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China: Mastering The Art Of Guan Xi

By | January 1, 2002

      By Nick Mitsis

      A few years back, a Fortune 500 company executive speaking at a Hong Kong Chamber of Commerce meeting articulated what it was like to conduct business in The People’s Republic of China (China). Addressing the members, he said in regard to solidifying contracts with Chinese clients, he sleeps like a baby–he’s up every hour screaming his head off.

      What view, arguably, is but one extreme in a very complex spectrum. Today, however, some argue those marathon all-night screaming sessions have turned into occasional sniffles followed by a headache or two.

      For several decades, China has maintained a presence within the satellite technology arena. Even though recent events related to export control issues, launcher setbacks and economic challenges have somewhat stifled progress, Chinese business innovation is certainly not out of the global market game. Foreign executives have taken note of China’s potentially lucrative marketplace: According to The U.S. State Department, China received nearly $41 billion in foreign direct investment. As a result, satellite executives continue to draft business plans that involve this Asian juggernaut.

      Politics And Guan Xi

      Possibly the most challenging aspect for companies that are doing business in China is grasping the Eastern business culture. For foreign novices, particularly Americans, understanding that transactions regularly transpire over time–much more time than typical Western standards dictate–is key to success. So put away your Palm Pilot, forget professional dinner meetings and stop glancing at your wristwatch. What an intelligent businessperson must do is master the art of good Guan Xi, or personal connections. This is one of the most significant factors for Chinese business development. Often, the only way to cut through the bureaucratic red tape is with a trusted guide, someone who can make important business stages materialize that others cannot.

      “Guan Xi is very important; however, you have to follow it through with a demonstration to the client that you are committed to the business relationship and the local market,” says David Hartshorn, who lived and worked in China for three years. Currently, Hartshorn is monitoring China’s (Very Small Aperture Terminal) VSAT developments as the secretary general of the Global VSAT Forum.

      Commitment to after-sale support, monetary investment and staying with the client through market fluctuations are vital for business success, adds Hartshorn.”If they are having a political backlash or business problems and you are still gunning with the client and not batting an eye, then you will never be forgotten,” he says.”If, however, you sell them a product and it fails and you don’t support it, you might as well catch a flight out of the country, retool your business plan and write China out of it. If you don’t support your product, you are dead in the water. It is a small community and word travels fast.” Such have been the trials of those foreign businesses seeking to posture themselves in China to take advantage of the potential commercial boom the Chinese population of 1.4 billion can offer.

      “It really is a different way of doing business in China,” says Ron Mankarious, vice president of marketing for NSI Communications.”One of the key things to remember is you cannot merely walk in and gain credibility. You really have to be established with a local presence and a track record of success in China.”

      NSI is a provider of full-meshed VSAT networks that allow the satellite-based broadband transmission of telephone, data and video. As for its China business, NSI has had growth opportunities within vertical markets such as natural resources and is eyeing broadband access.

      “We find that the China market includes a solid requirement of being well-versed not only in the technical aspects of your products but also in their applications,” Mankarious says.”If you can’t support an in-depth level of technical discussion and speak their language, you will be discounted.”

      “China has remained our number two market for years now,” Mankarious adds. Since its penetration into China in late 1976, NSI has established 30 networks and more than 800 VSAT terminals.

      Western Focus On China

      “China is an exploding market right now,” says Graham Kill, CEO of Irdeto Access. “We are currently witnessing a big push for satellite ventures providing multimedia broadcast services, and this area will continue to grow as government control lessens and deregulation increases.”

      Most recently, Irdeto signed an agreement with China Telecommunications Broadcast Satellite Co. Ltd. (Chinasat) to deliver encryption technology and hardware for its satellite broadcast headend. Through this agreement, local Chinese enterprises will be provided with information services such as online training, distance learning and telemedicine.

      Implementing security technologies like those offered by Irdeto is a key segment in advancing China’s VSAT market. Hartshorn says there are currently more than 30 licenses issued in China and believes that number will grow. “Likewise, international business ventures bring monies into China that, in turn, are used to expand domestic operations,” he adds.

      This domestic operations growth fueled by foreign business will have a greater impact on the country’s telecommunications infrastructure as well as aid in shrinking China’s digital divide. According to the Bureau of East Asian and Pacific Affairs, China currently has 135 million telephone lines in use, 65 million mobile telephones in use and 55 earth stations in place, more than 3,000 broadcast stations and 22 million Internet users. “As the world’s fastest growing communications market, China, quite naturally should–and will–play a leading role in the emerging global networked economy,” says Richard Li, chairman and chief executive of Pacific Century Cyberworks Ltd. “China has a robust telecom sector and it is a bright spot for Western equipment suppliers. Growth curves in this market should drive economic growth for years, likely decades, to come.”

      Now with this domestic resurgence seemingly underway, satellite executives are eyeing China more closely as Western clients increase their need for penetration within this Asian country. “China is an interesting market right now and we are finding that many businesses are looking to build call centers in the region,” says Barry Pasternak, president and CEO of Sunglobe Telecom Inc. “You can build a 20-city satellite network in China in roughly six months. I defy you to build just one fiber link in the same timeframe.”

      Sunglobe is in the process of exploring new business opportunities involving China under a development of a Network Access Points (NAP) in Vancouver, Canada, that will transmit content to the Asian nation. “We are currently figuring out what the demands will be. I am tweaking four projects into one right now because the market is driving me to do it,” Pasternak says. “I am looking to put in a substantial service with low overhead and capitalize on that and then sell the excess capacity to other vendors that want to use the same type of service.”

      Home-Spun Achievements

      Chinese satellite industry success, however, has not materialized merely from foreign interests. From China’s first satellite, Dong Fang Hong (DFH, or “The East Is Red”) to its latest upgrades, the country’s individual contributions to the global satellite industry have engraved China on the industry map. The major player is the Ministry of Posts and Telecommunications, which is affiliated with Chinasat. The organization is responsible for the various generations of DFH satellites that are within the Chinese fleet.

      Chinasat currently operates two satellites. Chinasat 6, built by Chinese Aerospace Industry Corp. using its DFH 3 platform, is operating at 125 degreesE. The spacecraft carries 24 C-band transponders and covers all of China. Chinasat is currently waiting for delivery approval of its Chinasat 8 satellite, which it plans to launch on a Long March rocket. The Space Systems/Loral (SS/L) spacecraft is using its FS 1300 platform and will be located at 115.5 degreesE. Once operational, it will cover China, India, Thailand and part of Japan using 38 C-band and 22 Ku-band transponders. Together, these satellites will provide videoconferencing and data broadcasting; domestic television program transmissions; telex, fax, telephone and telemetry; multimedia and high-speed data services; and paging.

      In addition, the China Orient Telecomm Satellite Co. Ltd. signed a contract for the provision of a Chinastar satellite in 1995. Chinastar 1, built by Lockheed Martin Missiles and Space using its A2100 platform, is operating at 87.5 degreesE. The spacecraft carries 18 C-band and 20 Ku-band transponders casting a footprint over China, South, West, Central, East and Southeast Asia. The satellite provides telecommunications and broadcast services to the People’s Republic of China, including voice, fax and data exchange as well as broadcast television services.

      Sino Satellite Communications Co. Ltd. was formed in May 1994, and launched its satellite, Sinosat 1, four years later. The satellite is an Aerospatiale bus using its Spacebus 3000 platform. Operating from 110.5 degreesE, Sinosat 1 carries 24 C-band transponders and 14 Ku-band transponders covering China and the Asia-Pacific region. The satellite provides telecommunications, data transmission and TV broadcasting for its customers within its footprint. Some of those customers include The People’s Bank of China, The Data Transmission System of China’s Xinhua News Agency and 43 channels of China Central TV Station and all the provincial TV stations in China.

      Export Still A Controlling Issue

      Perhaps the most controversial U.S. legislative issue facing the global satellite industry relates to U.S. export controls. This political item looms over U.S.-Chinese relations like a dark cloud and Chinasat along with SS/L is dealing with it on a first-hand basis. As export control resolution proposals reverberate among the executive and legislative branches of the U.S. government, Chinasat 8 continues to occupy space at SS/L’s complex in California. The export license approval was halted in a criminal investigation into whether Loral improperly gave China classified rocket expertise in 1996 after the failed launch of a Loral satellite.

      “We are very much interested in getting approval to ship the satellite and also are pleased with the continued effort from the U.S. administration to resolve this issue,” says Tom Ross, vice president of government relations for Loral. Chinasat bought the satellite, valued at nearly $200 million, in 1998 and still plans on launching the spacecraft into operation.

      “Our relations with Chinasat have been strong all along,” Ross adds. “We have been pleased that the state government has continued to have a sustained interest in this matter.”

      Naturally both parties are interested in resolution. Chinasat wants its spacecraft in orbit and Loral does not want to face the monetary penalty of refunding as much as $134 million in advanced funds from China or face $11 million in penalties if the sale does not materialize.

      Long Wait For Long March

      Even if Chinasat 8 is delivered, it still may face a domestic obstacle of getting off the launch pad. With all the political turmoil, the China Great Wall Industry Corp.’s presence has cooled considerably from several years ago. China Great Wall, which flies seven versions of the Long March rocket, entered the commercial market around 1985 and has flown 16 commercial communications satellite missions. The payload range of the Long March is 2,500 kg to 4,500 kg.

      But it has been some time since the industry has witnessed the Long March commercial presence and analysts are not overly optimistic that the scenario will change. “Our outlook for the Long March is very murky at the moment,” says Phil McAlister, director, Space and Telecommunications Industry Analysis Division, Futron Corp. “The export control issue remains up in the air at the moment and we also don’t know exactly how aggressively China Great Wall will market its vehicle in this competitive market.”

      Futron projects a flat 2002 for commercial launches for Long March and only five non-commercial launches for the Chinese rocket. “It can still launch heavy GEO satellites and historically, China Great Wall has competitively priced the vehicle against its global counterparts,” McAlister says. “Following the September 11 events, it makes it even more unlikely that Long March will be gathering a major market share, but there is so much uncertainty surrounding this issue at this time, we will just have to wait and see.”

      China’s Future

      Whatever the future holds, China remains a rising star within the global satellite marketplace. The hot issues, however, remain unresolved and satellite executives who continue to do business in the region must focus on Guan Xi principles as they navigate business deals to profitable closings.

      Nick Mitsis is Via Satellite’s Associate Editor.

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