From: allin
Doing business in China necessitates a fundamental reevaluation of conventional approaches, as entering the market with pre-conceived notions of success can lead to significant setbacks [00:00:05]. Success requires adopting a “first principles bottoms up” mindset [00:00:10].
Traditional Partnership Model
A common piece of advice for market entry in China is to secure a 50/50 partnership [00:00:15]. However, companies may opt to build their presence independently if they cannot discern a clear reason for such a partnership [00:00:20]. Initially, some businesses report experiencing fair treatment and an absence of bias on the ground [00:00:28].
The Global “China War”
A significant challenge emerged when what was described as the “China war went global” [00:00:31]. This involved the Chinese government, including entities like the sovereign wealth fund China Investment Corporation (CIC), making substantial investments (hundreds of millions to billions of dollars) in global competitors [00:00:37]. The strategic aim of these investments was to deplete competitors’ financial resources, thereby complicating their ability to compete effectively within China [00:00:49].
For instance, Apple was compelled to invest a billion dollars in DDI, an unusual move for a company that typically avoids such investments [00:00:54]. This phenomenon highlights how Chinese market dynamics can project globally, influencing competitive landscapes far beyond its borders [00:01:10].
High-Stakes Negotiation Tactics
In such a competitive environment, businesses may shift their objectives from outright victory to securing a viable alternative, such as a strong minority stake [00:01:15]. Achieving favorable negotiation outcomes in China often requires creating significant leverage, sometimes by aggressive spending to instill fear in competitors [00:01:28]. For example, during term sheet negotiations, a company might dramatically increase its burn rate, such as spending $75 million a week, to demonstrate its market share growth and apply pressure [00:01:34]. This “poker”-like approach ensures that the other party perceives the threat of continued competition if a deal is not reached [00:01:47].