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Emerging Business Opportunities in China offered by China’s 12th Five Year Plan


by Sara Cheng

China recently issued its 12th Five Year Plan. It is China’s absolute national strategy from 2011 to 2016 and will have profound impact on its economy and people and also China’s major trading partner.

This recent presentation of mine highlighted some key opportunities for foreign companies looking at entering the Chinese market.

Emerging Business Opportunities in China

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Business Tips

March 23, 2011 1 comment

How Do You Choose Your China Business Consultant ?

by Sara Cheng

China is a hot button and probably also one of the most frequent headlines of Aussie media nowadays. Coming along with this are numerous China business consultants emerging like bamboo shoots in all colours and with various language and education backgrounds. Australian businesses eager to jump onto the wagon to do business with China are surrounded and bombarded by China business seminars, conferences, summits, cocktail functions and then tracked down by all these consultants both during and after functions and events.

Are these consultants adding value or rather a worthless upfront cost for businesses?

The answer is yes and no, depending on who you work with and how you work with them.

It seems cliché but sometimes some businesses do not use common sense when it comes to choosing consultants which are critical for achieving their business success in China. Bear in mind the 3 must-have characteristics of quality China business consultants when you chose whom to work with:

China commercial experiences and capabilities: The consultant is not carrying out an academic research for you. They should be able to breathe the depth and breadth of your business, grab the essence of your situation and needs in the shortest timeframe, put this in a broad but practical China business framework and get solutions for you. China is a country full of cultural nuances and operates under a different system. Without systematic business-related education background and extensive personal commercial experiences in China, a business consultant will not be able to possess such knowledge and expertise to navigate you through the system and achieve success in China.

Chinese language skills-this is common sense. Mandarin is the official language in China. Though there are dialects and accents in various regions, especially in East China and South China, Mandarin is well understood China wide. Without this language skill, your consultant will only obtain 2nd hand (might outdated as well) information when conducting research and will not be able to communicate with Chinese stakeholders on your behalf.

Most competent communication capabilities: Your China business consultants will communicate with your potential Chinese distributors, agents, manufacturing partners, suppliers, joint venture partners, Chinese government agencies and industry bodies on your behalf. Any small mistakes in such communications may damage your relationships with Chinese stakeholders or compromise the quality of the work they do for you. Assess your consultants’ communication capabilities before you enter into a service agreement with them.

Just having a quality China business consultant cannot guarantee you succeed in China. There are 2 must-know rules to make sure you achieve the most through your competent China business consultants:

Provide genuine information they require from you: In lots of cases, ethical and experienced consultants can straightaway let you know the ideal model for you to work with China or the potential of your products/services in China if you provide them genuine and comprehensive information on your business strategy, situation and needs. If you have little chance to succeed in China, they may be able to advise you the difficulties upfront and hence save your time, money and resources to work on mission impossible.

Provide inputs, monitor milestones and work closely with them: No matter how smart and experienced your consultants are, they do not have the knowledge on your business as you do. Hence do not just leave everything in their good hands. Require progress report, communicate with them regularly, provide feedbacks, ideas and information when required or necessary so that they will refine and tailor the approach during project delivery and achieve the best they can do.

With a competent consultant and work with them in the right way, you will get the most and best out of your China business consultant and achieve success doing business with China.

Import from China: What You Must Know to Ensure Success

February 2, 2011 Leave a comment

By Sara Cheng

China has been the obvious procurement destination in the past 2 decades. However, import from China is not always a happy story. Foreign businesses must bear in mind some must-knows and take necessary actions before and /or when sourcing from China:

 Check local import tariff and other trade barriers such as quality standard and international certification requirement for import from China. With rising trade protectionism globally, it is highly recommended companies do a careful cost and benefit analysis before looking at the import option. High import tariff and other trade barriers may eat up all potential profit gained from import. Also CE, UL or other accreditation and/or requirement on manufacturers may apply for certain products.

 Decide on going directly to manufacturers or dealing with trading agents. Though buying directly from Chinese manufactures may secure a better profit margin and ensure direct communications with suppliers, lots of established Chinese exporters operate on a large manufacturing scale and are mostly committed to mass production and “big” orders. Hence, it may be worth going to a trading agent who can combine small orders, secure a better deal and conduct pre-shipment inspection.

 Qualify suppliers before you place orders. China has an old term “suitcase company” which refers to one-man-band companies and in some cases scammers. Today there are still suitcase companies under the cover of glamorous corporate websites. Hence a background check on the company’s legitimate status is a must before you place your 1st order to the Chinese company. China does not have a central point where people can check scammers or legitimate status of all businesses, which makes it difficult for foreign companies to do background check. However, a general online search and research may serve as a starting point, or for high value orders you may hire a consulting firm to conduct a due diligence on the target Chinese companies.

 Understand Chinese manufacturers and negotiate a win-win deal. China is a competitive manufacturing base. In most cases, export-oriented manufacturers do not have a big profit margin but live on the mere margin gained from returned VAT for goods export. If foreign buyers do not understand the situation and bargain too much, they may end up buying products of crap quality if the Chinese manufacturers do not want to lose orders to their competitors and hence have to compromise quality to gain a reasonable profit margin for themselves.

 Communicate with Chinese manufacturers/suppliers on your product requirement again and again, and then check, check, check. Chinese companies may not fully understand the product functions, quality requirements and life styles in western countries and hence may manufacture “good” products to their satisfaction but not to your standard. To avoid this, you cannot just check samples, but need to conduct pre-shipment inspection, especially for the 1st order. You may consider engaging local agents or production inspection organizations for the pre-shipment inspection.

 Ensure a safe term of payment. Chinese manufactures usually accept 30% deposit and 70% upon shipment for a 1st order. However, this is a risky term of payment for buyers as it is based on commercial credibility rather than stringent 3rd party guarantee. Letter of Credit is a better guarantee for buyers as well as a fair term of payment for sellers.

 Protect your intellectual property and don’t make your suppliers your potential competitors. To guarantee quality, many western buyers generously pass on their technology know-how to their manufacturing partners in China, with little consideration of the potential risk of losing intellectual property and nurturing potential competitors in the global market. Hence companies need to put an IP protection mechanism in place both legally and commercially, which is far more complex than just having patent and trademark registered in China. Companies need commercial advice from China business experts to build a robust commercial mechanism to protect IP proactively.

 Acknowledge Chinese cultural nuances and build a long term partnership. China is a nation full of “guanxi” (relationship), self-pride (especially with China’s rising economic power in the global market) and social functions. Westerners doing business in China usually find themselves exhausted with after-work dinners, saunas, and patting on each other’s shoulders while calling them brothers and sisters. As the saying goes “when you are in Rome, do as Romans do”, to fit into the business environment in China and establish long term partnerships with Chinese suppliers, westerners have to understand and acknowledge these Chinese cultural nuances, though they do not need to give up their western cultural identity. Chinese appreciate foreigners who can say a few Chinese words, enjoy “ganbei” (bottom up when drinking) and quote a line of an ancient Chinese poem.

 Consider a phasing strategy and other models to source from China. Foreign companies have many an option to source from China: source through agents, import from manufacturers directly or set up an on-the-ground procurement centre in China. A popular model is for the overseas headquarters to import from Chinese manufacturers directly at the initial stage and then move on to set up their own sourcing offices in China at a later stage.

 Have a contingency plan and back-up suppliers. Never reply on a single supplier in China. Things may go wrong with the suppliers or the partnerships. With back-up suppliers, you have more stable supply and stronger bargaining power as well.

Import/sourcing from China is in most cases a complicated task. It is highly recommended that, before taking actions to source from China, businesses develop a clear sourcing strategy by mapping its business strategy, resources and market condition, and then do homework to identify competent and committed suppliers/manufacturing partners.

For more information or assistance with import from China, plesae contact Sara Cheng

How to Speed Up Your China Business ?

December 21, 2010 Leave a comment

 

Having assisted many Australian companies to do business with China, I identified a few must- have attributes of companies doing business successfully with China.

First, these companies objectively assess their unique sustainable competitive advantage in the Chinese market, smartly dodge head-on competition through differentiation, and target the right market where there is a gap they can fill or which appreciates their unique selling points such as advanced technology, unique product functions or green image, etc.

Second, these companies may have ambitious long-term plan for China but adopt a focus strategy at the initial stage. Focus, focus, focus. They focus on the opportunities in their target niche market and not be a by the huge scale and diversities of China; they focus on key contacts and are not immersed by the cultural nuances; and they focus and devote resources to result-oriented activities. With this strategy, companies are able to use limited resources efficiently and achieve cash flower quicker to subsidize the expansion plan at next stage.

Third, they find and leverage external complementary skills and resources to speed up the market expansion in China. They leverage established and committed distributors’ existing networks to tap into the China market; they hire Chinese managers or China business consultants to gain China market insight and capabilities to handle various tough situations in China; and they leverage joint venture partners’ financial resources to upscale their operation in China.

Fourth, these companies are flexible, nimble and quick to the changes in the Chinese market. Things which may take 5 years to happen in a mature western economy may get done in the Socialist Free Market in China within a year. Successful companies do not wait and see, but quickly navigate through the complicated Chinese market to grasp the opportunities.

Last but perhaps most importantly, these companies understand the drivers in the Chinese social, political and economic environment, understand the game rule and know the little things which make a big difference. Reading The Art of War, appreciating Chinese traditional paintings, being able to greet with a few Mandarin words and reciting a line of Chinese poem will be an absolute plus to glue relationships in China. While face and Guanxi (relationship) are must-knows, lots of successful companies even go the extra miles to further learn and grasp the fundamental philosophies mainstreams in China believe and appreciate. They are more like insiders and adapt their strategy to work more efficiently and effectively in China.

Strategies and Methods to Protect Intellectural Property in China

December 13, 2010 2 comments

I recently presented on IP protection in China at a business conference. Here are my notes on some strategies and methods I used as a reference at the presentation, which might be useful for those who are seeking commercial mechanism rather than legal actions to protect IP in China.

 Large companies: Being an industry leader and one-stop solution provider:
-Keep innovating to keep a leading position in the industry. It is a costly approach and work well with large companies;
-Bundle core products/services with non-core but related products/services so that you offer a one stop solution or a whole package for your customers. The demand for your core products/services will drive the growth for non-core business, as your customer will find switching cost or operation cost is to high if they use your core services while using someone else other services.
-Also you may charge for the products/services which are hard to be copied while providing for free other products/services which could be easily copied so that you will take all the market shares your IP infringer may get;
-Build the IP protection in the R& D or product development phase;
-Get involved in the process in industry standard or quality standard development and drafting. Chinese companies are most good at this to protect their IP and monopolize the market.

Vertical integration or horizontal integration: backward acquire your supplier to control the core knowhow or forward integrate with your clients to share risks and cost and better control your IP; or alternatively you enter related industry sectors by acquiring or being partially acquired so you provide a broader range of related products and services to lock in your customers and hence protect your IP;
Target the “right” market, .e.g Microsoft China focused on the market segments which are so concerned about their brand, legal position and market image and also those who could be easily tracked, such as Fortune 500’s subsidies, large Chinese private companies and Chinese government-owned enterprises.
Technical ways, such as dingo for software, online service delivery rather than providing it in the form of softcopy;
Internal IP protection through technical methods:
-Track your sales by offer free membership and free complementary services to your clients so they will not switch to others while you can track your sales and market;
-Firewall, monitoring of emails, back up of materials, etc;
-Leverage media especially online monitoring by brand promotion, online forums, blogs etc.
-Give incentives and retain your key staff who mater your core knowhow;
Protect IP from your stakeholders and Build a network of stakeholders who assist you to protect IP

-In lots of cases, your clients or suppliers are IP infringers so put certain terms and conditions in your contract with them to protect your IP or at least warn them the potential penalty of IP infringement;
-Sharing some knowledge while keeping the core knowhow so rather than taking the risk to infringe IP, potential IP infringers will focus on maximising the benefits as a “peripheral” partner. Microsoft adopted this approach;
-Leverage stakeholders such as clients, suppliers, media, end customers etc to monitor the market and potential IP infringement.
-Get more people to work with you on your IP protection by licensing the IPs or more creative way mutual licensing or multi-cross licensing so you work with a network of organizations to protect and benefit from each others’ IP.
Focusing and giving strategy:
-Look at the cycle of your products and services. If it is at the later stage of product cycle, you may consider the option to share the knowledge for free to beat the market share your IP infringers may get, and hence reduce their profit margins and dampen financial viabilities;
-Last but not least, if you have limited resources, focus on IP protection of your core technology knowhow or in the most important market, the one which you are most advanced, which is hard to be copied and which you can get the best profit margin.

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