STEVE INSKEEP, host:
All this month, MORNING EDITION is examining the rise of China and its impact on the world. We've heard about China's reach into foreign markets, and today, we look at how one foreign market - the United States - is trying to reach into China.
RENEE MONTAGNE, host:
The American Chamber of Commerce in Shanghai reports Chinese consumers are becoming much more sophisticated in their tastes. It forecasts China will be the number-two consumer market behind only the U.S. by 2015. To hear what U.S. companies are doing to attract Chinese consumers, we turned to James McGregor in Beijing. He wrote the book "One Billion Customers: Lessons from the Front Lines of Doing Business in China." McGregor says China is feeling powerful in today's global economy.
Mr. JAMES MCGREGOR (Author): I think they've kind of made the calculation that the foreigners need China more than China needs the foreigners, so it's getting tougher and tougher on the requirements of doing business here, and that doesn't mean a lot of companies aren't doing well and aren't putting a lot of money and time into this place and making a lot of money. But it's never easy in China.
MONTAGNE: Well, we hear a lot about frustrations with China's strict regulatory environment. What policies really present the biggest challenges for U.S. companies?
Mr. MCGREGOR: Well, you know, it's different for different sectors. The people that are really having trouble now and are very worried are the technology companies, because China has this policy of - they call it indigenous innovation, where they are really unhappy with being dependent on foreign technology for so long, and so they want to create their own. Unfortunately, the policy they've come up with is to force foreign companies to hand over their technology if they want to do business here.
And so in high-speed rail, in a lot of green energy, even in electric automobiles, they're telling companies if you want to do business here, you come in, you take a minority share in a joint venture with one of these big state companies and you hand over your technology. And what is worrisome for the companies is that they're creating their future global competitors and this stuff will be coming back at them in five years under the name of their Chinese partner globally, and they could be really hurting themselves.
Other sectors, retail is doing pretty well here. Wal-Mart is opening a store a week. Kentucky Fried Chicken is opening one a day. China's not too bad in retail, because they need to satisfy their people's consumption desires, and the foreigners are the best at it.
MONTAGNE: Besides regulations, how much do cultural differences play in determining the fate of any given business venture in China?
Mr. MCGREGOR: Well, sometimes it's hard for the big American companies, because they have developed themselves in the continental-sized economy of the U.S., and they've gotten very good at what they do, but they are very U.S.-centric in the way they do things and the way they think.
You have to realize you're in China, and you have to realize you've got to do some things differently. And these companies that come in here and say this is how we do it anywhere in the world and this is how we're going to do it in China have their heads handed to them before they learn the lesson. And for most of the big multinationals, they really have learned those lessons. They came in in the mid-'90s with way too much money and ambition, and they all got - had very difficult times, and they've since localized, learned how to train Chinese management.
And, in fact, the - you know, I'm a former chairman of the American Chamber of Commerce here in Beijing, and I'm still quite involved. And our surveys show 85 percent of our companies making money, and many of them having margins that are higher than they have globally.
MONTAGNE: What kind of consumers in China, Chinese consumers, are U.S. companies trying to attract?
Mr. MCGREGOR: Well, really, if you go to a grocery store here, you're going to see Coca-Cola and Nestle, lots of Mars candy products. The, I mean, the Chinese are kind of like everybody else. They, you know, they're buying better and better clothes there. They like luxury goods more than anybody I've ever seen. And I think, really, the consumer market here is bigger than the numbers show today. Just what you see anecdotally, whether you're in Beijing, Shanghai or even in secondary or tertiary cities, they're raging consumers.
In fact, I was at Ikea, because I had moved and I had to get some things, and it was - you would have thought it was a state fair. It is so packed just on a Monday afternoon that, you know, the Ikea people told me they've quit advertising, because their business is so good. They had crowd control problems at their stores.
MONTAGNE: Talking to us from Beijing, James McGregor. He wrote the book "One Billion Customers: Lessons from the Front Lines of Doing Business in China." Thanks very much.
Mr. MCGREGOR: Oh, glad to do it. Transcript provided by NPR, Copyright NPR.