Master Thesis - ERIM

Master Thesis
“Dutch Entrepreneurship in the People’s Republic of China:
problems, challenges and solutions”
Student: Boris Peters
Coach : Drs. Thomas Blekman
Co-reader: Prof. Dr. Barbara Krug
Entrepreneurship and New Business Venturing
RSM Erasmus University

“There are more consultants that can help you start up a company in China than there are Dutch
companies operating in China. Many of these so called consultants don’t have a clue what they are
doing.”
(Ron de Goeij, 2007, Director of KOW Asia)
“When doing business in China, listen to your ‘gut feeling’, because this is the best information you
can rely on.”
(Hans Lensvelt, 2007, Director of Lensvelt)
“If even huge companies like Prada, Hugo Boss and Louis Vuitton can not protect their brand, why
even try to protect ours?”
(Hans Lensvelt, 2007, Director of Lensvelt)
“The notion of producing high quality is getting more familiar to the Chinese producers. However, as
a buyer you must be very careful for asking a lower price because there are still producers that
simply lower the quality of the product to lower the price and think that is perfectly normal to do.”
(Rienk Hamstra, 2007, Owner of Beumer Agritech)
“It is a very good thing when an expat or entrepreneur marries a Chinese woman because in that
case at least somebody knows how to do business in China.”
(Ari van der Steenhoven, 2007, Director of Eastwingate)
“Copyright in China means for the Chinese; the right to copy.”
(Jennifer Chan, 2007, Director of Sinova)
Boris Peters 1

Acknowledgements
The acknowledgement is an interesting part of a thesis as it is for the writer often the last part to write
but for the reader the first part to read. As I now write the last sentences of my thesis I am not only
finishing my thesis but also my academic career, which was definitely the most interesting part of my
life until now. I cannot help but feeling sad that this part of my life has now ended but I am
immensely grateful to all people that helped me to get where I am now.
My deep thanks go to Rienk and Susanne Hamstra who took me under their wing during my stay in
Shanghai and really made me feel right at home on the other side of the globe. I will never forget the
valuable insights that Rienk taught me as my manager at HD China.
Off course my internship at HD China would never happened without the trust and help of Aad
Kuiper who made my internship at Hunter Douglas possible and gave me an experience that I will
always remember.
I wish to thank Thomas Blekman, Barbara Krug, Wynand Bodewes, Wim Hulsink and Andreas
Rauch for teaching me a small part of their extensive knowledge. I also wish to thank Marcel
Broersma in providing me the opportunity to finish my thesis while providing me with my first real
job.
Because of the strong support and love of my friends and family I always felt motivated to keep
working hard. I am indebted to Merel Risselada and Jasmijn Nugteren, I am sorry I could not always
give you the time that you deserved, thank you for your love. I am especially grateful to my parents,
Ruud and Nan Peters who were tireless in motivating and supporting me to finish my study and I am
sorry to test your tirelessness for such a long period of time.
Most importantly, I thank my lovely girlfriend Nathalie Magnee for her endless understanding,
support and love.
Boris Peters 2

Preface
During my study at the Erasmus University I was surprised that we learned so little about the Chinese
economy and the impact on our economy. For the last quarter of a century the Chinese economy was
the fastest growing economy in the world with an average growth rate above 10%. China holds about
$ 500 billion of U.S. debt and it has a state owned investment vehicle with $ 200 billion worth of
assets under management, which is literally able to influence economies of many nations. I wanted to
learn more bout the Chinese economy and “way of doing business” and especially “how to start up a
business in China” because the chance is high that in the future I need to do business with the
Chinese.
In that same time I met an entrepreneur who told me about his exhilarating time in China while setting
up his factory. I concluded that one must be absolutely mad to start up a business in China due to all
the problems one encounters. Strangely, everyone I met who lived in China for a while told me that,
in order to understand why entrepreneurs are attracted to China, you need to go there. This fired up
my interest even more and I decided that I wanted to write my thesis about Dutch entrepreneurs
starting up in China.
I talked to Mr. Kuiper, the CEO of Hunter Douglas Europe, about my burning desire to travel to
China and after convincing the management team, I was offered an internship at Hunter Douglas
China. It was an experience of a lifetime to work and live for 4 months in Shanghai. The huge city
that never sleeps has a magical effect on everyone who lives there. It seems that everything goes twice
as fast compared to Holland; doing business, eating, driving, walking and working. The hunger of the
Chinese to grow is enormous, new huge sky scrapers are popping out of the ground every day and it
seems that no one stops working on the end of the day.
By working closely together with the Chinese employees at Hunter Douglas China I gained a lot of
knowledge about the Chinese culture and interaction. My Dutch manager Mr. Hamstra took me along
on business trips and I met many Dutch, Chinese and international entrepreneurs, businessmen and
government officials who all provided me with valuable information for my thesis. It was very
difficult to keep focused in my thesis because I learned so much more than I could write and this is
most certainly the reason why my thesis has more pages than I intended. I literally had to stop myself
many times from writing new insights but it made the process of writing my thesis very interesting
and must say I am sad that I had to finish it.
I hope that my enthusiasm is reflected in my thesis and I hope that as a reader you will have as much
interest in reading it as I had writing it.
Boris Peters 3

Table of Contents
Acknowledgements..................................................................................................................................................2
Preface......................................................................................................................................................................3
Executive summary..................................................................................................................................................6
1. Research Introduction ..........................................................................................................................................7
1.1 Introduction ....................................................................................................................................................7
1.2 Problem definition..........................................................................................................................................8
1.3 Research objective..........................................................................................................................................9
1.4 Research Questions ......................................................................................................................................10
1.5 Theoretical framework .................................................................................................................................13
2. Methodology......................................................................................................................................................14
2.1 Research design............................................................................................................................................14
2.2 Contents........................................................................................................................................................16
3 Starting up in China ............................................................................................................................................17
3.1 About China .................................................................................................................................................17
3.2 Definitions....................................................................................................................................................18
3.3 Entry modes..................................................................................................................................................23
4 Problems when starting up in China ...................................................................................................................26
4.1 Introduction ..................................................................................................................................................26
4.2 Problems encountered while starting up in China........................................................................................26
Weak Regulatory Regime .............................................................................................................................26
The newness of private enterprise................................................................................................................28
Incomplete property rights ...........................................................................................................................29
Problem of obtaining capital ........................................................................................................................30
Diversity of local business systems across China ........................................................................................31
Poorly functioning markets ..........................................................................................................................33
Poorly Developed Institutional Arrangements.............................................................................................34
Resource dependancy...................................................................................................................................34
4.3 Conclusion....................................................................................................................................................36
5 Solutions derived from the literature ..................................................................................................................38
6 Qualitative Research and Results........................................................................................................................41
6.1 Case selection...............................................................................................................................................41
6.2 Validation .....................................................................................................................................................42
6.3 interview set up and analysis........................................................................................................................44
6.4 Schematic overview of selected cases..........................................................................................................44
6.5 Case studies ..................................................................................................................................................45
Case #1: Kow Architecten............................................................................................................................45
Case #2: Lensvelt Interieur ..........................................................................................................................51
Boris Peters 4

Case #3: Holland Beumer Agritech .............................................................................................................57
Case #4: Eastwingate Consultancy ..............................................................................................................63
Case #5: Sinova............................................................................................................................................70
6.5 Schematic overview .....................................................................................................................................77
6.6 Conclusion....................................................................................................................................................79
7 Solutions to the Problems Encountered by entrepreneurs ..................................................................................81
8 Conclusion and Recommendations.....................................................................................................................83
8.1 Conclusion....................................................................................................................................................83
8.2 Limitations ...................................................................................................................................................85
8.3 Managerial implications...............................................................................................................................87
9 References...........................................................................................................................................................88
10 Appendixes .......................................................................................................................................................95
10.1 Questionnaire for interviews with entrepreneurs .......................................................................................95
10.2 Questionnaire for interviews with service providers (accountants, lawyers, consultants and governmental
institutions).........................................................................................................................................................96
11 People that attributed to the thesis ....................................................................................................................97
Boris Peters 5

Executive summary
Many Dutch companies are now operating in China in pursuit of the opportunities that a big emerging
market like China can provide. However, China is also a transitional market slowly changing from a
planned economy to a free market economy. The fact that the Chinese economy is not only emerging
but also in transition means that Dutch companies encounter problems setting up or operating a
business in China.
In the internationalization literature there is extensive knowledge about the problems and challenges
encountered while setting up a business in China but in my opinion it is especially valuable to provide
possible solutions to these problems. With this study the internationalization literature concerning
China is analyzed to understand the problems that Dutch companies encounter when starting up a
business in China but more importantly, solutions derived from the literature are given and
empirically tested by a multiple case study performed in China under Dutch SME start-ups.
This thesis indicates the importance of social networks as a solution to many problems encountered by
Dutch entrepreneurs when starting up in China based on the literature study and empirical results.
Moreover this thesis provides further insights into the mentioned solutions in the literature study.
Answers are provided on how to establish a network with other (Chinese) businesspeople and
government officials needed to overcome problems while starting up in China.
It seems that networks with Chinese individuals and Dutch entrepreneurs are more easily initiated
with the help of a Chinese employee working for the entrepreneur due to the emphasis that the
Chinese lay on speaking the same language and having the same background in forming a social
network. Trade fairs can be useful to meet trustworthy Chinese businesspeople because one can only
attend a trade fair when having a business licence. A network with local government officials seem to
be most helpful in comparison to other networks but the willingness of local government officials to
form a social network depend on the location and activities of the Dutch start-up.
Boris Peters 6

1. Research Introduction
1.1 Introduction
This chapter introduces the research and the problem definition and the research objective is stated.
Fallowing are the listed research questions in order to answer the main research question and finally
the theoretical framework visualizes the aim of the thesis.
Due to the ‘Open Door Policy’ in 1978 and the accession to the WTO in 2001, the Chinese market is
modernising and liberalising, changing form a planned economy into a market orientated economy.
These developments are making China increasingly attractive for foreign investors seeking a higher
turnover anticipating on a huge emerging market or low production costs due to low wages (Zhao,
2002).
Nowadays, there are increasingly more Dutch companies, setting up a business in China. In 2006,
Holland had 2.126 million euro in Foreign Direct Investments in China which was a 16% increase
compared to the previous year. According to the EVD (Dutch Economic Information Service), all the
big Dutch multinationals have an entity in China and increasingly more Small and Medium sized
Enterprises (SME’s) are starting up in China. Due to my interest in SME’s and the increase in SME
start-ups in China, this thesis focuses on (Dutch) SME’s.
The Chinese economy is not only emerging but also in transition. Emerging and transitional markets
are characterized by market failures and uncertainty. (Hoskisson, et al., 2000; Nee, 1992; Khanna,
2001). Although China seems to be an attractive market for Dutch entrepreneurs it is very likely that
problems and challenges are encountered while starting up a business in China. For scholars and
entrepreneurs it is interesting to understand what kind of problems and challenges will be encountered
while starting up. More importantly it is vital for entrepreneurs to understand how to solve the
problems and challenges in order to successfully set up a company in China.
Boris Peters 7

1.2 Problem definition
The challenges and problems encountered by entrepreneurs when starting up a company in the
Chinese market will create uncertainty, which can increase transaction costs (Williamson, 1985; Krug
and Metha, 2004). Transaction costs are known to be especially high in emerging economies, such as
in China (Hoskisson et al., 2000). Transaction costs refer to the cost of providing some product or
service through the market rather than having it provided from within the firm. In order to carry out a
market transaction it is necessary to discover who it is that one wishes to deal with, to conduct
negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to
make sure that the terms of the contract are being observed, and so on. More succinctly transaction
costs are search and information costs, bargaining and decision costs and policing and enforcement
costs or in short; all costs necessary to bring a good or service to the market (Coase, 1937).
If solutions to the problems and challenges encountered are clear, it is possible to reduce uncertainty
and thereby the transaction costs. Many scholars identified and researched the problems and
challenges that entrepreneurs encounter when starting up a company China (Krug and Mehta, 2004;
Krug and Pólos, 2004; Oi, 1996; Child and Tse, 2001; Li and Qian, 2001) however, the
internationalization literature concerning China primarily focuses on the problems and less on
solutions to these problems when starting up or operation a business in China. If solutions are given in
the literature, they are often superficial but more importantly; often not empirically tested. For
instance: Krug and Metha (2004) describe the problem of a weak regulatory regime and they indicate
that it can be reduced by forming alliances with local government officials, but HOW can a Dutch
entrepreneur form alliances with local government officials? WHY is this a good solution or are there
more solutions to this problem?
Boris Peters 8

1.3 Research objective
The internationalization literature concerning China (Krug and Mehta, 2004; Krug and Pólos, 2004;
Oi, 1996; Child and Tse, 2001; Li and Qian, 2001) primarily focuses on the problems and less on
solutions to these problems when starting up a business in China. The objective of this thesis is to
provide theoretical and empirical insights into the solutions to the problems and challenges
encountered by Dutch entrepreneurs when starting up a business in China. Therefore this thesis has
scientific relevance in deepening the knowledge of the internationalization literature concerning China
by empirically testing the solutions provided by the internationalization literature.
The problems stated can lead to uncertainty because it can affect the success of the start up. Because
high transaction costs are associated with uncertainty it is important to understand the causes of
uncertainty and deliver possible solutions to reduce the transaction costs. Lower transaction cost can
increase the performance of a company and strengthen the competitive advantage as well as lowering
the threshold for entering the Chinese market. This research can be useful for Dutch entrepreneurs
considering setting up a business in China. They will here find an overview of possible problems and
challenges encountered while setting up a business in China, but more importantly; possible solutions
derived from the literature and derived from the case studies.
My motivation is my interest in the Chinese market and the Dutch entrepreneurs that are operating in
this market. When reading the internationalization literature I get the impression that one must be
insane to start-up a business in China because of all the problems that one will encounter. Still many
Dutch entrepreneurs do it and succeed and this triggered my interest: How do these heroes do it?
This thesis focuses on SME’s that have started up in the last 5 years in China because there can be a
difference in impact of the difficulties or problems encountered in China when starting up a SME
compared to large company. Large firms often have many resources like capital, expertise and
experience. An entrepreneur has less financial resources, must hire expertise and has often limited
experience often making the effect of the problems larger.
I decided that if I really wanted to understand my interest I had only one option and that was to travel
to China and experience it first hand. Therefore I travelled to China and worked for a Dutch company;
Hunter Douglas. I lived in Shanghai from September till December 2007.
Boris Peters 9

1.4 Research Questions
Krug and Mehta (2004) and Krug and Hendrischke (2006) defined in their articles idiosyncratic
features of the business environment that generate a high level of institutional and economic
uncertainty for entrepreneurs, which are called ‘problems’ in this thesis.
In my conversations with Prof. Dr. Barbara Krug I selected six problems that Dutch entrepreneurs
encounter.
The six problems are: a weak regulatory regime, the newness of private enterprise, diversity of local
business systems, incomplete property rights, missing and poorly functioning markets, and poorly
developed institutional arrangements.
I have added additional common economic and institutional problems in the literature survey, as they
also seem to be problems that Dutch entrepreneurs encounter. The additional problems are: Obtaining
capital (Marson et al., 2002 ; Ahstrom and Bruton, 2006 ; Krug , 2007) and resource dependency
(Moran, 1985 ; Pfeffer, 1978 ; Child et al., 2001 ; Williamson ; 1985 ; Krug , 2007).
More extensive literature concerning the listed problems is provided in chapter 5 of this thesis. In
chapter ‘1.5 theoretical framework’ an overview is given of references used to lay the theoretical
foundations for the treated problems in this thesis.
The main research question for this study is:
“How to cope with the listed problems encountered by Dutch entrepreneurs when starting up a
Small to Medium sized Enterprise in China?”
The listed problems and challenges are derived from the literature therefore answers to the sub-
research questions must be provided in order to answer the main research question. The sub-research
questions are:
1. How can the effect of a weak regulatory regime be reduced?
In the literature it is stated that the effect of a weak regulatory regime can be reduced when
entrepreneurs form alliances with government officials and form a social network with other business
people, but how can a successful alliance be formed with a government official? Can a government
official be of any help for a Dutch entrepreneur?
2. How can the problem of newness of private enterprise be reduced?
Boris Peters 10

The literature indicates that the social network of the entrepreneur is very valuable and necessary in
finding good business partners and employees. How can a Dutch entrepreneur effectively form a good
social network in China when starting up? Can it be done through networks of others? Is it even
possible for a Dutch entrepreneur to form a network with Chinese business people?
3. How can the problem of incomplete property rights be reduced?
It is stated in the literature that again alliances with government officials like Party members and
bureaucrats can reduce the problem of incomplete property rights. It is also stated that alliances with
economic agencies and local jurisdiction can reduce the problem of incomplete property rights. What
kind of economic agencies or local jurisdictions can be persuaded to form an alliance? And again how
can the alliance be formed?
4. How can the problem of obtaining capital be reduced?
Also it is stated that a good social network can increase the chance of obtaining capital but is this the
only way? How can a Dutch entrepreneur effectively form a good social network in China when
starting up? Can it be done through networks of others? Is it even possible for a Dutch entrepreneur to
form a network with Chinese business people?
5. How can the effect of Diversity of local business systems across China be reduced?
In addition to form alliances with local officials it is stated in the literature that a company should
reduce the reliance on the environment by relying on the company in the home country and that
resources should be pooled with other companies. Are there other solutions to this problem? How do
companies pool resources?
6. How can the effect of poorly functioning markets be reduced?
Local officials can provide information about markets, new products and technology. Are there other
ways in obtaining information about markets? How can the local officials provide information and
when is this information given?
7. How can the problem of poorly developed institutional arrangements be reduced?
Also it is stated that a good social network can increase the chance of obtaining capital but is this the
only way? How can a Dutch entrepreneur effectively form a good social network in China when
Boris Peters 11

starting up? Can it be done through networks of others? Is it even possible for a Dutch entrepreneur to
form a network with Chinese business people?
8. How can the dependency on Chinese resources be reduced?
It is stated that Dutch firms can utilize more internal resources coming from its parents or subsidiaries
but are there more ways to reduce external dependency? Is it favorable to limit commitment to the
environment in China?
9. Are there in addition to the mentioned problems other problems and solutions to these
additional problems?
It could be possible that entrepreneurs encountered other relevant problems in addition to the
mentioned problems and found successful solutions to these problems. This sub research question can
trigger potential further research.
Boris Peters 12

1.5 Theoretical framework
Weak Regulatory Regime
The Newness Of Private Enterprise
Incomplete Property rights
Problem of Obtaining Capital
Diversity of Local Business Systems
Poorly Functioning Markets
Poorly Developed Institutional Arrangements
Resource Dependancy
Problems listed in the thesis References used in the thesis
Weak Regulatory Regime Oi, 1989 ; Krug and Mehta, 2004 ; Child et al., 2004 ; Zhou, 2002 ; Nee,
Opper and Wong, 2007 ; Peng, 2001
The Newness of Private Enterprise Zhou, 2002 ; Chen 1998; Krug and Mehta, 2004 ; Child et al., 2004
Incomplete Property rights Oi, 1989 ; Krug and Mehta, 2004; Hendrischke, 2004 ; Krug and Pólos, 2004 ;
Walder, 1995
Problem of Obtaining Capital Marson et al., 2002 ; Ahstrom and Bruton, 2006 ; Krug , 2007
Diversity of Local Business Systems Whitley, 1999 ; Krug and Hendrischke, 2006 ; Boisot, 1999 ; Hoskisson et al.,
2000 ;
Poorly functioning markets Krug and Mehta, 2004 ; Krug and Pólos, 2004 ; Hendrischke, 2004, Oi, 1989
Poorly developed Institutional Arrangements Krug and Mehta, 2004 ; Child and Tse, 2001 ; Elfrink and Hulsink, 2003 ;
Ellis, 2000
Resource Interdependency Moran, 1985 ; Pfeffer, 1978 ; Child et al., 2001 ; Williamson ; 1985 ; Krug ,
2007
Less uncertainty
(During start-up phase)
Boris Peters 13

2. Methodology
2.1 Research design
In this chapter the research design and methodology used for the thesis is explained followed by the
overview of the contents of the chapters.
The research design for the thesis is a literature study followed by a multiple case study. The reason
for this approach is that, although there is extensive literature on the problems and challenges
encountered while starting-up a business in China, the solutions given by the internationalization
literature are limited and often not empirically tested. Therefore possible solutions to the problems
should be “explored” by asking “how” and “why” questions. “In general, case studies are the
preferred strategy when “how” or “why” questions are being posed, when the investigator has little
controll over events, and when the focus is on a contemporary phenomenon within some real life
context.” (Yin, 2003). As stated earlier; China’s market is a transitional market, slowly changing from
a planned economy to a free market economy and therefore some of the problems and challenges can
be contemporary which strengthen the choice for multiple case studies.
In order to explore the problems and challenges encountered while starting up a business in China and
derive solutions given in the internationalization literature, an exploratory research was performed and
research questions were generated during the exploratory research. Further literature study answers
the research questions theoretically and provides a “framework” for the multiple case study. This
method prevent the research and results on theory that is already known. As Eisenhardt (1989)
describes in her article, this is a valuable approach because it permits researchers to gain a more
accurate insight in a construct. Due to the extensive literature study previous to the interviews, it is
possible to use the results as a framework for the interviews. The goal of the framework is to gain an
understanding of the possible problems and challenges that Dutch entrepreneurs encounter while
starting up a business in China and more importantly; the possible solutions to these problems given
in the internationalization literature.
The multiple case study is carried out to test the solutions derived from the in the literature study.
“The results of multiple case research are typically more generizable and better grounded than those
of single case studies.” (Graebner, M. and Eisenhardt, K., 2004). The multiple case study deepens the
knowledge about possible solutions to the problems and challenges encountered. For instance: if it
appears to be true that the problem of a weak regulatory regime can be reduced by forming alliances
with government officials, HOW can a Dutch entrepreneur form alliances with government officials?
WHY is this a good solution or are there more solutions to this problem? By asking these kind of
Boris Peters 14

questions and more importantly; providing answers, the knowledge of internationalization literature
will be deepened with this thesis.
There is a common concern about case studies that they provide little basis for scientific
generalisation. The answer to this concern is that case studies are generisable to theoretical
propositions and not to populations or universes. The case study represents a sample. In doing a case
study, the goal is to expand and generalize theories and not to enumerate frequencies (Yin, 2003).
Boris Peters 15

2.2 Contents
This thesis contains eight chapters. The first chapter gave an introduction on the topic of this thesis;
Dutch entrepreneurship in China: problems, challenges and solutions. Also a problem definition and
research questions are stated. Chapter two introduces the reason for research and a research design
and operational plan are formulated.
Following are the theoretical and empirical parts of the thesis. Chapter three to five conceptualize the
theoretical part of the thesis. In chapter three some background information about China is given and
definitions that are used in this thesis are explained. Finally the entry strategies into China are also
discussed. Chapter four explains the problems and challenges that are encountered when
entrepreneurs start up in China as given by the internationalization literature. Chapter five discusses
the solutions that are given in the literature to the mentioned problems and challenges in chapter four.
Subsequently, chapter six and seven form the empirical part. Chapter six contains the results of the
interviews. Chapter seven combines the theoretical part with the interview results and defines the
solutions to the problems and challenges that Dutch entrepreneurs encounter. Finally, chapter eight
contains the conclusion and defines recommendations for further research and the limitations of the
thesis.
Chapter 3
Starting up in China
Chapter 4
Problems when Starting Up in China
Chapter 5
Solutions Derived from the Literature
Chapter 1
Introduction and Problem Definition
Chapter 2
Methodology
Chapter 8
Conclusion and Recommendations
Chapter 6
Qualitative Research and Results
Chapter 7
Solutions to the Problems Encountered
Boris Peters 16

3 Starting up in China
3.1 About China
In this chapter more insight is given about China itself and the definitions used in this thesis are
explained. The different entry modes into China are also listed and explained.
China is situated in the eastern Asia and it is the third largest country in the world, with a population
of 1,288.40 million inhabitants. China is not only the world’s most populous nation, but it is also the
world’s fastest growing developing country and it belongs to the 5 largest growing economies in the
world, with an economic growth of more than 9.7 % per year since the late 1970s
(www.worldbank.org).
The country has a total land area of 9.571.300 square kilometres. The capital city of China is Beijing
and its official language is Mandarin. The actual Chinese, the Han people, form by far the largest
majority of the total population (92%). The other 8% comprises of many different ethnic groups, most
of them live in the border regions, like Xizang (Tibetans) and Menggu (Mongols).
China has a long history of civilization. Dynasties have ruled the country for almost three thousand
years, before in 1912 the last emperor Pu Yi was forced to retreat. It was in 1946 that a civil war
started. The war was won by the communists under guidance of Mao Zedong and on October 1 st 1949
the People’s Republic was proclaimed. The Chinese Communist party (CCP) took over total control
of the country (Encarta, 2001). In 1978 the Chinese economy was liberalized, allowing free trade and
capitalization.
It has been in recent years that China’s economy has been improved. In the early history China was an
agricultural controlled culture. China had a weak economy in which there was an unbalance between
the light and the heavy industries. But with the years passing by the proportion between the different
industries has been improved.
The growth of the China’s overall economy was formerly driving by the primary and secondary
industries but now the secondary and the tertiary industries are driven China’s overall national
economy growth. In the tertiary industry the proportion of traditional industries like communication,
transportation and communication has declined and businesses such as banking telecommunications
and real estate have developed rapidly (Source: http://www.asianinfo.org).
Prior to the economic reform process that began in 1978 the Chinese economy was comprised almost
solely of state-owned industries. State owned enterprises were an extension of government
Boris Peters 17

organizations and were managed through the Central Administration (PWC, 2003). The Chinese state
remains dominant within the economy, although during its transition the ‘invisible hand of the
market’ has gradually been allowed more freedom. The period after 1978 is marked by a change in
the composition in the industrial sector towards more urban and rural collective participation, with
significant new participation by foreign and domestic private firms, but it was also marked by a
massive shift from team to household level economic activity in agriculture and other small-scale
sectors (Putterman, 1995).
3.2 Definitions
Culture
Culture is acknowledged in this thesis in the form that national cultural distance between the Dutch
entrepreneur and the Chinese can be a reason why problems occur when starting up in China. Cultural
distance is the degree to which the shared norms and values in one country differ from those in
another country (Hofstede, 2001) The larger the cultural distance between the interacting parties, the
higher chance for problems because cultural differences can lead to misunderstandings (Very et al.,
1996).
If cultural difference is seen as a problem it is very difficult to provide a solution because of the tools
of analysis that are used to indicate the differences. Hofstede is known for introducing 5 bipolar
dimensions in order to compare cultures. As Hofstede (1993) states: “Culture is a construct, that
means it is not directly accessible to observation but inferable from verbal statements and other
behaviors and useful in predicting still other observable and measurable verbal and nonverbal
behavior. It should not be reified; it is an auxiliary concept that should be used as long it proves
useful but bypassed where we can predict behaviors without it. The same applies to the dimensions I
introduced. They are constructs too that should not be reified. They do not ‘exist’; they are tools for
analysis which may or may not clarify a situation.”
Providing answers to problems resulting from differences in dimensions will trivialize the vastness of
different aspects of culture. “Culture is the collective programming of the mind which distinguishes
one group or category of people from another.” (Hofstede, 1993), When using the definition of
culture as described by Hofstede, one could better ask what is not culture than what is culture.
Moreover scale is something to consider in China because 1.300 million people are not readily
compared with 16 million people in Holland. China is a continental system with many cultural and
social practices. In a single province there can be a variety of languages, social practices, arts and
cuisines. I therefore agree with the vision of Goodman (2007) who states “Of course, this is not to
Boris Peters 18

argue that there is no such thing as Chinese culture, but rather that it is a concept of more limited
usefulness than might immediately appear to be the case.”
Similar to the view in the article of Krug and Hendrischke (2006) culture is seen in this thesis as “a
repository of potential mechanisms and informal institutions which are likely to emerge at the micro-
level and are open to empirical institutional analysis.” The vastness of the definition of culture makes
it simply impossible to treat cultural distance as ‘one of the problems’ in this thesis due to limited
research time and expertise.
Entrepreneur
Although many people argue that it is often very clear if someone is a typical entrepreneur, there still
is not a consensus in the literature what the definition of an entrepreneur is. Is having your own
company a good definition for entrepreneur? If that is the definition of an entrepreneur, is then
someone that has 40 percent of the shares in a company not an entrepreneur anymore? And is a small
shop owner also an entrepreneur like for instance Richard Brandson (Virgin) or Stelios Haji-Ioannou
(Easyjet) who are always looking for new opportunities and innovations? Can someone who sets up a
new venture in China for an existing company in Holland be seen as an entrepreneur and if not so, is
this person then not acting more like an entrepreneur compared to the small shop owner?
Stevenson and Jarillo (1990) define three main streams in the studies on entrepreneurship: what
happens when entrepreneurs act: why they act; and how they act. In the first the researcher is not
concerned about the entrepreneur him/herself or his/her actions but he is concerned about the results
of the actions of the entrepreneur. Shumpeter and Kirzner are well known economists that share this
point of view. The second stream is concerned about certain traits and characteristics that an
individual must possess in order to understand why someone is an entrepreneur. Researchers in this
stream use a psychological or sociological approach to define entrepreneurship. Finally how
entrepreneurs act can be studied or in other words: how to succeed at being an entrepreneur.
What happens when entrepreneurs act is a question that most economists seem to ask themselves.
Schumpeter considers entrepreneurship as a process by which the whole economy goes forward. It
disrupts the market equilibrium because of a radical change fuelled by innovation. In his book
Schumpter (1934) defines an entrepreneur as follows: “The carrying out of new combinations we call
‘enterprise’; the individuals whose function is to carry them out we call ‘entrepreneurs’.” He explains
‘new combinations’ as: the introduction of a new good, the introduction of a new production method,
the opening of a new market, a new source of supply or the carrying out of the new organization of
any industry. The entrepreneur in the eyes of Schumpeter must be an innovator who creates
disequilibrium but Kirzner (1999) argues in his article that there are also entrepreneurs that react on a
Boris Peters 19

disequilibrium or market errors. Kirzner (1973) argues in his book that an entrepreneur can also react
on a disequilibrium in stead of creating one. For instance: if someone discovers that certain goods are
sold for a lower price than the market price, he discovers a market imperfection. When he buys at the
lower price and sells them for the market price he is equilibrating the market. The Kirznerian
entrepreneur is therefore much less innovative compared to the Shumpterian entrepreneur.
In my opinion, an entrepreneur can be a Kirznerian entrepreneur or a Schumpterian entrepreneur but
neither offer a satisfying definition for ‘entrepreneur’ because they offer a definition in retrospective,
because if the individual is not yet equilibrating or disequilibrating a market, he is not an
entrepreneur. I also agree with the view of Stevenson and Jarillo (1990) that “Generally speaking, it
does not appear useful, in managerial terms, to delimit entrepreneurship by defining some economic
functions as ‘entrepreneurial’ and other as non-entrepreneurial”, because this is more semantic than
practical.
Why entrepreneurs act can also be called the traits approach and this field of research on
entrepreneurs and entrepreneurship focus on the person of the entrepreneur. They ask the question
why certain individuals start a venture when others, under similar conditions, do not? Researchers
discovered that some entrepreneurs possess certain traits that non-entrepreneurs do not have like: need
for achievement (McClelland, 1961; McClelland and Winter, 1969), locus of control (Brockhaus and
Nord, 1979; Liles, 1974) and risk taking (Bosley, and Udell, 1982, Liles, 1974).
The trait approach is, in my opinion, not the way to define entrepreneurship or the entrepreneur and I
agree with the statement of Gartner (1988): “I believe the attempt to answer the question ‘who is an
entrepreneur?’ will neither lead us to a definition of the entrepreneur nor help us to understand the
phenomenon of entrepreneurship.” The sheer number of possible traits or characteristics that have
been attributed to the entrepreneur makes it impossible to use the trait approach to define the
entrepreneur and it is extremely difficult to link particular psychological or sociological traits causally
to complex behavior like entrepreneurship (Gartner, 1988; Cooper, Dunkelberg, and Woo, 1988).
Moreover, many individuals in our society attempt entrepreneurship and succeed even while they do
not possess ‘the traits of the entrepreneur’.
Finally it is now left to study ‘how’ to succeed at being an entrepreneur or, in other words, what is
between the ‘causes’ and the ‘results’: the managerial behavior of the entrepreneur. In my obsession
with the question ‘how do these heroes do it?’ I agree with Stevenson and Jarillo (1990) that “…it
can be argued that in the case of defining entrepreneurship the question ‘how’ is the most appropriate
for business school since it focuses on understanding (and, it is hoped, improving) actual managerial
practice.”
I therefore define entrepreneurship as follows:
“Entrepreneurship is a process by which individuals –either on their own or inside organizations-
pursue opportunities without regard to the resources they currently control” (Stevenson, Roberts, and
Boris Peters 20

Grousbeck, 1989) as a result the definition for entrepreneur is: an individual who –either on his own
or inside organizations- pursue opportunities without regard to the resources he currently controls.
Opportunity is defined as: “a future situation which is deemed desirable and feasible” (Stevenson and
Jarillo, 1990) Opportunity is relativistic concept because opportunities vary among individuals over
time, because different individuals have different desires and they identify themselves with different
capabilities. Desires vary with current position and future expectations. Capabilities vary depending
upon their natural skills, training and competitive environment.
The behavioral, situational definition fits well with the common experience that the level of
‘entrepreneurship’ often varies during the life of the individual. This approach overcomes the
dilemma whether entrepreneurs are only to be found in start-up companies and it allows us to deal
with both individual and organizational entrepreneurship. The biggest advantage of the definition is
that it concentrates on practice therefore leading us to study and then teach entrepreneurial skills as
knowledge that results from training and experience.
Start-up
There are many theories on organizational life cycles and stages of development but most scholars
agree that there are certain stages of development that companies go through. Start-up, Growth and
Maturity are stages that most scholars use (Kuratko & Hodgetts, 1989; Olson, 1987; Gilbert, et al.,
2006; Terpstra and Olson, 1993). However there is not a consensus on the definition of each stage.
When has the start-up stage ended and when did the growth stage begin? Growth can be measured
using different variables such as turnover, profit, number of employees, customer base, number of
companies, etc. The point at which a company starts growing and the speed at which it will grow is
also industry dependent. Therefore many different definitions for start up and growth exist. However
the mentioned articles mention the term ‘survival’ as a basic criterion to start growing.
Shane (2008) indicates in his book that generally over 55% of all start-ups will not survive the first 5
years and after surviving this period the survival rate will increase. The start-up stage has certainly
ended for most companies after five years and therefore case study subjects in this thesis are not older
than 5 years. To define “starting up” to the interviewees it is explained that the startup stage consists
of; gathering information for location choice, getting the business licenses and legal documents,
opening a local presence, hiring the first employees needed to operate, serving the first customers and
breaking even with costs and profit.
Small to Medium sized Enterprise (SME)
This thesis uses the definition for SME as prescribed by the European Commission based on
headcount. The definition for SME consists of Micro, small and medium-sized enterprises which have
successively less than 10 employees, less than 50 employees and less than 250 employees.
Boris Peters 21

Social Network
A ‘social network’, ‘relational capital’ or ‘ social capital’ can be defined as “sets of two or more
connected exchange relationships” (Axelsson and Easton, 1992). Some scholars state that a network is
one of the most powerful assets that anybody can posses because it provides access to information,
knowledge, capital and even other networks. Having a developed network can be more beneficial to a
start –up then a less developed network. The quality of the network depends on the number of ties and
the quality of the ties. (Larson and Starr, 1993) The ties, or relations, can either be strong or weak
depending on the frequency of contacts, the emotional intensity of the relationship, the degree of
intimacy and reciprocal commitments between the actors involved (Granovetter, 1982).
National and local government
Regulations are negotiated at national level in Beijing, every province or county is free to modify or
manipulate and create its own regulations. As a result there is not a unified system of taxes, laws and
regulations (Krug and Metha, 2004). Therefore a differentiation must be made in national government
and local government. Often companies negotiate about tax, laws and regulations with government
officials on local level.
Guanxi
The Chinese place a very high value on their network that is difficult to understand for many
Westerners. The Chinese call a social network; ‘Guanxi’ but by just translating it would trivialize the
meaning of the word. It goes further than the advantage that a network can offer, when the Chinese
have a ‘Guanxi’ they will be loyal to the contact and it is far more difficult to disturb this loyalty than
in the western social network but it is more difficult build up once disturbed. The Chinese are
therefore far more critical about forming a relationship and much effort is needed to form the tie.
Guanxi is considered important in almost every realm of life, from politics to business (Gold et al.,
2002 ; Bjorkman and Kock, 1995).
Internationalization
With the click of a button it is possible to acquire information at the internet site of the Chinese
ministry of foreign affairs about setting up a business in China and within a day it is possible to be in
China from anywhere in the world to start setting up a business. It is increasingly easier to take
advantage of business opportunities in foreign countries due to low-cost communication technology
and transportation means. Foreign governments and economies are also more internationally
orientated because of these developments. These developments make it possible for increasingly more
small to medium sized companies to set up a business abroad (Oviat and McDougall, 1994).
Boris Peters 22

“Internationalization refers to the increasing importance of international trade, international
relations, treaties, alliances, etc. Inter-national, of course, means between or among nations.” (Daly,
1999).
In this thesis the term ‘internationalization’ is used to indicate the internationalization of companies,
specifically Dutch companies starting up in China. Internationalization is a very broad term that does
not have a consensus in the literature. Calof and Beamish (1995) have a broad definition of
internationalization; the process of adapting firms’ operations (strategy, structure, resources, etc.) to
international environments. Turnbul (1987) defines internationalization as “the outward movement of
a firm’s international operations.” Using these definitions mean that a company that sometimes sends
a product to a foreign country is then an internationalizing company, therefore this is not a suitable
definition.
The definition of internationalization used in this thesis is “… expanding a firm’ s business from its
original location to one or more additional geographic sites.” (Barringer and Greening, 1998). This
definition demands that the company needs to be physically present in the host country in order to be
an internationalizing company and is therefore in my opinion most suitable for this thesis. By being
physically present in the host country the entrepreneur can build up knowledge because of his
experiences and it is his knowledge that I want to use to answer the research questions.
Geographic expansion or internationalization present important opportunities for growth and value
creation. Entrepreneurs pursue opportunities in other countries because of various reasons: because
companies want to be ahead of competition or match the international market entry of a domestic
rival. (Gaba, et al., 2002 ; Root, 1987), because the entrepreneur wants to create knowledge that he
cannot access or is not present in the domestic country. (Zahra, et al., 2000 ; Barkema and Vermeulen,
1998), the home market is saturated or the foreign market is has a large potential consumer base
(Goedegebuure, 2000 ; Carliner, 2003) and reducing cost by achieving economy of scale or the
reduction of transaction costs (Buckley and Casson, 1982 ; Williamson, 1975).
3.3 Entry modes
Selecting a mode for entering or expanding in a foreign market, is one of the most important strategic
decisions that an internationalizing firm must take (Root, 1994).
The decision is important for two reasons according to Kumar and Subramaniam (1997) First of all, it
is costly to reverse because the firm has to commit a certain amount of resources in order to operate
under that particular mode. Secondly, the decision involves a large commitment from the firm and
future strategic decisions will be affected by the choice of the mode of entry.
Boris Peters 23

Because of the irreversibility factor and the impact on future strategic decisions it is possible that the
mode of entry has an effect on the solution found for the problems listed earlier. For instance an
exporting company has fewer (or no) problems with recourse interdependency compared to a wholly-
owned subsidiary because an exporting company needs far less resources than a wholly-owned
subsidiary.
The entry modes into China are: exporting, licensing, joint ventures, wholly-owned subsidiaries and
an representative office (Osland, et al., 2001 ; Kumar and Subramaniam, 1997 ; Root, 1994 ; Guo,
2003).
Representative Office
A representative office offers a company the possibility to set up a small office to make the first steps
into the Chinese market. With the representative office a foreign parent company can make contact
with government agencies, possible business partners and clients. It is possible to perform market
research and gather legal information needed to set up the company in China. There are restrictions to
what kind of activities a representative office can perform. Income generating activities are not
allowed, it is mandatory to hire Chinese employees and the office that is used need to be approved by
the Chinese government. The Representative office can therefore only be used to set up the company
in china (Guo, 2003).
Exporting
The company’s final or intermediate product is manufactured outside the target country and
subsequently transferred to it. With exporting, a company has the lowest degree of control. Control is
the ability and willingness of a firm to influence decisions, systems, and methods in foreign markets.
The resources needed for exporting are however low. Resources can be intangible or tangible.
Technology risk is low in exporting, technology risk is the potential that a firm’s applied knowledge
will be unintentionally spilled to a local firm (Osland, et al., 2001; Kumar and Subramaniam, 1997).
Licensing
Licensing is a non-equity, contractual mode with one or more local partner firms. A company
transfers to a foreign organization the right to use some or all of the following property: patents,
trademarks, company name, technology, and/or business methods. The licensee pays an initial fee
and/or percentage of sales to the licensor. The degree of control, and the needed resources are higher
as with exporting. The risk of knowledge spill over (technology risk) is highest in licensing (Osland,
et al., 2001 ; Kumar and Subramaniam, 1997).
Joint ventures
Boris Peters 24

Joint ventures involve two or more organizations that share the ownership, management, risks, and
rewards of the newly formed entity. Each partner contributes equity that may take the form of money,
human resources, plant and equipment, and/or technology. The degree of control and the needed
resources are higher as licensing. The risk of knowledge spill over is lower than with licensing
(Osland, et al., 2001 ; Kumar and Subramaniam, 1997).
Wholly-owned subsidiaries
Wholly-owned operations are subsidiaries in another nation in which the parent company has full
ownership and sole responsibility for the management of the operation. The degree of control and the
needed resources is the highest of all possible entry modes. The risk of knowledge spill over is lowest
for wholly-owned subsidiaries (Osland, et al., 2001 ; Kumar and Subramaniam, 1997).
With exporting and licensing there is not a physical presence of the company in China. A
representative office is restricted from making profit and can in fact only be used to gather
information in order to potentially set up a company.
In the case of a Joint venture there is a physical presence in China but it possible that many problems
listed in this thesis have less influence on the foreign company because the Chinese partner already
has elaborate knowledge of the market and regulations. The Chinese company can give advice to the
partner or combine resources with the foreign company. However, because of working together with a
Chinese partner also new problems arise; the language barrier and physical distance makes it more
difficult to make fast decisions on complicated issues, there can be a difference in the routines of the
companies which can result in disagreements and the monitoring costs are higher.
Due to the former reasons and the fact that the entrepreneur has the highest degree of control, only
wholly owned subsidiaries are selected for the case study. (more information about case selection can
be found in chapter: 6.1 Case selection.)
Boris Peters 25

4 Problems when starting up in China
4.1 Introduction
This chapter concentrates on problems and challenges encountered while starting up in China as given
by the internationalization literature. Possible solutions found in the internationalization literature are
discussed but further insights on the solutions are treated in chapter 5.
A schematic overview of the literature on the problems can be found in the chapter: ‘1.5 Theoretical
framework’. As stated in chapter ‘3.2 definitions’, culture as a concept or cultural distance as a
problem is not treated in this thesis. The vastness of the definition of culture makes it simply
impossible to treat cultural distance as ‘one of the problems’ in this thesis due to limited research time
and expertise.
4.2 Problems encountered while starting up in China
Weak Regulatory Regime
The biggest problem of the regulatory regime is the high level of taxes. On top of these come various
‘fees’ levied in a rather unpredictable way by local government agencies. These may cover local
infrastructure projects, community welfare needs, sponsorship of cultural activities, social security
contribution, etcetera, and contribute to make the tax burden a major barrier to entrepreneurship for
many organizations (Oi, 1989).
Although regulations are negotiated and agreed in Beijing, every province or county is free to modify
or manipulate and create its own regulations. Because of this reason there is not a unified system of
taxes, laws and regulations. In many cases it is not clear as to what rules apply to a company in order
to be approved to set up a company. It can also happen that a company has to pay an ‘ad hoc’ tax or
get an ‘invitation’ to contribute to local community facilities but the application of regulation and
taxes are experienced as open to negotiation to those with influence. Besides ‘ad hoc’ taxation there is
also a risk of confiscation of assets (Krug and Mehta, 2004).
In his observations Oi (1996) describes: “Under a local state corporatist system, the relationship
between banks, finance and tax offices, and county, township and village officials is very close. Local
officials at the county level help secure large loans for township and village-owned enterprises.
Bureaus sometimes provide services well outside their administrative domain. … It may use its
connections to influence other agencies, such as banks, to bend the rules in favour of a particular
enterprise.”
Boris Peters 26

China has particularly strong institutions that are embedded in the country's long administrative
tradition, in which government continues to play a prominent role in economic and social affairs. Its
institutions therefore lend a distinct character to China's business environment and importantly
determine the transition path the country is taking. Institutional change in China is highly complex
because in this formerly closed, state-dominated system, institutions have developed into a massive
inter-dependent, multi-level network whose logic of operation depends as much on political influence
and personal relationship as on concern for efficiency.
State-owned enterprises are fighting price wars, selling their products at, or even below, costs. Given
this situation, only firms with advanced technological resources or well-established brands are able to
achieve satisfactory sales and make a good profit in China (Child et al., 2001).
Political issues are interwoven into everything entrepreneurs might want to accomplish in China.
Many areas of business are simply off limits to the private sector, and even more are disallowed for
firms with foreign investment. Often, these areas are the least efficient and the most enticing to
entrepreneurs. Some entrepreneurs have done well for themselves by seeking out and exploiting
loopholes, ambiguities or gray areas, resulting from China’s underdeveloped legal and regulatory
system. It is for example common use for many non-Chinese companies in China to transfer their
profits (transfer pricing) through offices in Hong Kong in order to gain huge tax advantages. In many
cases, the government later accepts the fait accompli and builds regulations that formalize and legalize
what is already happening. In other cases, the government moves to close the loophole, resulting in
losses for some companies.
The legal structures under which new business can be registered in China differ significantly from
those in most western countries. Individual-owned enterprises were not legalized until 1986. Intended
merely to fill in the gaps in the planned economy, they were tightly restricted in their business
activities. In 1994, China’s Company Law established rules for limited liability companies and joint
stock companies. The flexibility to change investment structure is very low, so investors wanting to
sell their shares in the company can only do so with the approval of a majority of the shareholders.
Entrepreneurs can take advantage of socialistic organizational forms (such as the state-owned
enterprises). Rather than to set up a private firm, they could find a government partner and register as
a ‘collective’. However the findings of Nee, Opper and Wong (2007) and Peng (2001) indicate the
state’s inability to provide positive economic effects through direct intervention at the firm level.
Nee, et al. (2007) even found negative significant effects in the case of government involvement on
personnel decisions and strategic firm decisions. Party intervention yields significant negative effects
in the case of financial decisions and in overall perspective averaging all firm decisions.
Boris Peters 27

It is evident that the regulatory regime adds to uncertainty of doing business in China therefore
increasing transaction costs. Regulations are changing fast to keep up with the fast developing
economy but due to the fact that every province or county is free to modify or manipulate and create
its own regulations, the regulations are not always clear to the entrepreneur. The risk of confiscation
of assets, ‘ad hoc’ taxation and badly enforced regulations indicate that the control of (local)
politicians should be taken into account. Entrepreneurs need to have an extensive network of other
business people to lobby bureaucrats and politicians together. Alliances with local government
officials are needed to influence the enforcement of regulations and taxes. The bargaining power of a
network of business people is off course higher and further stresses the need for business people to
form a social network.
The newness of private enterprise
Entrepreneurs in China have a low level of expertise in organising production and management of
private firms due to their formal education. There is a lack of business knowledge that equips Chinese
entrepreneurs with assessing risks associated with doing business. There are no standardized routines
of business practice because of lack of experience (Krug and Mehta, 2004). Here the problem of
‘newness of private enterprise’ arises. Since the Chinese have little business experience due to the
state planned economy until 1980, there is a chance that clients, suppliers, business partners and
employees are incompetent.
New businesses in China suffer from a shortage of experienced staff and outside providers of support
services. Under the planned economy technical skills were prized above all while disciplines like
marketing, finance and law were nonexistent. Exacerbating this, the country’s schools and universities
were shut down entirely between 1966 and 1976. The generation that would otherwise have been
educated during this period is now between forty and sixty years old. They would otherwise have
provided a major source of middle and upper managers. Those who did receive a good education may
not have built upon this with good work experiences. In the past, students received job assignments
from the government and went to work for the state bureaucracy or equally bureaucratic state-owned
enterprises. This created a conservative, cautious attitude towards work (Child et al., 2001).
Barringer and Greening (1998) describe that growth and expansion is likely to exacerbate the need for
formal planning. The task of getting a new geographic site up and running requires planning in terms
of site selection, recruitment and selection of qualified personnel and the establishment of
communication links between the headquarters location and the expansion site. The stage models,
which depict the life-cycle of a firm as a multi-stage process, suggest that one of the most important
management challenges associated with internationalisation is attracting and maintaining qualified
personnel.
Boris Peters 28

Emphasis must be laid on the employment of personal networks to carry out needed activities to
select, monitor or add value. As Ahlstrom and Bruton (2006) state in their article about venture capital
in emerging markets, in the absence of formal institutions, firms or people need to be monitored
through informal ties to entrepreneurs and families. Links to key customers, the government and other
allied firms through personal connections are needed. This not only holds for venture capitalists but
also for entrepreneurs in selecting competent potential buyers, suppliers, business partners and
employees through their network.
Incomplete property rights
Property rights are incomplete in China and private property and intellectual property form the highest
barriers for entrepreneurs starting up in China. Asset holders in China can exclude others from the use
of the same assets under a State guaranty. The asset is however only binding when resources are used
within the politically defined market sector and where effective law enforcement agencies exist (Krug
and Mehta, 2004). Every province or country is free to modify the national regulations regarding
property rights. As a result within the sectors of local governments, local officials, village Party
secretary, township economic commission and township heads have a large influence on the
assignment of rights to individuals (Oi, 1996). The research of Hendrischke (2004) suggests that
“there is a strong informal side to the definition of property rights where administrative categories,
status or partnership contracts matter less to the entrepreneurs than the substantial property rights
that can be realized in co-operation with the local state in the form of networks.”
Granting a private property right depends heavily on local government officials therefore networks
with local government officials play a vital role in acquiring property rights by Dutch entrepreneurs.
When private property is acquired, regulation often remains unclear or incomplete. For instance in
many occasions it is possible to acquire a building (house, factory, etc) but the land on which it is
built remains property of the local government. For obvious reasons it is therefore wise to maintain
good contacts with the local government. Who owns property is sometimes difficult to find out as
boundaries between public and private enterprises in villages and townships are sometimes vague. For
instance: public assets are sometimes leased out to private individuals and private enterprises are
sometimes partially owned by government officials (Walder, 1995).
The Business Software Alliance (a US-based trade association), estimates that 94% of software used
in China is pirated. Companies selling pharmaceuticals, chemicals, beverages and other products fight
a constant struggle against mislabeled fakes, some of which are toxic or hazardous. In a number of
Boris Peters 29

cases, domestic joint venture partners of foreign firms have literally emptied the joint venture factory
and set up an identical plant down the road after learning how to manufacture and market the product.
To prevent intellectual property from being ‘stolen’ one can use different techniques for instance
giving the employees access on only one part of the production process, preventing them from gaining
‘know-how’ of the entire production process. Patents are publicly accessible which means that the
information within the patent can be used to copy the product. In cases where the product is difficult
to copy it is in some cases wise to not patent the product at all.
Theft of intellectual property, like copyrights, trademarks, or patents, is ubiquitous but the main
problem is that law in this area is much less developed than it is in the west and it is poorly enforced
even where it exists (Krug and Metha, 2004). This means that when an intellectual property right is
infringed, it is very difficult to reprimand the infringer let alone getting a compensation for loss of
income.
A specialized court for Intellectual Property does not exist and litigation is under the jurisdiction
where the infringer is located or where the alleged infringement took place. Therefore it is possible
that a trial takes place in a part of China where the knowledge of the court about intellectual property
is very limited. Outcome of a court decision is therefore mostly in benefit of the local (Jian, 2007).
The fact remains that the property rights protection and granting mainly depend on the ‘connections’
with local jurisdictions or economic agencies. Krug and Pólos (2004) therefore advice to form
alliances with the local jurisdictions or economic agencies in order to enhance the probability that the
property rights of the company are protected.
Problem of obtaining capital
China’s commercial banking system has provided little direct help to private businesses. Banks are
often pressured by government agencies to loan to large state-owned enterprises or other firms with
the implicit or explicit backing of a government bureau, leaving little for private businesses (Marson
et al., 2002).
There are alternatives to bank loans. The concept of venture capital is very new to China. Venture
capitalists count on a stable institutional regime with a predictable rule of law and enforcement regime
to facilitate and safeguard their investments. In addition to legal stability, venture capitalists look for
environments with efficient markets for corporate control and capital, which readily allow exit from
ventures as well as systems with minimal corruption. This institutional stability and predictability
reduces uncertainty and risk, and enhances the likelihood of success in new ventures. Institutional
stability is largely unknown in most emerging economies, such as China. Emerging economies are
characterized by fundamental and comprehensive institutional transformations as their economies
Boris Peters 30

egin to mature. Venture capitalists can still make and manage investments under such unsettled
conditions with little protection of private property.
Efficiency and accessibility to investors are important to venture capitalists in both developed and
emerging economies. Ahlstrom and Bruton (2006) state that in emerging economies, venture
capitalists need to place greater importance on employing personal networks to carry out needed
activities to select, monitor, add value, and someday exit from their invested firms. Personal
connections and relationships with entrepreneurs, government officials, and customers, while
important in any setting, are likely to be more important in China. With the weak formal institutions
in China, less formal institutions sometimes provide some substitute for the lack of formal
institutions. Venture capitalists monitor firms through informal ties to entrepreneurs and their
families. They create links to key customers, the government and other important allied firms through
personal connections, something that they stated was particularly important and essential in emerging
economies.
Krug (2007) states in her article that when scarcity is mentioned like the lack of (venture) capital, the
reaction of entrepreneurs is that one needs to ‘know the right people’. Huge national and local
bureaucracy or other groups control resources which indicate that the shortage is more a distribution
problem. Who one knows is therefore a valuable asset.
Diversity of local business systems across China
“Business systems are distinctive patterns of economic organization that vary in their degree and
mode of authorative coordination of economic activities, and in the organization of, and
interconnections between, owners, managers, experts, and other employees.” (Whitley, 1999)
China’s economy is characterized by a variety of local business systems that are the result of the
freedom that local governments have in forming their own economic regimes. Down from provincial
to county and township level, the jurisdiction is not hierarchically prescribed. The local businesses
interact with local governments to re-organize firms and industries in line with local institutions and
due to the fact that local governments all have different regimes, the local business systems are
different too. The difference in regimes is evident in the taxation of companies. Local governments
are free to exempt any proportion of revenues or profits from taxation, given that the national tax rates
may not be changed. Local government absorb both losses and “excess” revenues. The local
government then reallocates excess revenues to organisations as investment capital, budgetary grants
or public services (Walder, 1992, 1995). As a result there are companies in some local business
systems that would not have existed without the “help” of the local government. These companies can
have a negative impact on the Dutch start-up.
Boris Peters 31

“The central government secures support from the lower administrative agencies on whose
compliance the enforcement depends. Coordinated via contracts with the superior agencies or
informally via networks such as authority and tax sharing systems enables local governments to
capture the gains “at the margin” and thus directly profit from local economic development.” (Krug
and Hendrischke, 2006) The different economic regimes of local governments and even the different
economic regimes of different layers of government add to the complexity of entrepreneurship in
China. This does not only affect the Dutch start-up but also the local business system in which it is
operating.
According to Boisot (1999) there are two major methods for handling the complexity due to diversity
in local business systems across China; firstly to reduce complexity by bringing it under apparent
control. Entrepreneurs endeavor to do this by securing direct control over their affiliates and sufficient
external influence so as to influence critical aspects of the environment. This policy is intended to
permit entrepreneurs to apply their standard policies and practices, which are well understood and
compatible with their possible worldwide activities. In China, reducing reliance on partners and
external relationships will lower the transaction costs of social exchange, but it is likely to raise the
transaction costs of exercising direct managerial control. Moreover, this policy could be of limited
effectiveness in reducing risk because it places low value on the support of local partners and may
also alienate powerful officials in the institutional environment.
The second option is to try to absorb the complexity of the Chinese situation through enlisting the
support of local allies. This entails a greater degree of participation in local relational systems and
hence raises the transaction costs of social exchange. It also engages the entrepreneur in a greater
level of variance than he or she is familiar with, which may limit its ability to relate its policies and
practices in China to its worldwide system.
Krug and Hendrischke (2006) suggest in their article that: “The need to cope with an insecure quickly
changing environment but also the lack of private savings or capital markets and the need to quickly
acquire scarce market and political information make co-operation a profitable endeavour. Co-
operation can take the form of an alliance with local government agencies.”
Boris Peters 32

Poorly functioning markets
Krug and Metha (2004) and Krug and Pólos (2004) state that the emerging Chinese market situation is
characterized by poorly functioning markets and even missing markets. Information regarding the
availability, price or location of resources is hard to find or even missing.
Entrepreneurs in transition economies find it hard to estimate how successful technical innovations
will be, or whether and how many competitors they have when production starts. Although
entrepreneurs in market economies face the same uncertainty, entrepreneurs in transition economies
face to additional forms of uncertainty. First, entrepreneurs in transitional markets face weak
economic institutions. If economic institutions do not provide general purpose safeguards in the form
of contracts, property rights and laws, uncertainty will increase. Second, if general purpose safeguards
are provided but monitoring is infrequent and default behavior is not punished, uncertainty will
increase too. Third, as described earlier in this thesis, the newness of the whole private business sector
increases uncertainty. Dutch entrepreneurs starting up China must be aware of the fact that many
Chinese companies do not have sufficiently developed routines or business practices and makes it
hard to locate expertise. Moreover, many Chinese companies do not have past experience to rely on.
Fourth, state owned companies that operate in certain markets can have a negative effect on the
functioning of the market. State owned companies often do not need to make a profit but are
operational to employ workers or provide output. Due to policy burdens such as irrational price
control, redundant and retired workers, and bureaucratic intervention, profits or losses may not reflect
managerial competence and effort. Therefore manager of state owned companies are not accountable
for profits or losses which in turn does not provide a stimulance keep the company efficient (Peng,
2001). Information about company ownership is therefore vital in order to select partners, suppliers
and clients in markets.
The four uncertainties combined make the use of networks and alliances necessary to obtain
information about markets, technology and resources. “As there is no functioning market for assets
and high level of uncertainty with respect to political and market risk, the next best institutions (to
functioning capital markets) are networks which are driven by the need to seek full employment of all
resources under their control, and have an incentive to expand to the degree that they are able to
absorb know-how, business opportunities, and technical as well as human resources.” (Hendrischke,
2004).
Local officials can provide some information about markets or even resources as Oi, (1996) describes
in his article: “Using information and contacts that they develop beyond the locality through their
routine conduct of administrative work, local officials can provide an array of essential services to
their local enterprises. This might include raw materials, but increasingly, it has become important
for information about new products, technology and markets for finished goods.”
Boris Peters 33

Poorly Developed Institutional Arrangements
Institutional arrangements are poorly developed in China. There is a shortage in China of employment
agencies, law and accountancy firms, commercial banks, insurance companies, and chambers of
commerce. In 1997 there were only 6000 law firms in China (Islam and Chowdhurry, 1997). The
intermediate institutions are needed to support the operation of firms and help entrepreneurs to start
up (Krug and Mehta, 2004, Child and Tse, 2001). In countries with a long experience of private sector
production, these agencies described earlier act as sources of information and expertise. The demand
for intermediaries is especially high in negotiations between potential business partners. Although
new agencies are evolving, the experience of the personnel is limited and incomplete.
Because of the shortage of institutional arrangements, entrepreneurs must rely more on other
entrepreneurs to gather information. Especially for emerging companies, the value of networks as a
substitute for institutions is widely acknowledged. Elfrink and Hulsink (2003) state, that the network
of an entrepreneur can provide opportunity recognition, legitimacy and resources. Groups or networks
of business people can be used to raise capital jointly, lobby bureaucrats and politicians together,
recruit managers as a group, and pool resources to invest in new ventures. Information may be
exchanged at formal group meetings, in informal clubs, or at family gatherings; and members may
buy and sell goods amongst themselves.
Ellis (2000) also found that knowledge of foreign market opportunities is commonly acquired via
interpersonal links rather than collected systematically via market research, also stressing the
importance of networks in China.
Resource dependancy
According to the resource dependence theory, a foreign market environment is a source of scarce
resources sought by competing international operating companies (Moran, 1985), and a dependency
situation arises when these companies rely on irreplaceable resources controlled by local possessors
(Pfeffer, 1978). The term 'resources' in this theory is extended beyond physical resources and
production inputs such as natural resources, raw materials, land use, local capital and workforce to
include infrastructure resources (e.g., transportation conditions), marketing resources (e.g.,
distribution networks and consumer base), and information resources (e.g., internet use, openness of
public information and transparency of government information).
Market-seeking Dutch entrepreneurs depend not only on China's physical and infrastructure resources
for local production, but also on its marketing and information resources for local operation,
adaptation and expansion. Dependency on those resources can translate into power for China, who is
then able to increase or withhold resources. If a Dutch firm subsidiary can therefore reduce its
dependence on Chinese resources by utilizing more internal resources coming from its parent or
Boris Peters 34

subsidiaries, the economic risks or transactional costs associated with resource acquisition will be
substantially decreased. The reduction of external dependency requires improvements in parent-
subsidiary relations on a number of fronts, notably resource support and intra-network information
flow.
The dynamics of competition in China are subject to interference by authorities because the economy
is still state controled, a factor which foreign investors often find hard to predict. Under this condition,
foreign companies have to depend heavily upon their strategic resources to compete against local
rivals, especially long-established indigenous firms that in many cases maintain strong customer,
supplier and distributor networks (Child et al., 2001).
Social networks are very important in obtaining resources. “So long as a still huge national and local
bureaucracy or other groups control resources such as much needed financial capital, land, or
export-licenses, shortage appears as a distribution problem. Therefore, ‘who you know’, or guanxi is
a valuable asset.” (Krug, 2007).
When Dutch firms invest in China, an emerging market with an environment characterized by
institutional stringency, regulatory ambiguity, structural uncertainty and a weak legal system, a
reduced level of local dependence lessens their susceptibility to unverifiable and unpredictable risks
that are often beyond control of the organization. Williamson (1985) therefore states that the
transaction cost theory argues that when uncertainty is high, the firm should limit its commitment to
the environment to a minimum.
If it is possible an entrepreneur should rely as less as possible on the resources of China to reduce
risks and try to develop an extensive network to obtain needed resources.
Boris Peters 35

4.3 Conclusion
The weak regulatory regime is a problem in the form that the regulations need to change fast to keep
up with the fast developing economy and this creates uncertainty. The fact that every province or
county is free to modify or manipulate and create its own regulations, the regulations are not always
clear to the entrepreneur and this creates even more uncertainty. The risk of confiscation of assets, ‘ad
hoc’ taxation and badly enforced regulations indicate that the control of (local) politicians should be
taken into account. As enforcement of regulations are sometimes open to negotiation, the entrepreneur
needs to form a social network with other entrepreneurs or government officials.
The newness of private enterprise is a problem with many Chinese due to lack of experience, the
absence of routines and lack of business knowledge. In the time of the planned economy, technical
skills were prized above all and schools and universities were even shut down between 1966 and
1976. The generation that would otherwise have been educated during this period is now between
forty and sixty years old. They would otherwise have provided a major source of middle and upper
managers. The social network of the entrepreneur is the only option to gain information on the
background of potential customers, suppliers, business partners and employees.
Property rights are incomplete and badly enforced. There are solutions to avoid the need of protection
of intellectual property but the problem still remains. The granting of property rights and the
protection of intellectual property mainly depends on the ‘connection’ with local jurisdictions and
local government officials.
The problem of obtaining capital for Dutch entrepreneurs lies in the fact that it is not possible to
obtain capital from China’s commercial banking system. It is possible to obtain capital from venture
capitalists. But due to institutional instability venture capitalists place greater importance on
employing personal network to carry out needed activities in order to select, monitor, add value, and
someday exit from their invested firms. Therefore having a large network that can be used for due
diligence is needed.
The diversity of local business systems is the result of different local government regimes. Having an
alliance with the local government makes it possible to gain scarce market and political information,
making it easier to adapt to possible changes.
Poorly functioning markets are the result of difficult to find or even missing information about the
availably, price or location of resources. Information about the number of competitors and clients is
also limited. State owned companies can have a negative effect on the market and it is therefore
important to gain information about ownership. The network with government officials and other
entrepreneurs can be used to gather the information.
Institutional arrangements are poorly developed and there is a shortage of institutions like law and
accountancy firms, insurance companies and chambers of commerce. Entrepreneurs must therefore
rely on other entrepreneurs to gather information needed to start up.
Boris Peters 36

Resource Dependancy can be a problem because Chinese government controls certain resources. The
economy is state controlled and sometimes difficult to predict. It is therefore wise to reduce the
dependency on Chinese resources as much as possible.
Boris Peters 37

5 Solutions derived from the literature
In the literature discussed in chapter 4 it is stated that in many cases having a social network with
other international entrepreneurs, Chinese entrepreneurs and government officials can either solve the
problem or decrease the influence of the problem on the company of the entrepreneur. Ducket (2004)
describes why entrepreneurs in China use their social network:
“Markets for capital, labor, and information are underdeveloped, liability laws, property rights, and
contracts are weak, state regulation is negotiable, certain resources remain bureaucratically
controlled, and private entrepreneurs are vulnerable to political persecution. Because the private
sector emerged only in the 1980’s, after almost 30 years of state planning, would-be business people
face the ‘liability of newness’: they ‘have few models of entrepreneurship to imitate or adopt and little
understanding of how markets work. In this environment, it is rational for them to form two kinds of
alliances. They ally with state officials to make the environment more predictable and reduce risk,
and they ally with other entrepreneurs both to promote ‘a stable set of expectations of “good”
business behavior’ and to learn about doing business in a market economy.”
Although Ducket (2004) describes why it is beneficial for Chinese entrepreneurs to use their
connections with government officials and other entrepreneurs in China, having a qualitative network
is beneficial for all entrepreneurs. Dubini and Aldrich (1991) describe that the network makes it
possible to explore and exploit opportunities and even go as far as stating: “entrepreneurship is thus
inherently a networking activity.”
The social network can also offer ‘resources’, in the early phase it is necessary to access, mobilize and
deploy resources in order to pursue the opportunity. Networks facilitate the search for critical asset
providers like investment, technology partners and key customers. The critical asset providers in the
network can offer the startup access to financial resources, production know how, distribution
channel, etc. Especially in a start-up, resources need to be secured at minimum costs because paying
the market price for resources such as labor, materials, advise and commitment is often too expensive.
Therefore the social transactions through the network especially for entrepreneurs play a critical role
when starting up (Hulsink and Elfrink, 2003).
Coviello and Munro (1997) underline in their article about the network relationships and
internationalization process of small firms that the relationships abroad influence the decision to
internationalize. It can be concluded that the social network of the Dutch entrepreneur is very
important when coping with the problems encountered when starting up in China. The social network
consisting of Chinese government officials, Chinese business contacts and other entrepreneurs can
reduce risk resulting from underdeveloped regulation and bureaucratically controlled resources. It
Boris Peters 38

offers the possibility to explore and exploit opportunities, it offers support for the liability of newness,
and it gives access to resources in order to pursue the opportunity. The problem of this conclusion is
however that Ellis (2000) states that: “It is self-evident that larger, diversified firms enjoy more
opportunities to exploit network ties than smaller, less connected companies.” This means that it is
difficult for entrepreneurs to access social networks in China because their companies are smaller.
So if the solution to many problems encountered by entrepreneurs in China lies in having a good
network; another question arises which apparently haunts this thesis: How?
How can entrepreneurs access and exploit networks in China?
Ellis (2000) describes the methods used by decision makers to identify potential exchange partners. In
his article he states that smaller firms often have domestic business networks which are smaller and
less international than the networks of large companies. Therefore smaller firms place a higher
priority on attending trade fairs and using third parties to come into contact with foreign networks.
Trade fairs are exhibitions organized so that companies in a specific industry can showcase and
demonstrate their new products and services. A trade fair offers a platform to meet new contacts and
makes it possible to establish new ties with foreign networks. Ellis (2000) concludes that trade fair
participation generally results in exchange partnerships being formed. According to Ellis, third parties
that are mutually related like government agencies or intermediary companies, can also be beneficial
in meeting new contacts.
Now we found the answer on how to meet new contacts in China we need to understand how to
establish a tie with the contact. Establishing a tie and especially a strong tie is difficult in China
because the Chinese lay a lot of emphasis on ‘Guanxi’. As explained earlier in this thesis Guanxi can
loosely be translated as ‘social / business network’ but differs in the respect that they control and
influence interactions and transactions between any social actors and in particular individuals.
Business networks are concerned with relationships among organizations, therefore organizations do
not have ‘Guanxi’, only the individuals within the organization can have ‘Guanxi’ (Bjorkman and
Kock, 1995).
When the Chinese speak of heaving ‘Guanxi’ it is very difficult to disturb the contact but once
disturbed it is impossible to rebuild. Therefore in order to build ‘ Guanxi’ trust is needs to be built.
Given the high marginal cost of cultivating new relationships for the Chinese, it makes sense to do
business first with close family, then with extended family, then neighbors, then former classmates,
and only then, reluctantly, with strangers. To build up a network with Chinese is therefore very
helpful but also very difficult and time consuming (Gold et al., 2002).
Bjorkman and Kock (1995) state in their research that building up ‘Guanxi’ with a Chinese is very
difficult for a non-Chinese because one must speak the language and ‘Guanxi’ is frequently related to
Boris Peters 39

common background. The solution to this is to employ a Chinese individual from the industry in
question as he or she had some access to many social relationships ranging from competitor
employees to government officials, he or she can speak Mandarin or Cantonese and sometimes even a
dialect. Often the Chinese employee has a common background with the new contact and is therefore
able to set up ‘Guanxi’ far more easy. Bjorkman and Kock (1995) concluded that local presence of the
company before starting up in the form of a representative office in China makes it able to hire a
Chinese employee and is the most effective way to gain access to social network in China.
Boris Peters 40

6 Qualitative Research and Results
6.1 Case selection
As described in chapter 3.4 only wholly owned foreign enterprises are selected for the case study
because the entrepreneur has the highest degree of control and the company is physically present in
China.
Shane (2008) indicates in his book that generally over 55% of all start-ups will not survive the first 5
years and after surviving this period the survival rate will increase. The start-up stage has certainly
ended for most companies after five years but the knowledge about the problems while starting up is
still ‘fresh’ in the mind of the entrepreneur. Therefore case study subjects in this thesis are not older
than 5 years.
The company must be a SME in order to assure that the entrepreneur has an overview on all
operations of the company and therefore can provide detailed information on all aspects of the
company. Moreover, as stated earlier, there can be a difference in impact of the difficulties or
problems encountered in China when starting up a SME compared to large company. Large firms
often have many resources like capital, expertise and experience. An entrepreneur has less financial
resources, must hire expertise and has often limited experience often making the effect of the
problems larger. For these reasons I presume that an entrepreneur of a SME can provide more detailed
answers to my questions.
The number of cases depended on the theoretical saturation, in other words; when incremental
learning is becoming minimal the number of cases are enough. Due to the limited time that I lived in
China the cases selected are active in different market segments. I did not know (at that time) how
much Dutch entrepreneurs were active in a certain segment and to avoid data shortage I interviewed
as much as entrepreneurs as possible regardless of the industry in which the entrepreneur was active. I
also interviewed entrepreneurs regardless whether the company was providing a service or producing
a product. I know that this could distort my findings but my reasoning is that when a company is in a
start-up phase, the activities to start up are the same, which implies that the problems encountered are
the same too. Making service providing companies and production companies equal.
Boris Peters 41

6.2 Validation
In order to gain as much knowledge as possible about entrepreneurship in China it is evident that it is
best to travel to China to collect information and study the cases. Therefore I travelled to China
(Shanghai) and started to work for a big Dutch company (Hunter Douglas). In my spare time a tried to
interview as much people as possible to fully understand which problems and challenges one
encounters when starting up in China and which solutions can be used to overcome these problems
and challenges. I also travelled to Beijing, Hong Kong and Shenzhen to interview entrepreneurs in
order to discover possible regional differences in problems or solutions.
Before choosing the cases and conducting the interviews I first started in the same way an
entrepreneur would start when setting up a company in China because in doing this I came into
contact with the right people to ask questions to. Because of this approach it is also possible to gain
information from different sources and not only from entrepreneurs.
The first interviewee was the Economic Consul at the Dutch Consulate in Shanghai because most
entrepreneurs start here. I gained information about how the Dutch government supports Dutch
entrepreneurs starting up in China and what problems most entrepreneurs encounter when starting up.
The Dutch Consulate in Shanghai offers the same services as the Netherlands Business Support
Offices (NBSO) in other developing countries. The Dutch Consulate can act as an intermediary
between the Chinese government and the entrepreneur and it is also possible to come into contact with
other entrepreneurs with the help of the Consulate. The consul advised me to interview consultants,
lawyers, recruiters and accountants.
During my interviews it became evident that most Dutch entrepreneurs use consultants to gain advice
on legal, financial or human resource topics because in most cases the time and knowledge of the
entrepreneur is limited. Therefore I had interviews in Shanghai with three law firms (Yunhe Lawfirm,
CMS Legal and Holthuis Advocaten), a bank (Fortis), an accountancy firm (Deloitte & Touche), a
recruiter (Randstad) and two housing/location agencies (DTZ and SIP) to gain as much as information
possible.
Because of the background information on how the mentioned institutions help entrepreneurs starting
up in China I could verify if the research questions were the right questions in order to provide
solutions to the problems and challenges encountered when starting up in China. Interviewed two
well-known China consultants that specialize in advising entrepreneurs who are starting up in China;
Sinova and Eastwingate. Both consultants were also the owner of the company, which makes them
entrepreneurs too. The consultants were able to indicate what problems are encountered most and
Boris Peters 42

what solutions they provide to these problems. Because of the valuable information I decided to add
their responses into this theses in the form of two cases.
Finally I interviewed seven Dutch entrepreneurs who started up in China and asked them about the
problems they encountered when starting up in China and what solutions they came up with during
the process. I used three companies as a case for this thesis.
I gained access to he entrepreneurs through the tight network of Dutch expats and entrepreneurs in
Shanghai.
Boris Peters 43

6.3 interview set up and analysis
Based on the literature study and interviews with the consultants I made a questionnaire with open
questions as needed for qualitative research. I did not choose for closed ended questions as I am
interested in exploring possible other solutions to the stated solutions in the literature. I am also
interested in deepening my knowledge about the stated solutions which is difficult when choosing
closed ended questions.
The interviews were all conducted personally and face-to-face in order keep the interaction as
spontaneous as possible. I kept the interference to a minimum while finding answers to my questions.
The interviews all took more than two hours and sometimes even more therefore the reports of the
interviews are summaries of the interviews. After finishing the summaries the respondents were given
the opportunity to comment on the report to guaranty the quality of the results.
6.4 Schematic overview of selected cases
Company KOW
Company
type
Architecten
Industry Architectural
Year of
startup
Employees
in China
Total
employees
Title / Name
of
entrepreneur
Location of
compay
Lensvelt /
Gispen
Beumer
Agritech
Sinova Easwingate
Service Production Production Service Service
Interior design Flower
Cultivation
Business
Consultancy
Business
2006 2004 2002 2002 2005
14 90 20 22 5
170 400 50 27 15
Director
Ron de Goeij
Director
Hans Lensvelt
Director
Rienk Hamstra
Director
Jennifer Chan
Consultancy
Director
Ari van der
Steenhoven
Shanghai Taicang Shenyang Hong Kong Shanghai
Boris Peters 44

6.5 Case studies
Case #1: Kow Architecten
Overview
KOW architects started out of a merger between two architect firms in 1998. The expansion of the
company was mainly done through mergers and acquisitions; from their start four more companies
joined KOW.
There are five disciplines in which KOW delivers services:
Architecture (designing new buildings), Urban Planning (designing public space, landscape etc.),
Urban Renewal (new construction, renovation, restoration), Interior Design (design of interior) and
Communication (marketing concepts).
The architect firm has about 170 employees and a turnover of 14 million euro.
The entrepreneur
Ron de Goeij (1967) started his own architect firm in in Den Bosch and he also had a company that
was fabricating portable dressing rooms. The portable dressing rooms could, for instance, be used for
sport events on location. Ron de Goeij was on a trading mission to China to explore the opportunities
to sell or manufacture his portable dressing rooms when he met Arend Hilhorst who is the director of
KOW.
It turned out that KOW wanted to expand into the “achterhoek” in Holland and was also looking for
someone who had an international orientation to help KOW expand internationally. Ron de Goeij had
an interest in doing business abroad and looked for opportunities to grow his architect firm in Den
Bosch. Therefore Ron de Goeij merged his firm with KOW and became director of ‘KOW
International’ and was assigned to set up an office in Shanghai. Mr. de Goeij still sees himself as an
entrepreneur because he exploring new possibilities and is involved in setting up new businesses for
the company.
Activities in China
The main goal of KOW is to serve the Chinese market, and they already do so by realizing a huge
project in ChengDu, the Chengdu Electrical Power Centre and a 5-star Hotel together with another
Chinese architect company. Although the profit do not cover the expenses yet, Mr. de Goeij is already
very optimistic because Chinese architects do not have as much knowledge about sustainable
building. KOW can offer service to the Chinese government in advising about enhancing the
Boris Peters 45

durability of a building. Isolation and double glass is still a novelty in new buildings but saving
energy is slowly getting into the minds of the Chinese people as commodities prices rise.
Increasingly more Chinese investors are also exploring the possibilities to build in Holland, by having
an office in China it is possible to serve these clients but this is not he case yet. However, not having
many Chinese clients yet does not form a problem to KOW as it uses the difference in time between
Holland and China to continuously work on design projects. The cost of designing a project is
therefore lower and projects are finished in a shorter time period.
Starting up in China
In 2006 ‘KOW international’ was founded. The reason for this decision lies in the fact that KOW is
becoming quite large for an architect firm and there are not enough projects to grow the turnover as
they want to. By serving more markets and attracting more foreign clients it is possible to grow their
turnover in a healthy rate. Currently KOW is in the process of setting up an office in Istanbul (Turkey)
and is orientating to set up an office in India, South-Africa and Great Britain.
In 2006 KOW opened an representative office in Shanghai; China. The office was obtained with the
help of ‘Science Alliance’, this intermediary organisation works closely together with universities,
companies and governments to stimulate cooperation and knowledge transfer. As a part of the ‘South
Holland-Shanghai Pudong Co-Innovation Program’, Chinese companies were stimulated to set up
business in Holland and in return KOW was one of the Dutch companies that could start up their
representative office in Shanghai for free for a certain period of time.
Mr. de Goeij states that it is very difficult to understand which formalities are needed to fulfil in order
to start up a business in China. It is possible to hire consultants that assist the start up but this is very
expensive because most of them take advantage of the limited knowledge of the entrepreneur about
legal formalities in China. Many business licences need to be written in the Chinese language and
instructions for filling in the licence application forms are also mostly written in Chinese. The
licences needed differ depending on the location in China. The licences not only differ depending on
the county but can even differ across districts within cities. The fact that it is very difficult to estimate
the quality of the consultant because of limited information makes choosing the right consultant even
more difficult.
The ‘incubator program’ was very helpful for KOW because ‘Science Alliance’ helped in providing
an office location, business licences, financial and legal services. From their small representative
office they could now focus on hiring new employees, search for a possible business partners and
Boris Peters 46

setting up a wholly owned entity. The first months the only activity of Mr. de Goeij was to build up a
network with other entrepreneurs and business people in order to gain information about starting up a
business in China.
KOW already had some contacts with the Tongji University because of the political past of Arend
Hilhorst (director KOW) and through these contacts KOW placed advertisements with vacancies in on
the internet site of the department of architecture of the university. Through the contacts with the
members of Tongji university Mr. de Goeij met with a Chinese architect that just finished her study
and worked as an architect for the university. She spoke fluently English and understood the goals of
KOW and could provide a lot of expertise on the Chinese market and help in selecting new employees
for KOW. They offered her a job to work as an architect for KOW and help setting up their business.
From the start of setting up a business in China, KOW wanted to set up a wholly owned entity. Mr. de
Goeij explains that it is difficult to cooperate with a Dutch architect office so it must be merely
impossible to a joint venture with a Chinese architect office due to business culture problems,
language problems, etc. The positive aspects of having a joint venture with a Chinese company do not
outweigh the negative aspects for KOW.
When KOW wanted to set up a wholly owned entity, they asked a Dutch law firm to arrange all the
business licenses but this was far to costly as they charged 25.000 euros. Mr. de Goeij knew some
other entrepreneurs that used a Chinese law firm to arrange the business licenses and other formalities
that were needed to set up a business, so they used this law firm which charged only 10% of the price
of the Dutch law firm.
Eventually a location was found and through the network of the new Chinese employee they hired
more employees, she even helped assessing the new employees. To use an new employee as a basis to
attract and select other new employee is risky says Mr. de Goeij but if you have great deal of trust in
the person, it is the best and cheapest solution. In the summer of 2007, only one year after the first
visit to China, the office of KOW was opened by the Dutch minister of foreign trade; Frank
Heemskerk. The KOW office in Shanghai now has 14 employees.
Difficulties and solutions when starting up:
-Weak regulatory regime
The problem with the weak regulatory regime of China is the fact that it is also a totalitarian regime.
This means that it is only possible to have influence on regulation if you organize in massive numbers
and even then, your influence will be small. If the government decides to change the regulation, the
Boris Peters 47

only thing KOW can do is react fast. A great deal of time is spend on interpreting government
statements and press releases in order to forecast what will happen. There are regulations that are a
barrier to non-Chinese firms; to design a structure that will be built in China, a Chinese architect
certificate is needed. The certificate is only granted to Chinese citizens. Therefore the first employee
that KOW hired was an architect with this certificate. In some cases the regulation forces KOW to
work together with other Chinese architect firms. This is not a great obstacle because it is very
common for architect firms to work together on a project. Hiring a Chinese employee was helpful to
understand regulations and political situations.
-Newness of private enterprise
The generation that is finishing the university is the first generation that grew up with an
understanding and education in private enterprise and open market economy. The interest in the
western economy and way of living also makes the new generation a very valuable resource. Many
Chinese students also followed an education abroad making them well educated in private enterprise
and open market economy. Most of the employees at KOW Shanghai are under 30 years of age and
recruited through the network of the Chinese employees. The first employees were selected with help
from the first Chinese employee.
-Incomplete property rights
The design work of buildings is very specific so intellectual property theft is not an issue.
-Obtaining capital
KOW did not need to lend capital from Chinese institutions because KOW Holland had enough
capital to fund the startup.
-Diversity of local business systems in China
Research on a local business system is an important activity for KOW. Before a project is accepted it
is researched what kind of licences are needed in the area, what regulation apply to the project and
how the local government interacts with the project. The local government is heavily involved in
many projects in China and often it difficult to understand in what way the government is involved
and who makes the decisions.
In China government officials have great respect it is therefore very helpful that one of the directors of
KOW; Arend Hilhorst, is the former city councilman of The Hague and advisor of the Dutch Prime
Minister. Through his network it possible to get more information from local Chinese government
personnel. A great portion of information can also be gathered through the network of the Chinese
employees.
Boris Peters 48

-Poorly functioning Chinese markets
It can be difficult to find new projects for KOW due to the fact that projects are often communicated
through Chinese networks. The network of the employees is mostly used in gathering market
information.
-Poorly developed institutional arrangements
In Holland KOW uses the ABN-Amro to arrange all their financial operations and they also wanted to
use the services of the ABN-Amro in China. KOW needed a bank account for their transactions but
this turned out to be very difficult as foreign banks can not deliver the same services as Chinese banks
due to Chinese regulations. It took many months only to open an account with the ABN-Amro. A
business associate in China recommended a Chinese bank and KOW used this bank to open an
account which took only 4 days. This example indicates that through the network of business
associates it is possible to overcome poorly developed institutional arrangements.
The exchange program offered a lot of help when KOW started as a representative office, the Chinese
government assisted in appointing the right institutions and supplied information on the needed
licenses.
-Dependency on Chinese resources
KOW is a service providing company so does not depend on physical resources. Although resources
like market data is incomplete or difficult to obtain this is not a problem because this is the same for
the competitors.
-Additional problems and challenges
It takes a long time to get all the necessary business licences and often you can not obtain certain
licences before first obtaining other licences. KOW needed a letter from their landlord to obtain a tax
certificate, the landlord was unreachable for a long period and this held up all other licences. When
starting up in China it is important to be flexible in the time to start up. It is best to stay for a long time
period in China while starting up so it is possible to deal with difficulties on site and on time.
Solutions derived from the literature
-networking with other, non-Chinese, business people
When it was known that KOW had an office in Shanghai there was attention from the media in
Holland and KOW tried to communicate as much as possible that they were operational in China.
Business people that were also operational in China felt ‘connected’ with KOW and it is very easy to
build up a network. In China many events are organised by the Dutch government, trade
Boris Peters 49

organisations, other companies, etc. The main objective with these events is to meet new contacts and
this is done much more enthusiastically compared to events in Holland.
-setting up alliance/networks with Chinese government officials
As stated before the Chinese have a deep-rooted respect for government officials therefore the
network of Arend Hilhorst (director KOW and former city councilman of The Hague and advisor of
the Prime Minister) is very useful. When KOW opened their office in Shanghai, the Dutch Minister
for Foreign Trade, Frank Heemskerk, was asked to officially open their office. At the opening also
Chinese government officials were present and through these officials KOW established their
presence. In many activities KOW tries to involve Dutch government officials to attract Chinese
government officials and trough this involvement a network with Chinese government officials can be
build up. The Dutch government in Shanghai is not only very helpful in co-operating with Dutch
companies in events nut also organises many events where it possible to meet Chinese government
officials.
-building a network with Chinese business people
The network of the Chinese KOW employees can be very useful in meeting Chinese business people.
Because of previous jobs in the design industry many KOW employees often already have contacts
within the industry. According to Mr. de Goeij Expo’s and trade fairs are a way get into contact with
Chinese industry insiders.
Additional information
Mr. de Goeij stresses the fact that an entrepreneur should keep in mind that setting up a company in
China takes much more time than in Holland and also acquires a lot of devotion of the entrepreneur in
the form that he needs to be physically present.
Boris Peters 50

Case #2: Lensvelt Interieur
Overview
Lensvelt interior was founded in the 60’s and started with the sale of barber seats. Nowadays Lensvelt
designs and produces project furniture for all purposes. Due to the modular construction it is possible
to produce made-to-measure products. The company works closely together with leading designers,
architects and artists. Lensvelt tries to produce high quality fashionable furniture for a reasonable
price.
In 2004 Mr. Lensvelt opened a wholly owned factory in Taicang (Suzhou Antriol Sheet Metal
Production) to produce labour intensive components. In 2006 Lenvelt merged with furniture producer
Gispen on the basis of a shares exchange in order to create synergy and to grow faster. Gispen wanted
to produce and sell in China and Lensvelt wanted to grow faster. The companies are now lead by a
single board of directors but the brand names and companies remained unchanged. Because of the
combination of the two office furnishers, the new merger now has the second largest market share in
the Benelux.
The entrepreneur
Hans Lensvelt (1959) started working in his father’s factory in 1985 after his graduation as an
engineer. In 1990 he took over the shares of his father. Mr. Lensvelt owned a couple of metal working
factories in Holland and later also in Taicang (China) after the merge with Gispen the factories were
sold to the management. The factories had several clients and one of them was Lensvelt himself. After
the merge the production of the Lensvelt furniture was brought over to Gispen’s production facility in
Culemborg (Holland). This created a lack of capacity in Culemborg but this capacity was found in the
Taicang Factory.
The company grew from 40 fte’s to 400 fte’s. Lensvelt is the creative director bij Gispen, co-founder
of Moooi, CEO of Lensvelt and founder of the Suzhou Antriol Sheet Metal Production in China. Mr.
Lensvelt is now planning to permanently settle in Shanghai.
Activities in China
Mr. Lensvelt just started production of labor intensive components in Taicang that are shipped to
Holland and used for the production of furniture. Beside that the company is already producing
similar products for similar companies as Lensvelt and Gispen all over the world. Mr. Lensvelt
explains that the focus is now on the start of producing complete products so the company can start
serving the high end Chinese market. Currently there are 90 employees working in China and in order
to scale up production, the goal is to grow to 200 employees within two years.
Boris Peters 51

Starting up in China
Mr. Lensvelt attended a European convention on interior design and heard about the increasing threat
of Chinese furniture manufacturers who want to supply to the Western market. Not wanting to wait
until his Chinese competitors were already selling in Holland, Mr. Lensvelt send ten business
associates an email with the request for Chinese contacts to set up a manufacturing facility in China.
He came into contact with three possible options and visited the sites together with a Chinese female
interpreter. The contacts turned out to be not very reliable and in the last days of his stay in China he
wanted to visit Taicang, a city that he heard about during his stay.
Mr. Lensvelt came into contact with the local vice mayor of Taicang through a mutual business
friend. The vice mayor offered Mr. Lensvelt a site of 20.000 square meters on the condition that Mr.
Lensvelt would register as a Wholly Foreign Owned Company. In return the vice mayor asked: a
registered capital of minimum 3 million euro, everything according the law. (Meaning no corruption),
high technology, no pollution, certain substance/scale.
Mr. Lensvelt accepted the offer and also hired his female translator (Xiongying) to set up the factory.
Mr. Lensvelt was very impressed by the female translator because she was extremely intelligent,
spoke excellent English and it turned out she had very good negotiation skills.
The vice mayor also offered a temporary office space in his local government office and even brought
Lensvelt in contact with suppliers, contractors, and even other government officials. Sometimes the
vice mayor even supported in the negotiations, for instance when the landlord of a rented building
charged too much for the electric power installation.
Within months the factory was built and the translator is now the vice - general manager of the factory
in Taicang.
Difficulties and solutions when starting up:
-Weak regulatory regime
It is impossible to have any influence on the decision making in Beijing the only thing that can be
influenced is the enforcement of the regulation on a local level. However according to Mr. Lensvelt
this is exactly what can get entrepreneurs into trouble because a ‘special deal’, that is agreed upon
with a local government official can be changed by his successor because government officials
change post and positions frequently. When having a factory in China one must also keep in mind that
the machinery, building, stock, etcetera are a very high investment and this is not something that an
entrepreneur want to have seized by the Chinese government because of ‘playing with the rules’.
Boris Peters 52

A good honest relation with local government officials is the key in getting help when, for instance,
regulation changes. It is much more helpful if government officials can advice what to do when
certain regulation changes and requirements must be met. In a less developed location it is much
easier to get into contact with high ranking local government officials. Mr. Lensvelt states that if there
is a problem he can arrange a dinner with the local mayor within a few days and the problem will
probably be solved.
-Newness of private enterprise
Chinese employees that have studied abroad are most often very interested in the ‘western way of
doing business’. Mr. Lensvelt is very impressed by the Chinese and he describes Chinese employees
as very hard workers who are smart and well educated. Mr. Lensvelt states that he did not encounter
the problem of newness of private enterprise with higher educated employees. Hiring the female
translator made it possible to test the competence of new employees by her, she hired the first
employees.
Many factory employees are not used to work efficiently because they worked in state owned
enterprises. Because state owned companies did not need to make profit, efficiency was not needed.
The newness of private enterprise is only a problem with hiring low educated employees. However,
labor is very cheap so it is not an issue that some activities are not done efficiently.
-Incomplete property rights
Fighting copying competitors is useless according to Lensvelt because the enforcement of intellectual
property rights is very bad. Mr. Lensvelt states that, if even big companies like Hugo Boss and Prada
can not protect their products from imitation, he will not be able to do so either.
Lensvelt will produce complete products in China within 6 months from now and will serve the
Chinese market. Mr. Lensvelt wants to serve a niche market with very high quality products for a
reasonable price. Mr. Lensvelt is confident that he can compete with Chinese producers on price and
quality which makes it less attractive for Chinese producers to copy his product. When the product is
copied he will use his contacts with the local government of Taicang to enforce regulations on the
infringer. He will probably not go to court to enforce the regulations due to high costs and possible
limited outcome.
-Obtaining capital
Lensvelt had enough financial reserves to set up the factory in Taichang.
Boris Peters 53

-Diversity of local business systems in China
Mr Lensvelt states that he knows that there are many differences in the local business systems in
China but due to the help of the local government in Taicang and the skills of their Chinese general
manager they did not have any problems with the local business system. Because they knew exactly
how to set up the company.
-Poorly functioning Chinese markets
Lensvelt does not yet supply to the Chinese market the knowledge about this problem is limited
however Mr Lensvelt states that gaining market information is difficult due to the fact that regulations
are badly enforced and information is not reliable. For instance in Holland almost every company has
an internet site and information given on the internet site must be true.
Information about the company can also be checked at the Chamber of Commerce. In China
manufacturers can state anything they want on the internet site because the information can not be
verified and if the information is wrong it can not be punished. Many manufacturers state they
manufacture certain products while they actually buy the products from another manufacturer. The
network of the employees and government officials can therefore offer the most reliable information
about competitors, suppliers and buyers. Also other business people can offer information about
markets.
-Poorly developed institutional arrangements
This was not a problem for Lensvelt because all the arrangements were done with help of the local
government and the Chinese general manager; they knew which institutions to contact.
-Dependency on Chinese resources
Mr. Lensvelt states that all his competitors are mostly dependent on the same resources as he is and
that he need to pay more or less the same for the resources.
Oil, steel, plastics, electricity, etc can be bought in the Chinese market by him and his competitors.
For instance; an increase in steel price has effect on the whole market so this does not only pose a
problem for Lensvelt but also for his competitors.
The only problem for Lensvelt regarding resources can be the infrastructure in which the resources are
supplied. China can control the infrastructure and that can create a problem.
It happened to Lensvelt that the road in front of the factory was under construction but nobody was
working on it thereby stopping all transportation to the factory. Mr. Lensvelt told the vice mayor
about his problem, the next day a hundred road workers were working on the road and within a day
the road was accessible again.
Boris Peters 54

-Additional problems and challenges
It is very difficult to set up a company or factory in China without the help of a Chinese citizen. One
needs someone to translate, help set up the business, and gather contacts. The biggest problem of all is
to find someone to help set up the business and to trust that person to do so.
Solutions derived from the literature
-networking with other, non-Chinese, business people
It is very easy to meet other business people on trade missions but trade fairs and fairs can be a very
valuable way to meet new people. In China there are thousands of fairs and trade fairs every year.
There are also special networking events organised by companies or entrepreneurs. Mr Lensvelt states
that he was amazed about the amount of networking events held in Shanghai every day.
-setting up alliance/networks with Chinese government officials
As stated earlier it is very easy to come into contact with government officials in a smaller less
developed region. It is also very beneficial to hire a Chinese employee to help set up the business,
however to find someone who can perform such task is difficult. Meeting people who are in the same
industry can lead to a contact with such a person.
The fact that the company brings employment to the local area and is a showcase for foreign investors
makes it very easy to come into contact with government officials.
-building a network with Chinese business people
For meeting Chinese business people trade fairs and network events are very helpful but the Chinese
lay a lot of emphasis on trust. Mr lensvelt staes that Chinese are very cautious in trusting foreigners
because they have difficulty to understand foreigners. When a Chinese employee is hired to help set
up the business it is easy to build up a network with business people because it is much easier to
communicate.
Additional information
When doing business in China it is needed to listen to the ‘gut feeling’ or ‘entrepreneurial instinct’.
The Chinese are far more emotionally involved when doing business and are very focussed in getting
to know who their business partner is and how he behaves. In a land where contracts are at best
peaces of paper to remember what is agreed upon, knowing you partner is very important. Dutch
entrepreneurs or business people tend to exclude their emotions as much as possible when doing
business but when doing business with a Chinese this can have a negative effect.
Boris Peters 55

Mr. Lensvelt stresses the fact that the local Chinese government makes it very easy for entrepreneurs
when a foreign company is started that brings employment to the local area, is stimulating to the local
economy, and is environmental friendly. The mentioned benefits to the Chinese economy are points
that government officials want to achieve and thus are the intentions of the company in line with their
political agenda. The company can be used as a showcase for other foreign investors and therefore the
chance of failure is reduced.
.
Boris Peters 56

Case #3: Holland Beumer Agritech
Overview
In 1993 Gert-Jan Beumer starts a company that grows tries and specialises in horticultural architecture
and paving. In 2002 Mr. Beumer also starts to export flower bulbs to China. Beumer Agritech was
founded by Rienk Hamstra and Gert-Jan Beumer in 2002.
The entrepreneur
Mr. Hamstra started an employment agency together with a friend. Eventually he sold the
employment agency and lived a large part of his life in Asia. From 1996 Mr. Hamstra and a
Taiwanese friend started trading mostly in clothing and later in spare parts for power stations in
China. In 2003 he began working for a subsidiary of Hunter Douglas in Holland but moved to China
in 2007 to work for Hunter Douglas. He was actively involved in the start up of Beumer Agritech in
2002 because of his experience in China he is still director of Beumer Agritech but the day to day
activities are now ran by his Taiwanese friend.
Starting up in China
Mr. Hamstra was importing spare parts for power stations in China. During a business dinner
somebody asked him what his nationality was and when Mr. Hamstra replied that he was Dutch, the
Chinese man replied that he knew that Holland was famous for trading in flowers and asked if he
could also import flower bulbs. Coincidentally, the father in law of Mr. Hamstra; Mr. Beumer, was in
the horticultural business in Holland and therefore Mr. Hamstra replied that he could do so. Mr.
Hamstra thought the man was joking but the next day the Chinese man called back and asked about
the price. After consultation with his father in law he stated that the first shipment should be paid
before delivery. Within a day the Chinese man called back and asked the number of the bank account.
And from that day in 2000 Mr. Hamstra and Mr. Beumer were doing business in China.
In 2001 Mr. Beumer and Mr. Hamstra wanted to investigate the horticultural market and the
possibility of a joint venture with a Chinese state owned horticultural company. They decided not to
form a joint venture with the Chinese company due to the limited control resulting from a joint
venture.
In 2005 Mr. Beumer and Mr. Hamstra supplied flower bulbs to a horticultural exposition in Shenyang
and there they met with the son of the local mayor who offered them a low tax region and help in
setting up their company. Due to their research they knew about the flower market in China and
decided to start up a wholly foreign owned enterprise in Shenyang.
Boris Peters 57

Activities in China
The core activities of Holland Beumer Agritech is the trade of flower bulbs, cultivation of flower
bulbs, technical support to the clients for cultivation, and organising flower festivals for product
promotion.
Difficulties and solutions when starting up:
-Weak regulatory regime
A weak regulatory regime can also be an advantage because, as stated before, the mayor wanted to
stimulate the foreign investments in the area. The Chinese government wants to increase the income
of the Chinese farmers and foreign investments like Beumer Agritech delivers knowledge, labour and
economic impulse to the region. The company is also non polluting. The fact that a foreign company
invests in the region also means status for the government officials. The local government is therefore
very helpful in setting up the company and that is why all the required business licences were
arranged by the son of the vice mayor.
When Beumer Agritech was searching for a location the son of the mayor offered them a low tax
location at a technology development area that he was managing. When Mr. Hamstra said that the rent
for such a high tech location was too high and that Beumer Agritech was not meeting the
requirements of a high tech company the son of the mayor replied that they didn’t need to worry about
rent and that according to him Beumer Agritech was a high tech company. This deal worked both
ways; the son of the mayor had a new opening of a foreign company on his development area and
Beumer Agritech had a low taxation. In this case the diversity of the local business system is an
advantage but one must be sure that the goals of the local government are in line with that of the
company. If problems arise, the local mayor has the ability to influence enforcement of regulations.
-Newness of private enterprise
A Taiwanese general manager can offer a bridging function between the ’western way’ and ’Chinese
way’ of doing business. The Taiwanese have traded with the West and with the Chinese for hundreds
of years because they are an independent region. Taiwanese can speak Chinese and English and also
have a good eductional system. Taiwan is a democratic republic and has a dynamic kapitalist market
economy with gradually decreasing guidance of investment and foreign trade by the government. This
means that the Taiwanese are not new to private enterprise but also understand how to do business in
China because of their trading relations with China. Therefore the general maneger of Beumer
Agritech is Taiwanese.
Boris Peters 58

For production it is very important to set up very detailed regulations and procedures so the
employees know exactly what to do and what not to do. Inspection is also very important because this
is what the Chinese are used to.
-Incomplete property rights
In Holland there is a ‘cultivation right’ which means that the cultivator of a certain species has the
sole right to trade the seed of that species. The cultivator can grant the user a licence and ask for a fee.
In China this right does not exist so it is possible for a Chinese horticulturist to reproduce the species
without paying a fee. This makes it important for the Dutch flower bulb growers that this ‘cultivation
right’ is established by the Chinese government. However the Chinese government has a dilemma of
granting the demand of the rich westerners or the interests of the poor farmers in China. The Chinese
government has the goal to raise the income of the farmers high on the political agenda in order to
keep social stability and development. This makes the Chinese government reluctant to do anything
about the ‘cultivation right’ situation because half a billion unsatisfied Chinese farmers is not only bad
for the country but also for the world economy.
The solution is to export flowers instead of flower bulbs but this is less attractive because of the fact
that the risk of damage to the flower is higher and the transportation time must be very short and thus
increasing costs. The exporter has to decide if the risk of copying is worth the higher profit margin.
-Obtaining capital
Beumer Agritech had enough financial reserves to set up the company without obtaining capital
externally.
-Diversity of local business systems in China
It can be difficult to understand who has the decision power when negotiating with government
officials or business partners. Hierarchy is very important in China, small projects are done on a lower
level with employees and the management does bigger projects. The difficulty in uncovering the
decision power makes the diversity in business systems even more difficult to understand. As stated
before Mr. Hamstra explains that an ‘expert’ was needed to bridge the gap between the Chinese and
the management of Beumer Agritech. The Taiwanese friend of Mr. Hamstra could fill this gap and
therefore is the general manager of Beumer Agritech.
Boris Peters 59

As stated before the son of the local mayor was also very helpful in setting up the business. He
supplied valuable information about certain individuals to contact and about the connections between
individuals.
-Poorly functioning Chinese markets
Mr. Hamstra wanted to know more about the flower trade market and choose to investigate the area
around the city Shenyang which is known for its horticulture. There is very little reliable data on
about the local horticultural market because transactions are rarely computerised moreover only a few
market research companies exist in the horticultural industry. Collecting market data had to be done
by Beurmer Agritech themselves. Mr. Hamstra asked for a PESP (Programma Economische
Samenwerkings Projecten) at the department of economic affairs in Holland. A PESP is a contribution
made by the Dutch government to do a feasibility research for a joint venture. The PESP was granted
and thereby it was possible to do cheap research. Due to this research local state owned horticultural
companies and local flower farmers were identified. Not many entrepreneurs know about the
possibility of government sponsorship. Although the joint venture between Beumer Agritech and the
Chinese company was never completed, the study offered reliable information.
Beumer Agritech cultivates flower bulbs in China to gain credibility from the Chinese buyers and to
keep ‘feeling’ with the market. Flower bulbs of Beumer Agritech are also set out by Beumer Agritech
themselves by the Chinese farmers for free but the profit of the sale of flowers is then shared. The
farmer has less risk and Beumer Agritech knows how much is sold. Because Beumer Agritech works
together with the farmers, they also know the prices and stocks of the competitors because the farmers
supply this information.
-Poorly developed institutional arrangements
There is a shortage in institutional arrangements in less developed economic regions. This means that
entrepreneurs must rely on government ties. As stated before; when the goals of the local government
are compatible with the goals of the company, the local government will help the company to start up.
In the case of Beumer Agritech the son of the local Chinese mayor arranged all the proceedings to
start up the company.
-Dependency on Chinese resources
The limited infrastructure is the reason why the Chinese are very dependent on their network, the
problem lies more in the infrastructure needed for the transportation of resources. For instance road
construction is done by the local government and it is possible that a road in front of the company is
broken open for weeks because of a dispute with the local government. The resources are there but
can not be transported. Electricity can be cut of because certain ‘taxes’ are not paid. In China the
Boris Peters 60

producers do not have any power, the power lies in the network of knowledge, market and rights. This
stresses the need to cooperate with the buyers to get access to the network which can supply
information. A lot of time must be invested in the strengthening of the network ties by inviting buyers
or local government officials to dinners or trips. Before Beumer Agritech started up in China they
attended many delegations to China and supported delegations from China that visited Holland.
-Additional problems and challenges
Corruption is still a huge deep-rooted problem in China. Building ‘Guanxi’ means that it is sometimes
necessary to give presents to certain people. There is a thin line between ging a present and bribing
and many times the line is crossed in China.
Solutions derived from the literature
-networking with other, non-Chinese, business people
Mr. Hamstra states that because of their local presence in China it is possible to invite other exporters
to the region. Before the start up of the company Mr. Beumer and Mr. Hamstra attended many ‘trade
missions’ to China. Because of these trade missions it is possible to get into contact with other
agricultural companies. The focus on building horticultural expositions in China is a choice to get into
contact with various networks.
-setting up alliance/networks with Chinese government officials
Beumer Agritech attended many ‘trade missions’ before they started in China and due to these trade
missions it was possible to meet government officials. By a mutual business relation they were
introduced to the son of the local mayor of Shenyang and through his network it was possible to get
into contact with other government officials.
Because of the supply of flower bulbs and organisation of the horticultural exhibitions in China it was
also possible to get into contact with many Chinese government officials. Mr. Beumer and Mr.
Hamstra both knew that when they invited Dutch government officials to the opening of the
exhibitions it would attract Chinese government officials because the Chinese government officials
feel “important” when they can shake hands and literally be on the picture with the Dutch government
official. Status is very important for Chinese government officals.
In all the exhibitions the Dutch government was somehow involved, for instance because the ministry
of agriculture sponsored a Dutch pavilion on the exhibition. When a horticultural exhibition was
opened they always invited Dutch government officials to the opening.
-building a network with Chinese business people
Boris Peters 61

Because Beumer Agritech also grows the flower bulbs themselves they have a good presence in the
region which makes ‘Chinese business people’ (in this case the farmers) come to them. Because they
organise flower exhibitions for local governments it is possible to come into contact with government
owned companies.
Additional information
When a company really adds value to the Chinese economy or region, it is very easy to start up
because of the support of the local government because it is also in their interest that the company is
successful.
Boris Peters 62

Case #4: Eastwingate Consultancy
Overview
Eastwingate is a consulting company based in Shanghai which delivers services to entrepreneurs and
companies that want to set up a company in China.
Using their network of professionals, they deliver service and support on areas like sourcing of
products, outsourcing of products, finding suppliers, creation of contracts, and intellectual property
advice.
Temporarily office space can be offered by Eastwingate and support can be offered in the decision
making process about the internationalisation strategy (Joint venture, Wholly owned enterprise, etc.).
Needed business licences can be dealt with and it is also possible to outsource the entire start-up
process.
Support with mergers and acquisitions is also offered in the form of advice and due diligence.
The interviewee
Ari van der Steenhoven joined DSM in 1980 in Holland and moved to Japan as Vice-President of the
EPDM venture in 1988. In 1992 he was appointed in the function of ‘director Corporate and Sales
China’ of DSM, set up sales offices and was involved in the establishment of a number of joint
ventures and wholly foreign owned companies. In 2005 he retired from DSM and started a new
company in management consulting, called Eastwingate, which supports a number of companies to
set up their own organization in China. Mr. van der Steenhoven is also a member of the advisory
board of the Benelux chamber of commerce in Shanghai. Mr. van der Steenhoven lives in Shanghai
with his Chinese wife and 2 sons.
Entrepreneurs starting in China
-differences in the type of problems for an entrepreneur or a manager
The difficulties that managers encounter when they start up a new venture for an existing company
are the same as the problems that an entrepreneur encounters and the solutions to the difficulties are
also often the same. There is however a difference in impact of the difficulties or problems
encountered when starting up in China because a big firm has often many resources like capital and
expertise. An entrepreneur has less financial resources and must hire expertise. For instance when
DSM starts up a venture in China they can afford mistakes or even failures and this is not the case for
entrepreneurs.
Mr van der Steenhoven states that he considers people who start up a business in China for a small
business in Holland as entrepreneurs too because often they do not only invest financially in the start
up in China but they also invest a lot of time. They also take a risk in the form that when they fail
Boris Peters 63

setting up the business they will probably have to search for another job because a small firm can not
offer them another job within the company.
Many of the people that Mr. van der Steenhoven knows, who start up a venture for a smaller
company, have the intention to settle in China for good and often already have experience in living in
China. A manager who is assigned to set up a venture in China for a big company or multinational
often signed a 3 to 5 year contract, they are not starting up a business because they are interested in
China but they are interested to work internationally and this has an effect in they way they operate.
Managers will not learn the Chinese language because they do not have the time, they do not have any
experience in doing business in China, they do not have experience in living in China, and they have a
very short period of time to set up a business. All these limitations make the chance of failure very
high but due to the abundance of financial resources and expertise of a big firm or multinational, this
has less impact.
-difference in problems encountered in different parts of China
Depending on the location, there is a difference in the severity of the problems and challenges that
one can encounter when one starts up a company in China but the solutions to the problems are the
same independent of the location of the start up.
When a company is started in or near a small city (most of them still have about several hundreds of
thousands inhabitants) it is more likely that the entrepreneur will have easy access to local high
ranking government officials or even people like the mayor of the city. Knowing high ranking
government officials can be beneficial for the speed at which business licences are granted. Tax
benefits can also be granted to stimulate the growth of the company because local governments are
free to grant certain tax benefits and even regulation can be ‘bended’. In some cases ‘a weak
regulatory regime’ can be an advantage. These benefits can also cause problems because corruption is
much more present in remote areas and moreover, bended rules and taxations can be restored when
the local government wants.
The problems and challenges are an outcome of the still developing economic situation in China
therefore the problems are the same but less in severity in the better developed parts of China. In a big
city like Shanghai tax laws, business licences and other regulations are strictly regulated because
business is better developed and the government sees cities like Shanghai as a role model.
-Difference in problems encountered by legal entities
Although the problems are the same to all legal entities, the problems can differ in impact on the
company depending on the legal entity and even the type of business this entity is in.
Boris Peters 64

For instance; a trading company that only has an office in China earning their money in connecting
two parties and asking a certain fee, do not have to worry much about ‘incomplete property rights’. A
trading company does not have complicated technological knowledge that they can spill-over which is
a big problem for high tech manufacturers cooperating with Chinese companies. A trading company
does need to find out that the products that they trade are not illegally copied products in order to meet
the customer requirements but the trader can not held responsible. In both cases good due diligence is
needed on the Chinese partner, making the problem and solution the same but the severity of the
problem differs.
Difficulties and solutions when starting up:
-Weak regulatory regime
Regulations in China change very fast due to a fast changing economy and it can happen that within a
few weeks a new regulation is implemented. For instance; in May 2007 it became clear that China
wanted to cut the tax rebate on the export of high energy consuming commodities and in July 2007
they implemented the new tax rebates. The only option that many companies had was to change their
prices as fast as possible. In China you must be able to react to change very fast. It is possible to
anticipate on many changes because the Chinese government presents a guiding proposal every 5
years. In the last proposal it was already evident that China wanted to cut back energy consumption
and pollution.
It is also possible to gain information about reforms or new regulation through your network because
many new regulations are made in cooperation with mayor Chinese law firms. These law firms give
indications on what is going to happen. The main solution is to be able to react to change very fast and
to build up a network with Chinese business people.
-Newness of private enterprise
This problem is most evident in cooperation of foreign firms with Chinese firms. Many managers and
owners of Chinese firms are now around 40 to 50 years of age and grew up in a government
controlled planned economy. They have difficulty in adapting to free market economy because of
their routines and education. Mr. van der Steenhoven strongly recommends that a partnership must
only be engaged if it is absolutely necessary for the business because the failure rate is very high. In
some industries it only possible to start up a business in the form of a joint venture. This condition is
established in order to give sertain industries access to foreign knowledge because of local shortage.
One must therefore be very cautious because no expertise means that it is difficult to cooperate.
Young Chinese have had education on open market principles and grew up with a relatively open
market economy and moreover many of this generation had the possibility to travel or study abroad.
The generation that is in the age of 25 to 30 have also had education in the English language and are
Boris Peters 65

able to understand foreign business practices. The solution for the ‘newness of private enterprise‘ is
therefore quite simple; don’t hire anybody who is older than 30 years of age unless you need to and
don’t cooperate with anybody who is older than 30 years of age unless you really need to. Never
cooperate with somebody that works are have worked in a state owned company.
-Incomplete property rights
Mr. van der Steenhoven states that property rights are quite clear in China, it is possible to own for
instance a building or house but it is not possible to own the land on which it is build. The owner of
the private property is quite well protected with the new private property law that is accepted in
March 2007 by the Chinese government.
The land is often rented from the state for the time of 50 years. It is quite easy to find out who rents
the land and thereby who owns the property because this information is public and can be found at the
government offices. The information is however in Chinese and it takes quite some time before it is
given. The government can withdraw the right to rent and seize the land but this is not likely to
happen because this will have a very big negative effect on the popularity to invest or start up a
company in China. The most likely reason for such action will be because a road or rail needs to be
built through the property. In that case the government will compensate the owner of the property. If
land is seized it is impossible to fight this decision and therefore it is necessary to get as much
information as possible about the plans of the government in a certain area, these plans are published
in Chinese but publicly accessible.
The problem is not that the property rights are incomplete but the enforcement of the rights is very
bad. One should therefore prevent the need to go to court.
-Obtaining capital
Chinese banks will only invest huge and globally active companies like DSM and Phillips to reduce
their investment risk says Mr. van der Steenhoven. A small to medium sized foreign company will be
to much risk for a Chinese bank because it is difficult and costly for them to obtain information about
the business activities in the land of origin of the company.
In many cases the entrepreneur already has a big financial reserve or a company in the land of his
origin when he starts up a company in China and this makes obtaining capital in China unnecessary.
The problem for these entrepreneurs but also for managers that start up a new venture is not really
‘obtaining capital’ but ‘getting access to their capital’ as described later in the interview.
-Diversity of local business systems in China
Boris Peters 66

It is possible to obtain information about the local business systems at local government offices but all
information is in Chinese so you need a Chinese who can gather the information. A Chinese lawyer
who can speak English very well can offer this service. In more developed economic areas,
information about the local business system can be found in English but is outdated in many cases
because of the fast changing economy and legal regulations.
In less developed areas it is easy to get into contact with local government officials. The local
government of a low economic developed area will support the start up of a company because it will
offer employment for the local citizens and stimulate the local economic growth. It is very common
that the government officials will support the start up by supplying information about business
licences, property ownership, local markets, etc. The mayor of the area will often give information
and access to his network.
-Poorly functioning Chinese markets
In less developed economic areas it is difficult to gather reliable market information through official
institutions but this information needs to be gathered through local government officials. Because of
the lack of information about certain areas and shortage of supportive businesses the support of the
local government is high and the cost of setting up and running a company is low. The risk of doing
business is however higher due to uncertainty because of lack of information.
In economic developed areas it is easier to find reliable market information but an entrepreneur or
manager is still very dependent on his network. The Dutch government in the form of the NBSO
(Netherlands Business Support Office), the Dutch Consulate and Dutch Chambers of commerce
supports entrepreneurs by giving access to her network. Also the network with non-Chinese business
people can be helpful in supplying information.
-Poorly developed institutional arrangements
There is a lack of high quality institutions like law firms, accountants and bank and therefore
experience is needed to find out which institution delivers the best service. Many Dutch banks can not
offer all the services that they offer in Holland due to restrictions. Many Dutch law firms are not
licensed to offer legal defence in court, they can only give advice and are very expensive. A Chinese
law firm can offer many services and is relatively cheap. A Chinese lawyer can offer financial
information about potential business partners as only they can access the information at the Chinese
department of commerce. The tax return of many Chinese companies can be acquired at Chinese
banks as al this information is public.
Boris Peters 67

Information can be gathered and institutions can be accessed but this costs a lot of time to find out. It
is recommended to use the service of a consultant (like Eastwingate) to help gather information and
support decision making.
-Dependency on Chinese resources
Except for the wages of local employees, many resources are more expensive in China because of
shortage. Many commodities need to be imported and this often makes the local price higher
compared to global prices and the availability is uncertain. The problem has however effect on all the
companies in China. The only solution to the problem is fast reaction to developments.
-Additional problems and challenges
The turnover in personnel is a big problem for many companies. The Chinese are not very loyal to
their employer and they easily switch jobs when they are offered just a small amount more compared
to their current employer. Money is important for the Chinese because the government does not
provide a healthy ‘safety net’ like the government in Holland. However, money is not the only
important factor for the Chinese because clear opportunities to build a career are very important
because eventually this also means getting an increase in income.
Solutions derived from the literature
-networking with other, non-Chinese, business people
As stated before, the Dutch government gives access to her network and is actively organising
network possibilities in the form of trade missions, social drinks, official banquets, etc. It is also very
normal to offer somebody your business card in the beginning of the conversation. Mr van der Steen
states that it is very normal if one returns from a social drink at the Dutch consulate with about 50
business cards. Business people know the importance of the network in China and are therefore much
more actively networking.
-setting up alliance/networks with Chinese government officials
In China it is very common to have official parties or ceremonies. Mr. van de Steenhoven therefore
recommends that entrepreneurs or managers use as much as occasions as possible to organise a
ceremony. For instance when opening a office or factory or when reaching a certain mile-stone.
Inviting Dutch government officials seem to attract Chinese government officials because Chinese
have deep respect for the government due to the fact that China had a totalitarian regime. When a
Dutch company has Dutch high ranking government officials as a guest in China the Chinese are
easily impressed because they think the entrepreneur has high reaching contacts within the Dutch
government. The Chinese government officials feel honoured when they are invited and are then more
easily contacted.
Boris Peters 68

-building a network with Chinese business people
To build up a network with Chinese business people is difficult and takes time because the network of
Chinese business people is very closed. They are reluctant to give a foreigner access to their network
and therefore it is best to use Chinese employees to build up a network with Chinese business people.
Chinese business people can easily be met at trade fairs and trade missions.
Additional information
Information is not centralised as in Holland which makes it difficult to find. In many cases
information can be gathered but one needs to know where to look and to speak Chinese as much
information is in Chinese. Good preparation is needed when starting up a company in China but more
important help from a Chinese is necessary in gathering information.
Boris Peters 69

Case #5: Sinova
Overview
Sinova offers consultancy for European companies wishing to set up China or Hong Kong. Sinova
also helps Chinese companies wishing to set up in Europe. Sinova also offers strategic business
advice, legal advice, accountancy, financial consaltancy and matchmaking.
The interviewee
Born in Hong Kong, Ms. Jennifer Chan, spent most of her young life in the Netherlands following her
university education on the before settling down in Hong Kong. Starting from 1991, Ms. Chan
worked for 11 years with Dutch Banks Rabobank and ABN AMRO and Belgium-Dutch bank Fortis,
with a portfolio covering both small and medium-sized enterprises and multinational companies.
Entrusted with a couple of projects by several long-term European clients to assist them with large
investments in China, Ms. Chan founded SINOVA in 2002. In 2005 Ms. Chan also opened an office
in Shanghai. The last office opened in 2006 in Rotterdam. In total Sinova has 27 employees, most of
them work in China.
Entrepreneurs starting in China
-differences in the type of problems for an entrepreneur or a manager
Ms. Chan states that whether someone is a manager or an entrepreneur is matter of definition. A
manager setting up a company in China for an existing company in Holland can be seen as an
entrepreneur because he encounters the same problems as the entrepreneur, he has the same tasks as
an entrepreneur and in many cases the same responsibilities. There are managers or so called ‘expats’
that have the task to set up a new company in China for a large company in Europe. They have about
3 years to set up the company and then have to leave China. The interesting thing about this task is
that the failure rate is very high because 3 years is too short to successfully start up a company,
Sinova can offer the best added value in these cases. The cases with a high success rate are the
managers that have the intention to stay in China for many years or for the rest of their life and the
managers that are assisted by a Chinese manager that helps them to start up. Ms. Chan further
explains that the problems that are encountered by entrepreneurs or manager are the same but the
impact of the problem can differ depending on the size of the company.
A manager for a large company has access to a bigger financial reserve compared to an entrepreneur
or manager of a small or medium sized company. This means that for instance the application for al
the needed business licences for a large firm can be done by a well established international law firm
which is to expensive for a small or medium sized enterprise. The problem is therefore greater for a
SME compared to a large company, however it is a problem for all companies.
Boris Peters 70

-difference in problems encountered in different parts of China
In the mainland of China an entrepreneur will encounter the same problems but again they differ in
the impact they will have on the start up. In well developed economic regions like Shanghai, Beijing
or Shenzen the regulations are clear and properly enforced. Also institutional arrangements are well
established and business systems are clear. The disadvantage of well developed economic regions is
that labour, taxation and rent is far more expensive. The problems that are encountered when starting
up in less developed economic regions can have more impact. However if the company adds value to
the local economy, the local government often will help with the start up and offer all kinds of
solutions to the problems. The encountered problems while starting up in China are the same in
different parts of China but the impact differs depending also on the type of business. Ms. Chan
explains that a company that offers business services must have a location in a city and will encounter
minor problems while starting up. A manufacturing facility needs to be located in a low cost area but
it depends on the product that is manufactured if the start up will be assisted by the local government.
A manufacturing facility that is environmental friendly, high tech and offers employment to a large
quantity of Chinese, will probably be assisted by the local government.
-Difference in problems encountered by legal entities
Incomplete private property rights are for instance a problem but the severity depends on the legal
entity of the company. A joint venture with a Chinese partner has much more risk of knowledge
leaking compared to a wholly owned company in China. In most cases the foreign company possesses
the knowledge and the Chinese company possesses the distribution channels, clients and low cost
production possibilities. The chance of leaking knowledge to the Chinese partner can therefore be
very high because they want the knowledge and already have the other requirements. Having a wholly
owned company in China reduces this problem but does not eliminate because the employees, clients
and suppliers can also cause knowledge leakage.
Difficulties and solutions when starting up:
-Weak regulatory regime
Local governments are free to enforce certain regulations and it depends on the type of business and
location how or whether this enforcement will be executed. In all cases an entrepreneur should be able
to act fast on a new or altered regulation because when the regulation is enforced it is impossible to
change the decision because of the totalitarian regime.
One must understand that the economy of China is interwoven with politics. Every 5 years a party
congress is held and a 5 year plan is presented, it is possible to draw conclusions about the future
Boris Peters 71

economic guidance of the government and the plans for the economy. Furthermore press conferences
are held and local government plans are also often presented. There are also many events organized
for instance by accountancy firms, law firms and chambers of commerce. These events address
certain topics about doing business in China. Because regulations change fast, one must actively
collect information about the changes and this can be very time consuming. The advice is to attend
informational events or hire a consultant or a Chinese employee to stay updated on certain
developments. Sinova has a research team that actively searches for information for their clients.
-Newness of private enterprise
Many young Chinese employees do not have any problem working for private enterprises, they have
had education that taught them the basics of an open economy and they grew up in an economy that is
opened up for private enterprises. This is different for the older generation that did not have education
about open market economy and grew up in a totally government controlled economy. Although
China is gradually decreasing the number of state owned companies, still half of China’s workers are
employed by state owned companies. State owned companies define success in output and
employment rather than profit or value creation and therefore the employees of a state owned
company are not used to work efficiently and cost effective. According to Ms. Chan one should avoid
hiring employees that worked for a state owned company.
Ms. Chan states that one should be very cautious with cooperating with state owned companies or
partially state owned companies because their goals can differ substantially. Performing due diligence
is very important but also problematic because of limited information. Chinese lawyers can gather
information on the business licenses, number of employees and financial status of a company at the
Chinese Ministry of Foreign Trade. The Chinese banks can also supply financial information on
government controlled companies due to the fact that this information is publicly accessible. The due
diligence can be performed by Chinese lawyers or certain consultancy companies, it is impossible for
a Dutch entrepreneur to do this without help because all the information is in Chinese and widely
spread. Due to lack of time and financial reserves, many entrepreneurs do not perform a well due
diligence although it is vital for successful operation.
-Incomplete private property rights
The problem with intellectual property is not the fact that it is incomplete, the problem lies in the
amount of violations and the limited capacity of the authorities to enforce the regulation. Ms. Chan
advises that if a patent is violated it is best that the company takes matters in their own hands which
means that evidence must be gathered by the company to prepare a legal action. To collect evidence it
is possible to organize a raid but the local authorities need to support the raid, in most cases the
company should pay for the raid.
Boris Peters 72

To prevent leakage of intellectual property, knowledge should be protected by keeping strategic
knowledge outside China if possible. Employee turnover should also be minimized to prevent
employees in taking certain knowledge to the competitor. Employee turnover is very high in China
because Chinese employees choose for another job quite easily if they are offered a higher wage.
Social security does not exist in China and therefore wage is very important to the Chinese. Employee
turnover can be minimized not only by offering a relatively high wage but also by emphasizing team
spirit. Chinese are rather social people and therefore small trips to other cities or even karaoke are
very beneficial for team spirit.
Ms. Chan indicates that remarkably many companies that are operating in China simply forget to
register their company name or trademark, making it possible for Chinese companies to use the
trademark or company name especially because China has ‘first to file’ jurisdiction. Many Chinese
companies already registered trademarks, logo’s and other intellectual property of companies that are
not yet operating in China which makes it very important for companies to register in China. Because
of this problem for instance Hunter Douglas, which is a big Dutch multinational famous for their
Luxaflex products, can not use their logo in China because ‘Huang Ding Window Covering’ has
registered their logo many years ago.
-Obtaining capital
In order to become a member of the WTO in 2001, China had to cancel many restrictions that were
enforced on foreign banks. Although many restrictions are still maintained for foreign banks, it is
possible for these banks to offer more services like granting loans and opening accounts but many
services are still restricted. However obtaining capital in the form of a loan by a foreign bank is not
likely because of the high risks involved in starting up in China. Chinese state owned banks only
invest in large Chinese companies and state owned companies even if the company is not profitable.
For a Dutch entrepreneur it is therefore unlikely to obtain capital in China often the entrepreneur
already has a company in Holland to use as fund supplier.
-Diversity of local business systems in China
Before starting up in China it is advisable to map the local business environment, a consultancy firm
like Sinova can offer this service. Business licences can be applied by a Chinese lawyer. It can also be
very informative to visit the location in which the company will be started up and search for other
foreign companies. In many cases the management will be very helpful in providing information
about for instance networks, local law enforcement and competition.
Boris Peters 73

-Poorly functioning Chinese markets
As stated earlier state owned companies define success in output and employment rather than profit or
value creation and therefore the employees of a state owned company are not used to work efficiently
and cost effective. This can lead to problems when cooperating with a state owned company. It is also
possible that a state owned company has an unfair competitive advantage because of tax advantages,
financial support from the state and cheap resources like oil and electricity offered by the state.
Due to these differences in state owned companies and private owned companies certain markets are
functioning differently. A research on the local Chinese market is necessary to minimize this problem
but this can be difficult because it is not always clear if certain companies are state owned, partly state
owned or privately owned. Using the network of government officials, Chinese business people and
international business people information can be gathered regarding markets and the working of the
markets.
-Poorly developed institutional arrangements
The Chinese do not value contracts like Westerners do because the economy and therefore regulations
are changing fast. As a result contracts are also often outdated fast. When drafting a contract it is very
important to have trust in the Chinese partner because this is the basis on which Chinese do business.
When a Chinese partner is distrusted one must contemplate if it is a good idea to do business with the
partner in the first place.
All contracts must be approved by the Mofcom (Ministry of Commerce) but in most cases the
contracts are approved when the Chinese company is in the advantage. The contract can be drafted in
English and Chinese but translation can cause problems when going to court because the court only
passes judgement on the Chinese contract.
As stated earlier, foreign banks can not offer the same services as they do in other countries and
Chinese banks offer only a few services needed for doing business. Because of China‘s membership
of the WTO the foreign banks are subject to less restrictions compared to a few years ago however
most foreign banks are located in the big cities. The Chinese banks can offer slightly more services
like leasing, insurance, commercial mortgage and pension plans.
Ms. Chan states that there are many consultants in China but the quality of the offered services are
very poor because consultancy is not a protected profession and as a result anyone can adopt the title;
consultant. In many cases the lack of knowledge of the entrepreneur is misused and high fees are
asked.
Because China is still a developing economy it is not very surprising that business services are not
developed well yet. Ms. Chan indicates that consultancy fees of respectable consultancy companies
Boris Peters 74

are too high for SME’s but for these companies it is often sufficient to hire a Chinese lawyer,
accountant and base their decisions on their own research.
Many Chinese accountants and lawyers are particularly short on business skills because of lack of
experience and education. For instance; those wishing to become certified accountants in China can
only acquire the qualification at the Chinese Institute of Certified Public Accountants (CICPA). Like
other stages in the Chinese education system the emphasis in CICPA exams tends to be on
compliancy and not on giving advice to the management based on forecasting or budgeting.
Moreover there is a shortage in lawyers and accountants and especially English speaking lawyers and
accountants. The problem of poorly developed institutional arrangements is very hard to overcome
because the shortage in numbers and low business skills of the lawyers and accountants can not be
solved by the entrepreneur. According to Ms. Chan it is even more difficult for SME’s because of lack
of financial reserve. Ms. Chan advices to gather as much information as possible before going to
China for instance at the EVD (Economische Voorlichtingsdienst) and other Dutch institutions. In her
opinion many entrepreneurs do not know about the shortage of lawyers and accountants in China and
they also do not know that the business skills of the lawyers and accountants are very limited. Ms.
Chan states that many entrepreneurs do not prepare their start up well before going to China.
-Dependency on Chinese resources
Ms. Chan explains that; if information is seen as a resource, the dependency on Chinese resources
regarding information can be seen as a problem. Media and internet are government controlled in
China which means that it is not likely that all information is reliable and some information is
concealed. It is widely known in China that statistics on political stability, unemployment and income
levels are not reliable. Although it is obvious that the source of the information should be checked, Ms
Chan notices many foreign people drawing conclusions on unreliable information because they are
simply not used to the fact that the government in China controls and alters information. Information
must therefore always be checked by asking the available network of the employee for background
information.
-Additional problems and challenges
For many foreign SME’s it is difficult to serve the domestic market in China because distributors are
often limited to small areas. A company must therefore find many distributors and this is very time
consuming. Advertisement is an activity that many Chinese companies do not understand yet and
therefore finding distributors is even more difficult. Distributors can be found on the internet but
many companies are pretending to be a distributor while being a intermediary. The most reliable way
to meet distributors is through trade fairs because all information is at hand and Chinese companies
Boris Peters 75

can only participate at a trade fair if all business licences are shown. It is possible to do some due
diligence at the fair.
Solutions derived from the literature
-networking with other, non-Chinese, business people
The expat communities in China form are networks characterized by very easy accessibility and large
size. When signing up for a network sites for expats it is easy to come into contact with many
international business people. The Dutch and Belgian chamber of commerce (BENCHAM) also
organises many information seminars where mainly Dutch business people can be met.
-setting up alliance/networks with Chinese government officials
In many cases government officials do not want to form an alliance with entrepreneurs because of
conflicting interest.
-building a network with Chinese business people
Meeting other business people and companies is time consuming because associations do not exist in
China as they do in Holland. Advertisement is also very new to many Chinese companies which
means that it is often difficult to find potential Chinese partners or clients. Trade fairs are still the best
way to meet Chinese business people because, as stated earlier, it is possible to do some due
diligence, participation is only possible with business licences and it shows the dedication of the
Chinese company to cooperate with other international companies. The network of the Chinese
employees can also be very helpful in meeting Chinese business people.
Additional information
Often the network of an entrepreneur or manager is limited to knowing other internationally operating
business people except Chinese business people. The reason for this is the fact that they do not speak
Chinese so in many cases they can not communicate because many Chinese can not speak English.
The solution is therefore very simple; learn to speak Chinese!
Boris Peters 76

6.5 Schematic overview
Below a schematic overview is given derived from the case studies in order to detect whether the
entrepreneur encountered the stated problem and what solution was given.
Weak regulatory
regime
Beumer Agritech KOW Lensvelt Sinova Eastwingate
* Help from son
of local mayor
Newness to * Taiwanese
private enterprise manager
* avoid state
owned
Incomplete
property rights
companies
* Making
copycat
behaviour
unattractive
* bad
enforcement
Obtaining capital * Not needed
(Dutch mother
company)
Diversity in local
business systems
Poorly
functioning
markets
Poorly developed
institutional
arrangements
Resource
dependency
* Help from son
of local mayor
* Taiwanese
manager
* Rep office
* Local
government
support
(exchange
program)
* Competent
Chinese
employee
* Employees
age:

In many cases the entrepreneur stated that the network of non-Chinese business people, government
officials and Chinese business people could provide a solution to the problems encountered while
starting up. The schematic overview below shows how they got access to the network.
Network with
non-Chinese
business people
Network with
Chinese
government
officials
Network with
Chinese business
people
At the end of the interview the entrepreneur was asked to state an additional problem that were not
mentioned in the questionnaire but was a problem for them while starting up. The given answers are
given in the below diagram.
Additional
problems
Beumer Agritech KOW Lensvelt Sinova Eastwingate
* Local office
* Trade missions
* Expositions
* Rep office
* Network events
* Media
* Trade missions * Dutch
* Son of local mayor government
* Use Dutch events
government * Dutch political
contacts
* Local office
* Expositions
* Trade mission
* Trade fairs
* Expositions
* Rep office
* Chinese
employees
* Trade fairs
* Network events
* Trade missions
* Local vice
mayor
* Trade mission
* Trade fairs
* Chinese
employees
* Expat network
easy accessible
* Network events
* Not possible
due to conflicting
interests of
government
offcials
* Trade fairs
* Chinese
employees
* Trade fairs
* Network events
* Use Dutch
government
* Ceremonies
* Chinese
employees
* Trade fairs
* Trade missions
Beumer Agritech KOW Lensvelt Sinova Eastwingate
* Bribing * Long procedure
time
* Finding the first * finding good
competent product
Chinese employee distributors
that can help set
up the company
* employee
turnover
* Information is
not centralized
Boris Peters 78

6.6 Conclusion
Based on the diagrams in chapter 6.5 a short conclusion is given based on the case studies, in chapter
7 the solutions to the stated problems are explained more elaborately.
To overcome the problem of weak regulatory regime, four out five entrepreneurs stated that help from
the local government can overcome the problem. The two production companies located in less
economic developed areas got help from high-ranking government officials in overcoming the
problem of weak regulatory regime. Getting information in order to adapt fast to the regulatory
regime can be gathered with help of the first Chinese employee(s).
The newness to private enterprise can be overcome by hiring employees under the age of 30 years and
not hiring ex-employees from state owned companies. Hiring a Taiwanese or English speaking well-
educated Chinese manager to fulfil a bridging function between the Dutch entrepreneur and Chinese
employees is also very beneficial. Working together with an state owned company should be avoided.
Incomplete property rights seem not to be a problem for most of the entrepreneurs it seems that the
property rights are complete but badly enforced. The entrepreneurs therefore state that the need to
enforce the property rights should be prevented. In the case of intellectual property, knowledge should
be prevented to leak reducing employee turnover can be a prevention but not a solution.
Obtaining capital is not a problem encountered by the Dutch entrepreneurs because they all had a
Dutch mother company providing the capital needed to start up in China, it is however recognised that
it is very difficult to obtain capital in China.
The diversity in local business can be overcome by accepting help from the local government
according to four out of five entrepreneurs. The two production companies again stated that the high-
ranking government officials helped them in giving information about the local business system. It is
evident that an expert is needed to overcome this problem. Hiring a Taiwanese manager or English
speaking well educated Chinese manager can also help in getting the company to comply to the local
business system.
The problem of poorly functioning markets seems to be the dispersion of information. Information can
be overcome by gathering information from all networks available. The network of the Chinese
employees can also provide information about markets. The Dutch NSBO and Consulate can also
offer information about markets. The network with other non-Chinese business people can also be
used as an information source.
The problem of poorly developed institutional arrangements was in three cases overcome by the help
of the local government. Dutch institutions can be used to gain information but Dutch institutions in
China such as banks, accountants and legal expert should not be used as consultants due to their
restrictions.
Boris Peters 79

Four out of five entrepreneurs do not consider resource dependency a problem. Two entrepreneurs
indicate that it is the dependence on the Chinese infrastructure is the problem in gaining access to
resources. Two entrepreneurs state that the resource dependency is the same for all competitors in the
Chinese market making the problem not a particular problem for Dutch entrepreneurs. One
entrepreneur states that, if information is regarded as a resource, that information should always be
checked with available networks because information is often unreliable.
Having a network with non-Chinese business people, Chinese government officials and Chinese
business people was stated as being the solution to all of the listed problems encountered by the Dutch
entrepreneurs except for the problem of newness to private enterprise. Therefore the entrepreneurs
were asked how they build up the network or gained access to these networks.
Gaining access to a network with non-Chinese business people can be done at trade missions and
network events. Having a representative office or other physical presence in China seems to be
beneficial. Trade fairs are also helpful in gaining access to a network with non-Chinese business
people.
Gaining access or building up a network with government officials is regarded as difficult but
possible. In less developed areas it is easy to form an alliance with high-ranking government officials.
Dutch government officials seem to attract Chinese government officials making it easier to form an
alliance. The owner of Sinova states that it is impossible to form an alliance with government officials
due to conflicting interests. Other cases seem to contradict her statement. This explains why Sinova
did not stated ‘having a network with government officials’ as a solution to the listed problems.
A network with Chinese business people can be build up at trade fairs and expositions. Having a local
presence can offer an advantage because the Chinese employee(s) can also give access to Chinese
business people.
Boris Peters 80

7 Solutions to the Problems Encountered by entrepreneurs
It is evident that the main solution to the listed problems encountered by the entrepreneurs is to build
up social networks.
Because all Dutch entrepreneurs recognize the importance of building up a network, it is therefore
very easy to build up a network with other non-Chinese business people. The Dutch government,
companies and social clubs organize many networking events. Business cards are exchanged more
easily because everyone harvests as many contacts as possible. It is not unusual to leave a social event
with a big stack of business cards.
Trading missions make it possible to make new contacts but building up a social network is time
consuming therefore it is very beneficial to have a local presence in the form of a representative
office.
Trade missions are often used as a vehicle to meet Chinese government officials. Dutch government
officials always attend trade missions to China because it seems that Chinese government officials are
attracted to Dutch government officials. The Chinese have a deep-rooted respect for the government
due to the former totalitarian regime and contemporary interference of the Chinese government in
their everyday life. It is very helpful to use Dutch government officials to contact Chinese government
officials.
It much easier to come into contact with high-ranking Chinese government officials in less economic
developed areas because the Dutch company can bring employment to the region and stimulate the
local economy. If the company is also high tech and environmental friendly, it can be the case that the
entrepreneur is assisted in setting up his company because the local Chinese government and Dutch
entrepreneur have the same objectives. The existence of the Dutch company is often protected
because the company can serve as a showcase for other international investors. All the listed problems
are reduced or solved if the local Chinese government actively supports the Dutch entrepreneur by
supplying information, help negotiate with other parties and arrange needed licenses and procedures
to start up. In one case the entrepreneur could even use the local government office as his office
showing the devotion of the local government to help set up the company.
To build up a network with Chinese business people is difficult for the entrepreneur if he does not
speak the Chinese language. It is also very time consuming as the Chinese lay a lot of emphasis on
building up a contact. Hiring a competent experienced English speaking Chinese employee can help
the entrepreneur to make contact with other business people because Chinese, similar to all other
people in the world, make easier contact with the same language and background.
Boris Peters 81

The Chinese employee can also help set up the company and help in hiring the first employees. In
three cases used in this thesis this competent Chinese came from within the network of the
entrepreneur. In one case a Taiwanese employee was hired because educated Taiwanese speak
Chinese and English, are used to trade with China and the West, which means that they know how to
deal with both cultures and they are used to capitalism as Taiwan has a capitalist market economy.
Hiring an employee in China is only possible if one has a local presence in China further stressing the
need for starting up a representative office prior to the start up of a company in China.
It is recommended only to hire employees under the age of 30 years old because these young Chinese
had good education and grew up with the understandings of capitalism. It is not recommended to hire
ex employees of state owned companies as they have difficulties to understand the workings of a
private enterprise. Working together with government enterprises should also be avoided for the same
reason.
According to all entrepreneurs interviewed for this thesis, visiting trade shows is the best way to gain
access to a network of Chinese business people. Daily there are a huge amount of trade shows held in
China, indicating a preference of the Chinese to use trade shows to make new contacts and gain
information. This is not surprising because as stated earlier; information is dispersed and unreliable.
The Chinese government only approves a trade fair if al the participants have a business license,
making a participant of a trade fair more reliable. Again using a Chinese employee to make contacts
at the trade fair is recommended.
Boris Peters 82

8 Conclusion and Recommendations
8.1 Conclusion
It is confirmed by the empirical results that the main solution to many problems encountered in China
while starting up is to build up social networks (Ducket, 2004; Krug, 2007; Oi, 1996; Krug and
Hendrischke, 2006). Although I could not identify substantial number of other solutions to the
mentioned problems, I was able to provide further insights into the solutions mentioned by the
internationalization literature. I rejected ‘incomplete private property rights’, ‘obtaining capital’ and
‘resource dependency’ as being a problem while starting up in China.
Hiring a competent, well educated, English speaking Chinese or Taiwanese employee seems to play
an important role in helping the entrepreneur to start up the company by acquiring needed
information, applying for business licenses, establishing contacts, hiring the first employees and
gaining access to Chinese networks. Remarkably three out of five of the respondents had help from
this kind of employee and the employee was found within the network of non-Chinese business
people. The other two respondents mentioned the importance of hiring such an employee. From now
on I will refer to the competent, high educated, English speaking Chinese or Taiwanese as; the first
employee.
In order to hire a Chinese employee the company is obliged to have a local presence confirming the
advantage of having a local presence such as a representative office mentioned in the
internationalization literature (Bjorkman and Kock, 1995; Gold er al., 2002).
Hiring a ‘first employee’ can be beneficial in gathering information about the regulative regime at the
country level in order to act fast upon changing regulations. The ‘first employee’ can also help solve
the problem of ‘the diversity in local business systems’ by making the company compliant to the
regulations of the local business system.
Hiring employees under the age of 30 years old and avoid hiring ex-government employees or
employees of state owned companies can solve the problem of newness to private enterprise regarding
employees. The ‘first employee’ can also be very helpful in overcoming the problem of newness to
private enterprise by help selecting new employees, buyers, suppliers and business partners.
Working together with state owned companies should be avoided due to the fact that state owned
companies define success in output and employment rather than profit or value creation and therefore
the employees of a state owned company are not used to work efficiently and cost effective.
Boris Peters 83

A network of Chinese government officials can help solve the problems of ‘a weak regulatory
regime’, ‘diversity in local business systems’, ‘poorly functioning markets’ and ‘poorly developed
institutional arrangements’. The network of local Chinese government officials seems to be the most
helpful in comparison to all other networks. Although Chinese government officials can easily be
contacted at trade missions and with the help of Dutch government officials, it is regarded as difficult
to build up a network with the officials. It seems that local Chinese government officials are only
willing to form a network with the Dutch entrepreneur and help the entrepreneur to start up if the
start-up can stimulate the local economy, brings employment to the region, is high-tech and is
environmental friendly, or at least meets one of the criteria.
This implies that locality is an important factor for gaining access to a network of government
officials.
The dispersion and unreliability of information seems to be the main reason for ‘the problem of
poorly functioning markets’. Although obvious, gathering information from all available networks
seems to be the solution to this problem.
Gathering information as a whole is difficult as information is often ‘intangible’ and stored within the
Chinese networks. The Chinese network can offer valuable information about local business systems,
regulations, and markets but are difficult to access by Dutch entrepreneurs because of language
problems and due to the fact that a Chinese social network is often based on similar backgrounds.
Again the help of the ‘first employee’ can make access to Chinese networks possible.
Meeting Chinese business people in order to form a network seems rather easy when attending trade
fairs, confirming the importance of trade fairs mentioned in the literature (Ellis, 2000). As stated
earlier information is dispersed and often unreliable, making trade fairs a valuable source of
information due to the fact that the Chinese government only approves a trade fair if all the
participants have a business license . This explains the popularity and the enormous amount of trade
fairs organized in China.
It is striking that although the non-Chinese network can be valuable in finding ‘the first employee’ it
is not used by the Dutch entrepreneurs to solve any of the mentioned problems.
Boris Peters 84

8.2 Limitations
I am aware of the fact that by not including the influence of culture I could have potentially left out an
important effect on the mentioned problems. But due to the limited time available to write the thesis I
could not include the role of culture in my thesis. Moreover, during my research I was surprised about
the misuse of cultural differences to explain encountered problems. A good example is the
explanation used by many people that the bad enforcement of regulation is the result of the Chinese
wanting to make more money because money is important in their culture. I am more willing to
believe that the bad enforcement of regulation is the result of the fast changing economy and the
government not being able to keep up.
Regardless whether the company was providing a service or producing a product I selected the cases
for my research. I had to make this decision due to the limited time I stayed in China and wanting to
prevent data shortage. Although I am aware that this could have distorted my findings I believe that
the problems encountered while starting up are the same due to the fact that the company is not
producing or providing the service yet. Not being selective turned out to be an advantage because this
lead to the results that location is of great influence in order to establish a social network with local
Chinese government officials. Production companies are often situated in less economic developed
areas in order to achieve cost advantages. The local government officials in these regions are more
willing to form a network in order help set up the company and thus stimulate the local economy.
The entrepreneurs did not consider incomplete property rights a problem but the enforcement and
protection of the property rights is considered a problem. This indicates that I could have more
valuable results when I used the term: ‘enforcement and protection of private property’ as a problem
while starting up in China. It is however interesting that some entrepreneurs understood my mistake
and gave a solution. They stated that the only solution to this problem is to prevent knowledge
leakage by keeping knowledge dispersed. One entrepreneur stated that employee turnover should be
kept to a minimum in order to reduce the chance of knowledge leaking. One of the entrepreneurs also
stated that the high employee turnover rate in China is also an additional problem indicating an
interesting topic for further research.
Obtaining capital in China is recognized as a problem when starting up in China it is probably only a
problem for Chinese entrepreneurs as Dutch entrepreneurs obtain capital in Holland and not in China.
The interviewed Dutch entrepreneurs are all supported by a Dutch mother company supplying needed
capital. Selecting Dutch entrepreneurs starting up in China without the support of a mother company
could have provided insight into this problem.
Boris Peters 85

The Dutch entrepreneurs do not see resource dependency as a problem as this is a problem for all
actors in the Chinese market. The infrastructure such as roads, electricity networks and the internet are
needed to gain access to the resources. The infrastructure is seen as a problem because that is often
government controlled or badly maintained which implies that this can form a problem to some
entrepreneurs, also indicating a mistake in the formulation of problems encountered while starting up.
While doing research I discovered many more flaws in my approach, which I was unable to correct.
The mentioned problems often overlap which means that I was unable to provide a single solution to a
single problem. I did not include companies that failed to set up a company in China in order to verify
if the solutions are really the key to success. I did not find an indication but it could be possible that
the problems encountered while setting up can also be dependent on the industry in which the
company operates. While writing my literature study I even questioned whether the use of network is
unique to China.
Although I am well aware of the limitations of my study I can state that the learning experience of
living and working in China in combination with doing this research is tremendous and if possible I
would do it all over again in a heartbeat.
Boris Peters 86

8.3 Managerial implications
For my own amusement I made a 10 step plan which can greatly improve the success when wanting
to start up a company in China:
1. Only continue to the next step if you have already a healthy Dutch company.
2. Go to meetings for entrepreneurs wanting to start up organized by the Dutch government and
other institutions.
3. Ask other entrepreneurs if they have a contact who can help you with finding a suitable
Chinese employee to help set up the company in China and hire him.
4. Look for a location in China where the company can offer added value to the region.
5. Invite Dutch government officials to attend your business trip.
6. Use your Chinese employee and the Dutch government officials to come into contact with the
Chinese government officials.
7. Make sure you are supported bu the local Chinese government while starting up.
8. With help of your Chinese employee hire other Chinese employees who are younger that 30
years old and never worked for a government owned company or the government.
9. Reduce employee turnover by organizing many social events.
10. Visit many trade fairs together with your Chinese employees to gather information and new
contacts.
Boris Peters 87

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10 Appendixes
10.1 Questionnaire for interviews with entrepreneurs
1. Company
• What are activities of the company?
• Is the company only located in China? (If not, which countries?; Head office?)
• What is the entity of the company? (Why this choice?)
• How many employees does the company have? (How many Chinese employees?)
• Does the company serve the Chinese market?
2. Entrepreneur
• How did you start as an entrepreneur?
• Why did you choose China as a location for the company?
• What are your goals in China?
• How did you start up the company / which steps did you take?
• Do you think there is a difference in the type of problems encountered when a manager starts up
a new venture in China for an existing company compared with an entrepreneur starting up a
company in China?
3. Problems / Challenges when starting up the company
Do/Did you have any problems or challenges;
• Because of a weak regulatory regime?
Due to the newness of private enterprise for Chinese employees/business partners?
• Due to the incomplete private property rights in China?
• With obtaining capital in China?
• Due the diversity of local business systems in China?
• Due to poorly functioning Chinese markets?
• Due to poorly developed institutional arrangements?
• With the dependency on Chinese resources?
• That are additional to the mentioned problems and challenges?
4. Solutions of the entrepreneur
• How did you solve the mentioned problems and challenges? (if there were any)
• What would you do differently in starting up in China knowing what you know now?
5. Solutions in the literature
• How did you start networking with other, non Chinese, business people?
• How did you start business networking (Guanxi) with other Chinese business people?
• How did you form alliances with government officials?
6. Tips
• Do you have tips or additional information for entrepreneurs that want to start-up their business in
China?
Boris Peters 95

10.2 Questionnaire for interviews with service providers (accountants, lawyers, consultants and
governmental institutions)
1. Company / institution
• What are activities of the company/institution?
• Does the company / institution serve the Chinese / foreign market?
2. The interviewee
• What is your function?
• What is your background?
3. Entrepreneurs starting in China
• Do you think there is a difference in the type of problems encountered when a manager starts
up a new venture in China for an existing company compared with an entrepreneur starting up a
company in China?
• Is there a difference in the problems encountered in different parts of China?
• Is there a difference in the encountered problems when starting as a JV, WOEFIE, Rep.
Office, etc?
4. What can an entrepreneur do to solve the following problems / challenges?
• Newness of private enterprise for Chinese employees/business partners?
• Incomplete private property rights in China?
• Obtaining capital in China?
• Diversity of local business systems in China?
• Poorly functioning Chinese markets?
• Poorly developed institutional arrangements?
• Dependency on Chinese resources?
• Are there additional to the mentioned problems and challenges?
5. Solutions in the literature
• How can an entrepreneur start networking with other, non Chinese, business people?
• How can an entrepreneur start business networking (Guanxi) with other Chinese business
people?
• How can an entrepreneur start form alliances with government officials?
6. Tips
• Do you have tips or additional information for entrepreneurs that want to start-up their
business in China?
Boris Peters 96

11 People that attributed to the thesis
I express my deepest thanks to the following people who attributed to my thesis by giving their time
and effort.
Derek Swan, Project Coordinator, Sip Project Management
Bart Berende, Marketing Executive, SIP Project Management
Marco Hoekstra, Vice President Asia Partner, Talent & Pro
Griet A.A. Hautekeete, Manager, Deloitte
Matteo Coradini, Director Italian Desk, Deloitte
Zach I. Lichtblau, Lawyer, Holthuis International Lawyers
Choy Yiu Chan, Lawyer, Holthuis International Lawyers
Abram Bruijs, Chief Representative, Promolding
Annemarieke Beekman, Operations Manager, Randstad
Tina Chen, Chief Representative, Science Alliance
Olivier Dubois, Manager Business Advisory, Sinova
Karolien Verhaert, Event & Marketing Manager, Benelux Chamber of Commerce
Maarten Roos, Senior Consultant, Wang Jing & Co. Law Firm
Hugo Muller, Lawyer, HIL International Lawyers & Advisers
Jan van Weijen, Consul, Consulate General of the Kingdom of the Netherlands
Eric Verwaal, Consul-General, Consulate General of the Kingdom of the Netherlands
Siem Bierman, Assistant Manager, DTZ
Onno Schreurs, General Manager, The Collection
Mascha ten Bruggencate, Head of Commercial Banking, Fortis
Emile Mac Gillavry, Managing Director, Maximum
Chunyang Shao, Attorney at Law, Jun He Law Offices
Hans Lensvelt, Founder, Lensvelt
Ron de Goeij, Director, KOW
Jennifer Chan, Managing Director, Sinova
Rienk Hamstra, Owner, Beumer Agritech
Ari van der Steenhoven, Director, Eastwingate
Boris Peters 97