Doing business in China presents opportunities and challenges for Finnish companies. China's economy is growing rapidly and will continue to be an important market. However, the business environment in China is complex. Local presence through a subsidiary, joint venture, or other partnership is often necessary to be competitive due to advantages in communication, price, service, and other factors. Finnish companies should localize operations in China to be close to customers, understand their needs, and communicate effectively in the local language and business culture for long term success in this important and growing market.

1. Doing Business in China
Jari Hietala
Helsinki 24.4.2012

2. CV Jari Hietala
Position Expertise Areas
– Vice President, Head of Region Asia, location
Hong Kong – Market access consulting, sales channel
development
Education – International business development
– M. Sc (Economics) – General management
– CMC (Certified Management Consultant)
– Asian markets
International Experience – Western European markets
– UK (7 years), Belgium (3 years), Thailand (8
years, China 1 year)
Professional Experience
– 25 years Previous Employments
– Finpro, various management positions in Asia,
Industry Sector Experience Finland and Western Europe since 1994
– Cleantech- industries – Rocla Oyj, Marketing Director 1994
– GWS Mertens N.V. Belgium, Managing Director
– Forest
1991-1994
– Machinery
– GWS (UK) Ltd, Managing Director 1990-1991
– Metal engineering – GWS Shop Equipment Division, Marketing
– Industrial equipment Manager Finland 1988-1990
– Partek Oyj, Marketing Planning Manager 1985-
1988
12/12/2011

3. Content
• The Importance of China for Finnish Companies
• Market Entry Modes & Nature of the Business Environment
• Recommendations
• Finpro in China
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4. The Importance of China For
Finnish Companies
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5. Asia looks set to return to its natural
“half share” of the world economy
Source: Angus Madison’s “Historical Statistics for the World Economy:1-2004AD”, Deutsch Bank Global Market Research
5

6. Asia, Middle East and Finland in 2010
Asia and Middle East in 2010
1,6
1,4 The bubble size indicates GDP based on
China PPP in 2010. The bubble size indicates
also the country's share of the total GDP
1,2 India of all countries included in the graph.
billions)
1
Population (billions
0,8
0,6
0,4
Indonesia
0,2 Japan
Philippines
Vietnam Thailand Korea Australia Singapore
0
-10 0 10 Malaysia 20 30 Finland 40 Hong 50 60 70 80
Kong
-0,2
GDP based on PPP per capita (thousands)
Source: IMF, World Economic Outlook, September 2011
Note: Amounts in current international dollar
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7. Maailmantalouden kasvun jakautuminen 2011e
BKT:n kasvu 2011, %
11
10 Kiina
9
Muu itäinen Eurooppa
Intia
Lähi-itä ja Afrikka
8
7
-itä
Meksiko
6 Muu
Brasilia
Venäjä
Aasia
5 Kasvu keskimäärin: +4,4 %
4
3 Pohjois-Amerikka
Länsi-Eurooppa
2 Japani
1
0
0 10 20 30 40 50 60 70 80 90 100
Pylvään leveys kuvaa osuutta (ostovoimapariteetilla korjatusta) maailman bkt:stä vuonna 2010, %
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8. 5-year plan – estimated growth
Forecast summary
(% unless otherwise indicated)
a b b b b b
2010 2011 2012 2013 2014 2015
Real GDP growth 10.3 9 8.7 8.4 8.1 8.2
Industrial production growth 15.7 13 12.5 12 11.7 11.1
Gross agricultural production growth 4.3 2.6 3 2.7 2.8 2.8
Unemployment rate (av) 6.1 6.5 6.4 6.6 7 6.3
Consumer price inflation (av) 3.2 5 4 4.1 4 3.8
Consumer price inflation (end-period) 4.8 4.1 3.8 4.5 3.7 3.8
Short-term interbank rate (end-period) 5.8 6.8 7.3 7.1 7.3 7.3
Government balance (% of GDP) -1.6 -1.7 -1.7 -1.5 -0.9 -0.8
Exports of goods fob (US$ bn) 1,581.50 1,783.90 1,990.90 2,226.40 2,482.40 2,781.20
Imports of goods fob (US$ bn) 1,327.50 1,615.90 1,813.40 2,074.90 2,344.00 2,638.80
Current-account balance (US$ bn) 306.2 268.9 299.9 275.6 259.6 257
Current-account balance (% of GDP) 5.2 3.9 3.7 2.9 2.3 2
c
External debt (end-period; US$ bn) 401 477.8 536 613.3 689.7 782
Exchange rate Rmb:US$ (av) 6.77 6.49 6.23 5.98 5.77 5.61
Exchange rate Rmb:US$ (end-period) 6.62 6.34 6.12 5.87 5.7 5.54
Exchange rate Rmb:¥100 (av) 7.7 7.96 7.7 7.39 7.03 6.72
Exchange rate Rmb:€ (end-period) 8.99 7.99 7.47 7.1 7.09 7.14
a b c
Actual. Economist Intelligence Unit forecasts. Economist Intelligence Unit estimates
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9. 11th Five-Year Plan target and achievement until
2010
Index 2005 2010 E 2010 real Completion
Economic GDP (Trillion RMB) 18.2 26.1 39.8 Over-achieved
growth Per capita GDP (RMB) 14185 19270 29748 Over-achieved
Service added value proportion (%) 40.3 43.3 43 Unmet
Economic
R&D expenditure (% of GDP) 1.3 2 1.75 Unmet
Structure
Urbanization rate(%) 43 47 47.5 Over-achieved
The country's total population (10,000) 130756 136000 134100 Over-achieved
Reduction rate of energy consumption per unit of GDP (%) 20 19.1 Unmet
Reduction rate of water consumption per unit of industrial added
Populatio value (%) 30 36.7 Over-achieved
n Effective utilization rate of agricultural irrigation water 0.45 0.5 0.5 Achieved
&Resourc The comprehensive utilization rate of industrial solid waste(%) 55.8 60 69 Over-achieved
e The total amount of cultivated land(10 billion hectares) 1.22 1.2 1.212 Over-achieved
&Environ
ment Emission reduction rate sulfur
dioxide
of selected pollutants (%) chemical oxygen 10 14.29 Over-achieved
demand 10 12.45 Over-achieved
Forest coverage rate (%) 18.2 20 20.36 Over-achieved
National average education (year) 8.5 9 9 Achieved
The number of urban basic endowment insurance coverage(10 billion
people) 1.74 2.23 2.57 Over-achieved
Public The new rural cooperative medical insurance coverage rate (%) 23.5 >80 96.3 Over-achieved
service
Rural new employment in 5 years (10,000 people) 4500 5771 Over-achieved
&People's
life Transfer of agricultural labor force in 5 years (10,000 people) 4500 4500 Achieved
Registered urban unemployment rate(%) 4.2 5 4.1 Over-achieved
Disposable income of urban residents per capita (RMB) 10493 13390 19109 Over-achieved
Disposable income of rural residents per capita (RMB) 3255 4150 5919 Over-achieved
9
Source: China Statistic Year Book; Analyst report; Roland Berger

10. Finnish Companies in China(estimate)
• 300+ Finnish companies in more than 340 locations
• 100+ companies with own local manufacturing operations
• Employees > 60,000
• Investments ~ 10 billion EUR; growing
• Turnover ~ 15 billion EUR; growing
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11. What is China’s role in Finnish companies
business?
The share of Aasia of the turnover of some
selected Nordic companies in 2008 (estimates)
• Ericsson 53% • Metso 20%
• Nokia (APAC) 40% • SKF 18%
• Outotec 32% • Kone 14%
• Wärtsilä 30% • Konecranes 13%
• Alfa Laval 28%
• UPM 10%
• ABB 25%
• Assa Abloy 9%
• Vestas 25%
• M-Real < 9%
• Atlas Copco 22%
• Cargotec 22% • Volvo 8%
• Sandvik 22% • Stora Enso 5%
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13. FBCS Survey 2012 Key Points
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14. FBCS Survey 2012 Key Points
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15. Market Entry Modes & Nature of
the Business Environment
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16. Comparison of international market entry
modes
High
Foreign
Subsidiary
Join Venture
Investment
Co-operation Franchising
Risk
Direct Sales Internet
Outsourcing Sales Channel
Licensing
Indirect Exports
Low Commitment High
Controllability
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Source: Adapted from Ahokangas & Pihkala, 2002 © Finpro 16

17. The most typical partnering pitfalls
• We expect that we can get additional sales with no cost
• We expect that we are automatically an interesting
discussion partner for them – only because we have
arranged a meeting...
• We expect them to see the future as we do
• We expect that they know as much as we do and update
themselves constantly
• We expect that by telling once the responsibility has shifted
from us to them
• We expect them to understand their role fully
• We expect their interest to be aligned with ours
• In a partnership model no single entity is in charge of the
total value chain – can we live with this?
Source: Pekka Rissanen, Teleste Oy
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18. Nature of the business environment in China
Topic Embryonic business Growth business Mature business
Markets Markets/clients do not exist in Market is growing in volume Long term growth of the
advance market has stopped
Number of competitors Hardly any direct competitors Many and growing number of Big number of competitors,
competitors, but not necessarily at but not increasing. Lots of
all markets or product segments take-overs and mergers. Both
local and global competitors
Market segments Difficult to decide to which Growing markets and/or niches Markets have been divided
market segment to focuss the can be identified between competitors, difficult
product development based to find niches or
on market potential (difficult new opportunities
to find clients)
Product differences No direct comparisons in Differences can be found in No fundamental differences
in the markets terms of technical technical characteristics (which in technical characteristics
characteristics; company is will even out in time) of products
often alone in the
market
Successful product OEM- strategy is better than Technology leader: technology Strategy focusing on service:
strategy and basis production of the end product driven strategy; from the client superior service when
of competitiveness (pioneer of the business); view we have superior technical compared to competitors
technological know-how characteristics (take benefit of the service
related to the innovation Technology follower: competition weaknesses
situation- driven strategy: we will of competitors)
fill the gaps left by competitors
Price setting Pricing principle still Technology leader: relatively high Market price; low price
unclear (market based, price probably in the entry phase
cost based or other Technology follower: market price, of industrial markets
low price in the entry phase
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19. Parameters of competitiveness favor
local presence
Communication
factors
Price factors • identification of
Service factors • purchase price client needs
• easiness to buy • delivery costs • foreseeing changes
• product support (incl. • assembly costs in demand
Product factors • usage costs
training, help desks • physical proximity
• performance • service costs
etc.) with clients
• adaptability • training costs
• assembly service • co-operation with
• reliability • payment terms
• after sales service clients
• durability • guarantee
• flexibility • other business networks
• user friendliness • finance terms
• delivery reliability • personal client care
• easy maintenance • price reductions • face to face sales
• design/looks • delivery time
•JOT- deliveries • marketing communication
• quality image
• financial services • references
• complementing range
• language skills
of products
• company image
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20. Can you have the same clock frequency when
operating from Finland?
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21. Conclusions &
Recommendations
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22. Recommendations
• Localising operations in China is a must for long term success
– To be close to customers and understand their needs
– To speak the same language
– To get access to the local innovation and business eco-systems
– To establish your own Guanxi
– To lower your production costs
– To be a credible player
• Operating mode options:
– Fully owned subsidiary (green field or acquistion)
• Sales & marketing
• Sourcing
• Local manufacturing/assembly
• After sales
– (JV with Chinese companies)
– Get Chinese ownership
– Alliance with local companies (partnership- model)?
– OEM- model with Finnish ”integrators”
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23. Finpro’s Global Network – Asia and Russia
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24. Finpro’s Global Network – Australia, Malaysia,
Philippines and Singapore
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25. Finpro’s Network in China
Sep 2009 © Finpro ry

26. FINCHI – a platform of optimizing your
value in China entrance
Plug & Play style of equipped office space
State-of-art services assist your daily operation
Full access to local contacts and bussiness networking
No Registration or Injection Capital needed, but all local activities could
be realized with FinChi turn-key solution. www.finchi.cn
4/25/2012 26 Copyright @ 2010 FinChi

27. FinChi Innovation Center - www.finchi.cn

28. Thank You!
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