I would like to thank Business Oulu for inviting me and Mr. Jari Hietala to Oulu to speak at the Industry Summit. Thank you.

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1 I am W. John Hoffmann, Co founder & Principal of XRG. I am the third generation of my American family to live and work in China. I have been living and working in Hong Kong since I would like to thank Business Oulu for inviting me and Mr. Jari Hietala to Oulu to speak at the Industry Summit. Thank you. A China Inside Out mindset is necessary to leverage China to the maximum extent: Understanding China s initiatives and imperatives, clearly defining what the foreign company brings to the table, being able to place a value on the contribution to China (in words and numbers), finding the key business partners and political champions on the Chinese side, and leveraging China based capabilities where possible can be key to success both inside and outside of China. XRG and its network of associates are the sole developers of China Inside Out Strategies. 1

2 Horses for courses founder in the ocean: Many non Chinese foreign companies are used to operating on relatively open and level playing fields in their traditional / developed world markets and have optimized for such environments. They are horses for courses that are having an increasingly difficult time dealing with the additional levels of complexity now found in China. Chinese companies are dolphins that are optimized for the more fluid China market environment also tend to struggle in other more open and level playing field, developed world market environments (e.g., US and EU). Anyone running a foreign business in and with China is like the split image woman in the above picture trying to do business in two fundamentally different realities / ecosystems via two fundamentally different business models at the same time not a good position be in if the Gap is widening. The above quote is not from Charles Darwin this said, intelligent responsive change is only possible if we see and truly understand what the real threats and opportunities are in and with China that a business should be responding to. Easy to say, hard to do. Using this single image as an example of different unconventional viewpoints lenses, we / XRG have begun to think of developed / western markets like racetracks on which foreign companies run in races like horses ; and, of China / other developing world markets like oceans in which PRC Chinese companies swim, like the dolphins. 2

3 Leaders, initiatives, and partners matter: A limited number of Party top leaders determine China s approach to foreign and local business. They have set forth and will set forth key initiatives that drive development in China. Finding creative, out of the box ways of contributing to these initiatives and finding the right partners with which to do so, are both crucial to success in China. XRG tracks China s top leaders and understands the stated and unstated imperatives behind their major initiatives. 1) In China: China works top down via the Chinese Communist Party Central Committee Political Bureau (Politburo) top leaders team. Since Q (18th Party Congress), China s Party top leaders team has not been aligned. Xi Jinping had very little say about choice of the current Party top leaders team (put in place mainly by Jiang Zemin and Hu Jintao). After the 19th Party Congress (18 Oct. 2017), we should see a new, much more aligned Party top leadership led by Xi Jinping. 2) In Company and Country: Any foreign company that plans to engage this new Party top leaders team should begin this process as soon as possible after the 19th Party Congress. However, this should happen only after each company has completed its own internal company and country government alignment to ensure that what the company does now and wants to do in the future is harmonic with and responsive to this newly aligned Party top leaders team and with the company s primary domicile(s) / home country government(s). 3

4 Set out in the four maps of One Belt One Road (OBOR) slide (above) is another example of how using different viewpoints lenses can surface multiple opportunities and threats in and with China. We all tend to think and to look at what is happening with China s OBOR Initiative through one China centric viewpoint lens (first map, top left). However, we can and should also look at OBOR opportunities and threats from other viewpoints and multiple lenses; specifically Russian, Japanese, and Indian as well as European and American viewpoints lenses. What China has done and continues to do with their Go Global Initiative (2000 date) and the more recent OBOR Initiative (2013 date) has put not just Eurasian, Middle Eastern and African markets in play: it has also put the rest of the developing world markets (including Latin American) in play as well. In June 2017, the National Development Reform Commission (NDRC) in Beijing published an OBOR strategy paper highlighting three maritime Blue Economic Passages (BEP) : one from China to Europe via the Malacca Straits Suez Canal Piraeus Port (BEP #1); one from China to Oceania and South Pacific (BEP #2); and one from China to Scandinavia / northern Europe via the Bering Sea Artic Ocean (BEP #3). We recommend that all of you pay particular attention to the BEP #3 opportunities for Oulu as the capital of Northern Scandinavia, for Finland and for the rest of Scandinavia. 4

5 One picture can convey a thousand words. What was this small fish caught inside the jellyfish thinking? It seemed like such a great idea a while back. Just can t seem to catch a break or eat. Taking small steps doing safe deals seemed the better option but I got stung on the way in and I am afraid to turn around. The China market is more like an ocean than a racetrack: there has never been a level playing field for foreign companies in the China market. To be safe from predation in the China ocean, foreign companies have to think BIG and do BIG, even if doing so is accomplished in a step by step phased manner. A relativley small foreign company with the right aligned capability and a clearly communicated value proposition can deliver BIG value to China, OBOR and the developing world. The real question to ask is: who in the new Party top leadership needs to know what your company has done to date and / or can do in the future for China? Foreign company value propositions for China s new top leaders: Most foreign companies in China have not documented and communicated their present and future China value proposition very well. As there will be a new Party and State top leadership team running China after the 19 th Party Congress (Q4 2017) and the follow on National People s Congress (Q2 2018), preparing and sharing a comprehensive economic impact study (with numbers quantitative data) of your company s positive contribution to date and into the future for China is a must do task for all foreign companies. XRG and its associate partner Enright Scott & Associates have been doing this kind of company / deal specific economic impact study value proposition work for clients as an integral part of all XRG China Inside Out strategy deal work. 5

6 I am Jari Hietala, an associate partner of XRG. I have lived an worked in Asia for almost 20 years. My company Asia Sales Channels Ltd is registered in Hongkong, but I currently have my home base in Bangkok, Thailand. Asia Sales Channels Ltd. s operations cover the whole of Asia with no specific emphasis of any particular country. My company specializes in supporting western companies to develop and manage their Asian sales and in particular sales activities carried out by third party channels such as importers, distributors, agents or system integrators. Finding third party channel partners in Asia is not a particularly difficult challenge for any company. The real challenge however is to win new sales and market share together with the partner. For this challenge Asia Sales Channels Ltd brings tested methods, tool and processes based on hundreds of assignments across Asia in different industrial sectors. 6

7 Opportunities for Finnish companies in China are continental is scale including businesses we Finns are already good at doing such as energy and energy efficiency, construction and infrastructure, renewable energy, cleantech, food and agriculture sector including food distribution chain and packaging; biotechnology, ICT, products and services related to leisure services, arctic building technology. Food safety is a big issue in China which will create opportunities in e.g. tracking and labeling as well as related RFID and software solutions. Most Finnish companies that manufacture goods or components in China are doing it for local Chinese markets. Global sourcing operations are becoming business as usual among MNC s in China. The biggest hype is over, but new Finnish companies are still moving to China. Companies that are already there are expanding fast. Increasing number of employees are Chinese and only 1 2% are Finns. 7

8 This information is a few years old, but the situation of Finnish business has not changed drastically since Taking into consideration the size of the Chinese market and its fast growth rate, the turnover of Finnish companies in China is relatively modest for more than 50% of the companies. However, according to Finnish Business Council Shanghai s survey 2017 the sales revenues in China are considered vital for one third of the companies. 8

9 There are some common denominators for the success of Finnish firms in China. In addition to obvious reasons such as competitive product offering, successful Finnish companies have been able to crystalize and communicate their value propositions, have aligned their own approach in house and with Team Finland, adapt their productsservices to match with needs of their targeted Chinese customers, are acting in a bold enough way, have their own presence in the market and are working together with competent local partners. 9

10 The starting point for success is to understand that a different, more flexible mindset is essential for successful business in China. China s business ecosystem functions in fundamentally different to Finland s. The Western company ( horse ) will get drowned in the sea where the Chinese company ( dolphins ) lives and thrives. It is not rocket science. Anybody can acquire sufficient information about the Chinese realities. The question is can you get aligned in company and in country, do you want to adapt? Adapt your offering with the needs of your Chinese customers. For example, our current Cleantech products and services of Finland may not always be a winning formula for what China wants needs today without adaptation. Clean enough tech products and services of Finland might be more appealing for some Chinese customers. China is not a single market it is a continental multi market opportunity. Don t try to enter eat the China market in one go. Be selective by considering geographiesregions provinces which are not in your competitors immediate radar screen. Investing in relevant, high value partnerships is a key for success. If your product service offering enables your China partners or customers to earn more money, reduce costs, lower their risks and improve their return on investments, then you have a chance to win deals in China. But in addition foreign companies must also align their company business value proposition with current China socio political initiatives at the national and/or local level as well something we are not used to do anywhere else in the world. Acting in a too humble in the traditional Finnish way doesn t work in China. Even a small company can be big in China. 10

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