Be Prepared when Dealing with Chinese Firms: More Advice from OneMedPlace

It may sound like obvious advice, but when doing business in China, make sure you have a solid plan in place and that you thoroughly understand the regulatory structure there. One strategy of doing business in the country is to simply acquire Chinese firms, which is an undertaking that is more difficult than many firms might expect, according to panelists at a session at at OneMedPlace in San Francisco.

When looking to buy a Chinese firm, be prepared for culture shock. There are practices in China that would make corporate counsel in the United States “shudder and die,” according to one panelist. Upon inspecting many Chinese manufacturing capabilities, you may be tempted to tear them down and start over, he said. “This is not going to be like acquiring somebody down the street,” he added.

Having said that, doing due diligence is not always easy in China. Sometimes, companies there keep two separate financial books and they will show you the one that looks better. It is better to go above and beyond what you think is necessary in terms of due diligence.

It might be a good idea to avoid doing business with lower-end companies who face vicious competition. Large multinationals are facing their own problems. The bigger growth is really likely to be for mid-sized companies.

It’s a good idea to put your place in the Chinese firm’s shoes to really understand the valuation. Chinese companies may be growing at 20% while your company (and your country) has relatively fast growth. The firm you are looking to acquire might wonder why your firm would want to do so.

Despite these cautions, the Chinese are very forgiving people and sincerely want to help you do business in the country. To that end, learning small cultural details can help. Although they will likely understand if you are unfamiliar with their customs, learning the business culture can facilitate the process.

Other Considerations

Another consideration is that doing business in Taiwan or Hong Kong is substantially different than doing business in China proper. Those countries have different regulatory systems. The Taiwanese system has a reputation for being relatively predicable.

Doing business in China in the medical device sector can be very challenging unless your company has a very innovative product. There is strong price pressure from the government to cut device related costs. That said, the diagnostic space and cosmetic-related products will likely boom.

Another observation is that a cancer diagnosis is more or less a death sentence in China. People will likely start demanding better oncology treatment, so there could be increased demand for oncology-related products. 

—Brian Buntz