3 Rules for Negotiating your China Business Entry

Negotiating in China starts before you even hit the ground

There are 3 rules that all owners and managers entering the China market should understand when negotiating during the early stages of your entry to the China market.

  1. Go Slow. The China Market is not going away any time soon.
  2. Build a network of professional service providers first, do business after.
  3. Have a Plan … and a Plan B.

1) Go slow.
China has been around for 4,000 years, give or take. It’s not going away anytime soon. Are you late to the game? Maybe, maybe not. Odds are you are right in the middle of the first big move of a prolonged expansion that will continue on for years.

China is not the place for fast money. When business entry consultants and suppliers hear you are in a hurry, it’s like that cash-register noise from cartoons. A basic rule of thumb is, the faster you want to make money, the further you should stay from China. In other words, you will make the fastest money buying China-made goods in the US and Europe and reselling them for a small profit. If you need a presence in the Mainland for strategic reasons, it will be a long-term endeavor.  
If you are serious about investing strategically in China, then there is much to be said for getting on a plane and spending a week visiting retail stores, malls or supermarkets in Shanghai, Beijing and a couple of second cities. It could be the best money you’ve ever spent. Remember the First Rule of China Business: If you are too busy to research the market, then you are too busy to be successful in China. Stay home.

2) Build a professional network first, transact business next.
You should not even consider starting your China business until you have a reliable source of the following experts:

Accountants. There is a range of qualified accounting consultants in the big cities. You have to decide if you need a bookkeeper, an advisor, or a CFO. All are available. The best way to really screw up in China is to hire a low-priced bookkeeper and base your strategic plans on his/her advice. You wouldn’t do it in NY “don’t do it in Shanghai.
Lawyers. A good international legal expert should be your first stop when executing a successful China operation. Yes, China has a legal code. NO, you really can’t sue anyone who has ripped you off and get satisfaction. Lawyers are much more useful for PREVENTING problems in China, as opposed to solving them after you’ve already found yourself in hot water.

Translator / Assistant. There are many options. Simultaneous spoken translation is the most expensive and hardest to find. If you plan on hiring a translator to help you handle meetings in Mandarin, test them out first. Experience counts, but it is expensive. Translating documents from Chinese to English is relatively cheap and straight-forward. If you plan on doing it often or have big quantities of work, you are best off skipping the expensive agencies and hiring an assistant. Good universities are cranking out English majors by the boatload. Most document translation is priced per word or page, not by the hour.

Business Entry consultant.
This phrase covers a lot of ground. The industry developed around business registration for WOFEs or JVs, but it has now gotten very specialized. Go slow on the business registration, and find an outfit that can add value and help you formulate a solid business plan. Look for relevant industry experience and useful contacts. Be aware that thousands and thousands of new graduates are running around the big cities claiming to be business entry consultants. Experience counts.

HR
(if you plan on opening or hiring a local rep). Good agencies abound. HR will be a major challenge for your China business, and if you plan on hiring a local representative or staff, you had better budget plenty of time and money. Don’t neglect this, just because the salaries seem low and there are plenty of resources around. You will be spending far more time than you think you will on HR.

Value Added Sourcer.
You need a really good reason for going directly to manufacturers on your own. Most buyers in China are going through value added sourcing agents who can help them locate suppliers, negotiate pricing and regulate quality. If you plan on exporting, you should choose a business entry consultant based on their ability to add value in this area.

Realtor (or serviced office).
If you will need space in Shanghai, Beijing, or Shenzhen, you should start doing your research early. It won’t be cheap.

People here tend to be less aggressive (i.e.: no follow up), so be prepared to make effort to keep the conversation alive. Talk to consultants BEFORE you need them. Schedule appointments from home – or even better, set up conference calls with a variety of players. Talk to large multinationals, medium-sized expat partnerships and small local companies.

There is a structure to the service industry here, and until you have a good handle on it you are not ready for China business. If you plan on using the same person for more than one function, have a good reason. Saving time, too much trouble, too busy chasing hookers are all bad reasons.  ‘Consultant X is a specialist in my industry and has an HR or accounting facility’ is a good reason. Make sure you are using Value added service providers. Following westerners’ stupid instructions has become a cottage industry here. You need advice and recommendations. This is not the time to hire ‘yes men’, so you have to make sure that your consultants are up to the task.

3) Have a Plan, and a Plan B.
Take your original notes and plans about China, have yourself a good laugh and throw them in the trash. If your original plan still looks good, then there’s an excellent chance you haven’t done enough research.

Make sure you have given plenty of thought and research to the following key areas: Entry strategy Management strategy Competitive analysis Marketing plan / operating plan Budgets and Timetables Expansion strategy Exit strategy You should be putting in real figures and actual people & company names. There may still be a lot of gaps and question marks, but that gives you good understanding about what kind of work you still need to do. The landscape changes a lot, but that is an excellent reason for doing more planning – not less.

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