Doing Business In China with Dan PaulsonMany companies are looking to expand globally. While this could create new sources of revenue, it is important to understand what you are getting into first.
Over the past few years I have met with several business leaders who either have expanded internationally or are seeking to. Some have been very successful in making the move and others struggled spending valuable time and money with no results.
A few months ago a colleague of mine contacted me about formulating business in China. As it turns out, they were actually contacted by a Chinese company and asked to collaborate on several projects coming up in the near future. This Chinese “partner” even paid to fly a delegation from the US company to meet and discuss these plans.
The company I am talking about has a very unique set of talents in their industry. In some cases they were pioneers for what they did and opened up a whole new market for their service in the US. Now they got the attention of a company in China and it seemed like a match made in heaven. The Chinese told them how great they were and how they needed their expertise. They conducted several meetings where a lot of questions were asked ideas were discussed and concepts were shared. After a few months, my American colleagues made their way over to China for the signing ceremony and the deal was inked making for a storybook ending… Or so they thought.
The executives returned from the signing ceremony excited to start on this new venture, which looked to be profitable. Their initial investment of time was going to pay off. After all, this Chinese company sought them. Days went by. Then a few weeks after not hearing anything, the US company reached out. The response they got was shocking. They were told that the Chinese company chose a different direction and they would not need the Americans’ service. What?!? Just a few weeks ago everything was a go. Now all their efforts were wasted.
We often hear about stories of deals in China going bad. Many times this happens because of a failed understanding of how to do business in China. The good news is there are ways to prevent you from getting burned. What it takes is a better understanding of the culture and how you approach business there. After all, we only seem to hear about the times where the venture doesn’t work. We fail to find out all the times that the deal does close without issue.
First let’s look at our scenario above. There are some critical things to watch for here. First off, why the sudden change? One reason is being over-zealous to share information. In this situation, an outsider reaching out to do business flattered the American company. In the US, we wouldn’t think much of it. If we are perceived as the experts, we can often readily share information and it actually helps close the deal. In China, until a trusting relationship is established, you may just be a source of information. That’s what this US company was. They were wined and dined to get information. The Americans had no skin in the game and once they shared their knowledge, they were left out of the picture. Knowing who you're doing business with is very important, and it is often necessary to move slower than you may want to in order to be successful.
Here are some tips to be aware of if you wish to have success in China:
· Have a very clear plan – Strategy is key anytime you expand internationally. China is no exception. Know your moves and what relationships you will have to build before getting started.
· Begin building relationships – Get to know the business climate. Do more than just research online; actually visit the country you are looking to do business in. China is very much a relationship culture. Build those relationships early. Find people who can help connect you.
· Know your investment and milestones – Have a budget and timeline (back to strategy). Have steps along the way where you can stop and re-evaluate each investment point.
· Seek out resources – Companies like mine are structured to help you increase your chances of success in China. Meet with other trade groups and organizations as well to learn about their experiences.
· Keep the interest – When working in China, you need to bring value. Avoid sharing too much. Peak their interest. Let them know what you bring to the table but maintain your value position. If you share too much, your connection may try to copy your work and remove you from the deal.
· Understand Intellectual Property – If it is an issue, know what you need to do to protect yourself. IP is a challenge, but not impossible to overcome. Work with an experienced legal team to protect your rights.
· Be willing to travel – If you are going to have an international operation, make sure you are willing to spend some time on a plane. Remote management is possible, but travel will be necessary periodically to keep up on the operations. Having talented people in China (and the right people) will also avoid some headaches.
· Be willing to walk away – If the deal doesn’t seem right, be willing to walk away. Especially if you do not have an advocate working on your behalf and assisting you. The costs of going through with a bad deal could be much greater than if you get out when you can.
· Get good talent – Besides lawyers, you should have a good accountant, logistics, or other third party advocates that will work on your behalf.
· Learn all sides – What I mean here is get all the information. Popular media will share all the horror stories. Those things do happen, but there are still many companies that can tell you about the successes. Seek to learn and seek to understand.
Remember, growing internationally can be a wonderful experience. It is just a matter of you taking the right steps. Now go out, grow and prosper!
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