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September 16, 2005

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.

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