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Negotiating in China: Checking References
By andrew | March 9, 2007
Professionals and experienced managers know to ask for referrals before hiring a service provider or consultant. But like everything else, getting referrals in China is slightly different from referrals back home.
In China there is still a tendency to judge businesses by very low standards. An expat who has been living in China for 5 years may be satisfied with levels of service that you would find completely unacceptable. “Well, he took 3 times longer than scheduled, did only 40% of the work promised, spent 6 weeks doing something I never asked for and I can now I can only clear customs in Tsing Dao. But he was pretty good.”
The big change in the China service supply-chain landscape of the last 5 years is the rapid rise in quality — and price – among some consultants and service providers. But there are still plenty of duds out there, so you’ve got to make due diligence and transparency your top priorities.
Don’t be afraid to ask naïve questions, and keep asking until you feel you understand the situation to your satisfaction. Remember – in China incompetence and inexperience can be as damaging to your business as fraud and dishonesty. You need to conduct interviews with references that will reveal both.
This applies to expats, multicultural JVs and pure local plays. China changes people’s judgments and SOP, and you want to walk in with your eyes open. So many overseas businesses give preference to expat businesses and consultants that standards have been known to slip a bit. Check these facts:
1) Current references.
You need a range of current professional references from people who have actually done business with the company you are doing the due diligence on. Not just current friends or colleagues from the MNC they worked in once. You are only interested in international deals with clients that live overseas (if that’s your situation.) You should try to get references from their last 3 international deals.
If they’ve been in business for 2 years and can’t come up with a single international referral, you’ve just gotten all the information you need.
2) Same or related industry.
Remember, in China one of the big landmines is consultants who try to be all things to all people. Deal with experienced specialists when possible, or at least know when your consultant is in unfamiliar territory. Try to get references from people who are similar to you in key ways. If you are importing, make sure they have experience dealing with your source country. Companies should be of the similar scale, involved with the same class of product. Also, if you plan on working from overseas, make sure you have references from overseas companies. And if your company doesn’t employ Chinese speakers, you need to get references from other companies used English – or whatever language you plan on communicating in.
3) Same or related transaction.
If they do business registration – do they really know anything about market research or business planning? This is when you should ask about outsourcing and who is did the actual work. Did the referring company have a clear idea of who was handling the business, or was the process opaque? That’s a red flag.
4) Who did the actual work?
Find out who was doing the actual work? Was it the overseas MBA who took them to lunch, or some $100/month graduate from Shandong Polytech? Was it performed in-house, or was it outsourced? This is a good question to compare the answers of the consultant and the reference.
5) Communication style: Follow up? Pro-active? Promises kept?
This is another sensitive area for users of Chinese service providers – and it is not longer confined to locals. Many ex-pat and multinational consultants and service companies have started to get very passive about communicating with clients. Find out from past clients if your potential consultant makes the first move when it comes to making key information available. 20 questions is fun for little kids, but deadly for busy executives.
A related issue worth investigating is the attitude towards verbal promises, including deadlines and added features. Find out from referencing companies if your new consultant has a history of dropping the ball. This is a much bigger issue in China than in the west.
6) Attention to deadlines and timetables.
The acid test for competence in China is the ability to create realistic deadlines and timetables and deliver on time. If you don’t check this out, you are in for some ugly surprises. Unsuspecting novices to China have been astounded by how late work gets done.
7) Did they supply value-added advice, or just execute instructions.
A big issue in China . If you need a certificate applied for or a company registration, then a consultant who simply follows instructions may be just what you need. But if you need high-level, value added advice, then a “yes-man” could be fatal. Many expat businessmen have been shocked to find out that their high-priced consultant has been wasting time and money by blindly obeying the client’s misconceived instructions. Find out from the reference what the consultant’s approach is.
8 ) Degree of management required
We all want consultants that will understand our instructions, disappear and then show up with the completed work on time and on budget. That may happen a lot, somewhere. In China you have to determine how much ongoing effort and management your consultant or service provider will require. Do their clients have to initiate contact when there is a problem? Did the clients have to change the job specification or supply lots of new information on a regular basis? Was the company creative about solutions, or did the client have to devote time and energy to finding fixes and work-arounds? Don’t assume that your working relationship with a service provider or consultant will be the same as back home.
9) Were all parts of the initial specification completed?
If no, why not? Did they spend 3 weeks working on a blind alley? Even if they weren’t charging, it still wasted time. Many overseas businesses have been surprised to find out that a big part of their project wasn’t possible, feasible or even legal – months after the initial job specification was agreed to. You need to find out if this happens with the company you are considering working with.
10) Will they use him again? Why or why not? If not who would you use?
Now that you have some specifics, step back and ask the big questions. You may be surprised. Some people just give glowing referrals – even if they aren’t truly satisfied. And others are natural complainers. When it comes to selecting a consultant, repeat business is the true test. If your reference isn’t willing to use the same company again, you need to find out why. There’s a good chance that the market has changed, or that key people have left. Again – assume nothing.
11) Integrity.
Yeah, the ‘I’ word. Use it. Find out if your potential consultant has any.
12) Competence.
Yeah, the ‘C’ word. Use that one too. Ask the big, naïve questions, and then shut up and let him ramble. This is when you’ll find out what’s what.
If you don’t check references when it comes to hiring a China-based consultant or service provider, you are asking for trouble. Being able to “trust your gut” is great, but it doesn’t take the place of solid due diligence. That is even more important when you are entering a new market like China.
Topics: Business Entry, Due diligence |
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