About Andrew Hupert

Andrew is consultant based in Shanghai who has been working with the Greater China market since 1991. His specializes in helping new China entrants with sales management, marketing and negotiation. Contact him here.

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ChineseNegotiation.com blocked in China. (Temporarily, we hope…)

By andrew | January 10, 2008

Editor’s note:  ChineseNegotiation.com and DiligenceChina.com are both presently unavailable in Mainland China since they are being “blocked” by the Chinese firewall.  In all likelihood the problem is related to other sites’ sharing the same commercial server or some kind of technical issue.  The editors have only limited access to the back-end of the sites, so updates and new postings will be even less frequent than usual.  We appreciate your patience and support during this time.

Topics: General China | No Comments »

5 Chinese Negotiating Styles

By andrew | December 12, 2007

Management consultants and academics who look at negotiation sometimes place counterparties on a matrix of 2 dimensions – concern for others’ goals and concern for one’s own goal. 

 Competitive negotiators care only about their own needs and nothing for the counterparties.  They are Win-Lose negotiators.

 Accommodators are those that care more about their counterparty’s needs than their own.  Salesman with important clients fit into this category of Lose-Win negotiators. 

Compromisers are the ones that try to work out differences and arrive at an equitable distribution of scarce resources.  The look Win-Win, but many negotiators consider them Lose-Lose.

Avoiders are those that prefer not to negotiate at all.  Anyone who has told you that your idea violates company policy or that the boss who makes that decision is out of town for then next 6 weeks may be a great example of an Avoider.

Collaborators make up the last category – and these are the guys who want to push envelopes and think outside of boxes to build new business.  If you want to buy a couple of household items and the counterparty wants to start a manufacturing JV with an R&D center, then he is probably collaborative in his approach.  They talk Win-Win but if they don’t have the resources or capacity to follow through they can actually be huge drains of time, cash and patience. 

You will meet each of these negotiating archetypes in China – but things will not be quite what they seem.  Two cultural factors influence how each negotiating style will appear in China:

1) Relationships are currency to Chinese negotiators, and the banquets, dinners, KTVs and visits are not just meeting places – they are deal points.  Refusing to participate is insulting – but letting them make the arrangements all the time reinforces the notion that you are playing on their home court (i.e.: weak, ignorant and vulnerable).

2) They all had read Sun Tzu’s “Art of War” in junior high and now swear that it governs the placement of every delicate strand of their grand strategy.  In fact the only thing many of them remember from the book is the part about deception being a good tactic.  

What impact does this have on Chinese negotiating style?

Competitors will often appear to be very accommodative – offering to bend over backwards to help you.  They may even be very flexible on certain issues – particularly schedules, timetables, sales targets and other things that can’t be easily enforced later.  Don’t fall into the trap of negotiating solely on price with competitive counterparties – access to information and audited financial data, quality standards, supply chain and personnel issues are what will make or break your deal with these sharks.

Accommodators exist in China, but you have to be doubly careful here.  Beware of counterparties who look helpful but are really plotting to slaughter you for your gold fillings.  But wolves in sheep’s clothing aren’t your only problem here.  In China kindness can kill as passive colleagues and counterparties smile and nod as you blunder into disaster.  In Shanghai and Shenzhen the situation has gotten better, but you still shouldn’t assume that people will warn you about mistakes and dangers that are obvious to everyone else. 

Compromise is an integral part of China’s consensus-oriented culture and your counterparty may look like he’s really searching for a fair solution.  It’s possible – but he also may have anticipated your naïve willingness to sign a deal and will employ the meet- in-the-middle” technique more commonly seen at one of China’s many ‘fake markets’.  Here they set a price 400% above their real target, and will try to compromise you down to a mere 200% overcharge.  Don’t start negotiating when they call out a number.  Learn the market and control the parameters of the discussion at the start.  (I.e.: Just because they say 500 doesn’t mean you are required to shout back a counter offer.)

Avoiders are common in China, and are most likely to show up in the middle of modern international corporations and the heads of State Owned Enterprises.  China’s Imperial legacy lives on in its bureaucracy, and you may find it extremely difficult to meet the real decision-maker face-to-face.  Every situation is unique and it may be worthwhile for you to pursue some long-shots…BUT if you can’t get a satisfactory answer to basic questions before you sign a deal you’re probably going to have a lot more trouble afterwards.

Collaborative negotiators are your greatest hope and your worst fear in China.  On the one hand a true value-adding partner can open doors and supply vital market information.  The problem is that lots of Chinese counterparties like to talk like the boss even if they don’t have the power to back it up.  The result is a lot of big plans that don’t ever amount to anything.  China novices have been known to build these optimistic notions into internal business plans – and later face disappointed senior managers who want to know what happened to the budding China JV.  Beware. 

Topics: General China | No Comments »

China’s New Culture Gap is the Generational Kind

By andrew | October 24, 2007

I was recently asked to give a talk on negotiating a first deal in China.  Talking to a group of new ex-pats about the cultural norms of doing business in China used to be a hot industry in Shanghai, and there are still plenty of people making good money at it.  I’m finding, however, that it’s getting a lot more difficult to categorize points of cultural divergence between China and the West – mostly because they are being overshadowed by the differences between Old China (35 years old and up) and New China (under 35). 

Everything that usually gets written about negotiating with Chinese managers and bureaucrats usually refers to the last crop of managers that either made the transition to free market competition or were reporting to people who did.  That’s where the buzzwords really come into play:  guanxi, preserving face, banquets & toasting, red envelops etc.  This style of negotiation – socialist bureaucracy meets 21st Century commerce – still goes on, but it is starting to give way to more modern approaches.

In newer or re-organized Chinese companies and China-based MNCs, however, you’ll encounter a younger type of Chinese counter-party who works in an operating environment similar to yours.  For him, deal-making is a structured process that must be governed by rules, logic and profit.  He has probably received formal training in negotiation, team management, and sales or procurement – depending on which side of the table he sits.  He answers to superiors and committees about specific price and delivery issues.  This guy isn’t asking for pay-offs or drinking parties – he wants the paperwork filled out properly and a rock-bottom price.

That’s not to say that New Chinese negotiating is any easier or more pleasant than Old Chinese negotiating.  You still won’t meet the boss and you may not be sure who really decides anything.  Payment schedules and quality issues still take a lot more time and energy than you think they should, and there’s absolutely no guarantee that language or cultural issues still won’t sink the deal.    But the process of negotiating in China has changed a great deal in the last 5 years, and you should be using that to your advantage.

1) Know what age group makes the decision.  Young Chinese use polite key-words like “this company is still very traditional” or “Mr. Chen is quite conservative” to indicate that the decision-making structure is going to be opaque and indirect.  If your contact refers to his company as very “international” or “modern”, you MAY be looking at an RFP or other structured system.  It’s ok to ask your new contact about the best procedures for submitting a bid or dealing with proposals. 

2) You have more choices now.  If you want to negotiate directly with the boss, you may be able to do that – but only if you select an organization that works that way.  40-something traditional managers haven’t changed their style much, and they’re not going to.  But now there is plenty of competition from newer or more international organizations.  Shop around for your counter-party, and you’ll be much happier in the long run.

3)  Beware of mixed messages.  Lots of traditional Chinese companies and state-owned enterprises have brought in consultants and trainers and slapped a modern whitewash over their convoluted, cob-webby operating systems.  If you’re sitting in a giant board room waiting for the tea leaves to sink with a couple of bright, eager young grads who seem happy to see you but don’t  know much, then you are probably talking New China but walking Old China.  On the other hand, don’t be quick to write off giant state-owned giants – many of them have taken modernization and efficiency to heart, and you may be surprised at how quickly things move. 
  

Topics: China Business | No Comments »

10 Signs that your China Deal is Getting Too Complicated

By andrew | August 6, 2007

Negotiating with Chinese counter-parties is getting easier all the time, but there are plenty of situations to look out for. Many westerners who enter into a negotiation with a Chinese counter-party are so sensitive to cultural and interpersonal issues that they lose sight of business issues. Big mistake.

Deals in China can go off the rails easily and early. The key to success in China is to walk away from bad deals and find good ones. I know – that sounds simple. The fact is that many newcomers to China business have trouble spotting the red flags and danger zones that indicate a deal is about to fall apart. The result is that they hang in there and keep negotiating with inappropriate counter-parties until they und up with a bad compromise and a disastrous deal.

One thing that you’ll find in China is that deals that start out very simple get incredibly complex very fast. It’s not accident. You counter-party may use complicated structures and drawn out timetables to insert advantageous terms or conditions that get lost in the shuffle.

Here are 10 warning signs that a deal is about to get too complicated too fast.

1) Terms that will change at unspecified times or circumstances in the future. This is particularly true of price, cost, product line or technology. As in “we’ll sell you the existing technology at price X, and when the new product line is ready we’ll lower the price to Y”. May also include: “when we move to the new facility…”, “when we get the approval from the government…”, “when we develop the new product…”, “when we hire the new engineer…”, “when we tie up with our sister company…” It’s not that they’re necessarily lying – but you can grow old waiting for the conditions to become reality.

2) New technology or connections to be introduced later – but priced now. Many Chinese companies will assure you that they have the ability to develop new products or technologies in the near future that will meet the needs you have now. Your big concern is that the first iteration of new technology won’t work – but will satisfy the terms of the contract. You other concern is that they never hold up their end at all.

3) Asymmetrical payouts. You pay now – they deliver at some unspecified time in the future. This one was one of the big problems with all of those JV horror stories we used to read about.

4) Open ended liabilities or unsettled valuations. Every deal you do should have very specific valuations and timetables. You wouldn’t sign a contract with blanks – don’t do a deal until you’ve clarified all the terms.

5) Best effort sales/marketing deals. Another big red flag in China. If you are investing or supplying technology and relying on your local counter-party to market your product, make sure that they have a solid network, good references and specific experience in your industry. Make sure you have a way out and a Plan B. Chinese distributors are notoriously sketchy when it comes to fulfilling best-effort sales agreements.

6) Anything involving connections, relationships or trust. If they say “I have guanxi” you say “I have to go”. Seriously.

7) Mysterious new players enter – particularly decision makers – and change the terms. This can happen to anyone in any country, but in China it means you are starting over from scratch. This is a common tactic here, and it doesn’t bode well for your partnership. If you can’t meet the people you are really negotiating with then it is bound to end badly. This may be a deal-killer, so be careful about proceeding.

8 ) Deals escalate into long-term, multi-transaction JVs too quickly. If you want to buy or sell something, then you can start with a few test orders and develop the relationship over time. Don’t believe any noise about Chinese only working with long-term relationships. Reputable Chinese counter-parties work with test orders and short-term deals all the time.

9) They want you to do anything without a contract. Usually this takes the form “the owner/accountant/treasurer is away on vacation and we can’t stamp the contract until he’s back but if we don’t get the deposit now we won’t be able to make the deadline…” No. Just plain NO.

10) They tell you that something is too complicated to explain. They’re right. Walk away now.

Topics: China Business, Due diligence | No Comments »

Find partners and consultants who have Specialties in China – not China as a specialty

By andrew | July 5, 2007

China’s markets have become much more sophisticated and complicated in just the last few years. That improved sophistication is a double-edged sword for new market entrants. On the one hand, localization of products and services is getting easier as market research becomes available. Quality levels are rising, the regulatory environment is becoming more transparent, and the market has become educated about a wider range of potential purchases. The downside? Your costs of doing business are skyrocketing, and the degree of competition for both market share and mindshare have intensified.

Unless you plan on investing in a mainland HQ, you are going to be running your China operation through a network of partners and consultants. The range of potential service providers and reliable partners has never been higher in China, but you can narrow your search considerably by make a few decisions about your China business before you conduct a single interview. You should decide on what SPECIALTIES and CORE COMPETENCES you will need.

There are 3 kinds of specialists in China.

1) Industrial or business specialists.
A sourcer who is an expert in the textile industry.
A business entry consultant who specializes in software or marketing.

2) Client specialists.
A logistics consultant who speaks Chinese and Spanish specializes in helping Spanish-speaking clients.
A project-management firm founded by German and Chinese engineers works with German electronics companies to supervise OEM contracts.

3) Geographic areas.
A real estate developer specializes in Yunan Province properties.
A supply-chain expert who specializes the in the Ningbo market.

NOTE: Shanghai, Beijing and Shenzhen are not appropriate places for a geographic specialty. They are too big, too diversified and too competitive.

Why do I need a specialist?

Many newcomers to the China market feel that they are better off with a generalist that they can trust to get them pointed in the right direction at the beginning. This strategy may still have some life left in it, but you are going to run into some limitations very quickly. Your best bet is to use the generalists to find more specialized service providers right away.
To see why, turn the situation around. You are sitting in your office in NY or Chicago, and you get a call from a lawyer in California representing a client from Beijing. The lawyer in question doesn’t understand your business, doesn’t understand his client’s business, doesn’t understand the industry drivers or the market, but wants to chat with you about the potential to set up a JV at some point in the future.
You are going to have one of two reactions to this encounter. 1) It is a waste of your time. 2) This Chinese client must have lots of time and money to burn if he is taking such a scatter-shot approach to business. Maybe you should take the meeting and see what you can get out it.

You don’t want to be THAT client in China, where you can spend 6 months of back & forth just to find out what the company really does! It makes much more sense to take the time to find an expert in your business challenges. In China, the ability to access a useful network of contacts is one of the most important value-added skills that a consultant offers. (And don’t be taken in by big-name international firms that offer to open doors for you. Yeah, you’ll get great meetings – but the counterparty may be more interested in meeting your expensive consultant than in doing business with you!)

Another reason for dealing only with specialists is that it helps you do your due diligence on potential service providers. Shanghai and other major Chinese cities offer you access to a wide range of competent, reliable, experienced consultants who can help make your Chinese business a huge success. But for every honest professional there are dozens of charlatans, con-men and incompetent novices. Screening out the winners from the losers is much easier if you are discussing business specifics. True, you may not know anything about business entry regulations in Shanghai. You will, however, know a lot about your potential clients or operating conditions. If your consultant has never handled a client in your industry before, you are best off continuing the search until you find someone who has more experience that can help you. As always, get references from international clients, and check them out carefully.

Topics: Business Entry, Due diligence | 1 Comment »

Successful Negotiation in China: Fool me once, shame on me.

By andrew | June 18, 2007

If a counter-party lies to you once, they will lie to you again. This is true ANYWHERE IN THE WORLD, but for some reason, western investors and managers looking to do their first deal in China need to be reminded of this.

Just for the record, a lie includes:

    Saying they have already have ISO 9000 certification when in fact they are planning on sending one of their junior operations people to a seminar on quality control next spring.
    Telling you they have dozens of US and European customers when  actually they were visited by one delegation from an Italian company 3 ½ years ago.
    Stating the company is 12 years old when in fact the management team has a combined experience of 12 years.
    Misrepresenting Chinese law or regulations –WHETHER BY DESIGN OR ACCIDENT!! (Note: It is their responsibility to know the rules under which they operate. The same western managers who would rip the head off an accountant for a minor error seem willing to overlook obvious gaps in the knowledge of potential Chinese partners.)
    Telling you they are profitable and then not letting you see the books.
    Telling you they have exclusive rights to a product or marketing channel when they do not. Saying they have 35% market share when they do not.

    Telling you they own certain trademarks, patents, copyrights, or other IP when they do not.

    Telling you that the company has 20 engineers with college degrees when in fact they have 20 resumes from engineers.

    Telling you they know how to solve a technical problem when all they really know is how to hide the technical problem.

I’m going to repeat a basic, rock-solid rule of due diligence in China;

“Counter-parties do not get more honest, competent or cooperative as the amount of money on the table goes up.”

Have we all gotten that yet?

I know – finding a partner, supplier or investment target in China is hard. This is a frustrating place to do business. But that increases your need to do thorough, hard-headed due-diligence – it doesn’t lessen your burden.

If you were walking through Penn Station or Port Authority in NYC and you found someone’s hand in your pocket, you would quickly come to the conclusion that he was up to no good. For reasons that I can’t completely understand, many western investors and managers in Shanghai are willing to let that same guy keep fishing around until he finds what he is looking for.

Topics: China Business, Due diligence | 1 Comment »

Negotiating in China: Assume NOTHING!

By andrew | May 25, 2007

What do you know?
What do you know you don’t know?
What do you NOT know you don’t know?

Sounds like a word game, or a ‘new age’ philosophy discussion. In China, though, figuring out what you DO NOT know is your top priority for surviving your first year. Before you start doing RESEARCH on the China market, you have to INVESTIGATE the China market.

Chinese Negotiation Rule #1: The China market is a work-in-progress. The ground is shifting beneath our feet. No one really knows what the situation will be tomorrow. Tracking changes to regulations and laws is the easy part. At least they get published. But YOU are responsible for tracking changes in attitude, custom, fashion and business methods.

Rule #2: Much of what you have heard and read about China is a lie – or at least out of date. If you want to make a room full of Chinese professionals laugh, read to them from Time magazine, or a 3 year old marketing textbook, or yesterday’s New York Times. Tell a 26-year-old professional woman in Shanghai that “brand awareness isn’t too strong in China”. She’s likely to point out that your own ensemble is two years out of date. Mention to a local associate that China’s infrastructure and distribution network are under-developed, and they’ll show you a subway system that makes New York’s seem crude and primitive.

Rule #3: Understand the Hardware - Software dichotomy. First the shiny new buildings go up, and then they figure out how to fill them. A lot of bad decisions have been made by westerners who believed that the guy in the nice Shanghai office actually knew what he was talking about. In China, the infrastructure tends to outpace the business practices.

Rule #4: China experts like to fill in the gaps with easy-to-digest cultural punditry. Giving face. Building relationships. Market opening. Cultural difference. These phrases sound great and make newcomers feel like they are making progress demystifying China. The only problem is that these words don’t really mean anything. People who live and work in China don’t really talk this way. Spend a little time saying “so what?” or “what does that mean?”

Rule #5: Due Diligence is more important when you don’t know what’s going on. Get specific fast. Price breakdowns, itemized costs, references, partners, length of time in the business – you know the drill. Yeah, right – that’s not the “Chinese way”. But you’re not Chinese. There is only one constant in China – no one gets more cooperative or transparent after the funds have been transferred. Your pre-deal conversation is your one and only shot at getting answers to the hard questions. Oh – and don’t be afraid to ask the same question several times. If you get a variety of responses, then you’ve just heard your first alarm bell.

Topics: General China, China Business | 1 Comment »

In China, Service Contracts are not automatic

By andrew | May 15, 2007

I was on the Shanghai subway recently – which is looking a little less shiny and new these days. It is still damned impressive though - bordering on ‘Sci-Fi’ to a New Yorker who is used to standing on naked concrete platforms as the antique R train goes shambling past. But here, in the futuristic Huang Pi Nan Lu station, there was a crowd murmuring around a stalled train. One of the doors to the outer safety-barrier was stuck, and a conductor had to come out and manually PUSH the thing closed. It took a while, and did not build confidence.

A westerner sees this and says – “It’s poorly maintained. They didn’t take the service contract. They are cutting corners and skimping.”

A Chinese person sees this and says – “The western-made equipment is no good. They’re cheating us. They are taking advantage of the Chinese again.”

Chinese business people are motivated by price, and often by price alone. They frequently decline buying service contracts because service contracts are expensive and can usually be bargained away. The problem when you’re selling is that the claims you’ve just made about your product’s reliability, useful life and functionality are often dependent on a program of regular, high quality maintenance. It was factored into your ORIGINAL price, but those terms have long gone by the wayside. Now that your product is stripped down to the absolute bare-bones of functionality, you probably assume that all of the claims you made about normal operations and normal life have been forgotten about. Bad assumption. That’s why it’s such a good idea to have a clued-in lawyer involved in the process at some point to make sure the final language of the contract isn’t going to get you into deep trouble when and if the product is used or maintained improperly. Not a big deal for staplers or paper clips, but a potential quagmire for earth-moving equipment or medical appliances.

The same principle works in reverse, as well. I used to be a big fan of a certain well-known brand of boat shoes that will remain nameless – but rhymes with Perry’s Mopriders. I wore the same pair through junior and senior year of college, and then backpacked through Europe all summer after graduation. They got dusty. That’s a bit all. My most recent pair has needed to be stitched up multiple times. The basic materials are fine – but the glue and thread holding them together aren’t up to the same standards of quality. What happened? There’s no way to say for sure, but I’m guessing that somewhere in the supply chain some clever soul figured he could earn an extra couple of Fen (pennies) by swapping in sub-standard material. The famous brand’s QC people were probably doing a fine job testing the leather and rubber – but probably never thought to double-check such a low-value input. Their brand was compromised for the benefit of 0.01% of the purchase price.

The problem is that many ‘old-school’ Chinese business people really don’t see a connection between price and quality. They think that A) everything is negotiable and B) low price = high value. You walk in to a negotiation determined to achieve basic levels of quality, but your counter-party may genuinely not have any idea how to accommodate you.

What’s your solution? When selling, make it very clear from the outset what the product can and can’t do under NORMAL conditions and maintenance. Have an experienced international lawyer look over the contract – IN CHINESE – and be very frank with him about the product’s useful life and performance under the conditions of the final deal terms.

When buying, check references carefully and ASSUME NOTHING. It’s not a rule, but in China there have been many cases where certain counter-parties have destroyed an enormous amount of value in order to make minimal extra profits for themselves.   AND DON’T COUNT ON THE PROSPECT OF FUTURE DEALS OR LONG-TERM BUSINESS TO KEEP ANYONE HONEST.  To some counter-parties, every deal is a one-off here. Check references – don’t just ask for them. Make sure that your counter-party has the kind of experience and understands your target level of quality BEFORE you start engaging in negotiations.

Topics: China Business, Due diligence | No Comments »

Chinese Negotiations: Hiring China consultants with connections

By andrew | May 9, 2007

Many local Chinese consultants and partners offer overseas businesses a shortcut to success in the Mainland by offering to use their connections or “guanxi” to help make things happen. Is this a good idea?

Overseas SMEs should think of business in China like a race. Local Chinese managers like to sprint off the line and put a lot of distance between themselves and the pack 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 long-distance races.

That analogy is helpful in explaining the issue of China connections. For newcomers who have read the airport newsstand manuals on China, there will be a strong impulse to take the “guanxi express” 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.

Topics: China Business | No Comments »

Negotiating in China: Price Bands for Service Providers

By andrew | May 8, 2007

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 more 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 owners 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.

Topics: China Business, Business Entry | No Comments »

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