Chinese Negotiation: 4 Tips to Succeed in “Times of Silence”

By Matthias M. via Wikimedia Commons

Have you ever been in a Chinese negotiation where suddenly everybody goes silent? It is not uncommon and it does not happen by chance.

One of my interviewees, an expat who had gone through a substantial amount of negotiation while setting up a manufacturing plant, observed on the topic of Chinese negotiations:

“Silence plays a very important role in negotiation. Our Chinese business contacts know we tend to feel very uncomfortable with silence. We become uneasy. Hence they use silence during negotiations to strengthen their position”

This conversation came back to my mind recently while I was reading a newspaper article about recruitment tips “Listening skills a winner for job hunters” (Waikato Times, Saturday January 14, 2012) based on insights by Jeffrey Kurdisch in the Washington Post.

One of the tips in the article reflects that very same comment. I reproduce it here because it is as valid for job hunting as it is for negotiation and life in general:

“Be comfortable with silence
Several recruiters have told me they use silence as a tactic to see how job-seekers respond. Negotiations research suggests that people who are uncomfortable with silence tend to share information that may put them at a competitive disadvantage. Savvy job seekers accept silence during a conversation and are careful not to talk about things that will reduce their employability. They also use silence moments as an opportunity to check on their own non-verbal communication (sit up straight, project self-confidence, no distracting mannerisms). If you feel the need to break the silence, try asking questions.”

Silence is also used in a range of situations in which you need the other part to open up and share information. One of my relatives, who was a marriage counsellor till retirement, says “we often used silence during a counselling session to allow people the time and the opportunity to share things that they needed to bring out”.

So, silence is widely used to bring information out. And, in a business negotiation, information is power. So be aware of your reactions to silence and follow in your own negotiations the advice Mr Kurdisch was giving to job hunters- that we could translate here into negotiation tips:

Tip#1. Be comfortable with silence

Tip#2. Do not feel pressured by silence into talking about things that will put you at a competitive disadvantage

Tip#3. Use silent time to review your negotiation strategy/tactics

-Tip#4. Break the silence with questions, if you feel the need to talk (this way you will not give away information)

By the way, my interviewee was very relaxed about silence. His tip was aligned with the ones specialists suggest: “Just take silence as a brief break in your negotiation. Take that time for reflection and thinking about how the negotiation is going and how to take it forward”

What do you think? Have you ever faced a silent room in your Chinese negotiations?

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Related Posts:
36 Tips on How to Deal or Negotiate with your Chinese Suppliers
Sourcing from China: Who are the Happy Buyers?

A China Joint Venture Survival Guide. 22 Facts and 22 Practical Tips.

Joint-Ventures (J-V) in China can go well, and can also go very wrong. When the latter is the case, problems come up from where you less expect them. “Mike Smith” (not his real name) spent two years in rural China supervising his employer’s interest in a Chinese joint venture where they were the majority partner (deal signed before he landed there). His case falls within the second category I’ve mentioned (I would in fact say that all that could go wrong went wrong) but that has given him invaluable lessons on how to ensure things are done right. He has also met on the way a number of joint-ventures facing quite similar challenges to the ones he experienced.

We met to talk about his time representing the foreign partner and I’ve drafted a series entitled “A Joint-Venture Survival Guide” composed of three posts based on his experiences, opinions, tips and comments .

A Joint-Venture Survival Guide (I).(First 8 Facts and 5 Tips)

Some introductory thoughts
1. China is a noble and good society… but when it comes to doing business, the value system changes. Ripping off a foreigner may be seen as a clever thing rather than a bad one.

2. Beijing, Shanghai and Guangzhou are in a universe of their own. Drive just 100 km away into central China and reality changes. It is a hardship environment and corruption is readily encountered.

3. You may have successfully set up joint-ventures and businesses in other countries. Do not assume China is going to be the same. You are lost without an expert if you are going to deal with a local partner.
“My company had successfully set up J-Vs across the world, and nowhere did they face the situations they faced here. They assumed they knew it all, and that was a big mistake”.

“The Essentials”
4. The foundations for your success will be laid before you sign the deal.
Preliminary work is essential, and I cannot stress this enough. Once you have signed you are helpless. And later on, once your million dollars are in China, you will not be able to get them out unless you exit the J-V. There is plenty of room for disaster so make sure you dig into every single hole to figure out where the problems may be.
! Tip: This is the time to get as much information as you need. You need to be able to access all books, information about operational manual, … You may hear the somewhat overused sentence “What is the problem? Don´t you trust me?”. Well it is not about trust, it is about business, and companies that have nothing to hide will share the information with you.

5.Confidentiality and know-how protection will be difficult in a small cities. All the legal issues about this will be judged in the city in which it happens, which means that if you have a company in Shanghai and someone “copies” your product in Ningxia, the legal procedure will be carried out in Ningxia so you will be dealing with all the difficulties of operating in a place that is not a business hub.
! Tip: We are a European SME. If that is also your case you canhave free brief advice from the European Chambers of Commerce. Also a free advice for intellectual property, copy right, etc in China IPR SME Helpdesk.

6. A GOOD consultant/advisor: Priceless.
You need real in-depth expertise to pull this one off successfully:
! Tip: “J-V conflict resolution and dissolution in China is really complicated compared to other countries. Consultant/Advisor companies have an instinct for knowing the real situation”

7.[On consultants] … But find the one suited to your size
“The reality on the ground for SMEs is quite different to that of MNCs. We don’t have their leverage and muscle power and we deal with different issues/situations. It is essential to get on board a very good consultant but I wouldn’t recommend one of the big ones. I think they are better suited for big companies.”
! Tip: MNCs are often interested in high tech, setting up R + D centres, the pharmaceutical industry, medical issues and they will find some decent protection from the Local Government. In the case of SMEs that do business outside big business hubs, protection will be very difficult to guarantee and there will be unimaginable issues unless they hire the right consultant/advisor. And believe me, consultant/advisor big names will not help you to find the back door of your J-V.

8. Sign the right “pre-nup”
You obviously don’t want your relationship to go wrong, but if things happen you need to have put in place the right “break-up” conditions.
! Tip: Always use the Chinese or Hong Kong Arbitration Court. Most companies feel more comfortable with international arbitration, but what do you do when your Chinese partner doesn’t show up or doesn’t comply with the resolution? It needs to be done in China or Hong Kong where the resolution will be mandatory and enforceable.

Coming soon “A Joint-Venture Survival Guide (II)” with more interesting and useful tips to help you navigate a J-V negotiation.

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Human Resources in China: Structure your Needs and Plan for Growth

I’ve just read a very good post at All Roads Lead to China. The article is entitled “Managing a good team in China requires process. Not luck”, and I fully subscribe it. I think Richard Brubaker’s recommendations are universal and apply not just to China but everywhere else in the world.

 As an overall strategy, he tries to answer the following questions:
1. Where are the critical gaps in the organization
2. What skills & talents are required
3. What is the Job Description – and articulate the need in a way that will attract right people
4. How will I ensure I retain them

 From a practical perspective he takes you through some steps to help you build a good hiring strategy (some of them also to help retain your current staff). These steps cover your “homework” before you get out there and start looking for new employees:
1. Have and org chart. Know what people are doing or supposed to be doing
2. Write clear Job Descriptions for all positions. It will help hires and managers equally
3. Ensure your organizational structure allows for professional growth (if not your staff will soon grow demotivated )
4. Share your org charts with your current employees to input their views and insights in your decisions
5. Plan for unexpected growth/ Have a growth strategy in place. Where are the bottle necks?

I would probably add the following comments (insights coming from my interview to German Torrado, who has set up & managed HHRR award winning companies. You can read the complete article here):
6. Invest on the tools that will allow you to identify the right candidates (Do not base your recruitment decision on intuition! There are good tests that will help you make a more rational decision)
7. Define personality profiles required for every position.

I recommend you to read the full article from All Roads Lead to China here

 What do you think?

China Inspection Company: Has Yours Got a “Conflict of Interest”?

One of the tips you have often read in this blog is “you need to visit the factory and, if you can’t do it, you need an inspection company to visit it for you”.  I’ve repeated this one through different stages of the supply process (when you are selecting your supplier, through the product development process, during production, for quality control purposes…)

Today I was reading about this same topic at the Quality Inspection Tips blog. Renaud Anjoran  has written a post with tips on “How to Choose a Quality Inspection Firm”, based on an article at Pro QC International  Newsletter entitled Controlling Quality Worldwide- Without Leaving your office”.

I recommend reading both of them to get some insights on how to choose the right inspection company.

Michael L. Hetzel – Vice President / Americas, Pro QC International adds in the original article an interesting angle. Had you realized that your inspection company may have a conflict of interests?
These are the two “watch-out” remarks Mr Hetzel makes:

1. They may be the company that has qualified your supplier as ISO9000 or other quality standard
“A number of companies offering third party inspection services are also ISO9000 or other quality standard registrars. This can be a non-issue for the most part, or a liability if a vendor being qualified has been registered by that company, creating a conflict of the “of course they’re qualified, we registered them” type.”

2. They may not be a real 3rd party, but work also for the supplier.
“Another potential conflict of interest lies with companies that are not truly “third party,” who work for the supplier rather than the buyer. You’ll want a company who only works for you conducting these activities, or you may as well return to reliance on the seller’s assertions of quality and conformance and save the service costs“

Have you found yourself in this situation?
Do you agree with this view?

36 Tips on How to Deal or Negotiate with your Chinese Suppliers

During the last year, I have interviewed several entrepreneurs who source products from Chinese factories. Their tips and insights are scattered across a number of posts (and a few of them I’ve not even published). Today I am going to compile most of the tips I’ve heard so far on how to deal / negotiate with Chinese suppliers ( I say most because I am probably forgetting a few). Here is the check-list:

Tip #1. Initial Search for Suppliers: directories, trade-show directories and internet
Tip #2. Not all good suppliers have English websites, get on board somebody who can help you search in Chinese
Tip #3. Existing (good) suppliers may be able to help expand your supplier network in non-competing products
Tip #4. If there is any IP involved, register it in China before you approach anybody
Tip #5. Consider registering your IP for categories similar to the one you manufacture

Tip #6. Approach them first with an introductory email presenting yourself, your company and detailing as much as possible the product you are after
Tip #7. If they do not answer fast (1-3 days) move on, they will give you trouble in the future
Tip #8. If you have a good number of suppliers to choose from, create a “pre-selection system” that helps you shortlist: level of response to your introductory e-mail response, telephone check (do they exist?), factory address provided, factory license, any certification your business requires, quality certifications…
Tip #9. Ensure you are not dealing with the middle man (I): Visit the factory… ALWAYS!
Tip #10. If you can’t visit the factory, get an Inspection Company to do it for you. It is not that expensive

Tip #11. If you are not a fluent Chinese speaker, bring a native Chinese speaker to the negotiation- he/she will be a valuable support
Tip #12. Understand perfectly the production process
Tip #13. Be very clear on who is going to be making decisions
Tip #14. The best way to do business in China is face-to-face” Technology is great, but I do not think it is the way Chinese people are wired to work
Tip #15. “I can’t” is not in their vocabulary, so be wary if you get silence for an answer…
Tip #16. Make them recap the agreements, do not assume they understood just because you feel you were clear enough”
Tip #17. Give realistic purchase estimates. If you promise 10 more times than you are planning to buy, they will cut corners to meet their profit so it will hit you back with poor quality (they work on small margins)
Tip #18. Expect long negotiations: even points that have already been agreed will be raised again in the future
Tip #19. Pricing: Do not get obsessed with the cheapest deal. Quality has a price and you should also consider that.
Tip #20. Track commodity prices used in your products
Tip #21. Learn about your suppliers cost structure (how much goes into labor, materials cost…),
Tip #22 . If your IP is involved, make sure they agree to sign a good non disclosure agreement, with non use / non circumvention  provisions (I read this one at the China Law Blog- worth reading the whole post about it)
Tip #23. Make sure you have good contracts in place. It will be a good use of your money to get a China knowledgeable lawyer to draft them (so that the terms are enforceable and it covers all the points you need to cover- IP, stocks, product quality, product specifications, penalties, etc)
Tip #24. Ensure they have the machinery & capability to produce your product. Ask them to produce a few samples in front of you, even if they don’t match your exact specifications.

Tip #25. Make sure you visit the factory during product development. It will speed the process, as nobody will tell you on the phone when they’ve got stuck with something (especially if the product is technically sophisticated)
Tip #26. Visit the factory during production & for quality control
Tip #27. If you can’t visit factory send an inspection company or somebody you trust (and is qualified for the job)
Tip #28. Don’t pay till you are sure all the product is in good condition (make sure the contract is draft that way)
Tip # 29. Never relax! Even with good suppliers. “Quality Control: Always, even with good established suppliers”
Tip #30. Always be ready with back up options- you would be surprised about how many last minutes surprises happen
Tip #31. Expect Delays in your Supply Schedule (power shortages are common, national holidays…)
Tip #32. “Problems don’t finish after production. Supervise Logistic Paperwork! There are often mistakes that will get your shipment stuck

Tip #33. Payment Terms… Some buyers feel that, once you build the business relationship,  things get easier (ex. Not requiring advanced payments)
Tip #34. Get rid of unreliable suppliers A.S.A.P. If they trick you once, it will happen again
Tip #35. Take care of good suppliers, they are not easy to find. Look for win-win when problems come up.
Tip #36. “Renegotiating conditions” is quite common. Your Chinese supplier sees the contract as the “beginning” of the relationship. If you follow tips 20 & 21 (track commodity prices & know suppliers cost structure) you will be able to assess if there is a fair reason to give in (hopefully in future productions)

Would you like to add your tips?

Top Challenge for Foreign Companies in China: Human Resources Constraints

If you have been reading this blog you will already be familiar with some of the findings from the AmCham Shanghai survey “China Business Report 2010-2011”. The US companies interviewed reported “human resources constraints” or the difficulty to recruit qualified staff  as the number one challenge they face (and it has been at the top of the list since 2006) (see other challenges here). The topic was obviously raised during the panel discussion that followed the survey presentation, and some interesting trends and insights were shared with the attendees:
1.- Everybody is competing for the same talent:
a) talent quality coming out from university is better than ever, but competition to get it is also fierce
b) competition to recruit top talent is coming not only from other foreign companies but also from private Chinese companies and state-owned enterprises (SOEs)
c) domestic companies are “replicating” some of the western formulas that make an employer attractive, like moving their offices to prime real estate so that they make the setting more attractive to top talent (1)
2.- There has been an evolution in the type of talent that is lacking: in 2001 there was a lack of professionals, in 2005 a lack of managers and 2011 sees a lack of executives (2)
3.- It is difficult to motivate Chinese talent (the executives we mention in the previous point) to move out of China in order to expand their “non Chinese experience”. They actually prefer to stay in China (2)

Some of the suggested tips to deal with these issues included:
– Quality working environment
– China specific culture
– Recognizing top employees
– Developing a “company brand”, not just a product brand, to become a more attractive work place

What is your experience recruiting local talent?

If you are interested in reading more about human resources in China, you can also check these links:
* 3 Trends in the Chinese Labour Market
* 5 Recruitment Tips for Entrepreneurs in China
* 7 Tips on How to Recruit Managers for SMEs in China
* HR in China: “Accept what you’ve got and model them into what you expect them to be”
* Retaining your Chinese Employee
* 6 Tips on How to Retain your Chinese Talent
* China Stories: Trustworthy Employee… Please, Don’t Go!

(1) Quoting Mr. Michael Klibaner, National Research Director, Jones Lang LaSalle China
(2) Quoting Mr. Pierre Cohade, President, Asia Pacific Region, Goodyear Tire Management Co

7 Tips on How to Recruit Managers for SMEs in China

This is the second post on a series of articles about Recruitment in China. The JLJ Group has provided the content and recommendations in this post.
You can check the previous post about labour market trends here.

Tips on How to Recruit Managers for SMEs in China
With the current labour trends in mind, there are some helpful rules of thumb to hire managers for SMEs.

1. Look for Passively Available Candidates for Important Positions
These tend to be highly capable individuals who are not threatened by the possibility of retrenchment, and differ from active job seekers who may have been retrenched due to performance-related issues. This is particularly important for positions that are responsible for a company’s profits and losses.

2. Do not depend solely on phone interviews when hiring in China
Phone interviews provide insufficient information for screening candidates. There have been cases of deceit in phone interviews where candidates engaged external help to ace through interviews without actually possessing the required competencies. Moreover, due to China’s great diversity, it becomes even harder to assess the qualities and reliability of a person through a simple phone call. Hence, companies should always conduct face-to-face interviews for better evaluation of candidates and prevent the occurrence of frauds.

3. Do not negotiate directly with candidates if you are unfamiliar with their cultures
This is particularly true for sensitive issues such as salary negotiations. Miscommunications tend to occur in negotiations due to cultural differences in expression.  This has repeatedly resulted in foreign companies dismissing good candidates prematurely. Hence, companies should always negotiate salaries and other sensitive issues via experienced recruiters or HR professionals who are familiar with the local culture.

4. Proficient users of English are clearly desirable, although often require high salaries
Due to the great disparity in English competency levels existing in China, candidates strong in English can easily command premium salaries that are 30% higher than the average employee. This is partly due to the high demand for such candidates from multi-national corporations (MNCs). Therefore, expect to pay a premium for proficient users of English.

5. If an office is located in a 2nd or 3rd tier city, companies are advised to hire candidates from the vicinity
Foreign SMEs have been found to prefer candidates from 1st tier cities even when their offices are located in 2nd or 3rd tier cities, because these candidates are more likely to be able to relate easily to their employers in terms of both language as well as their expectations for standards of living. However, such candidates may find it difficult to adapt to the poorer living conditions of the lower tiered cities. This can eventually lead to high employee turnover rates and become detrimental to the company.

6. Keep in touch with this selected candidate in the time before work begins
Chinese candidates have very strong desires to succeed in the global economy. Hence, it is not uncommon to find t hem continuing to search for better opportunities despite having accepted an offer. Thus, it would be wise for hiring managers to keep in touch with the selected candidates and take note if they are still keen and available to join the company. This will help to avoid unnecessary surprises when the candidate fails to show up on the first day of work.

7. Engage professional recruiters when sourcing for specific talents to fill important positions.
The key differentiating factor between a professional recruiter and an amateur lies in the methodology adopted in their search for candidates. Professional recruiters are in control of the entire process. They understand the specific needs of their clients and are able to accurately identify a best-fit candidate in the shortest possible time. In contrast, amateurs are heavily reliant on the quality of resumes they receive and may not be able to perform when faced with unfamiliar industries.
Besides methodology, intangible soft-skills are also critical in headhunting.  The suitability of a recruiter’s network contributes to the success of searching certain talents. Pursuasion skills are also highly desirable in a recruiter. Best-fit candidates may be passively available instead of being actively engaged in job-hunting. In other words, they are still employed and may require substantial persuasion to leave their established portfolio.

How does this sound? It would be great if you could add your own tips.

3 Trends in the Chinese Labour Market

I’ve received a few requests from subscribers to write about recruitment in China. I thought it makes sense to get on board experts on the topic, so I turned for help to a friend who works at the JLJ Group in their Shanghai office. The JLJ Group assists companies entering the China market, and has expertise in different fields, including Recruitment.

I will be posting three articles with the information they have provided covering the following topics:
1. Trends in the Chinese Labour Market
2. Tips on How to Recruit
Managers for SMEs
3. Tips on How to Retain your Chinese Talent

So today, we will kick off the series with 3 trends on what is happening in the Chinese Labour Market.

Trends in the Chinese Labour Market

1. High Rate of Turnover.
Younger Chinese are very competitive and are always looking for career progression opportunities to better position themselves in the global market. Hence, they tend to welcome headhunters and do not hesitate to take up better offers. This makes it increasingly common for Chinese employees to switch jobs every few years.

2. Increasingly Competitive Salaries.
In 1st tier cities such as Shanghai, Beijing, and Guangzhou, salaries are approaching levels found in more developed countries. The phenomenal economic growth of China has led to a rapid rise in salaries, particularly for managerial and higher positions.

3. Increased Prevalence of Younger Upper Management
Due to the Chinese economic reform in 1978, education standards have improved drastically over the past years. This has resulted in a great disparity in knowledge and capabilities between the young and the old, especially in terms of English competency levels. This situation has thrown off the conventional thinking that senior candidates are always more capable than their younger counterparts. In fact, many directors of corporations in China are only in their early thirties. As a result, highly educated young Chinese are now possible candidates for managerial and higher positions in China, and such positions are no longer necessarily held by senior employees.

Is this your experience? Have you identified other trends?

Doing Business in China: 14 Insights Gained on the Ground

Last week I met with Kevin Lai, Asia General Manager for Actronic Technologies (a New Zealand multinational that successfully markets electronic weighing equipment around the world). We talked at length about the insights he has gained since he arrived to China three years ago. Here is a summary of what we discussed:

1. Language Barrier: It’s not the Only One.
Lots of companies do not appreciate how different China is. They assume language is the barrier but there is a lot more to it. Culture, taste and behaviour add to the difficulty to interpret what is going on. And the value system is so completely different that at times you don’t know whether to react outraged or ignore a situation.

2. Understand Value System, Culture, Taste…It will Help You Navigate in China
This is obviously a consequence of the previous insight. You really should devote some time to gaining some insights about culture, taste or value system or you will just feel lost.

3. Plan in Advance
Often companies land here without too much preparation or without a first-hand in-market assessment. You need to understand the market (or at least try to), talk to a few potential partners and customers, assess the resources you will need and plan accordingly.

4. High Price Sensitivity…Not Always.
This market is very surprising. Sometimes money expenditure is far from rational. People earning just 3000 RMB per month will be saving in order to buy a real LV bag (not a fake like lots of foreigners here do!). So if the perceived value is high or if it satisfies a highly valued need (like status) price sensitivity is low.
Another surprising example of price not playing an important role comes from the B2B context. Sometimes your product may be cheaper and better (Western approach of value proposition) and still not be good enough.  The decision maker may continue buying from his friend, simply because he is in the circle of trust.

5. Statistics are Good but Don’t Let them Fool You.
Statistics may provide you with a good overview, but don’t forget they’re just an average and they hide a lot of information. As I explained when I talked about price sensitivity, average wage may be low, but there are lots of high ticket items that those low wages will be buying.

6. Market Research & Reports: Be Ware of Polite or Aspirational Answers
Reading market reports is good, but you need to understand what you are reading. You may be asking somebody: Would you go to New Zealand? And they will say yes, but it is more their aspiration than a reality. Same goes for polite answers. Some people would be embarrassed to say no.

7. “Do It Yourself” … Not Worthy Here (for entrepreneurs)
This is a very challenging market and the DIY approach is a bit of a waste of time and resources. You need to seek help in order to settle here so that you can focus on the core business. Helps is available for free. Just ask!  Contact your own country’s expat networks, your Government Agencies. In my case, many fellow Kiwi companies and NZTE were only too eager to help.

8. One-Man Show: It just doesn’t make sense
Lots of companies send somebody here and do not give them resources. Overheads are most of the cost of setting here, and those don’t change if you recruit some good local employees. It helps the company representatives focus on the business and relieves them from the huge burden of Chinese administrative requirements.

9. Educating your Head Office Back Home.
One of the things I underestimated is how much education you need to do back home. It is very difficult for people who have never been to China to understand what is going on here (in general and with customers). I do recommend devoting time to “educating” your head office. I’ve realized how much it helps if they come to China twice a year and see things by themselves. If you really want to market your product here you really need to understand the local people perspective and to have everybody on board.

10. Trust- not just an Empty Word. Once you Gain Trust lots of Doors Open.
The value of trust is not a China myth. Chinese people are very caring when it comes to their families, friends and network. They will ignore you if you are not in the circle, but once you make it, once you gain their trust and become part of their network they will start caring about you in a very personal way. It does not matter where you are from, they want to know how you are doing, if you have any issues… you become part of the circle.

11. Secure your first Customer.
This market is really tough, so if you are able get your first customer before you start all the set up here, things will be a lot easier.  Your first customer gives you an early win to boost confidence.  More importantly, it enables you to fine tune your market strategy, work out the logistics, and better understand the China market

12. Hire Somebody you Can Trust.
Lots of companies send people here who don’t speak the language so they’re completely relying on their Chinese employees. It’s quite common to hear stories about people hiring a local manager who initially performs really well but turns into a bad story. Power is tempting, and a lot of people can’t resist the temptation to divert money or other perks to their personal benefit because they feel nobody will find out. I mentioned already the different value system. It is just a reality.

13. Your Clients and their clients really value your expertise. They are eager to learn.
I often do sales calls with our distributor’s sales force. I play the role of the overseas expert and that really helps them in their visits.

14. Keeping your Employees… You may need to pay for it.
In general people like to work for big companies. It gives them status and security. So when you are part of a small/medium business you may need to pay above the average when you hire your local employees.

Exporting to China… not as easy as some people think

A few months back I met an entrepreneur working for an SME that was planning to start exporting into China. Their products are used in the building industry and they need their machinery to be tested and approved by a Chinese lab. It all looked good; their products are in good demand and they followed the right steps: registered brand, registered a product lay-out (they did not own a patent), identified a good distributor (financial reports included), negotiated a good contract (with exit clauses in case of low sales) and got the required certificates and approvals to start exporting…
So, today I met them again to clarify a few things for the post I was planning to write about their success story and surprise…., but not really surprise, things have not gone as expected.
– in the last two years, local manufacturers doing similar products have “mushroomed”
– there are multinationals producing similar products locally
– the same labs that certify products in this category, also offer in the market “their own technology” which happens to look a lot like a mix of several products available in the market (guess how they acquire their know-how, … some people say that stripping down machines during certification tests provides a lot of know-how)
– with all the above, the premium price that clients seemed to be willing to pay (justified by the higher quality that a foreign brand provides) is no longer a reality…

So, I looked at them and asked: what lesson did you learn from all this?
And their answer was: start with a good market research, understand competitive situation, market potential and consider producing locally if the numbers work out ok… And whatever you decide, move fast.

Does this story sound like something you’ve heard? Does it make sense to you?