« August 2005 | Main | October 2005 »
September 27, 2005
Audio: Irrational Exuberance 3, or, Where's the Beef?
Click the little triangle to listen to today's post.
Where's the Beef?
Irrational Exuberance 3, or, Should You Enter the China Market?
[This post is the third in a series designed to help you formulate and evaluate your plans to enter the China market. See this page for links to the audio and text files of prior posts in the series. NB: More recent articles are listed at the top of that page with earlier articles below them.]
If you are American, you may remember Clara Peller and the 1984 advertisement for the Wendy’s fast-food chain. [Click “Watch Now” on this page to view the ad.] She found a competitor’s hamburger wanting and famously asked, “Where’s the beef?”
Dare you look at your own business plan for China and ask of it that same question?
Have you marshaled sufficient evidence that genuinely confirms your expectations? In other words, have you done your homework well? Or will careful and skeptical questioning reveal that your due diligence was shallow, your thinking uncritical and your conclusions erroneous?
Do not let the China Dream become so precious as to obscure what might really be waiting out there for you and your company.
“It was a miracle of rare device,
A sunny pleasure-dome with caves of ice!”
[Allow some beauty into your day and read aloud Coleridge’s brief poem, “Xanadu,” inspired by fantasies of China and a poem heard in Coleridge's dream.]
Often we value our dreams, thoughts and creations too highly, failing to see with a more objective and critical eye, that which we are missing.
With this in mind, let’s take a look at how we might go about looking for “the beef” in the plan.
OK, SO WHERE’S THE BEEF?
Let’s deal with the first paragraph of our hypothetical plan to enter the China market:
1. Setting up an office
a) Define the functions of this office and those who would staff it.
b) Define support requirements from relevant departments stateside.
c) Pinpoint the location of the office and the coverage that location enables.
d) With counsel, decide upon the legal form of the office and note any restrictions upon your business it may create.
Let us also assume that we did some homework and came up with a more detailed plan:
1a) Office function: Company intends to establish a sales office, as a base for management and as meeting area for the sales force during meetings with customers or management. Sales staff are expected to be on the road constantly and will not have permanent desks. Staff expected in China office: sales manager (male), one secretary (female), 5 salesmen (all male). All local Chinese.
1b) Support: Corporate office in the US will provide all sales support, including marketing and technical support.
1c) Office Location: Shanghai, Pudong Area, Financial District. Coverage enabled: nationwide
1d) Legal Form: Rep office, no significant restrictions.
LOOKING WITH A CRITICAL EYE
Now, let’s look at them, one by one, with a critical eye, always asking the question, “Can we really do that?” Here are a few examples of this kind of critical questioning.
1a) Office function:
• Is it practicable or advisable to keep sales staff on the move constantly in China, without giving them a physical location at the office to return to?
• Can or should the sales force be entirely male? Can I hire a male secretary? Should we hire all local Chinese?
1b) Support: What difficulties can we expect to encounter when our sales force is located on the road, 12,500 miles away and 12 hours ahead of the corporate support staff?
1c) Office Location:
• What are the benefits and disadvantages of locating our small office in the Pudong Financial District?
• Can we really cover nationwide clientele from Pudong?
1d) Legal Form:
• Can we conduct sales activities from a representative office?
• Are we really allowed to market, sell and distribute our product without legal or structural restrictions?
We’ll cover the bases, so to speak, in our next post.
Posted by Richard at 6:58 PM | Comments (0)September 19, 2005
Shanghai Event on the Foreign Corrupt Practices Act
Conducting FCPA Investigations in China:
Satisfying Head Office While Staying Out of Jail
Where and When
Thursday, September 22, 2005, 11:30 to 13:30
Hilton Shanghai, 250 Hua Shan Road (cnr. Yan An West Road)
RSVP required. See below for details.
Topic
AmCham's has described the event thusly:
In the post-Enron and post-Andersen environment of more stringent requirements for compliance, corporate governance and business ethics, the US Foreign Corrupt Practices Act and similar obligations have taken a higher profile in the range of concerns facing US multinationals overseas. The AmCham Shanghai Legal Committee has invited two representatives from Coudert and ChinaWhys to explain the compliance issues, potential pitfalls and means to mitigate the associated risks through legal and investigative remedies.
Presenters
Mr. Landon Prieur, head of the Coudert Brothers Shanghai office, will explain the legal obligations facing US companies, the potential consequences for violations, and the available legal measures for managing risks and responding to trouble as well as legal due diligence issues.
Mr. Peter Humphrey, Managing Director of ChinaWhys Co Ltd, a specialist in combating white-collar crime and a long-term China expert, will outline some investigative approaches that can be taken before entering into deals in China to avoid ending up with corrupt partners or staff, or after problems have already arisen with FCPA implications.
Agenda
1130 Check-in and Networking
1200 Lunch
1230 Speech and Q&A
1330 Conclusion
Price
Member: 250 RMB
Non Member: 400 RMB
RSVP
All AmCham events require confirmation of attendance (RSVP). If you attend an event without prior notification you will be charged a RMB 50 "walk in" fee.
RSVP Cancellation: If you need to cancel your RSVP please notify Ms. Christine Li T: 6279-7119 x 5665 or email christine_li@amcham-shanghai.org no less than 12 hours in advance. Failure to cancel your RSVP will require payment of a "no show bill".
Posted by Richard at 9:39 PM | Comments (0)September 16, 2005
Audio: Irrational Exuberance 2, or, What Do You Wish to Accomplish?
Click the little triangle to hear today's post.
Irrational Exuberance 2, or, What Do You Wish to Accomplish in China?
In my last post, I posed a series of questions. One might think, erroneously, that in doing so, I wish to turn a business proposition – entering the China market -- into an academic exercise.
To the contary, my intention is to stimulate critical thinking, prior to action. Some businessmen seem overly disdainful of anything that hints at intellectual exercise, even when they themselves can be thoughtful, even shrewd, when it comes to their business dealings. (Yes, even shrewdness, the purposeful manipulation of ideas, people and events for the benefit of one’s own interest, is intellectual in nature.)
At a dinner party with senior executives of a major American corporation, we introduced ourselves. People began with university, and most of the executives had gone to state or community colleges. I was the only person who had Ivy League degrees. After my self-introduction, an exec asked, “So, Rich, now that you’ve gone to Yale, do you think you’re smarter than the rest of us?” I was frozen for an instant, stunned by a question I had never considered anyone would ever ask me, certainly not in public. But I realized that among those fellows, it was not cool to be smart. At least, not overtly.
But I am advising you -- especially if you are not inclined to do so -- to think critically and discuss openly among the relevant staff in your organization what China may mean – if it means anything – to the future of your business. In doing so, you will
• clarify your own goals and your capacity to achieve them
• grasp essential concepts and methods that apply to doing business in China that are inapplicable elsewhere
• discover new obstacles and pathways to the achievement of your goals
• confirm or deny your original expectations with a minimum of investment, prior to a more major one.
So let me rephrase this idea for some of you. “Critical thinking” merely means “careful consideration.” In other words, as the Chinese say: 三思而后行 (think thrice before you act). If you have already decided to enter the China market without applying careful consideration, please reconsider. Yes, reconsider.
Ask yourselves question number one: “We’re going to China. Why? What do we think we’ll accomplish there?”
List those things you believe you can accomplish. Many firms are unable to provide a concrete and thoughtful list. By thoughtful, I do not mean the following: “We will set up an office and begin selling our product there, expand the distribution channel and provide marketing and technical support from the build-house here in the U.S.”
In other words, if you are at the stage where you are already searching for an office in China, but haven’t done the thinking to support that office – you would be surprised at the number of companies in this position – I suggest you hold off a while.
Let’s fill out that amorphous description above, just a bit:
1. Setting up an office
a) Define the functions of this office and those who would staff it.
b) Define support requirements from relevant departments stateside.
c) Pinpoint the location of the office and the coverage that location enables.
d) With counsel, decide upon the legal form of the office and note any restrictions upon your business it may create.
2. Sales
a) List your potential customers, their locations, product lines.
b) Describe how your product(s) fit in the market as a whole and specifically why these potential customers would be attracted to purchase them.
c) Quantify monthly and annual projected sales, cost of sales and market share over the next five years.
d) Decide upon recommended size of sales force or sales support, as well as caliber of talent, required.
3. Distribution
a) Define expected channels: list potential distributors in each region where you expect to do business and your evaluation of each.
b) Create distribution strategy with careful attention to distributor strengths and weaknesses, as well as projected market trends.
c) With legal counsel, evaluate distributorship agreements and discuss in detail potential difficulties enforcing them.
4. Marketing and Technical Support
a) Define marketing and technical support needs from the Chinese customer and distributor viewpoint (not what you can provide, but what is needed.)
b) Brand creation – define the brand you wish to create and the strategy towards that end.
c) Evaluate use and potential cost/benefit of marketing channels, such as exhibitions, the media, product kick-offs, roadshows.
d) Define language needs in-house, as well as cross-cultural differences that affect the message you hope to broadcast.
This list is not exhaustive, but it’s a start. Does it make you think a bit about our first question? Remember what it was: What do we think we’ll accomplish in China?
We’ll proceed in our next post with our second question: “what is our basis for our answer to question #1?” Essentially, we’ll be asking for evidence to confirm our expectations and understanding. Very often, this evidence, collected and viewed with an objective mind, will lead us to ideas and pathways we had never before considered.
Posted by Richard at 3:37 PM | Comments (0)September 13, 2005
Irrational Exuberance in a Chinese Perspective, or, Should You Be Doing Business In China?
Until this past decade, post-Liberation China was entirely unattractive to the American businessman. The promise of China as a spigot of liquid gold had beckoned for 150 years, enriching New England ship-owners in the 19th century China trade and maverick expatriate entrepreneurs in 20th century Shanghai, but tantalizing far more.
Invasion, civil war and 40 years of self-engineered insularity put the proverbial nail in the coffin. The cataclysm that shook one of the most ancient and populous societies effectively convinced Americans that the crystal curio of China had been, if not moth-balled, then shattered for all time.
China became the destination of a handful of wide-eyed westerners in search of an exotic experience. They were, to put it politely, a motley mixture of celebrities and frauds, Sinophiles and language students, tour groups and assorted runaways from the western world. In the late 1970s, Malcolm Forbes rode the “point-bike” in a supremely ridiculous convoy of Harley-Davidson motorcycles through the improverished countryside, imperiously barking demands at stunned local officials. Rarely did an intrepid trekker thrill the world with more memorable creations, but the writer Paul Theroux did, "Riding the Iron Rooster” in the 1980s.
But the times have greatly changed. Or have they? Let me suggest to you that, at least for some American businessmen, they have. A number of Americans have established growing businesses in China that create wealth and opportunity. Having spent a good deal of time in China, they speak mandarin and possess a profound understanding of the “mechanics” of life there.
I am more concerned for the others for whom the dream of an endless trough at which to sup remains the standard by which they uncritically throw in with the overarching sentiment of American business today: “we must be in China by all means.” Even companies that have no business going to China feel they must. They rush into the China market on a wing and a prayer. But, while many large corporations are now making a profit in China, according a recent survey by the American Chamber of Commerce in Shanghai, many American run companies are still out on the wing.
If you are thinking that China is your next frontier, I would like you to first consider these apparently simple, but deceptively complex questions.
1. We’re going to China. Why? What do we think we’ll accomplish there?
2. What is our basis for the answer to question #1?
3. Why do we think we are so sure of our answer to #2?
4. Review your answers to questions 1-3. What have you learned? Do you still wish to proceed?
I will deal with each of these questions in our next post.
Posted by Richard at 7:39 PM | Comments (0)
