Doing Business in China: Taming the Dragon
December 22, 2015
China’s population has reached 1.4B— 20% of the world’s population.
And they are consuming technology like a dragon. According to a report by CNN last February, China has more than 2X as many Internet users than there are people in the US, and are on track to reach 33% of the world’s Internet users by 2018.
US companies must have an Internet presence in China to reach this booming economy. That means data storage and connectivity, which has its own set of challenges.
Companies doing business in China need to work within the restrictions in order to tame the dragon.
Moving Data in China
The first thing you need to know: the Chinese government owns the market
The business of Telecom is a monopoly in China. Companies must partner with them to do business in China.
- China Telecom — Internet service provider
- China Unicom – mobile and fixed line broadband, with nearly a half billion subscribers
- China Mobile – mobile services provider
They are owned by the government, have a fixed monopoly, and are fundamental to everything that happens in the fixed telecom and the data center market in China.
China does have 2nd tier and 3rd tier carriers and ISPs. But to sign up, everything has to go back to those 3 major carriers and therefore through the government.
For example, if a customer wants a dark fiber connection between a data center and one of the major carriers in China, the government weighs in. They want to know what kind of data will be transferred and what your objectives are. Scrutiny is an understatement, and there will be a mountain of paperwork.
Security is Very High in China Data Centers
Because the National Security Department oversees security in China’s data centers, security is very high. Many major financial Institutions come to China because security is their highest priority.
Relationships are critical to business success in China
The Chinese have a word for it: Guanxi. (Gwan shee) Though the literal translation means “relationship”, in China, it has a much wider cultural meaning. This concept is central in Chinese society and has very deep roots in their culture.
Guanxi can refer to the dynamics of centers of influence, inside information, social status and esteem.
Business relationships must be carefully cultivated, as the Chinese do not readily trust outsiders. Having Guanxi (which also means “connections”) with a partner in China is essential to doing business there.
Learn more about Darren Wu of the Shanghai Data Center
What constitutes a Partner, in a regulatory sense, is a company that is authentically Chinese
You need a data center partner familiar with the Chinese market. It’s quite specific. A partner must have a strong relationship with local and government owned companies—especially the big 3 carriers.
When choosing a partner in telecom, make sure you get a complete solution—not only colocation services. This is not sales hype. The cultural barriers can be overwhelming. You’re multiplying the challenge when you go a la carte on services, especially in China where everything is new.
Patience is Key to Doing Business in China
Everything takes many steps to complete, as the government will be sensitive to the varied aspects of any business arrangement. Companies must be prepared for reams of red tape, much of it done by hand.
The High Cost of Bandwidth in China
Customers are always surprised when they are quoted the price for Internet bandwidth in China.
It’s partly due to government involvement. Because the government sanctions pricing through their monopoly it can set the price necessary in order to do business. In general, bandwidth is expensive across the board in Asia Pacific, so when doing business in any city in China or APAC one must factor that in.
Marketing in China
Here’s where Guanxi comes in. Companies cannot openly market or exhibit at a trade show without an authentic partner. Your partner must be authentically Chinese. A large data center provider built a huge facility, but because they had problems by not adhering to rules and guidelines, they were eventually forced out for non-compliance, costing them billions.
The fact that China comprises one third of all global Internet users makes this the biggest Internet market. The potential is huge.
For the big companies, China is the market they have to capture.
If you miss a mega market like China, it means you’re left behind.
Limitations on Social Media in China
Restrictions apply especially to social media companies. Google, for instance, is not allowed in China. At least for now. Internet searchers use Baidu in China.
If your email is based on Google Gmail, you can’t operate in China, because that part of your system is not permitted inside China.
What about personal privacy? That was a huge issue in Russia recently, where the government moved up the deadline for businesses to house personal data of Russian nationals within the sovereignty of Russia.
China and Russia see eye to eye in this regard. But from the perspective of US companies—when you talk about international regulatory issues, these are the countries that you really have to sift through the details to get a true perspective.
How the language barrier affects doing business with Data Centers in China
Language is especially problematic in the data center business, where there are so many technical terms regarding technology and data.
The results of not having the ability to fully communicate can be disastrous, especially when negotiating contracts with specific terms. If you’re negotiating a contract, and you want a specific technology in the contract, but the translation is not accurate—you don’t get services.
Companies must have good translators in the NOC as well, who understand technical terms in order to help customers.
Having a truly multi-lingual translator who has a background in technology is crucial. Otherwise, misunderstandings can delay operations for long periods of time.
Given this huge growth market, companies don’t want to be left behind. Taming the dragon is not easy, but if can earn its trust, you will have good Guanxi.