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Market Entry and Survival Strategies

11 Market Entry and Survival Strategies

A. Sectors Open to Foreign Investment and Entry Methods

B. How to Apply to Set Up a Distribution Business in the Chinese Mainland

C. How to Enter the Chinese Mainland Market

D. Problems and Solutions

E. Potential Risks

A. Sectors Open to Foreign Investment and Entry Methods

The publishing markets in the four regions of China (the Chinese mainland, Taiwan, Hong Kong, and Macau) vary in their openness to foreign investment.

In the Chinese mainland, the publishing industry is generally divided into three sectors. The first sector focuses on content editing (also called “publishing” in a narrow sense). The second specializes in printing, with the last sector covering distribution (including both wholesale and retail). The Chinese mainland has adopted a policy to gradually open the publishing industry.

According to Chinese law, the publishing industry sectors open to foreign investment are printing and distribution only. The publishing or content editing sector has not yet been totally opened. Only a few joint ventures or cooperation projects with special permission are allowed to operate and these include New Concept English, a product of Sino-foreign cooperation, and Computer World and Mickey Mouse, published by joint-venture publishers. Most of such operations serve as trials for the purpose of accumulating experience for the future promotion of such practices. Nevertheless, in the first sector there is no restriction on copyright cooperation and publishing planning.

The printing sector was the earliest to be opened to foreigners. According to Chinese law, foreign companies can conduct their business, through independent investment, joint ventures, and cooperation programs.

With the Chinese mainland’s entry into the WTO, the distribution sector was also opened to foreign companies. In this area, the Chinese government has made the following pledges:

For the distribution of books, newspapers and magazines, the Chinese government gave the assurance that by December 11, 2003, all provincial capital cities, Chongqing, and Ningbo will be opened and foreign investment will be allowed in retail companies. Before December 11, 2004, all restrictions on foreign investment will be removed, with regards to access, location, investment amount, status of shareholding, and the company structure. The only restriction is on foreign shareholding in chain bookstores and until December 11, 2006, foreign investment may not control a chain bookstore with more than 30 outlets.

The Chinese government also assured that foreign businesses are allowed to establish cooperation with Chinese partners and engage in the distribution of the audio-video products and entertainment software, on the condition of recognizing Chinese authority in censoring the content of these products.

The government has adhered strictly to all of these commitments

In order to implement these reforms, the General Administration of Press and Publication (GAPP) and the Ministry of Commerce (once known as the Ministry of Foreign Trade and Economic Cooperation) jointly promulgated The Measures on Management of the Foreign Invested Business in Book, Newspaper, and Periodical Distribution, which came into effect on May 1, 2003.

Under these new measures, after May 1, 2003 the Chinese mainland allowed the establishment of foreign retail companies for books, newspapers, and periodicals. After December 1, 2004, the Chinese mainland will allow the establishment of foreign-invested wholesale companies for books, newspapers, and periodicals.

The Measures stipulated detailed regulations for foreign participation in the Chinese mainland’s distribution market. For instance, “distribution” refers to both retail and wholesale. “The books, newspapers, and periodicals distributed by the company” refers to the books, newspapers and periodicals published by authorized publishers and only limited liability and incorporated companies are allowed with the duration of operation limited to 30 years.

Compared to the Chinese mainland, Taiwan, Hong Kong, and Macau are more open and in all three regions, foreign companies are allowed to invest in all areas of publishing, printing, and distribution. Because of geographic and population factors, foreign investment has shown more interest in Taiwan and Hong Kong. Of the two, the latter’s market is the more open one where foreigners can do business just as locals do.

B. How to Apply to Set Up a Distribution Business in the Chinese Mainland

1.Applicant’s Qualification

To establish a distribution business in the Chinese mainland, the applicant should meet the following criteria:

a. The applicant must be independently responsible for civil liability, possesses the capability to do business in the distribution of books, newspapers, and periodicals, and shall have no record of violating any rules and laws in the last three years.

b. The legal representative or the general manager shall have a Publication Distributor Certificate above the intermediate level, and the distributors shall have a Publication Distributor Certificate of or above the elementary level.

c. To set up a retail company, registered capital shall not be less than RMB5 million (US$602,410), and the applicant must have a suitable fixed business location.

d. To set up a wholesale company, the applicant should have a suitable fixed business location, with a size of no less than 50 square meters, or no less than 500 square meters if the place is independently established, and registered capital shall not be less than RMB30 million (US$3.61 million).

2. Application Procedure

There are only a few steps in the process:

a. Submit the application to the provincial administrative department of press and publication (generally known as the Bureau of Press and Publication) in the province where the company is located.

b. After obtaining permission, submit required documents to the provincial administrative department of commerce (generally known as the Committee of Foreign Trade and Economic Cooperation) to apply for a Certificate of Approval for Foreign-Invested Company.

c. After obtaining the approval certificate, submit required documents to the provincial administrative department of press and publications to apply for a Publication Business Permit.

d. Next, submit the Publication Business Permit and the Certificate of Approval for Foreign-Invested Company to the local administrative department of industry and commerce to obtain a business license.

3. Time and Documentation Requirements

Chinese government departments in charge of applications must reply within 90 working days after the application is submitted. Within 90 days after receiving the Publication Business Permit and the Certificate of Approval for Foreign-Invested Company, the applicant must go to the provincial administrative department of press and publication to obtain a Publication Business Permit.

When submitting the application, the applicant must submit all required documents.

When the applicant first submits the application to the provincial administrative department of press and publication, the required documents include:

a. Application for the establishment of foreign-invested distribution company for books, newspapers, and periodicals.

b. Project proposal and feasibility research report that is recognized by all investors, and signed by the legal representatives or general managers of all parties.

The project proposal should include the following contents:

i) Titles and addresses of all investing parties.

ii) Title, legal representative, address, commercial scope, registered capital, and total investment of the proposed foreign distribution business for books, newspapers, and periodicals.

iii) Form and amount of investment of all investors.

c. Business licenses or registered certificates, financial credentials of all investing parties, and valid identification documents and professional certificates of the legal representatives.

d. If the Chinese party of a Sino-foreign joint venture or a Sino-foreign cooperation has a stake in state-owned assets, it shall submit an evaluation report on these assets and a document (or record) recognizing the conclusion of the evaluation report.

C. How to Enter the Chinese Mainland Market

A company should engage in preparatory work in order to start a business in the Chinese mainland. This should begin with at least the following preparations:

1. Knowing the Chinese Mainland’s Laws

First, a knowledge of the related laws and regulations governing the publishing industry sector into which the investor plans to enter is required.

Foreign companies generally shall abide by two kinds of laws and regulations. One governs the trade and industry that the foreign company is engaged in, and the other regulates foreign investment. The most important law in the publishing industry is The Regulations on Publication Management, promulgated by the State Council, while other important ones include The Regulations on Audio-Video Publication Management, The Regulations on Management of the Printing Industry, The Regulations on Management of the Publication Market, and The Preparatory Measures on Choosing Important Topics of Books, Periodicals, Audio-Video Products and Electronic Publications. (Refer to Appendix 1.)

The most important laws and regulations governing foreign investment are The Measures on Management of Foreign Invested Businesses in Book, Newspaper and Periodical Distribution, The Provisional Regulations for Establishing Foreign-InvestedPrinting Enterprises, and The Rules on Management of Sino-Foreign Cooperative Distribution Enterprises for Audio-Video Products. In addition, the investor should know related laws and regulations governing the chosen business form. For instance, if the investor chooses to establish a joint venture, it should review The Law of the People’s Republic of China on Sino-Foreign Joint Ventures. If the investor chooses to have cooperative operations, it should review The Law of the People’s Republic of China on Sino-Foreign Cooperation; and if it chooses to establish an independent company, it should know The Law of the People’s Republic of China on Foreign Enterprises.

Moreover, some other laws and regulations also should be reviewed, such as The Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, The Provisional Regulations of the People’s Republic of China on Business Tax, and The Decision of the Standing Committee of the National People’s Congress Regarding the Application of Provisional Regulations on Taxes such as Value-Added Tax, Consumption Tax and Business Tax to Enterprises with Foreign Investment and Foreign Enterprises.

2. Learning Trade Realities and Business Practises

There are similarities and differences between the publishing industry in the Chinese mainland and the publishing industries of Europe and the U.S., and the investor must know these before entering the market.

For instance, when promoting trade books, many Chinese publishing houses such as the China Writers Publishing House, Jieli Publishing House, CITIC Publishing House, Changjiang Literature and Art Publishing House, Foreign Language Teaching and Research Press have adopted similar promotion methods to those used by European and American publishers. These Chinese publishing houses have strong promotion capabilities similar to their European and American counterparts. The difference is that such publishing houses are not common and except for a few outstanding publishers, the majority are unable to promote their publications effectively.

Some special features and practices exist in the publishing, printing, and distribution sectors in the Chinese mainland. For example, in most cases, authors receive payment in the form of a basic remuneration plus payment based on number of copies printed. The rate of remuneration is generally negotiated by the concerned parties, and if the publisher and author have not signed a publishing contract or signed a contract without specific agreement regarding the rate of remuneration, the remuneration shall be paid in accordance with the rates stated by the The Regulations on Remuneration for Publishing Wordage Works promulgated by the National Copyright Administration. Also, the author can be paid royalties which start within several months after publication of the work. Only a few authors of popular works are able to obtain royalties upon signing of the contract.

As for distribution of books and periodicals, most books sold in bookstores are provided by publishers who will receive payment only after the bookstores have sold the books. Magazines are mostly distributed by the Post Office which controls subscriber lists and usually will not provide this information to magazine publishers.

In controlling book quality, the Chinese mainland has its own standards for proofreading, layout design and printing quality, and a publication that is unable to meet the standards will be banned from market distribution. A main standard for book quality is error ratio. The book is banned if the error ratio is more than 1 per 10,000 words.

3. Searching for the Right Agent or Partner

A partner is very important when doing business in the Chinese mainland. Having the right partner is half the battle won. Good partners may be different in many ways, but at the least they must be vigorous in implementing contracts, have the knowhow to explore markets and be sincere in achieving a win-win situation. As publishing is a cultural enterprise, it is best to have a partner with high standards of cultural appreciation.

How does one find the right partner? There are several methods:

1) Consult research organizations and consulting services such as the Chinese Institute of Publishing Science, Beijing OpenBook Market Consulting Center, and Beijing Hui Cong Media Research Center, or consult various publishing companies and copyright agents;

2) Consult trade organizations such as The Publishers Association of China or the China Periodicals Association;

3) Obtain information through related printed media such as the China Book Business Report or the China Press and Publishing Journal;

4) Consult publishers and scholars to get their recommendations;

5) Consult government organizations for information on book and periodical publication and distribution, consult the Books and Publications Administration Department, the Newspaper and Periodicals Publication Administration Department, and the Publication Issuance Administration Department of GAPP. Consult provincial bureaus of press and publication.

When collecting information on partners, the investor should consult at least two organizations or experts in order to get the most accurate and complete information available.

Currently many foreign companies have established branches or offices in the Chinese mainland. Some of them have had impressive progress, while others fail to achieve their original expectations even though they have been operating for a long time. An important cause could be their choice of partners.

D. Problems and Solutions

There are undoubtedly many difficulties and problems in doing business in the Chinese mainland. Typical problems that might occur with the Chinese partner include the fact that there are breaches of contract or little feedbacks and reluctance to inform foreign partners when problems occur.

Many factors lead to these problems, of which three are prominent. First, the Chinese partner lacks professionalism in fulfilling the terms of the contract. Second, the Chinese partner lacks understanding of the cooperation and thinks his responsibility is over after paying royalties for the first print. Third, the Chinese partner lacks strong capacity to explore the market. For instance, after publishing the first print of a book with an imported copyright, the Chinese partner turns to something else without further efforts to expand the sales for the book, even though potential may exist. In fact, because of the lack of strong capacity for market exploration, many Chinese publishers make the same mistake with local books.

How can one avoid these problems and difficulties? How can one handle them if they do occur? The following are some suggestions:

1. How to Avoid a Breach of Contract?

When having less than full knowledge about the partner, the investor should first adopt some protective measures to avoid losses in the case of a breach of contract, such as demanding a deposit or stipulating compensation in case of contract breach. Both measures are allowed by Chinese law. Also, if the Chinese partner is authorized to publish a work, the foreign party may require the Chinese partner to print the book at an appointed printing factory in order to prevent the Chinese partner from printing more copies than agreed upon.

When the Chinese partner obtains the copyright from overseas, the foreign party can also request the Chinese publishing house to buy permanent translation rights instead of limited usage rights. Without the former, the Chinese publisher might face difficulties if the original translator does not agree with the continuous publication of the translated book.

2. How Should One Deal with a Breach of Contract?

First, be fully aware of what happened and request explanations from the Chinese party involved. If the Chinese party neglects the contract, then the foreign party must directly remind them to carry out what was agreed on as soon as possible. Many Chinese partners pay attention only to important parts of the contract and neglect certain details. For instance, some publishers honor the agreements on the amount of royalties and when the payment shall be made, but neglect when sample books should be sent and thus they pay royalties on time but are late in sending out the samples. Many foreign publishers have encountered this problem. In such cases, the foreign party must make it clear to the Chinese party that this will be considered as breach of contract and force the Chinese party to bear due liability if the samples cannot be delivered on time.

If the Chinese partner intentionally breaks the contract, then the foreign party should explicitly point out that they shall face serious penalties.

In accordance with laws such as The General Principles of Civil Law of the People’s Republic of China and The Contract Law of the People’s Republic of China, any party who fails to perform its contractual obligations, or performs them at variance with the agreed conditions in the contract, shall bear civil liabilities, including carrying out the contract and making compensation for damages.

In dealing with a breach of contract or disputes, the involved parties can resort to the court for arbitration and can also solve the problems through mediation.

3. How to View the Piracy Issue?

No one can deny that piracy exists in the Chinese mainland and it is very serious in some areas. How did such a situation arise? There are four main reasons:

First, there was no copyright law for more than 40 years between 1949 and 1991. Therefore, people have not developed a strong sense of copyright protection, especially many people in rural areas who do not regard piracy as a crime.

Second, the law on copyright protection is not completely developed. For instance, in 1991 when the copyright law was first enacted, the infringer only bore civil liabilities instead of criminal liabilities, which were added in 1994 and the penalty was imprisonment for less than 7 years. Further improvements are needed on the regulations such as guidelines to calculate compensation for damages and how to determine the liabilities that the producer and distributor of the pirated products should bear. The incompleteness of the related regulations has led to ineffectiveness in punishing those guilty of piracy.

Third, it is difficult to collect evidence of piracy in such a large country. Some copyright owners are reluctant to search for evidence, and without the copyright owner’s reports, it is difficult for the law enforcement agencies to find evidence of piracy.

Fourth, new technology makes it easy to produce pirated works and make lucrative gains. This lures many people to take risks.

Piracy is a serious crime violating the interests of the copyright owner and it also undermines the market and harms the interests of law-abiding businesses. For instance, pirated products deprive the copyright owner of their income, and the pirated products take away market share with their lower prices. In recent years, the Chinese government has taken strong measures to fight piracy, such as rewarding informers with huge monetary awards. For example, informing on an illegal CD-ROM production line bring a reward of RMB300,000, or US$36,145. Over the past 10 years, the Chinese government has destroyed more than 180 illegal CD-ROM production lines. Nevertheless, compared with situations in many developed countries, piracy in the Chinese mainland is rampant and the Chinese government must continue to do more to solve this problem.

Some foreigners have little knowledge about the piracy situation and have wrong perceptions regarding the copyright issue. For instance, many people think that the Chinese mainland still has no copyright law. Some think that the Chinese government is unconcerned about copyright protection and does not want to take effective action to protect foreign copyrights. For example, one Japanese comics company heard that their cartoons were been pirated in the Chinese mainland and thought that the Chinese government was oblivious. Therefore, the company didn’t authorize a Chinese publisher to publish their cartoons or sue the infringer in court.

Here are some of the author’s views on the abovementioned example. It is the foreign company that decides in which foreign country it wants to authorize publishers to publish its works. However, if pirated products emerge in other countries, the company should not stand idly by.

Copyrights are private property, and generally it is difficult for others to know that piracy has taken place if the copyright owner does not report the matter. Also, the court will have no knowledge if the copyright owner does not make a charge.

In the Chinese mainland, the situation is more serious because there are 180,000 titles published annually and 300,000 titles are circulated in a book market where copyright protection is still very poor. Without the copyright owner’s appeal, the judiciary and relevant government organizations will have few chances to be aware of and then deal with piracy.

Therefore, when piracy takes place, the copyright owner should be more pro-active and use all means to stop the act and demand compensation. Although the penalty for piracy, especially the compensation for damages, is not as high as that in many developed countries, it is not very low either. (See examples in Chapter 11-D-4.) Some might say that it is also very difficult to gather evidence in a foreign country. It is true that people will encounter many difficulties when going abroad to gather evidence, especially going to a place with a different language and culture. But the law requires such actions, and it is the same in every country. If the Chinese go to other countries to appeal, they face the same difficulties.

In fact, since China joined the Berne Convention, many foreigners who appealed to Chinese courts against Chinese infringers have won their cases and received compensation, such as when the American company Disney sued Beijing Juvenile and Children’s Publishing House for infringing the copyright of its artworks, and Denmark’s Lego brought a charge against Tianjin Coke Toy Company. These cases can serve as references.

In addition, by Chinese law the government is also responsible for fighting piracy, thus foreign copyright owners can also bring complaints to related government organizations such as the National Copyright Administration of China and provincial copyright bureaus.

When piracy occurs, it is important to consult lawyers familiar with copyright law or copyright agents instead of casually asking around. It is word know that many Chinese, including some publishers, do not really know and understand the copyright law and the many related regulations.

Many Chinese publishing houses complain a lot when their copyrights are infringed, but not many take serious action against it. One reason is that these publishers have no strong sense on how to use the law to protect their interest and consider collecting evidence too troublesome. Another important reason is that these publishing houses are state-owned enterprises, belonging to the state instead of individuals, thus many people care much less compared to how they would towards private property. Plus, the whole environment for copyright protection in China is not very favorable, and thus they can easily find excuses to ignore the issue. After all, the losses of the publishing house have little impact on their personal lives.

In actual fact, many companies that are serious about collecting evidence and determined to protect their rights have made impressive progress in fighting piracy. Their achievement is not as great as expected, but the overall impact is very encouraging. For instance, both the Shanghai Dictionary Publishing House and a famous writer Yu Qiuyu have won their cases against piracy. The Shanghai Dictionary Publishing House resorted to all legal means and the pirates were stopped.

4. How to Handle Infringement and Piracy?

In order to prevent piracy, the foreign investor should make it contractually clear that the Chinese partner will investigate any act of infringement on behalf of the foreign investor.

Although many difficulties exist in fighting piracy, actions can be successful if hard evidence is collected, but determination is important. How to go about collecting evidence then?

Let’s take a look at a recent case: in 2003 the Law Press sued both the infringer and distributor because the Tutorial Book for the National Judicatory Examination (three volumes) and its MP3 CDs were pirated. Then, the Law Press began to investigate the case, and even though they did not find out the producer of the pirated books, they discovered the distributor and producer of the pirated CDs.

In order to gather evidence against the distributor of the pirated books, the Law Press bought the books from the bookstore three times. The first time it bought 200 units and received a receipt; then 10 days later it bought one more unit; and one month later, it went to buy the book for the third time accompanied by a notary. With the collected evidence, the Law Press formally brought the case to court and showed the court the receipts, which indicated not only the large number of pirated copies but also that it was a long-term business. The court judged that the bookstore would pay Law Press RMB200,000 (US$24,096) in compensation and the bookstore could not sell the book within three years.

As for the producer of the pirated CDs, Beijing Polystar Digidisc Co., Ltd, Law Press had evidence of only 3,000 copies of pirated CDs, but the minimum production run is 20,000 units and the Law Press requested the court to launch further investigation. The court collected evidence for 30,000 pirated copies and ruled that the company must pay RMB300,000 (US$36,145) to the Law Press, which in total received compensation of RMB500,000 (US$60,241).

Take for example two more cases. First, American company Autodesk Inc. (legal representative Carol A. Bartz) sued Beijing Long Fa Constructional Decoration Co., Ltd. for computer software infringement. When law enforcement agents of the Beijing Municipal Bureau of Copyright carried out a survey of the copyright status of the computer software used by the defendant, it was discovered that the defendant installed and used Autodesk’s software without the permission of the copyright owner. Autodesk collected evidence and then brought the case to court, demanding the defendant to stop infringement immediately and pay compensation of almost RMB1.74 million (US$209,639). The court ruled that the company had committed infringement and should pay RMB1.49 million (US$179,518) as compensation, as well as the court and legal fees. (See Appendix 2.)

The second case is the infringement of the famous 3,000 Whys of Blue Cat ruled by the Hong Kong court. Hunan Sunchime Corporation, a well-known cartoon producer in the Chinese mainland found out that its Blue Cat cartoon was pirated, and started investigations immediately. It collected 16 different editions of pirated Blue Cat and sent the VCDs to relevant department for further identification, which indicated that the pirated producers were Hong Kong Lihong Science and Technology Co., Ltd. and Hong Kong Shenjie Science and Technology Co., Ltd. Then, Sunchime Corporation notified Hong Kong Customs which conducted raids, confiscating 10 production lines with a value of HK$80 million (US$10.26 million). Soon after the Hong Kong Customs brought the case to court, and the court ruled for imprisonment of one year for one person, imprisonment of six months for another person, confiscation of illegal gains worth HK$80 million (US$10.26 million), disbandment of the company, confiscation of properties, repeal of a immigrant card to Canada, and responsibility for the legal fee of HK$1 million (US$128,200).

The above cases show that copyrights can be protected and losses can be compensated if there is determination, and effective methods are employed.

5. How to View Provincialism?

Provincialism certainly exists in the Chinese mainland but with China’s entry into the WTO, the influence of provincialism will gradually decline. This is clearly reflected by the development of many foreign businesses, such as Bertelsmann, Pearson, and RR Donnelley in publishing and Carrefour, Wal-Mart, and McDonald’s in other industries. These foreign companies have branches in many regions, and they have encountered various difficulties but have rarely complained about provincialism.

The experiences of the above foreign companies show provincialism does not constitute a substantial impediment to development. Many regions are actually very keen to attract foreign investment and many foreign companies understand how to protect their interests under Chinese law.

If the interests of a foreign company are harmed by provincialism, the company can seek protection by resorting to related laws and regulations. Since provincialism is incompatible with the law and derives from parochial views, it will not last long even though it might prevail for a while. Both local Chinese companies and foreign companies should say “No” to provincialism.

6. The Language Factor

Many foreign companies are disgruntled with the lack of information from their Chinese partners. The Chinese publisher rarely informs the foreign party of relevant information and feedback on the progress of their ventures, including difficulties and problems. The Chinese party often seems indifferent to the business situation of the foreign party.

This indeed creates a problem, which will not only impact the ongoing cooperation but also has negative impact on possible future projects.

What has created this state of affairs? Are Chinese publishers indifferent by nature, or a silent group? Perhaps most of them have no interest in cooperation? The answers are all in the negative. Some people in Chinese publishing houses are less concerned about the business, but they do not usually stay long in the company and such people are few. Most Chinese publishers are hardworking people and highly concerned about their work.

There are several reasons for the phenomenon. First, most decision makers in the Chinese publishing houses such as the presidents and editors-in-chief have no foreign language skills. The fact that only a few leaders can speak foreign languages consequently leads to a lack of communication among parties.

Second, many project directors also have little knowledge of foreign languages. Many of them are excellent in project design and business promotion, and they would like to have better communication with their foreign partners, but they are impeded by the language barrier. In other words, the communication problem originates not from their awkwardness in doing business but from the lack of language skills.

Third, some people in charge of copyright exchange have no foreign language skills and rely totally on temporary translators when communicating with foreign partners. Thus, after the contract is signed, the communication comes to an end. The only thing they can remember after signing the contract is to pay royalties on time. Some even forget about this and have to be reminded by the foreign party. In such publishing houses where both the management and staff are unable to communicate with foreign partners, there is no effective communication. Nevertheless, many publishing houses have started to recruit staff with foreign language skills, who are appointed to specialize in copyright exchange and foreign cooperation. But these people often have little knowledge of the publishing business and, except for taking care of the contract negotiation are not deeply involved in the business. They are able to communicate with foreign partners but they are not the decision makers.

Many people known to the author have excellent foreign language skills and would take charge of signing copyright contracts with foreign companies every year, but have little knowledge about the book trade and the current situation of publishing in the Chinese mainland. Therefore, when they provide information to foreign companies, the information is usually fragmented and incomplete.

These are the major reasons for the lack of communication between Chinese and foreign publishers. There are, of course, some other factors such as personality differences. Generally, Chinese people are more reserved, especially those above 45 years of age—the average age of many who head the publishing houses.

The Chinese publishing houses that have the best communication with foreign companies are the ones where both the management and staff have good foreign language skills, especially the heads and even the president. Examples are the Foreign Language Teaching and Research Press, CITIC Publishing House, and the Law Press. These publishers have become the preferred partners of foreign companies seeking opportunities in the Chinese mainland.

In short, foreign companies should consider the language barrier as an important factor when choosing Chinese partners. A good choice will facilitate cooperation. The attitude of the Chinese party should also be taken into consideration. If the Chinese party is very active and sincere, it might be helpful if the foreign party has more contact and communication with them. As more people have developed excellent foreign language skills and are recruited by publishing houses, the language barrier will be overcome.

E. Potential Risks

The Chinese market is large and full of opportunities, but it also has many potential risks. In the publishing industry, foreign companies should be aware of the following issues:

i. The Chinese mainland is different from Taiwan and Hong Kong in both legal background and business environment. in the Chinese mainland, the legal system still needs more improvement, many laws and regulations are still in the formative process, and some enacted laws are waiting for amendments. For instance, some regulations are too general without clear details, and some laws seem blurry on important issues, which are unable to provide legal justification for business operations. Neglect over the laws can easily cause trouble and such cases have occurred many times, such as Carrefour of France once facing trouble due to its blind expansion without clear consultation with the Chinese law.

ii. The Chinese market has great potential, but disparity exists between regions. Also, it will take time for the potential to be fully exploited. The possibility of having short-term gains exists but these gains will not always happen. An expectation for rapid recovery of investment and immediate profit might lead to disappointment and even failure of the venture.

iii. It is also crucial to choose the right project. The Chinese market has its own features, and Chinese sales agents also have their preferences. Publishing is a cultural business, and cultural differences exists between the West and the East. Therefore, choosing the right joint project is very important. Take children’s books as an example: American cartoon books sell well in China, while cartoon books from Germany and France do not have such good fortunes. There are various factors behind this, but cultural differences are most glaring. Chinese readers already have some understanding of American culture through media such as TV shows and movies, including many American cartoons, thus when the related books are made available, they become popular in a very short time, while the French and the German products take much longer to be accepted. The same factors helped with the lasting popularity of works by Ernest Hemingway, while it is hard for other writers to find Chinese readers so quickly.

iv. Unsuitable Chinese partners also bring risks. A majority of Chinese publishers want to cooperate with foreign companies and they are very enthusiastic in finding a foreign partner. However, some of these publishers lack the capacity to explore markets and do not have a good standing. In order to cooperate with foreign companies, many Chinese publishers will make various promises, but in reality they have no way of fulfilling these promises. Therefore, foreign companies should be careful when choosing a partner. An ideal partner emerges only after a lot of investigations, consultations, and comparisons. Without doing so, a rushed decision might bring many risks. The company that makes sufficient preparations, and is patient and prudent in making choices will have the best chance of being successful.

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