Cree nurtured its ties in China

Editor's note: Negotiating business in China has never been more crucial for North Carolina businesses. Over the next several weeks, we'll look at successful China strategies and 10 businesses that have made the leap. This week: Working with the Chinese government.

Just over five years ago, Chris James, vice president of strategy and business development at Durham-based Cree, received a request from a woman representing the solid-state lighting industry in China. She wanted to bring a delegation to visit Cree. The visit marked a key moment in Cree's China adventure.

The delegation - half from private manufacturers, half from the government - were interested in the impact that LEDs could have on China's energy needs.

"China fully understood both the energy dilemma they faced, and the potential to mitigate a large portion of the problem through LED lighting as they projected the country's growth rate and likely future energy requirements," James said. "They had done the math and had taken action to address what they saw as a real crisis. Today, there are still scheduled blackouts in China because of the need to conserve energy."

The government wished to display LED lighting on a grand scale for the Beijing Olympics in 2008. Professor Luoxi Hao from Tongji University in Shanghai suggested the Water Cube - the national aquatic center - as a marquee site to light up.

Cree dug in to the complex project and worked diligently with the team to light up the cube in very short order. Then, in February 2008, the minister responsible for the Bird's Nest, the national stadium that was used throughout the Olympics, saw the Water Cube's light. Now he wanted his venue to use LEDs, providing Cree yet another monumental opportunity to shine.

In the end, Cree's LEDs were also used in the building used by journalists covering the Olympics and the opening ceremony.

Every manufacturer that Cree cared about knew about Cree before the Olympics were over. From once-negligible revenues in China, Cree now has 36 percent of its total revenue from China.

None of it would have been possible if Cree had not understood the importance of listening to the Chinese government.

Companies that want to enter China need to educate themselves about the central government's policies toward their particular industry and also learn the local government's role in regulating their business. While the central government is still the ultimate decision maker, local authorities are powerful, and the interplay between both can be convoluted. Keep in mind that courts are all about stability, not justice, in conflict resolution.

Despite China's success in attracting large numbers of foreign companies over the last three decades, many Western businesses face political and regulatory obstacles, such as restrictions on ownership rights and protection of intellectual property.

These challenges can result in firms having to spend a disproportionate amount of time working with Chinese authorities. The degree of economic ownership and product restrictions imposed by the government varies by industry. Generally, the media and telecom industries have more government restrictions than consumer goods.

But all companies should carefully manage their interactions with Chinese government authorities and agencies.

Soon after Jim Rogers, CEO of Duke Energy, decided that the company should determine ways to collaborate with China on clean energy development, he and chief technology officer David Mohler met heads of key government groups. They, in turn, introduced the Duke executives to the chairman of the National Development and Reform Commission, a powerful organization in the Chinese government.

This started a series of high-level government relationships that have allowed Duke Energy to have within three years a full plate of partnerships with key China players: ENN in clean energy development, electric automaker BYD (Berkshire Hathaway owns 10 percent), and Huaneng, China's state-owned utility and largest power generator.