Case study: Smiths Group – doing business in China
Clint Witchalls, Computing Business 21 Sep 2006
John Lytle the chief technology officer (CTO) of Smiths Group, a global engineering company, needed to expand his networking capabilities into China after the company entered the region.
China represents an increasingly important area of business both as a manufacturing location and a sales hub, according to Lytle.
‘We have made a strategic decision to go into China, driven by the size of the opportunity in that market as it emerges as a global consumer,’ says Lytle. ‘China represents a huge opportunity for most multinational corporations. We just can’t ignore it.’
As China opened its markets, Smiths moved in to explore where China stood from a business and consumer standpoint. ‘Historically, we’ve had a few small operations there,’ says Lytle. ‘Mostly they were joint ventures, low-cost manufacturing centres, but we are now opening our Asia-Pacific corporate headquarters in Shanghai. The purpose of that office is to grow our presence there as a producer, as a consumer, as a supplier.’
But doing business in China is not always plain sailing. The Chinese have a concept called guanxi (pronounced gwon-shee), which roughly translates as ‘relationships.’ To get things done in China, personal connections matter a great deal, but developing them takes time. In China, they cannot be hurried.
‘From a networking standpoint, you have to work with someone who has done it before,’ says Lytle. ‘You cannot assume that you can walk in there and get things done as quickly as you can in other markets. You need to work with people who know how to get things done in China.’ These people are often referred to as old China hands.
Patience is a key virtue if you want to succeed. Not only because of guanxi, but also because the country is still suffering growing pains. ‘There are some place we can’t go, not because the Chinese government won’t let us, but because the infrastructure cannot support the levels of rapid expansion,’ says Lytle. ‘So we have to move somewhat slowly as the government builds their infrastructure.’
Another challenge Lytle faced was IT security – one of China’s key weaknesses. ‘We do a lot of defence aerospace work with a number of different governments, so we have concerns around security of intellectual property,’ says Lytle. ‘Security concerns are being pressed on us by our other government customers, so we have to isolate our Chinese business from the rest of the organisation.
‘We have to set up a firewall between China and the rest of our organisation, just to assure other governments that Chinese nationals will not have open play into our virtual private network. So far, it’s been successful, but we are constantly monitoring traffic to know what is going on and to ensure the firewall is not being breached.’
Lytle’s recipe for working successfully in China is to move very slowly and do a lot of due diligence. ‘It does not hurt to get your feet on the ground and look around,’ says Lytle. ‘You cannot assume that from a couple of conversations or a few written articles, you can understand what goes on there.’