China Sales

What do a bank, an insurance provider, a paper products company, and the New England Patriots have in common? Like businesses of all sizes in all kinds of industries in Massachusetts and nationwide, all must figure out and execute a "China strategy."

For this year's Globe 100 executive roundtable, three leading Massachusetts business leaders talked about the opportunities -- and hurdles -- for companies tapping into the $240 billion and growing annual US trade with China: Lawrence K. Fish , chairman of Citizens Financial Group Inc., which in January began offering a US-China money transfer service that sends confirmations to Chinese cellphones; Edmund F. "Ted" Kelly , chief executive of Liberty Mutual Group Inc. , whose international unit entered China in 1996 and wrote its first automobile policy two years ago in Chongqing, where Kelly serves on the city development board; and Jonathan Kraft , president and chief operating officer of Kraft Group, whose holdings include International Forest Products Inc., a big exporter to China; and the New England Patriots, which hope to play in the first National Football League "China Bowl" exhibition game in 2009.

Edited excerpts of their conversation with Globe 100 contributing editor Peter J. Howe follow:

GLOBE 100: Let's start with a quick update on what you're doing in China and why.

KELLY: A company can't view itself as international without having a China strategy. It's going to be one of the major economies of the world. It's only from 1945 to probably 1995 that the Chinese weren't entrepreneurial. The culture of China, the history of China, is entrepreneurism.

What's been released over there has been a remarkable pent-up desire to do business. As the Communist regime showed, you can't build true commerce without freedom.

There's no better expression of free markets than an affluent middle class, and there's nothing more middle class than insurance. Exaggerating a little, the rich don't really need it. The poor don't need it. For the middle class, the fundamental concept is similar to here: I bought a car. I can't afford to have it wrecked.

FISH: Our strategy is to be the bank of choice for middle-market companies doing business in China or wanting to do business in China, and to be the bank of choice for Chinese nationals and Chinese-Americans who are remitting money or receiving money from China.

We're focused as much on helping our customers export to China as we are on helping them establish businesses there. We sense the tide is turning, as it did 20 or 25 years ago with Japan, where there will be ever-greater pressure on China to import.

KRAFT: At International Forest Products, we began doing business in China in the early 1990s. We import into China approximately $100 million of product every year.

The makeup has changed dramatically, from finished product to almost entirely raw materials so they can do the value-added processing in their country.

At the Patriots, with the NFL we have had a conscious effort over the last 10 or 15 years to make our product more global. We want the people in China as they discover professional football, and hopefully fall in love with it, to adopt the Patriots as their team.

GLOBE 100: How well does something as quintessentially American as football translate into and resonate with Chinese culture?

KRAFT: All the strategizing and planning. Sun Tzu and The Art of War is obviously a masterpiece over there. And if you walk through the halls of our football office, [head coach] Bill [Belichick] has Sun Tzu quotes up on the wall.

Back in 2004, we were learning from Chinese students in this country that as they learned the game of football, they liked it. We had a couple of students at MIT ask us for internships.

So we launched a Chinese website in 2004 in Mandarin, to develop a Chinese-speaking fan base, patriots.com.cn.

The league has done a lot of study, and the combination of the strategy and the physicality of the game, culturally, really appeals to the Chinese. The idea of these players as larger-than-life figures and celebrities, they want to learn more.

The issue is figuring out a way to translate the detailed rules. We really populate our Chinese website with lots of definitions and scenarios playing out.

GLOBE 100: What are the biggest challenges businesses face in China these days?

FISH: We did a survey of 100 middle-market business customers across our footprint in the fall.

Fifty-five percent are already operating in China, another 12 percent are planning to, and 70 percent -- 70 percent! -- had traveled to China more than three times in the last three years. They tell us that the challenges are cultural differences, language barriers, government regulation and control, currency valuation, and intellectual-property protection. Where they need the most help, they tell us, are in local contacts and in-country banking.

KRAFT: If you're setting up a sales or marketing office, you can have what's called a "representation office" and that office can't invoice, can't purchase raw materials, can only have a foreign national as its head. If you want to employ people in your office, you have to hire the people through a government-regulated labor agency.

KELLY: One of the thing s that's changed dramatically is China's accumulated $1 trillion in foreign exchange. They have the money to say, "You can't push us around." They're still very subtly protectionist. Letters that used to be answered in three weeks are now getting answered in three months.

FISH: But some businesses will do better than others. Some companies do it in a month, and some companies do it in four months, because it's a high-touch society, with rules but not laws. Jonathan described what it's like to open an office there -- not for everybody.

Some people know somebody who knows somebody. Knowing people to help you work with that system is very critical to being successful in China. You have to invest in the relationships. You can't pop in to China once a year for three days. They want to have a relationship before they do business. This can be, for Westerners, especially Americans, excruciatingly difficult. The meals take a long time. You don't know what you're eating. Everything is translated, and that makes it take even longer.

KRAFT: My brother, Dan, who runs International Forest Products, for the last decade has basically made four trips a year, a week at a time. It gives us business opportunities that other companies couldn't just walk in and take.

The relationship is much harder to displace than it would be in this country.

GLOBE 100: How about Larry's fascinating "rules, not laws" description?

KELLY: The Chinese way of doing things is to say no, but if you can figure out how to do it and not embarrass them or yourself, to let you do it. I'm overstating the case. But they are very pragmatic, very, very pragmatic.

For years, our interpreter was the chief interpreter for the Communist Party. He knows his way around. We used to joke he would translate not what you said, but what you should have said.

GLOBE 100: And, finally, many analysts worry that major conflict is inevitable in this century between the United States and a proud, fast-growing China. Can we avoid a crisis with China?

FISH: I'm optimistic that relationships between China and the West will work their way out to everyone's satisfaction. Interdependences have reached a point where that practicality of China makes it almost inevitable that we'll figure out how to resolve things. I just think everybody will recognize how self-interested it is for these relationships to continue to be stable.

KELLY: We have got to learn how as a country to resolve issues -- and I think North Korea is a good example that seems to be moving in the right direction -- by treating China as a coequal and not as someone that we can in any way dictate to.

China is rapidly becoming a major, sophisticated nation, both in economic and geopolitical terms. We have to recognize that.

KRAFT: Economic interdependence, as my father taught me from a young age, solves a lot of problems.