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November 7, 2005

Irrational Exuberance 5, or, Should You Enter the China Market?

Says Who?

[This post is the fifth 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.]

In our last post, we began to vet a hypothetical plan to enter the China market. Why? To ensure that we’ve not dreamed up a pie in the sky.

We subject our plan to a barrage of constructive criticism. This is not the time to cavil or exploit an opportunity for political gain, although less ethical operatives will, no doubt, attempt to do so. While maintaining an atmosphere of courtesy, neither need we tip-toe about the sensitivities of the plan’s authors and supporters.

Let’s be clear: we will avoid comments of a vulgar and personal nature, such as the one I once heard in a meeting of corporate executives: “That is without doubt the singular worst idea I have ever heard. What the h--- am I paying you a salary for?”

(That particular Vice-President apparently forgot that the corporation and its investors pay the salaries.)

Stick with the issues at hand. Will the plan work? If so, how? And how do you know? What is your basis for so thinking? Is it a sound basis? Where did you get your information from? Is it a reliable source? Why do you think so?

To those who wish to move ahead rapidly, the discussion such questions engender seem a needless delay, but I would disagree. We wish to reduce the initial exuberance, often irrational – and hence the title of this piece -- that accompanies all planning. Our objective is to substitute, in its place, confidence built upon a solid foundation of verifiable evidence. The answers, and very often, the lack of answers, to incisive questions point up mistaken assumptions, holes in your thinking and errors of judgment. Would you rather stand on thin ice or thick?

Two further benefits. First, a collective discussion allows participants to resolve differences and to define opportunities for further co-operation. Second, when your executive management grills you on the value of your plan, you will be prepared to state with substance why you believe your plan to be viable; and better protected if the plan is not inevitably successful.

Back to our plan. Our first set of action items read:

1. Setting up an office

a) Define the functions of this office and those who would staff it.

Preliminary Plan

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.

Critical Questions

1. 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?

2. Can or should the sales force be entirely male? Can I hire a male secretary? Should we hire all local Chinese?

Discussion

Let’s take these questions in turn. If we have done our homework, what kind of answers might we get? I have briefly noted the basis of my answers as links to supporting evidence.

1. The constantly moving sales force

Before the invention of the mobile office, a sales director I once knew, a Liverpudlian, claimed there was no benefit in affording any outside salesman a desk at the office. “They should be on the road constantly. The more time they spend inert on their arses, the less in front of the customer.”

At least in the U.S., the outside salesman rarely returns to the office. His home and car suffice, and assorted technological gadgetry enables automation of the sales process from remote locations. But what about China?

Chinese salesmen can’t and won’t work from a home office. Practically speaking, the average living space is but 10 square meters (107 sq. ft), according to the Ministry of Construction.

That gives an individual an area of about 10 x 10 feet, inclusive of kitchen, bathroom, bed, etc., in which to perform the tasks performed in the office. Usually, even that living space is shared with other family members. Compare that to the developed nations: “Average total dwelling space in Europe is just under 1,000 sq. ft. In the USA it is1,875 sq.ft for the average household and 1,200 sq. ft for poor households.”

From a cultural perspective, Chinese simply do not accept the idea of working from home. Instead, they espouse the traditional notion that work occurs outside of one’s dwelling. Work in which one spends a substantial amount of time at home, even when genuinely working, is unacceptable.

Secondly, very few Chinese own a car in which to create a mobile office. According to a Goldman Sachs report, “In 2001, China had only 1.5 vehicles per 100 households versus 170 vehicles per 100 households in the USA.” A car may cost as much as five times the annual salesman’s salary.

The Ameican model of mobility will not work. Will another model? In fact, some Chinese sales forces are completely mobile. A direct sales force with which I have some personal acquaintance provides desks only to the office staff and only a handful of the most senior sales directors. Vans, leased by the company in a dozen cities and driven by professional drivers, meet the sales force at an agreed upon location before work begins, drive them to the target region and then return them to the point of origin at the end of the day. A supervisor rides in each van every day of the week. Meetings are held daily on the road in the vans, or in a large hall at the branches or off-site. No salesman has a desk. They are constantly on the road.

Direct sales naturally lends itself to constant mobility. But what about business to business outside sales? Some sales forces are provided with a laptop and a cellphone. Others require that their sales forces make use of personal equipment, but pay for phone usage or access charges. Most Chinese college graduates are computer literate, have little difficulty communicating via email or creating the electronic documentation crucial to the sales process. Internet access is available free of charge at most hotels in China. Phone service is consistent nationwide. Trains and planes run on time. Taxis proliferate. Yes, the completely mobile salesman is a workable concept for China.

And yet, I would not advise it. As a sales manager in China, we want to keep close to your salesman, rather a lot closer than what we are accustomed to in the U.S. Distance implies freedom, and while some of it is a good thing, especially when it contributes to a greater sense of personal responsibility and achievement, too much is a danger. Chinese, in my experience, and remember, I have been a sales manager in China -- this experience forming the basis for my opinion -- are unused to roaming free without much direction. Keep the dialogue going constantly, using the cellphone and the email.

But unlike the direct sales methodology mentioned above, you will never be able to accompany all of your sales staff on their rounds each day, nor would you wish to. But you must maintain the face-to-face connection with each of your salesmen. If not, you will quickly find yourself losing influence over him and out of touch with the client.

The desk roots the salesman in your territory. If not simply for the prestige of having a desk, which many young Chinese find surprisingly thrilling, periodic callbacks to the office for reviews, meetings, an occasional lunch, etc., keep the salesman in your purview and allow you to create a stronger working relationship with him..

The result of our critical inquiry is this: direct sales staff do not require a desk, if a manager travels with them every day. B2B salesmen, on the other hand, require an anchor at the office.

Did you expect these answers when the first prong of the China plan was created? Probably not.

We will turn our attention In our next post to the next question: gender.

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