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Sandrine Zerbib of Lazard Consulting spent around thirty years in China. She explains the key strategies for successfully investing in the Chinese market.
In a world where globalization increasingly seems to be a thing of the past, do China and its 1.4 billion inhabitants still represent an accessible market for a Belgian company? Yes, according to many Belgian businesses. The latest example is Puratos, a major specialist in bakery and pastry products, operating in 80 countries worldwide, which has just signed a strategic partnership with the Chinese group Guelph Foods, a company specializing in plant-based products, including egg substitutes.
But what are the keys to investing successfully in China? What business and cultural norms should be respected, and what pitfalls should be avoided? These are the questions we put to Sandrine Zerbib, Senior Advisor at Lazard Consulting, who has 30 years of experience in the country.
In 2022, together with Aldo Spaanjaars, she co-authored Dragon Tactics, a book examining the principles and practices of Chinese-style management. She is now working on another book about the globalization of Chinese companies and how their approach can inspire Western businesses.
Although Chinese companies have made progress in their international expansion, they still make mistakes, particularly in brand management and human resources, where cultural differences remain significant.
“In China, management is often highly hierarchical, with a strong leader who imposes their vision and leaves little room for employees to express themselves. This approach, which can be effective in the Chinese context, is poorly suited to Western expectations, where work-life balance and participation in decision-making are highly valued,” explains Sandrine Zerbib.
While Chinese companies are seeking to expand into Europe, can a European company still establish itself and grow in China?
“Yes, it is possible, and even advisable for many of them,” says Sandrine Zerbib. “China may no longer have the same economic momentum it enjoyed a few years ago, but it remains a very large market, with highly attractive pockets of opportunity and a middle class that, despite the challenges, continues to expand. It is therefore an extremely valuable and important market.”
But it is not an easy market. “It has become much more complex than it used to be, and not only for geopolitical reasons,” continues the Senior Advisor at Lazard Consulting. “Of course, there is a degree of mistrust that can make things more difficult, but there are also broader political factors that affect Chinese private companies just as much as Western businesses. For example, regulations have become stricter in a number of areas, which can be difficult for companies to navigate.”
“Finally, and this is extremely important, local competition has become so strong that it is often difficult to beat Chinese companies on their home turf. Chinese companies have become very good at what they do, and they have the advantage of understanding their environment and their market far better than we do. In certain areas — particularly technology — they have also developed supply chains, expertise, and capabilities in which they are far ahead of us.”
According to Sandrine Zerbib, the fundamental mistake Western companies must avoid when considering entering the Chinese market is trying to mechanically replicate the business model they use in their home country.
“Thinking that you can go to China and do exactly what you do elsewhere, without adapting or fundamentally localizing your approach, is a serious mistake,” she explains.
This localization goes beyond production or hiring local staff — although 95% to 98% of the employees of a foreign company operating in China are generally Chinese. It involves a profound transformation of the company so that it becomes fully integrated into the local economic, social, and cultural fabric.
In practical terms, this means several things. “First of all, it means becoming part of the local ecosystem. It is a bit like when you shop at your local supermarket: you do not necessarily notice the nationality of the brands. The same logic applies here. Around 95% to 98% of the employees in your Chinese subsidiary will be local, you will most likely manufacture locally, and you will conduct research and development locally as well.
It also means that, if you are a consumer goods company, at least part of your product range will be designed and developed specifically for the Chinese market. This is not only because consumer tastes are different, but also because the supply chain operates much faster and consumer expectations are different too — particularly in terms of speed.”
It also means adopting a marketing communication strategy that is aligned with Chinese practices, particularly on local social media platforms, which play a decisive role in shaping brand perception.
“You have to become a Chinese company while preserving your original DNA,” Sandrine Zerbib summarizes. This integration not only enables companies to meet market expectations more effectively, but also helps them navigate an increasingly strict regulatory and administrative environment.
Those are the key rules. But which sectors of the Chinese economy still offer growth opportunities for foreign companies?
“Anything driven by innovation, whether in services or industry, has strong potential. And in consumer goods, which is more specifically my area of expertise, there are opportunities in sectors related to well-being, sports, and outdoor activities,” the expert explains. “These are areas in which we are still seeing strong growth because they are being driven by changing consumer values.”
“In the past, Chinese consumers were characterized by relentless consumerism. Today, they are beginning to move away from it. Consumers are asking themselves, ‘What is the point, after all?’ Their parents wanted to make up for the hardships they had experienced, saying, ‘Our children will have a better life than we did.’ And that became a reality in barely a generation, or even half a generation.
But for younger people, especially following the major real estate crisis, which is still ongoing, the situation has become more difficult. Tomorrow will not necessarily be better than today. Buying an apartment in a major city or owning the car of their dreams may never be within reach. This is leading them toward new sources of stability and fulfillment: well-being, self-reflection, and sport.”
Faced with these challenges, relying on a local partner is often necessary. “This is a conviction based on observations in the field. For a small or medium-sized Western company, entering the Chinese market without a partner is a risky undertaking and may even be doomed to failure,” says Sandrine Zerbib.
Even large companies, many of which are already well established in China, are taking this approach by opting for partnerships or even spin-offs, where a parent company turns one of its divisions into an independent business. Yum!, the American group behind Pizza Hut, KFC and other brands, spun off its Chinese subsidiary in 2016. Starbucks is preparing to sell more than half of the equity in its Chinese subsidiary.
“A local partner offers several advantages,” Sandrine Zerbib points out. “It allows a company to become integrated into the local economic and social fabric, thereby reducing the risks associated with geopolitical tensions. It also brings in-depth market knowledge, responsiveness, and flexibility that foreign companies often struggle to match.
Finally, a local partner makes it easier to navigate the Chinese administrative system and social media landscape, two areas where mistakes can be costly. A good partner is someone who knows the market inside out and understands how to respond to it more intuitively than a Western company can.”
Negotiating in China, whether with a potential partner, a company, or government authorities, requires an understanding of specific cultural norms. “When dealing with the authorities, procedures are relatively well organized and efficient, provided that deadlines and procedures are properly followed,” the consultant observes.
ut choosing a partner is a more delicate process. ‘Building a relationship with a partner…’
But choosing a partner is a more delicate process. “Building a relationship with a potential partner is a more complex process, comparable to a marriage in which divorce would be costly,” explains Sandrine Zerbib. “It is not simply about reaching an agreement, but about building a lasting relationship.
Western companies should therefore avoid taking a rushed approach — arriving with an army of lawyers and then leaving once the deal is signed. Instead, they should adopt a patient approach based on establishing mutual trust. The relationship must continue to be nurtured even after the contract has been signed, as renegotiations are likely.”
Taking the time to build a relationship based on trust is essential.
“In our countries, when we enter into a business relationship, the initial level of trust in a partner is generally high, although it may decline if something negative happens,” explains the consultant. “In China, the dynamic is the opposite. Chinese society is one in which the level of trust at the beginning of a relationship is low, with trust traditionally reserved for family or one’s close circle.”
This relationship of trust is all the more important because, in China, a contract itself does not carry the same significance as it does in the West.
“A contract reflects a situation at a given point in time, but it can be renegotiated if circumstances change. This requires foreign companies to remain closely connected to the Chinese market, understand how it is evolving, and maintain an active relationship with their partner,” Sandrine Zerbib emphasizes.
Establishing a presence in China today therefore requires strategy, humility, and time in order to become firmly rooted in the local market. As Sandrine Zerbib emphasizes, succeeding in China means becoming a Chinese company while preserving your own identity. It is ultimately a lesson in finding the right balance.