears to have been ‘all quiet on the China front’ in recent months. Following the government imposition of controls on outward currency flows from the country, allied to state calls for curbs on irrational overseas investments, the voracious appetite of China for sport would seem to have been rather abruptly curtailed earlier in the year.
With the market for sports investments having now moderated, we are beginning to see the early signs of another flurry in activity. The Dalian Wanda Group has signed a sponsorship deal to sponsor events staged as part of the Abbott World Marathon Majors, while Chien Lee (owner of French football club OGC Nice) has reportedly been taking an interest in acquiring a stake in English football club Brentford.
If we are on the cusp of a second wave of growth in China’s sport industry, it is likely that there will be another ‘dash for Chinese cash’. Throughout 2015 and 2016, everyone from players and agents to financially impoverished sports clubs to events seeking sponsorship targeted the country as a potential source of money and opportunity. Some in the sport industry outside China benefitted, however most did not.
To many in sport with whom I have spoken over the last two years, China has seemed like a new Klondike that never was. Many were initially mystified by how difficult it had been to effectively engage in business with the Chinese, while latterly the abruptness with which the country retrenched from its lavish expenditure caught many in sport by surprise.
The last 12 months have probably therefore been a fast-track to understanding that doing business with China and the Chinese is not easy. For those anticipating an easing of constraints on the country’s sports expenditure, it is therefore worthwhile taking stock while we wait for the sports industry bubble to start inflating again (at the same time noting that the bubble never actually burst in the first place, it simply deflated for a while).
‘Taking stock’ is in fact a euphemistic reference to the need for the sports industry outside China to get to know the country. Unless sports leaders and managers do so, then they will continually fall foul of the nation’s political, cultural and social nuances. Many people inside China will tell you that, ‘one should never claim to know our country as it is so large and so diverse’. Even so, there are some general characteristics of which many in sport should be aware.
In January this year, the Chinese government imposed upon football a move from its 4+1 rule for overseas players to a new 3+1 rule. The imposition took place literally overnight, and without consultation. Not only did this demonstrate the prominence (and dominance) of the state in China, it also highlighted the element of uncertainty that sport businesses are likely to encounter when operating in China.
China’s economy is not based upon a liberal, market model of the type many in the West are used to, hence decision-makers and leaders must always factor this into their thinking about sport. Indeed, gaining state permission to do business in China is essential, whether this comes directly from the government or via an intermediary working on one’s behalf (who is likely to be Chinese). Use of the latter is essential in China, both because it is generally required and because they can help non-Chinese organisations navigate through the complexities of local politics, society and culture.
“A guiding principle in Chinese relationships is a cultural phenomenon known as guanxi, which in simple terms can be conceived of as being ‘relationships, connections and networks’.”
Whether engaging with the state or with local entrepreneurs, understanding China’s actual rules of ‘engagement’ is just as important. A guiding principle in Chinese relationships is a cultural phenomenon known as guanxi, which in simple terms can be conceived of as being ‘relationships, connections and networks’. This goes beyond a Western understanding of ‘networking’, not least because of the important roles that trust and bilateralism play.
Guanxi is widely seen as being the most important governance mechanism underpinning relationships, which is rather different to the tendering, contracting and due diligence practices many people in the West are more familiar with. The level of trust needed for guanxi to function is built-up over years, which means those working in the sport industry must adopt a long-term, strategic orientation if they are to take advantage of opportunities in China. This is one reason why some in the sport industry have been left feeling frustrated by their failure to make any meaningful or tangible short-term inroads into the market.
Eat, drink, give presents
As one seasoned visitor to China recently put it to me, “it requires an awful lot of eating and drinking with Chinese colleagues to get to a level of trust where you can do business. It also requires a lot of present-giving too”. The minutiae of business norms and conventions go way beyond what can be discussed here, but it is worth noting how important giving presents is in China. Essentially, this is a feature of the bilateralism that underpins guanxi, which might alternatively be termed reciprocal exchange.
When the Chinese do business, ‘I give to you and you give to me’ is an important principle. Failing to understand this is another of the reasons why so many non-Chinese sport businesses over the last couple of years have failed to get to grips with the market. Some of the country’s recent high-profile football player signings perhaps most aptly illustrate the significance of bilateralism (which in turn is a reason why the state hastily imposed the new 3+1 rule).
Although signing the likes of Carlos Tevez may have seemed like good business to the player, his representatives and possibly to the club that signed him (Shanghai Shenhua), the state was clearly far less impressed. Not only did the Argentinian represent an outflow of currency, the business case for signing him was not well established: an ageing professional coming towards the end of his career, with a negligible sell-on value. In other words, the return on investment (ROI) for China was not entirely clear, indeed there possibly wasn’t even an ROI on the deal.
Cast in business terms, guanxi, trust and bilateralism could be neatly seen in terms of ROI. Indeed, if your business is looking eastwards for opportunities then it should do so with partnership, collaboration and mutual value generation in mind. China is no longer simply ‘there for the taking’. Not only is China economically strong enough to pick and choose its partners, it has an increasingly strong sense of self-identity and self-worth. When combined with a distinctive business culture, this means that sport businesses should be asking what they can do for China as much as what China can do for them.