China's Service Sector Will Reign, Part XII -- Use The Expatrepreneurs
Andrew Hupert over at the DiligenceChina Blog has a great post extolling the virtues of what it calls "expatrepreneurs," which he defines as follows:
Expatrapreneur -- Westerner who starts a new business in China. Usually involves a number of business plan rewrites, false starts, mental breakdowns, racist rants, cries for help, fits of despair and alcohol dependency. Potentially your best bet when looking for local professional service providers. Look for foreign run ops that have been on the ground for at least 2 years. Many foreigners burn out early, so make sure that your choice of consultant or service firm is in it for the long haul.
The post focuses on Reign Design, a Shanghai "media design and new media" company "that recently did the excellent work on ChinaSolved.com." It is a beautifully done site.
Hupert sees Reign Design as "typical" of the �expatrepreneurs� who come to China to start their own business in that they are "getting bigger, more specialized and more international." These comanies "are becoming focused on their core business, capitalizing on good will and repeat business from satisfied customers (I am one of them), developing more sophisticated, consistent operating systems and controlling their growth in terms of head-count and services offered."
Hupert talks about how he started using Reign Design in 2005, after first conducting "a thorough survey of the market for web design in Shanghai" and finding "a few VERY expensive international firms" specializing in large corporate accounts and "dozens of small local operators offering low levels of service for very little money." There were few options in the "middle & upper-middle bands of the industry." These middle band companies offer "solid value" at prices that are not "TOO expensive."
Hupert sees these middle band service companies in China's sweet spot:
International firms in China need to realize that we are in the midst of a rare opportunity. Local competitors have, with a few notable exceptions, been slow to adjust to changes in the Chinese market. Chinese consumers and businesses have raised their expectations and become much more sophisticated in a very short time � and the majority of local service providers have still not significantly improved the quality of their product offerings. It may FEEL like the whole world is already selling their goods and services in Shanghai, Beijing and Shenzhen already � but the reality is that there is a wave of new entrants who are just now preparing to make their move into China. This is the time for international start-ups and small businesses to leverage their brands, ramp up their sales and get BIG while they still can.
2007 is the year that China goes hyper-competitive. Ride the wave or get wiped out by it.
I completely agree that demand for these middle band service companies will greatly increase, but I think it too strong to pitch 2007 as the last chance for these sorts of companies to make their China mark.
What I find so interesting about this post is that I see my law firm as the "Reign Design equivalent" for those seeking Western style legal advice from a firm with English and Mandarin speaking lawyers. Above my firm, there are the mega law firms with offices all over the world, like White & Case, Lovells, O'Melveny & Myers, Hogan & Hartson, Dorsey & Whitney, Morrison & Foerster, Paul Weiss Rifkind, and Squire, Sanders & Dempsey. These are all great firms, but they show little concern with price (some of these firms have attorneys who bill out at more than $1500 per hour) and their focus is on the huge company, the huge deal, and the huge case. Below my firm are a handful of American and British lawyers who essentially freelance in China (oftentimes illegally), with no out of country support or accountability. And yet, because of the extreme shortage of experienced China lawyers (particularly those who can read Mandarin well enough to read China's laws), I do not see this already miniscule middle band in the legal world expanding any time soon.
For more on ex-pat entrepreneurs in China, check out this informative article just out from the American Chamber of Commerce (AmCham), entitled, "Into Their Own Hands: After years of growing governmental support, entrepreneurial spirit in China has now reached a fever pitch." [pdf] (h/to China Challenges).
What do you think?
Comments (43)
Read through and enter the discussion by using the form at the endKevin S. - March 4, 2007 4:47 PM
Although my working experience in China so far is limited to teaching and as such my knowledge of business in China is limited to what I read, I have found as a job-hunter that there is a dearth of these middle band expat service companies in China. For my own sake I hope you are right, because I'm convinced that a job with such a company would be a welcome career change for myself.
Andrew - March 4, 2007 5:35 PM
The "Reign Design of Lawyers"? I just heard from one of the owners at Reign, and they want to chat about trademark violation -- but are having trouble finding other good lawyers in Shanghai to take their case.
You can really see the rise of expat brands in restaurants -- which is a key indicator for me since Chinese have a long history as successful restaurant operators. In Shanghai, ex-pat companies like Blue Frog, Element Fresh and Blue Moon Diner have built up strong followings over the last few years, and are now capitalizing on their good names by flipping out new locations all over the city. Lots of little "mini-chains" of mid-priced eateries are doing great business, but the local places seem to be lagging. Taiwanese and Japanese have been quite active as well. (If anyone's interested, I've written about it at Chinasolved, but didn't feel right about linking in CLB's comment section)
Business services like accountants, lawyers and HR consultants are doing strong business as well, but their growth seems to follow a different path. At first they get swamped with a wide range of business, and eventually develop a sharper brand focus through specialization -- actually turning down business that doesn't fit their profile. I don't know if that is the case with Harris-Moure (yet), but I do know of an expat accountancy that turns down half its inquiries. Just my humble opinion, but it seems that expat business service firms grow through specialization while successful expat consumer brands expand by saturating high-potential geographies with new branches.
And while 2007 might not be the last chance (yes, maybe a little overstated), I think that the opportunity is definitely upon us. Trends in China take a long time to develop, then suddenly gear up to overdrive. Anyone who is considering entering the China market should talk to a competent, experienced attorney about putting their plans into action soon.
Sergey - March 4, 2007 5:39 PM
I think "2 years" simply means that we thoroughly did the business planning to begin with.
On second note - foreigners building a service economy. Actually the IT service industry in China is lead by an American. I forget his name, but he not only leads the biggest IT firm, but he also seats on a dozen nonprofits in China - everything from "services" to "unemployment"
China Law Blog - March 4, 2007 6:55 PM
Kevin S. (WF) --
The problem with getting a job at the mid-market service firms is that they tend to want someone with experience who can hit the ground running. That tends to be one of the ways they can charge less than the biggies. At least this is true of law firms and I suspect it is true of many of the other service firms as well.
China Law Blog - March 4, 2007 7:05 PM
Andrew --
1. If they are talking about pursuing litigation, they will need to retain Chinese counsel as foreign lawyers cannot do this in China. I know a Chinese lawyer in Shanghai who would be perfect for this, so just let me know if they need help on that.
PS -- Every time I read "Reign Design," I think of Shawn Kemp, the former Supersonic who was known as the "Reign Man." Not a good memory. Sorry.
2. Go ahead and link. I have no problem with that so long as it is relevant.
3. You are definitely right about the specialization of service firms, though not sure if it leads to growth, it does definitely lead to increased profits. A magazine called Washington Law & Politics recently did a story on boutique firms and it included us as the international law firm. In China, we are basically doing six things, nearly always for American (North and South) and European companies: 1.) Forming Chinese entitites. 2.) Protecting intellectual property. 3.) Drafting business contracts. This consists mostly of OEM agreements, employer-employee contracts, and real estate purchases. 4.) Mini M&A -- foreigners buying another business. 5.) Protecting intellectual property. 6.) Overseeing litigation and engaging in arbitrations.
China Law Blog - March 4, 2007 7:21 PM
Sergey --
The two years is somewhat arbitrary, I'm guessing. I think I know the American of whom you are thinking, but I cannot think of his name either. I did a post on his company a few months ago and I think my co-blogger, Steve Dickinson may even have worked on a project with him in Shanghai.
nanheyangrouchuan - March 4, 2007 7:54 PM
"I have found as a job-hunter that there is a dearth of these middle band expat service companies in China. For my own sake I hope you are right, because I'm convinced that a job with such a company would be a welcome career change for myself."
@ Kevin S. You are most likely to find yourself in the role of "business development" at any of these firms and they will push hard to make you accept "local pay".
China Law Blog - March 4, 2007 8:41 PM
nanheyangrouchuan --
Can you really say that about all service sector businesses?
Nicholas Kruse - March 4, 2007 8:57 PM
Dan --
To clarify, we don't have any pressing IP/trademark problems at the moment. Rather, we're acutely aware of the ever-present possibility that these problems will appear and would rather be proactive about prevention and protection.
I did mention to Andrew that I am (as always) concerned and aware of this, and, should the need ever arise, a great lawyer would be one tool of many to combat the problem.
nanheyangrouchuan - March 4, 2007 10:50 PM
@CLB:
If you are hired at as bar/restaurant manager, you do less sales but as anywhere you should be increasing month by month income (which involves some sort of "gimmicky" sales). Of course, the full time expat community is very finite and those who do go out frequently have been to your establishment quite a few times. The regulars will stay and while the floaters float, but you will have to "sell" to bring in more than just the regular crowd while the owner breathes down your neck.
In IT services, chances are that locals or foreigners from other developing countries will be doing the actual IT work while you are the trustworthy whiteface. Chinese salepeople aren't well received even in many decent office buildings with all chinese companies. You can also stay up late and make calls to companies in your home country who are in the process of or may be relocating to china.
Same goes for moving companies.
Many of the foreigners working at the low and mid level end up moonlighting as models, writers (everyone in China is a writer), photographers or some kind of teaching.
Otherwise, do what some foreigners do and find a girl with connected, well of parents. Marry her and get paid 6 figures a month managing an SOE factory.
SH and BJ are chock full of companies doing sales, marketing, magazines, promotions and any other gimmick-of-the-month, so sales/marketing is by far your easiest play after teaching.
China Law Blog - March 4, 2007 10:55 PM
Mr. Kruse --
That's good to hear. For that, I suggest you read this article I wrote a few months ago for the China Trade Report: I am sending you to my site to save you the $15 they would charge you.
China Law Blog - March 4, 2007 10:56 PM
nanheyangrouchuan --
What did you do during your China stint?
nanheyangrouchuan - March 4, 2007 11:16 PM
Started out teaching (like most), did some marketing for a web company then worked for a guy trying to build a business selling environmental due diligence to the SH city gov't and district gov'ts.
Zhou - March 5, 2007 3:49 AM
Wht NHG do you do? Your perky wit that I see here and on oher blogs makes me wonder your background.
China Law Blog - March 5, 2007 5:52 AM
nanheyangrouchuan -
Interesting. Thanks. Just curious.
China Law Blog - March 5, 2007 6:13 AM
Zhou --
Thanks for checking in. I'm sorry, but I do not know what you mean by NHG. What do you mean by NHG?
zhou - March 5, 2007 1:21 PM
I meant nanhegrouchuan. i like his posts. he shoul dhave his own blog.
Kevin S. - March 5, 2007 8:32 PM
@CLB
"The problem with getting a job at the mid-market service firms is that they tend to want someone with experience who can hit the ground running."
I know. I've learned this the hard way. That's why a change in the cards is coming soon for me.
@nanheyangrouchuan
"You are most likely to find yourself in the role of 'business development' at any of these firms and they will push hard to make you accept 'local pay'."
Hell, local pay? I applied to one of those company once, and made it to the second round of interviews but didn't go because a) I'd just signed a one year contract with Beihang and b) they wanted to pay me something like 1500RMB/mo. with no benefits (ie., no apartment) and I had to get my own F visa. Screw that. I may be desperate for non-teaching work experience but I'm not stupid and I'm not someone's [censored].
China Law Blog - March 5, 2007 10:18 PM
zhou --
You are right, he should have his own blog. NHG, why don't you?
China Law Blog - March 5, 2007 10:33 PM
Kevin S.
Sorry for slicing out your last word there, but I have never been a big fan of it and it just didn't seem right here. Unless it is a job that requires a foreigner, it is difficult to get anything more than local pay.
China Law Blog - March 5, 2007 10:34 PM
Kevin S.
Sorry for slicing out your last word there, but I have never been a big fan of it and it just didn't seem right here. Unless it is a job that requires a foreigner, it is difficult to get anything more than local pay.
nanheyangrouchuan - March 5, 2007 10:38 PM
@zhou:
A blog does not satisfy my objectives or benefit me in any way, but thanks for the support.
@ Kevin S:
1500 RMB a month is local pay. Welcome to China.
China Law Blog - March 5, 2007 10:44 PM
Romain Guerel --
Chris D-E can be rather cantankerous, but, hey, that's what blogs are for. We typically agree and I too am not sure we really disagree too much here.
I agree with Chris that it is much better to have a lawyer who speaks AND reads Chinese, but in certain highly complicated and specialized transactions, there is no such lawyer.
My firm has a German lawyer, Nadja Vietz. Nadja went to law school in Germany and in France, and is licensed in Germany, Spain, and the United States! She works with our German clients and this includes working on their China work with Steve or our Chinese lawyers. What I have found amazing in dealing with our German clients is that virtually all of them speak perfect English, yet much prefer working with Nadja because she speaks German and, more importantly, she is of their same culture. They are, quite simply, more comfortable dealing with a fellow German than with an American.
China Law Blog - March 5, 2007 10:46 PM
NHG --
I find that hard to believe. Why could you not do a blog that would satisfy your objectives? Wouldn't that give you more exposure for your views?
David Li - March 6, 2007 7:12 AM
"1500 RMB a month is local pay. Welcome to China."
I thought that's called "Local Plus," e.g. local times 1.5.
The local hiring practice have gotten a lot more popular these days. Just heard about it mentioned on NPR the other day.
http://www.onpointradio.org/shows/2007/01/20070108_b_main.asp
"In IT services, chances are that locals or foreigners from other developing countries will be doing the actual IT work while you are the trustworthy whiteface."
And even worse, most of the trustworthy white faces are on short term contracts. I have met a couple white VPs working for local IT companies on 3 months contract without golden parachute exist clause.
nanheyangrouchuan - March 6, 2007 8:52 AM
@ David:
I agree 100%, and exptraneurs love the idea of walking over other white people even more than walking all over their chinese employees. Gives them a feeling of power and influence they would never have nor could ever achieve back home. That is why the long term expat community is such rubbish overall.
David Li - March 6, 2007 6:57 PM
"Gives them a feeling of power and influence they would never have nor could ever achieve back home."
Well, small annoyances like labor laws and lawyers back home? ;)
I think the "local plus" foreigners got pushed harder in exptraneurs shops because it's culturally easier for the boss to drive them. Also, it's much easier for the local to walk out. "local plus" in China is like H1-B in the states.
nanheyangrouchuan - March 6, 2007 8:29 PM
It's nice to see David and I agreeing on something.
Chris, I'm familiar with your operation and it checks out clean. I've put out my disclaimers about the exceptions, you can acknowledge that there is alot of hotdog and not much steak in the general expatreneur community.
nanheyangrouchuan - March 6, 2007 8:33 PM
What seems to be an even more interesting phenomenon is when a westerner is working for a mainland chinese owner or gm. The foreigners actually can have an easier time with the upper management, even if they weren't educated oversease. I've never experienced this myself, but people have told me once they earned the trust of the chinese management, they are free to roam as they may and the chinese management seems to feel relieved that someone doesn't need to be micromanaged and doesn't bother them with step by step questions.
China Law Blog - March 6, 2007 10:55 PM
Chris D-E --
Love?
I assume the five pounds is just the first of many installments.
China Law Blog - March 6, 2007 10:57 PM
Mr. Li --
Ah, the "trusted white face." I am happy to say that in many Asian countries (all?), the most trusted white face of all belongs to Americans.
Anonymous - March 6, 2007 10:58 PM
nanheyangrouchuan --
Way to mince words. The reality is that businesspeople everywhere are always extremely concerned about labor costs and typically want to pay as little as they can get away with. There's a word for that: capitalism.
China Law Blog - March 6, 2007 11:01 PM
Chris D-E --
I generally let people have their say. If nanheyangrouchuan wants to rant about ex-pats, let him. I would like to think none of my readers are going to view all ex-pats as "trash" simply because of one pronouncement. But, I too would like to see better.
China Law Blog - March 6, 2007 11:02 PM
Mr. Li --
Good analogy. I think you are right.
China Law Blog - March 6, 2007 11:03 PM
nanheyangrouchuan --
"alot [sic] of hotdog and not much steak" is different from "trash." I would say there is mostly hot dog and not much steak in most business communities.
Romain Guerel (French working in Beijing) - March 6, 2007 11:21 PM
I agree with Chris D-E latest statement. It is not because we are in China that we were loosers in our country. Personnally, I had an enjoying life working in Nice, Cote d'Azur and i decided to move 10 years ago to China. I don't regret it. I find my experience here very fruitful except that I miss the sun, the "mediterranee",the cheese ("I would kill for a goat cheese") and the wine ("Rose wine for me").
China is in its golden century but I don't think that the successful expats here have been lucky; They just work harder than other ones and made the right decisions.
China Law Blog - March 6, 2007 11:25 PM
Monsieur Guerel --
I agree with you. There are plenty of very talented ex-pats in China and many who are not. Same as everywhere. China is an exciting place to be, no doubt about it, and plenty of people are going there who could easily succeed in their own countries. Plenty.
nanheyangrouchuan - March 6, 2007 11:42 PM
Hey expats,
While you are basking in the glory of your greatness and China's century, have a read:
http://www.google.com/search?hl=en&q=gulja+massacre
http://china.notspecial.org/archives/2007/02/10_years_later.html
And ask yourselves why is that MNCs have a hard time finding good people to go to China?
Kevin S. - March 8, 2007 6:52 PM
@nanheyangrouchuan
"1500 RMB a month is local pay. Welcome to China."
Although I'm sure there are many, I don't personally know any college educated Chinese people making 1500 for full time work with no benefits (and I'm not talking about Beida graduates either - Weifang University graduates who find work in the city and even graduates from a two year course at Nanchong Institute of Education who are paid 1600 plus room and board for full time work at a factory in Guangdong). For the jobs I was looking at 6 to 10 k would be what a Chinese person in Beijing would be earning. For that matter, part of those job descriptions was Chinese to English translation where the English had to be native quality, ie., pretty much required a foreigner to do the work. According to a contact of mine, full time foreign translators at translation firms in Shanghai are on at least 12k a month. I would assume Beijing is similar.
@Dan
No worries about the B-word. I will keep my language tame here from now on.
China Law Blog - March 9, 2007 9:43 AM
Chris D-E --
Sorry for the deletions, but I am not a fan of going after a people en masse. I do agree with you, however, that repression in the 70s and 80s is a non event to foreign businesses in China today. I am not going to speak to the morality of that, but it is pretty much fact.
China Law Blog - March 10, 2007 11:33 AM
Chris D-E --
I have heard much from many sources, including in a comment above. I suspect many know exactly the firm we are discussing and I expect something public on this will be breaking very soon.
China Law Blog - March 10, 2007 3:28 PM
Kevin S. --
Thanks.
nanheyangrouchuan - March 14, 2007 12:09 AM
"what is going on with one of the foreign owned 'international accounting' practices in China "
Is this the same firm that allegedly found $900 billion USD in actual NPLs at the big 4 state banks?