Too many suits disembark from business class in Beijing and Shanghai with dreams of grabbing the Chinese market by the scruff of the neck. There was a time when many did, and made fortunes. But that was a different China. Today, the one billion potential customers have local heroes, a new crop of Chinese companies which have risen above the deadwood of state-owned firms and the rustbelts left behind when China began bending its economy down the free market path.

The free market future looks bright - literally. At WuXi PharmaTech's 250,000 square foot pharmaceutical ingredient manufacturing plant in Shanghai's Jinshan District, 700 scientists in lab coats walk naturally lit corridors between labs. The state-of-the-art research center and laboratory does R&D and manufacturing for multinational drug makers. From an office above the lenses and chemical trays, founder and CEO of WuXi Dr Li Ge has overseen earnings multiply a hundred fold since the company opened with 19 staff in 2001. Between 2001 and 2003 WuXi revenue grew from US$400,000 to an impressive US$9.7 million.

A graduate of Peking University, Li honed his scientific and business acumen in the US as one of the founding scientists of the NASDAQ-listed Pharmacopeia, Inc. Back in China, he can count 18 of the world's top 20 pharmaceutical companies as customers. Led by a western-trained management team, WuXi researchers and sales staff beaver away on the young company's goal of becoming a world-leading discoverer of drugs. "We'll develop and produce drugs to order," says Li. "But by providing R&D services to our customers we hope to build strong relationships that can ultimately grow into collaborations to co-develop drugs in China."

To stay ahead of the competition, Li, who obtained a Ph.D. in chemistry from New York's Columbia University, has come up with an in-tellectual property protection system to reassure patent-sensitive clients handing work to WuXi. A hunger for innovation - Li owns a number of US patents himself - helped WuXi into 9th place in the Deloitte Technology Fast 500 Asia Pacific competition, an annual ranking of the most tech-savvy companies in the region.

King KongZhong

Ranked number one in a similar Deloitte rank-ing of the top 50 most innovative firms in China, KongZhong, a provider of second-generation (2.5G) wireless services in China, has also grown fast on a mix of innovation and western manage-ment know-how. Revenues at the company have grown by an awesome 24,000 percent in the few short years the company has been around. The savvy innovator in this case is Yunfan Zhou, company chairman and CEO, who along with co-founder Nick Yang gathered a group of young Chinese executives well used to international markets and hungry for a challenge back home when he established KongZong in 2002. Betting on explo-sive growth in China's mobile phone and wireless technology markets he developed games and mu-sic applications which users access directly from their mobile phones or from a mobile operator's website. KongZhong, Yunfan promises, will con-tinue to be number one in the 2.5G wireless val-ued added services (WVAS) industry in China. How? "We'll concentrate on getting more market share and investing in our product development capabilities, KongZhong brands and new prod-ucts," says soft-spoken Yunfan.

China's ability to produce IT hardware knows few rivals. But developing software is a whole different ballgame, and one HiSoft has learned to play from its Dalian headquarters. China has a ways to go to match India's prowess as a provider of outsourced software services, but outsourcing will be key for it to emerge as a global force in high tech. But where Indian counterparts have advantages in experience and scale for the Eng-lish-speaking world, HiSoft is closer geographi-cally as well as culturally to major markets like Japan and Korea. Over half its clients are Japan-based, the rest an even blend of American and Chinese companies, including multinationals in China.

However outsourcing is only part of the HiSoft dream. The firm has opened offices and development centers in Osaka, Japan and in Atlanta, Georgia in North America. More locations will be selected based on customer needs and business opportuni-ties, says company CEO Li Yuanmin, who reckons his company has government policy and skills on its side. China, he points out, has twice as many engineers graduating every year than India and the US combined. Better intellectual property laws and more English fluency also mean China is rapidly catching up on the English-speaking markets too.

That fits Yuanmin's vision just fine. "Our aim is to become a truly international organization in the near future," he says, adding that the firm is con-sidering relocating some business functions to dif-ferent cities. "Talent pools, modern infrastructure, and experience in serving international clients are all extremely important. Infrastructure in China is improving very quickly, and we are constantly monitoring other low-cost cities with IT and talent resources to launch operations there."

Geely nice wheels

Shunfu Li didn't know how to use a computer when he started making bicycles and motor scooters in a garage in rural Zhejiang province twenty-five years ago. But today Shufu Li can choose from a dozen manufacturing facilities throughout southeast China to build his dream machines. Now he's ready for bigger things.

Chairman of Hangzhou-based Geely Automo-bile Company, one of China's few privately owned automakers, Shunfu went to the Detroit motor show early in January to tell the world that he'd enter the US family car market by 2008. Geely will sell a "high-quality" family sedan for "less than ten thousand dollars," promises Shunfu. Geely is the first domestic automobile manufacturer from China to participate in the Detroit show, but then Shufu Li tells a very American story of a self-made man. A peasant farmer's son, he attributes Geely's success to "hard work, determination, and cour-age" in the face of powerful competition.

Founded in 1986, Geely made refrigerators and scooters before turning to automobiles in 1996. Li figures that the joint ventures currently control-ling China's auto market will eventually fade from the scene and private Chinese companies like his will dominate. The name "Geely" is derived from a Chinese language phrase that means, "I am lucky", but Li claims he'll follow the hard-won path to success of Korean and Japanese automo-bile manufacturers who fought for decades to take significant market share in Europe and the US.

Li refuses to estimate the number of vehicles that Geely will sell in the US market in its first full year of competing with the big guns on their home ground. Rather, following a lesson learned by Japanese makers when they entered America, he's obsessing with getting his technology right. "There will be many more improvements in de-sign and engineering in our model by the time we sell in America," said Li, promising a catchy All-American name for the US-bound car.

Big dreams, bad communication

Even though they've become big players in ev-ery market or industry in which they do busi-ness, Chinese companies have had a difficult time teaching the world about their history and intentions. Unsuccessful M&A ventures into the US - witness CNOOC and Haier's attempts to acquire Unocal and Maytag respectively - could blunt the ambitions of companies like Geely - which recently added "International" to its name - says corporate communications consultant Joe Blumenfeld, whose Tradewind Strategies advises Chinese firms seeking M&As abroad. "The Chi-nese need to recognize that they are not strong marketers in the West. And when it comes to share offerings and acquisitions in the US, the foreign advisors hired by Chinese companies hardly inspire confidence in their abilities to suc-cessfully guide their Chinese clients."

So while China has poster boys like KongZhong and HiSoft in IT, and WuXi in pharmaceuticals, it needs more skills across the board before a whole new generation of corporations finds its feet and gets the confidence to play foreign competition at home and away. And even though the local outsourcing market has been expanding by over 40 percent a year for high performers like Kong-Zhong, most of the contracts are in lower-value software outsourcing, says Liu Tong, an analyst at IT consultancy Analysys. "Outsourcing of design and whole projects is still few." There's an over dependence on Japan too - it accounts for more than 60 percent of the market according to Liu - though market share from Europe and America are increasing. Demand from the local IT outsourcing market has not developed nearly as fast as demand from abroad: "Local firms are worried about data security and duties or profit shares which may be owed to outsourcing companies."

Hungry young innovators like HiSoft and WuXi are the kind of companies China needs as it seeks to move up a notch from the mindless manufac-turing that has taken the country thus far. There's been policy support from the government and China's communication infrastructure has been well established to facilitate them, says Liu Tong. But what WuXi and KongZong have and what their Chinese counterparts need more of is global know-how. So even if Chinese companies are recognizing their market values and tapping global financial experts to help them maximize that value, they need help with creating the product and selling it. "They must go beyond finance and tap expertise in marketing, recruiting, design and other specialty services that western firms can offer them," says Tradewind's Blumenfeld.

Have cash, will travel

To prove that western-advised Chinese firms are capable of holding their own with powerful foreign competition in the new economy, look no further than Chinese search engine Baidu, which has spent the last year fending off the challenge of Google in its back yard. The domestic firm had barely celebrated its hugely successful debut on the US stock market when Google entered China. The market would "shift dramatically," predicted Beijing-based IT consultancy Analysys, which in a mid-2005 report put Baidu top of the pile, with 37 percent market share, followed by Google with 23 percent and Yahoo! at 21 percent. Baidu, predicted Analysys, would stay on top for the "foreseeable future," thanks to its knowledge of local users' needs - and deep pockets.

Therein, perhaps, lies a valuable lesson for foreign business. Aside from offering expertise, one of the ways Europe could gain from the growth of this new generation of ambitious Chinese corporations is in sourcing the cash they seek to grow. The high-profile difficulties Chinese companies faced last year in acquiring US companies and tighter disclosure requirements for American listings presents Europe with an enviable opportunity, predicts Blumenfeld. "Several EU countries seem to be collectively asking how many Chinese offerings can or will Wall Street support and it's positioning their capital markets as ready alternatives for Chinese companies that can't or won't raise capital in the US. If it keeps its markets receptive to Chinese investment, any investment that is locked out of the US could find its way to the EU."

Harmonious Business

Environmental awareness, public health reform and labor issues will all be priorities for the EU Chamber's CSR Working Group in the year ahead, says group Chair William Valentino. "In 2005 we established what we were about. But 2006 will be the year to energize it. We must put words into action."

As well as creating strategies and implementing actual projects among EU companies, the group plans to partner with Chinese companies in ensuring ethical labor and production processes."We need companies more involved in how to evaluate supply chains," explains Valentino. CSR-conscious European business needs to be able to match dialogue with action in China, suggests Valentino: recent collaboration between Tsinghua and Harvard universities to create a public health reform school in Beijing is one example in which several EU companies have taken the opportunity to offer funding and expertise to a CSR-focused issue.

Though interaction between European and Chinese companies on CSR has been very limited, Valentino has noticed Chinese companies engaging in CSR on their own terms. "The Chinese tend to approach CSR from a funding angle. They hold lots of events like charity galas to raise money. But they are engaging more. My gut feeling is that they will do it on their own terms." Significantly, China's major business schools have begun putting CSR into their curricula. Luckily, says Valentino, CSR fits the Chinese government's recently stated goal of achieving a "harmonious" society. "Chinese companies are seeing that CSR plugs into the overarching policy of a harmonious society and so they say 'lets go for it'."