Nice post at CLB by Dan on success tips for foreign companies that wish to sell to the Chinese government. The original article was by law firm Reed Smith (which bought out a Hong Kong/Beijing law firm a year or so ago), in which they set out several very good pointers for enterprises wishing to get into the procurement biz (I’ve abridged this a bit. The original article has the full version):

• Produce goods with at least half of their value added in China
• Consider making or assembling products that contain foreign components in special bonded zones
• Offer energy-efficient and environmentally friendly products and services
• Take advantage of provincial “buy local” provisions
• Highlight JV status
• Develop and highlight strong internal anti-bribery and anticorruption practices

Dan’s advice in this area is pragmatic and blunt:

[The] key to selling to China’s governments is to have something the government simply cannot resist. In other words, your product or service has to be so much better than domestic that the government almost has no choice but to buy yours.

I agree with all of these suggestions but have a couple additional points to make.

First, with respect to anti-bribery practices, companies should absolutely put these procedures into place if they expect to do business over here. Not doing so is crazy in this legal environment.

Regardless, however, if you really want to get into the procurement business, you will face corruption early and often. You may face the terrible choice of either engaging in such activities or giving up the business. As a lawyer, I can only advise on the latter option of course; as a human being, I understand that not every company is in a position to just cut and run from a jurisdiction.

From my point of view, in many instances, the reality of corruption in the area of government procurement means that some foreign companies just can’t compete without risking serious jail time (in their home country or China). It’s just not worth it in many cases. These legal tips will only take you so far.

Second, no one expressly mentioned intellectual property (I think Dan might have implied it). Poor IP. Why is this important? Basically, you definitely want to have something that the government really, really wants. However, companies over here have a pesky way of producing what the government wants and elbowing out the foreign competition.

Therefore, you not only need something the government really wants, you need a way to ensure that you will not be pushed out after a couple of years. How to do this? Many options, including tying up your domestic competitor with a JV; this doesn’t work in the long run, but it is a short/medium term option.

A better method is to have some solid IP that is registered in China, and by that I mean patents — created in China is the best. Even that’s not a 100% safe game, though. Recently we’ve seen some patents that looked fairly solid fall to invalidation actions. In one case that involved a client of mine, the technology was in an area that the government was very interested in. Not that I’m inferring anything untoward occurred . . .

Even better than a patent is trade secret information that remains safe and secure in the home country and the application of which cannot be reverse engineered. I know, most companies only wish they had that going for them. Understood. That’s why it’s the best option, not the most common.

OK, that’s enough. Now get out there and start selling stuff to the government.