International investment in
China...key factors to achieving greater returns
EC Harris has found international
investors who are successful in China have adapted their investment
strategy to build local relationships and respect the Chinese
culture. This approach has enabled them to overcome some of the
perceived barriers to entry. They have not tried to impose ‘a
Western way’ of doing business.
Success lies in spending more time with greater depth on the
selection and alignment of; the right partner, the right people,
and the right product.
The Right Partner
It is important for international investors to take time in
identifying and understanding their local development partner. The
essential common ground needs flexibility from both parties in
order to align cultures, expectations, capabilities and objectives.
It is also important to recognise remaining differences and how to
manage these in an effective partnership.
Imposition of so called ‘international practices and procedures’
will often alienate and demonstrate a lack of sensitivity and even
trust in the Chinese market. International investors often find a
personal relationship approach to doing business a challenge
compared to their normal business practices and corporate
governance.
There is also need for local development partners to have a
greater understanding of the investment objectives of the deal.
Effective local support will integrate both international investors
and local development partners through independant insight and
knowledge of both parties.
The Right People
One of the biggest challenges that international investors face
is human capital. In China, it is often a lengthy process to build
the right internal team with the right skills.
The key to success for international investors is to engage with
established partners who will bring in the skills needed to
integrate investment strategy with the local market resource base.
It is essential that a gap analysis is undertaken as a key
component of the team selection to identify the risk and mitigation
plan required.
The Right Product
International investors must bring an understanding of asset
class and product to provide tangible intellectual property for the
deal.
Once the market positioning has been identified it is essential
that the design of the asset reflects the market. Many
international investors are over specifying the product design
without commensurate payback, therefore reducing the investment
returns.
Institutional standards are not as well defined in the Chinese
market as in others. It is important to acknowledge where a lack in
clarity exists and to not simply default to an international
specification.
In Summary
Property Investment in China does have its inherent challenges.
However greater returns can be realised if international investors
take a less western approach.
The first step will mean allowing sufficient additional time at
the front end of the due diligence process to allow alignment of
partner, people and product.
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