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Chain of (Outsourced) Fools
By andrew | May 2, 2007
Know who is really doing the work for you when you hire a China-based consultant or outsourcer!
When you are working with a China-based consultant or service provider, it is a good idea to discuss who will actually be performing the work for you. Don’t assume that the people you are meeting and discussing project specifications are the ones who will be executing your project. In fact, you shouldn’t make any assumptions at all. So ask.
Outsourcing can be a great idea – but you have to do a special kind of due diligence.
If you don’t speak Chinese, then working with a local project manager to access high-quality, inexpensive Chinese workers or subcontractors can be a great deal for everyone. Win-Win negotiation at its best. In fact, building a network of high-quality value-added sourcers, project managers, and BPOs (business process outsourcers) is your key to success in China. You must be very careful, however, to find service providers who are really adding value and not just overcharging you and exploiting locals. That is a lose-lose deal that will result in shoddy workmanship, missed deadlines and wasted money.
In China local intermediaries can add value in three ways.
- 1) Transparency and information
2) Quality control
3) Project Management
Transparency
One of the main reasons to work with an intermediary or consultant is to access his experience and local knowledge. You should be walking in with a list of questions, concerns and goals to discuss with the local expert. But many westerners have complained that Chinese businesspeople can be reticent about sharing useful information. “I didn’t say anything because no one asked,” is a sentence that has left many western businessmen shaking their heads in despair. This is why it is so important to work with experienced service providers who understand your goals AND the market characteristics. Don’t assume that people will tell you things you need to know. Experienced westerners know that they can’t take anything for granted in China, and that the ultimately responsibility for investigating the business environment is theirs. Always be able to confirm key facts and data with at least one other source.
Quality Control
Another way for a consultant or intermediary to add significant value is in Quality Control. Again – don’t make any assumptions. Someone has to be in charge of QC. You may BELIEVE that the person in the expensive Shanghai office that you give the money do will “take care of that”. But unless he shares that belief – preferably in writing – you are in for a rough ride. China has made huge strides in terms of QC on the manufacturing side of the equation. The service sector, however, is still a work in progress. If you are paying for intellectual property or business services, you had better figure out how to measure the quality of work being done for you. It is also a good idea to incorporate milestones and intermittent inspections or reports to assure that minimal quality standards are being met. Be explicit about who is responsible for QC when subcontracting and outsourcing takes place. Unless this point is 100% clear, documented and backed by financial or payment terms, then you stand a good chance of being unsuccessful in your China dealings.
Project management.
Two issues here: The Goal and the Timetable. China-based consultants like to subcontract. It’s one of their main values, and they are good at it. The challenge for you is to insure that your business goal and the specifications of your project maintain their integrity as the task gets handed off from one subcontractor to another. Mission creep can lead to mission failure if someone doesn’t take control. And that is precisely what you are paying your consultants to do. A good Chinese consultant will make sure that the work being done isn’t just high-quality – it is also what you have ordered!
The second project management skill you want to pay for is time management. Chinese businessmen are legendary for their patience, and that often manifests itself in terms of missed deadlines and relaxed timetables. If your project is mission-critical and needs strict scheduling, then you should make this clear to your consultant. Once again, put it in writing and back it up with some kind of financial incentive or penalty. Even if your project doesn’t seem time-sensitive, be aware that seemingly simple projects can stretch out forever. When you are checking a consultant’s references, this is a good thing to ask about. One of your due diligence questions should be a discussion about possible delays, bottlenecks and roadblocks.
Red Flags
Can anything go wrong with your business relationships in China? Well, not likely! But just in case, let’s look at a couple of potential pitfalls that you can run into when working with consultants or intermediaries that plan on passing the work off to someone else:
- Chain of Fools. Well, maybe just one fool – and it’s you. This is where one friend tells another friend who tells another friend, and so on. But this time, instead of a funny message, they are passing on your project. Deadlines disappear, quality plummets and the project specification no longer bears any resemblance to your instructions. Sure, you won’t pay for the worthless result. But your original consultant is long gone with your up-front money, and you are still somehow tangled up in a messy network of irate subcontractors who expect to be paid. During the Taiwan real estate boom of the 1990s, they liked to throw in an added twist – the ultimate subcontractor would go bankrupt, thus absolving everyone else in the chain of any responsibility. Meiyou Banfa! (Nothing can be done!)Quality problems. If you are not very careful, your carefully designed project can degenerate into and Abbott and Costello style game of “Hu’s on first, Wen said what”. If you try to enforce quality control at the END of the project, then you are the one talking nonsense. Specify project standards and decide who is responsible for QC at the start, and if you don’t get a 100% satisfactory answer — DON’T PROCEED! Experienced contractors and consultants understand your concern and have already priced it into their fee structures. The amateurs and charlatans will resist at first and then make grand promises they can‘t keep.
Invisible subcontractors. These are the people who will do the work for you, once your consultant gets around to figuring out what you want done and which one of his acquaintances can do something reasonably close.
All in the family. Someone your consultant knows or is related to ends up doing the work. A husband. A girlfriend. This sort of thing can start out very innocently. But then the girlfriend leaves or the husband gets busy with his REAL job. Suddenly you’ve got delays, gaps and quality problems.
Payment up front. You think you can save some time and out-smart a contractor of questionable ethics by only paying a small amount up front and withholding the bulk of the payment until later. It would be a better plan if it had some chance of working. In fact, local charlatans will happily take your upfront money and vanish forever. You won’t believe this the first time you read it. Ask around, though.
Too much flexibility. Flexibility is a wonderful thing, as is self confidence. But you don’t want your contractors to have too much of either. Just because they had a roommate in college who studied graphic design doesn’t mean that they are qualified to act as project manager for your e-commerce website…or does it? Only deal with specialists.
Do the Due Diligence:
See the shop if possible. Is there a sign over the reception desk? Does it have the name of your consultant’s company on it – or someone else’s? Does his business card state a specialty? Is that what you are discussing? Use common sense. Take a look at his offices, and go with your gut. Chinese offices are as nice, modern and well equipped as offices in the US or Europe.
Do the numbers. Chinese companies tend to overstaff. If they have 50 clients and 3 staffers, they are outsourcing. Not a necessarily a problem, unless your consultant is promising to do the work himself.
Ask about his subcontracting relationships. Get specific. Talk about fees, length of time he has been working with his subcontractors and their specialties. Most people won’t go into too much detail with you (nor should they), but you can still learn a lot from the answers. If he clearly doesn’t use the same people all the time, then you have no assurances over quality or scheduling.
Ask for something slightly unreasonable. This can be a little manipulative and dishonest, but is useful. Ask if your consultant can do something clearly outside of his specialty or beyond the scope of his normal operation. If he is candid and honest with you, then you are in good shape. But beware of consultants who will promise anything at the drop of a hat.
Contract. Structure a contract that includes QC terms that are measurable and enforceable, scheduling and staggered payments triggered by milestones achieved.
References. Ask for references IN THE KIND OF WORK YOU ARE PAYING FOR. Make sure the consultant has international experience AS AN INDEPENDENT CONSULTANT and not as part of a large team at the MNC he worked for last year. Check references, using words like “integrity”, “competence”, “quality of work”, “on schedule” and “on budget”. If you don’t check references (anywhere, but particularly in rapidly developing markets like China) then you are simply asking for trouble.
Topics: Business Entry, Due diligence |
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