With its booming economy, huge manufacturing base, enormous supply of natural resources, and expanding consumer spending, it's no surprise that China is high on the agenda for many businesses. More than 90 percent of multinational companies say that China is important to their global strategies, with 52 percent calling it critical, according to a recent survey from Mercer Human Resource Consulting, a Marsh sister company.

One indicator of China’s economic expansion is its gross domestic product (GDP), which is growing at a staggering rate and has averaged around 9 percent annual growth for more than a decade.

But with opportunities come risks. We invite you to download our latest edition of Risk Alert, which looks at a number of key areas of risk that companies already operating in China-or thinking about operating there-need to consider.

Among the critical issues considered in the report are:

• sourcing risks, such as supply-chain and business interruption issues;
• protection of intellectual property;
• recruitment, development, and retention of talented employees;
• trends and concerns in mergers and acquisitions; and
• the potential pitfalls of the Chinese insurance market.

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Risk Alert
Understanding China’s Business Risk Environment
Marsh. The world’s #1 risk specialist.®
Compliance # MA6-10539

CONTENTS
Introduction. 1
China Sourcing and Supply Chains. 4
China Sourcing Strategy. 5
Logistics Bottlenecks. 6
Product Safety. 7
Managing China Sourcing Risks. 8
Disaster Preparedness. 9
Intellectual Property Rights. 10
Talent: A Key Human-Resource Challenge. 14
Talent, Talent, Talent. 15
Recruiting Talent. 16
Developing Talent. 17
Retaining Talent. 18
Putting It All Together. 18
Mergers and Acquisitions. 19
Attitude Shift on Foreign Direct Investment. 21
Due Diligence—The Chinese Way. 22
Deal Breakers. 23
Insurance Developments and Potential Pitfalls. 25
Overview of China’s Insurance Industry. . . . . . . . . . . . . . . . . . . . 26
Insurance Markets. 27
Claims Management. 35
Master-Controlled Programs. 36
Conclusion. 38
Web Sites of Interest. 40
Abbreviations and Acronyms in This Issue. 41
Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

CONCLUSION
China has become such a dominant force in the global economy that businesses may be at risk if they don’t engage it in some way, whether to access its domestic markets or to serve as an export base. But opening a China operation should not be viewed as an automatic win for businesses.

As with any opportunity, there are a wide range of risks in China’s business environment, including sourcing issues; intellectual property protection; talent attraction, development, and retention; and merger and acquisition challenges.

Risk transfer through insurance can play a critical role in mitigating some of a company’s risks in China. But companies must recognize that the Chinese insurance market is still in an early stage of development and, thus, holds many potential pitfalls, especially for those unfamiliar with the territory. It’s important to work with trusted advisors when establishing risk-mitigation strategies for China operations.

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