If you like long lists of online resources about doing business in China — and who doesn’t ? — then you’ll love this one. We love it because two of our sites are on it (ChinaSolved and BestPracticesChina) - and because we know that SCB will be on there next year. Probably WAY above BestPractices.
Have a look for yourself here.
http://www.bschool.com/blog/2008/100-essential-resources-for-doing-business-in-china/
When you start doing business in China, many local consultants and partners offer overseas businesses a shortcut to China riches by offering to use their connections or “guanxi” to help make things happen. Is this a good idea?
Business in China is like running a race. Local Chinese managers will definitely sprint off the line and put a lot of distance between you and them in the early stages. But as many western businessmen have found out, if you can stay in the race for a long time, you may ultimately outrun them. Local businesses often do not see the sense or appeal of marathons.
That analogy is helpful in explaining the issue of “guanxi”, or connections. Much is made of guanxi in the glossy news magazines and in current paperback business manuals. But like “localization”, “face”, and other China-biz buzzwords, the concept of guanxi takes a little analysis before western businesses can apply it to their advantage.
For newcomers who have read the airport newsstand manuals on China, there will be a strong impulse to take the “guanxi shortcut” of hiring a consultant who promised to lots of connections. Be aware that these are NOT your connections, and may not ever be. You have to develop your own, which will take time.
Guanxi is great to have – BUT you have to build it up yourself. Be very careful when trying to buy or rent it. Consultants and partners do not transfer or bestow upon you their guanxi. As a matter of fact, they demonstrate your lack of it. Imagine that the situation were reversed for you back home. Your lawyer or a consultant introduces you to Mr. Li from Beijing, who is has just arrived in Chicago with money to spend and is looking for help setting up a retail network. You may choose to work with him, you may not. But you certainly have no illusions that Mr. Li is a serous player in your market because he has hired an acquaintance of yours. In fact, you probably conclude that Mr. Li lacks his own connections, and isn’t willing or able to build his own network.
Another concern is that the people who use their connections to open doors for you can also use them to slam shut those same doors. We’ve all heard stories of western businessmen who were cheated or swindled. Well, almost every one of those unfortunate incidents began with some partner or fixer who offered to help out through the use of his extensive network of friends in the government or other companies. Be careful.
When a newcomer to China is shopping for professional help or partners, guanxi should definitely be one of the things to discuss. But a local consultant should bring much more to the table than JUST his contact.
There are 3 aspects of guanxi that you should be aware of:
In short guanxi, or good relationships, are as good and important an idea in China as it is in any other market. But when relationships become commoditized, the wise businessperson determines the value of each exchange before the transaction is undertaken. Those that try to buy their friends often find themselves in the same situation as those that try to buy love. They put themselves in the company of the sorts of people who put a monetary price on that which their betters would rather give to the worthy.
Chinese and American salesmen fail in different ways, but the successful ones both operate almost identically.
Young Chinese go for the Relationship first
Chinese newcomers to the sales world believe in building relationships – with anyone, at any cost. It doesn’t matter if their target has the ability to buy, any use for the product of service, or even has money. Young Chinese sellers will spend hours developing relationships with anyone who will give them even the smallest opening. Often they seem to think that one relationship will lead to another until eventually they are introduced to the perfect prospect.
Young Western salesmen go for the Transaction first.
Raised on movies like “Boiler Room” and “Wall Street” (and maybe “Mission Impossible” as well), young American salesmen like to see themselves as tough, hard-hitting businessmen who can shake hands and pound tables to force open the doors to their first big deal. They want to sign that first deal and then build the relationship around that success.
Experienced Salesmen know it’s about BOTH the relationship and the transaction.
The problem with the first approach is that you end up with lots of acquaintances who are vaguely aware of your product offering but don’t really consider you a business contact. The second, more direct approach has merit in specific business circumstances – but you have to guess correctly about the client’s needs and priorities. He’s not opening up and telling you about his business.
Older, more successful salesmen from both China and the US understand that you need a combination. Chinese salesmen will begin with a cordial relationship – but learn how to turn the conversation towards business and transactions once the initial social niceties are out of the way. They present themselves as a good friend who can help solve work problems. The western salesman, with a history of several deals and a solid track-record, builds a strong, friendly relationship around those transactions. Once a salesman has completed a few deals with a buyer, there’s a good chance that future negotiations will take place on the golf course or over dinner & drinks.
Both Chinese and Western salesmen eventually end up in the same place – a friendly business relationship that results in mutually value-adding transactions. The biggest difference between China and the West is how young salesmen approach the process. Young Chinese start with the relationship and try to build towards transactions. Young westerners start with a transaction and use it to cement a relationship.
Once you have done the basic “desktop” research about your China entrance, it’s time to take a trip out here and get some things done.
If you haven’t made any decisions yet and just want to get a feel for what’s going on, then a brief, whirlwind tour or a few big cities may be in order. But if you are only in town for a couple of days, don’t plan on starting any complex negotiations or partner searches. Service providers and consultants have heard so many long-weekenders spin so many grand schemes that it is hard to take anyone seriously when they have a return ticket sticking out of their pocket. When you have made your decision about where you want to set up shop, plan on spending at least a couple of weeks (though 4 weeks is probably more realistic) in town just to get the ball rolling. Don’t worry about being off-line for that long – because China is a convenient 12 hour time difference from the Eastern US, you can devote the entire day to your China set-up and still have all night to tele-manage your US operation. Seriously – this time shifted long distance management is going to be part of your life, so you had best get used to it early.
Things move at an odd pace in China. You’ll think that business is getting transacted at a brisk but controlled pace at first – then everything grinds to a halt or unwinds – followed by a sudden burst of activity just before you have to leave town. Don’t be suckered. During the set-up process, the ability to control time is just as important as the ability to control budget. Don’t let people lead you around by the nose or waste your time. In the early part of the process, time is more valuable to YOU than money – but the consultant or salesman you are dealing with might not feel that way.
Your first priority in China will be to build your team. I’m not talking about hiring employees or managers yet – that’s coming up. I mean your A Team of consultants and experts. You’ll need a lawyer, accountant, HR consultant (they don’t like being called Head Hunters, apparently), market researcher and someone who can manage the project once you go home. There are three routes for you to go on this.
Option A is to go with a specialist business entry firm. These people were more valuable when regulations were vague, shifting and opaque, and new business entrants often needed connections and special contacts to understand and comply with registration rules. Nowadays, setting up a business in Shanghai is quite clear-cut and transparent, and just about any competent lawyer can do the paperwork for you as part of their general practice. That’s not to say that some business entry specialists aren’t worthwhile – but you should look for one that provides other services and specialties that you’ll need. The ones that just do registration have been known to exaggerate the complexity of the task to justify higher fees. Beware of one-stop shops that offer too wide range of expertise and services.
Option B is to go with local service providers. They are less expensive than their international counterparts, and plentiful. The quality of service, experience and quality varies. I know of people who speak excellent Mandarin who have run into tremendous problems. Very few experienced westerners would advise you to use local consultants – at least until you have your operation on the ground.
Option C is to take a project management approach and assemble a team of ex-pat consultants or JVs with ex-pat partners. There are plenty of western-run businesses that have been on the ground for 10 years or more and know the lay of the land. They manage local teams who can interact with officials and do much of the heavy lifting – BUT THEIR MAIN ADVANTAGE IS THAT THEY KNOW WHAT YOU ARE TALKING ABOUT AND CAN GIVE YOU A STRAIGHT ANSWER. If you are trying to buy a State-owned property or set up a new telecommunications network, you are going to need people with serious connections and political savvy. If you are opening a restaurant or starting a software company, you need people who can fill out the paperwork correctly and return phone calls quickly.) If you don’t know China well, then working with a group of professionals who understand your needs and make you comfortable and confident with the process is very important. This kind of expertise will cost you more than the local price, but far less than the US (or international) price.
American managers love incentivizing workers. Commission, bonuses, profit sharing, stock ownership — all serve the same purpose, and they all work just great when the company is new and/or the economy is booming. But when your stock options are underwater and your profit-share is sharing a quarterly loss, you suddenly find that your plans are incentivizing all the wrong behaviors.
Our friends at Chinese Negotiaton recently posted some interestng ideas about compensation plans in China:
Time to reset the targets?
If you are working with a compensation plan that is heavily dependent on individual or corporate performance then your people are feeling like they’ve suffered a real salary cut. You might not see it that way, and you might be right. But we both know that being right isn’t going to help you if people start quitting. Is this a good time to re-structure your compensation plan?
Step 1 Goal Setting
What’s your goal right now - retain or downsize? If you want to start shedding staff, then there are worse ways than slow starvation — but there are also better ways. 2 dangers with the slow-bleed. First, the people you want to hold most will be the first to find new jobs - possibly with your competitors, and second it can seriously poison morale forever. Let’s say your goal is to RETAIN a large group of key people.Step 2 Adjust it or scrap it.
You can offer to reset numbers and negotiate new targets, or you can shift to a salary + bonus system. Resetting targets is OK for the guys who see this as a temporary downturn, but just make sure to make the new targets automatically convert back to the old ones at some point. Don’t get stuck with low sales target if your sales are holding up. This might also be a good time to re-examine and retool hastily drawn-up profit shares and performance bonuses that are now seriously far under water.Step 3 Negotiate
This is one time when you may be negotiating from weakness with certain people. Be very careful about trying to bluff this. If you really are negotiating from strength then you have to decide on a time frame and get a good deal that doesn’t alienate anyone. Is this going to be a short-term situation or do I need to figure out new ways to survive over the next 2 or 3 years?
Even if the Chinese economy misses the worst of the global recession, western entrepreneurs in China are still facing some tough times. 7.5% YOY GDP growth would be a dream in Washington, but it’s a nightmare for Beijing which has recently struggled to reign in 11+% growth numbers. There’s a new test that every business model should have to pass — the long SONG test. (Slow Or No Growth)
Will your business survive a long period of Slow or No Growth in China?
Most western business start-ups in China tend to focus on the high-end of the B2B or B2C service sector. American and European owners have been setting up shop in Shanghai, Beijing and Shenzhen to serve the giant multinational (MNC) supply chain. Sometimes it direct — like the designers and engineers who create new branded products. It can also be an indirect relationship — such as the restaurant owner that serves 80 rmb burgers in an American-themed sports bar.
This is part of the Chinese economy that is most like to be singing the recession SONG for a quite a while.
Making money or starting a successful business in a global recession is not impossible - but you have to make sure that your business model can thrive in SONG environment. Since a typical China start-up is built on very rosy projections of robust economic, you might want to be very careful about the assumptions you have built into your model.
What if China’s growth moderates for then next few years? What if the middle class stops growing? What if discretionary spending disappears?
If you are planning another super-luxury exclusive restaurant on the Bund, then you have an uphill battle on your hands. But if you can provide high-value services at reasonable costs to individuals and businesses that are trying to reduce spending, you may do great.
Find Chinese partners and providers who specialize in your field
I recently attended a networking event in Shanghai targeting entrepreneurs. I met a very bright young Chinese man who was involved in the IT business. A US client of mine is looking for a specific solution in China, and I had a brief conversation with Mr. L. about this situation. He offered some very interesting ideas, and seemed to have some valuable skills and experience. I asked for his card, and made a point to remember his name and company so that I could contact him the next day.
At that point, Mr. L and his company were strong candidates for my business. But when I checked his website, I found that Mr. L did indeed write the kind of software I needed – but he also did about 10 other things. Some were closely related to my needs – but others were completely different. And at least 2 of his other job functions competed directly with my. I decided to pass on Mr. L and his diversified conglomerate for now.
Building a good network of service providers and outsourcers is vital to your success in China. But you have to be aware of young Chinese entrepreneurs who try to cast a wide net by offering a very large number of services and businesses. These leads to three big problems:
1) Specialists are very good at one thing. Generalists are familiar with a wide range of things. If you are looking for a Chinese service provider, then you should trust specialists more than generalists. Beware of Chinese ‘consultants’ who try to specialize in 10 different things. Often it just means that they have 10 classmates who say that they can do these jobs.
2) Time management is hard enough when they are busy with one business. If a small company’s website says they have 5 different locations doing 10 different businesses, you should worry that they are either too busy or not getting any business. Probe to find out what their experience is like and what kinds of activities they are working on at this moment. If they tell you that they specialize in your field — but are presently working with 2 clients in completely different industries, then you have to move on to the next candidate.
3) The more different KINDS of business they have, the more likely that they are to have a conflict of interest or directly compete with you or your clients. I needed some software written – but this person also did investment counseling, real estate investment, outsourcing and financial consulting. The last thing I want to do is put my clients in front of a consulting supermarket! He’ll either satisfy them and steal my client, or disappoint them and ruin my reputation.
Finding the right kind of help in China will make a huge difference on your bottom line. But you have to beware of incompetent and/or dishonest consultants who promise the moon and then disappear — often with your clients! Ask for references and details. You may invest more time in finding a service provider, but you’ll find that nothing has as much impact on your ultimate success in China.
Doing business in China means managing a Chinese sales force
In the last couple of weeks I’ve run into several ex-pat entrepreneurs who have set up successful China-based businesses. They are energetic, creative, and ambitious individuals who all have big plans for China. But successful entrepreneurs have to become effective mangers – and they are struggling with the challenges of running their sales teams.
Sales management for non-sales professionals can be a real headache. Here are a few tips that may make your life a little easier – or at least more profitable
Sales management for non-sales people starts with these 5 areas.
1) Managing & goal setting
2) Hiring
3) Training & Coaching
4) Structuring the department
5) Compensation
Managing – Salesmen can be jerks. Being aggressive and determined and focused makes them effective salespeople – but lousy colleagues. This isn’t as bad in China as it is back home, but you should still expect that managing and motivating your sales team will be one of the least pleasant parts of your job. Just like back home. Don’t let these people bully you or bullsh*t you, as they will try to do. Salesmen are goal-driven, and sales management is about setting good goals and making sure that they get met. In China, motivation may be more of a challenge. Big money gets a big reaction, but not that many people are jumping through hoops for an extra 300 rmb per month. Try group incentives as well as individual compensation plans.
Hiring – You want to find the middle between 2 extreme sales-type personalities. Aggressive salesmen will convince you that they have all the answers, but they tend to lie and will probably disrupt your operation. If you go the other way and hire a friendly “relationship” salesman, you are sure to enjoy their company but you won’t get rich paying them to schmooze all day. HINT: Pay a little more and hire someone with a few years of sales experience IN YOUR INDUSTRY. Develop them to be your sales manager.
As we switch from a booming market to a slowing one in China, hiring experienced pros with proven track records becomes more difficult — and more expensive. But the first bear market in recent Chinese history is a lousy time to try to break in a new salesman who doesn’t know what he’s doing.
Training & Coaching – You do the product training. Bring in pros to do the sales training. Your job as a coach is to make sure that the training has an impact. It’s best if your coaching relationships with your team are warm and cozy and life affirming – but it’s not necessary. Weekly, scheduled meetings to review performance and set goals is fine. Delegation is an important part of coaching, but requires regular feedback. Chinese workers LOVE training — particularly when its formal, outside and 2 or 3 of them get to go together. Use this the right way and its a powerful management tool. Many Chinese consider training to be one of the main benefits of working at a western or international company.
Structuring the department. Structure develops whether you put it in place or not. If you organize the sales department according to your own plans, it may be very effective for you. If you allow your department’s structure to “just evolve organically”, it will be effective for someone else. In China, you should always know where you want people to rise to. Have their promotions in mind and be more proactive than you would be in the US. Also — be aware of the “shadow leader” who tries to exert too much informal control. These guys can be trouble.
Compensation. Commission and performance based compensation plans work well. But you also have to be ready to fire the under-performers. When compensating sales teams, make sure that you are identifying and rewarding appropriate behaviors. Don’t pay people just for filling a chair. On the other hand, you have to have some kind of group compensation scheme or morale will go to hell in a hurry. Find a good balance that allows you to pay the real performers serious money while still keeping everyone happy.
Negotiating with Chinese partners, service providers and outsourcers is a major challenge
Doing business in China is getting more straight-foward all time. There have been plenty of success stories for westerners entering the China market, and there are a lot more in the works. With economies around the world slowing down many successful American managers and owners have been wondering if it is even possible to do business in China.
It’sa big question - and the answer depends in part on your ability to locate reliable local suppliers, partners, outsourcers and managers to make your operation a success.
The legal structure in places like Shanghai, Beijing and Shenzhen is fairly well established and relatively transparent. Yes, there are still a few horror-stories about legal and regulatory problems, but if you are dealing with private enterprises you are in no more danger than you would be in any other bureaucratic emerging market. If you are dealing with the government or a state-owned enterprise, however, you are on your own. This is a whole different ball-game.
One of the biggest challenges you’ll face in China is finding high-quality, reliable outsourcers and service providers. Here are a couple of behaviors you should be on the look out for.
The government in China is like a force of nature. You are not going to change it, but you can prepare for it – if you know what to expect. The real danger is believing that the skies are clear and the waters calm when in fact a typhoon is on the way. Assume nothing, and make good information your number one priority in the early days. Then you should be a big success as you start you China business.
Making money in China means knowing what to ask for — and understanding what you’re getting.
China business has a well deserved reputation for 2 things – low costs and low quality levels. That’s not necessarily a bad thing – there are times you are most sensitive to cost than to quality. Most businesses, however, have certain standards and minimum levels of quality standards that they must satisfy in order to do business. In China, enforcing quality standards is challenging, but possible.
While Chinese manufacturers have gotten much better at raising their quality control skills, China’s burgeoning professional-services market is still quite uneven when it comes to QC. There are essentially three classes of service providers in sophisticated markets like Shanghai, Beijing and Shenzhen.
The first type of service provider is the local professional whose standards of quality are difficult to predict. In most cases, these types of consultants and service providers are inappropriate for overseas businesses if the required services are complex or undefined. Under no circumstances should you be this kind of business’ first western customer. Get references from previous clients. If they cannot or will not provide them, then save yourself time and move on. Under no circumstances should you pre-pay any but a small percentage of the fee. Many, many frustrated westerners report on major projects and long-term relationships destroyed by partners who only wanted to pocket minimal deposits and pre-payments. Your potential losses in terms of time, energy, and opportunity are vast in comparison to the sums that unsophisticated, unscrupulous service providers are willing to steal.
On the other end of the scale are the western companies operating in major Chinese business centers. These are often the same name brands – and the same high levels of service – that you will find in NY, San Francisco and London. The problem? Their fees are also the same – or in many cases, even higher. If you want to have a building designed or are undergoing major surgery, that’s fine. But if you are in China to reduce expensive, then this route is going to negate a lot of China’s cost advantages.
Until fairly recently, those two ends of the spectrum were your only options. In the last few years, however, we have seen the emergence of a third option. With the opening of China and the influx of overseas & returning Chinese and western entrepreneurs, it is now possible to find high-quality services at a reasonable cost. The challenge here is finding the right suppliers, and negotiating carefully. You still have to pay close attention to quality and manage your consultants and contractors much more intensely than you would in other places. Most of these service companies are using western standards of management and locally trained employees, so QC is still a big responsibility. Good companies will do their best to provide you with high quality work, but you are advised to develop rigorous procedures for making certain you are satisfied AT EVERY STEP. Don’t wait until the end of a project to inspect progress. Deadlines and schedules don’t carry the same weight in China as they do in other places. That being said, many western businesspeople have been well satisfied by the work of their Chinese consultants and associates.
In short, China now offers the western business person a wider range of professional services than ever before. But it is incumbent upon you to be rigorous about your due diligence procedures. If your potential supplier cannot furnish you with a detailed timetable, a graduated payment schedule, and a set of current references, then you are advised to look elsewhere. For added security, investigate who will actually be doing the work you are contracting for. If it is being performed by a third party or by untrained locals, you should be wary.
