Archives: Michael Zakkour

On Wednesday April 10, 2013, I will be one of five presenters for Exporting to China, a full day, live, online seminar.  The program is designed to help U.S. firms expand their presence in China and it touts that its participants will, among other things, learn to do the following:

  • Interpret the rapidly changing Chinese business landscape
  • Navigate the cultural differences between our two countries
  • Understand China’s legal environment
  • Master the logistics of shipping to China, while avoiding common mistakes
  • Identify the best approaches to succeed in this promising market

The program is organized in five 60-minute webinar workshop sessions, with plenty of time for questions.  Its schedule will be as follows (all times are Eastern Time):

  1.  US Government Export Programs (9:30 to 10:30 a.m.), by Tali Levine, Program Manager for the U.S. Department of Commerce’s China Business Information Center.
  2. The Legal Basics of China (10:45 to 11:45 a.m.), by Dan Harris (me), founding member of the HarrisMoure law firm.
  3. Customers, Clients, and Culture in China (1:00 p.m. to 2:00 p.m.), by Dr. John Osburg, Assistant Professor of Anthropology at the University of Rochester.
  4. China Supply Cain (2:15 to 3:15 p.m.), by Michael Zakkour, Principal at Tompkins International.
  5. Entering the China Market (3:30 to 4:30 p.m.), by Shawn Mahoney, Managing Director EP Consulting Group.
I know Michael Zakkour and Shawn Mahoney and I can vouch for their top-shelf China knowledge and I can assure you that they alone will warrant your attendance at this event.  I have heard nothing but good things about the other two speakers as well and I can say that I will do my utmost to make my 60 minutes well worth your while.
So if you/your company is looking to export to China or sell products or services to China or in China, I would urge you to sign up.  To do so or to get more information about the program, click here.

Michael Zakkour, who constantly deals with global supply chains as part of his job as a China/Asia market strategist at Tompkins International,made a great comment on exactly that at our Linkedin China Law Blog Group today.  Michael’s comment was in response to a Bill Dodson post entitled, “Backshoring to the Future.”  In just a few paragraphs, Zakkour nicely lays out exactly what I see happening out there and gives lie to the idea that there is any one country for anything:

I think a lot of pundits, analysts and otherwise sober business thinkers, including my friend Jim Fallows are

  1. Blowing this “trend” out of proportion
  2. Seeing it as a Black/White (or Red/Red-White and Blue) issue

The real issue is not a simplistic Off-shoring vs. On-Shoring debate. It is much bigger than that. We are in the middle of “re-globalization” – whereby companies have to consider “right-shoring.”

In other words a number of factors including:

  • Where your biggest customers are (what are your top three markets by region)
  • Cost of shipping, fuel and logistics
  • Cost of labor
  • Protecting IP
  • Profitable partnerships
  • What each country region does best
  • Infrastructure

These factors and many others will inform companies on what mix of “re-shoring” “near-shoring”, “off-shoring” is right for manufacturing as well as R&D, marketing and sales.

A company may well want to keep component manufacturing in SE Asia, 60% of final assembly in China and specialty, high-value add manufacturing in the US. Many are misinterpreting this trend to mean massive, assembly-line focused, dirty and low value add manufacturing is coming home in droves.

The fact is a smart company will consider a new mix of manufacturing, sales, marketing and logistics in a re-balanced and re-globalized world.

In that world China still has a huge role to play. As an example just consider “China for China” manufacturing. If you are an apparel company, and your biggest market for the next 10 years will be China, why on Earth would you move all your manufacturing back to the US?

Good points all, don’t you agree?

Or as we lawyers are always so found of saying, it depends on the specific situation.

 

On December 13, I will, along with Fraser Mendel, be co-chairing a seminar on “The China Market: Selling Products and Services in the New China.”  I promise you it will be an excellent seminar.  I can make this promise because I have known nearly all of the speakers for many years and I can vouch for them.

Fraser Mendel and Robert Carrol will start the day speaking on forming an entity in China. They will be discussing when to form a WFOE, when to form a Rep Office, when to form a Joint Venture, and yes, even when not to form an entity in China at all.  Fraser is a lawyer at Davis Wright (Gary Locke’s old firm) and he knows his stuff.  Robert Carrol’s practice focuses on representing food and beverage companies and I understand his focus will be on the  the best ways for food and wine companies to do business in China.

Michael T. McCune (who I also have known for years) will speak next on “Marketing in China; Internet Sales; Creating Distribution Chains; Reviewing Consumer Values That Drive Consumption in China; Understanding Why Enabling Internet Sales is Your First Step Into the Chinese Market; Understanding Merchant Dynamics to Appropriately Prepare for Retail Distribution.” To give you an idea of Michael’s retail expertise, leading Chinese retailers hire him so that they can better compete in China against foreign companies doing business in China.  Yes, you read that right. Michael is Director of Global Retail and China Trends at Iconoculture.

Tony Liebo of will speak next on Money/Banking/Letters of Credit and getting paid in China.  And that is the bottom line, right?  Tony is a senior Vice President at Wells Fargo.

Yours truly will then speak on Protecting Your Intellectual Property in (and from China):  Trademarks; Copyrights; Patents; Non-Competes; Trade Secrets.

Fraser Mendel will then speak, this time on “Anti Corruption Compliance: Chinese legal issues and the Foreign Corrupt Practices Act (FCPA)”.  He will be focusing on “Red Flags When Operating in China; Considerations when Dealing with Government Officials; Risks of Bribery; Compliance Requirements

We will then break out into panel discussions.  The first will be on Food and beverages and will consist of the following:

  • Xiaohui “Lou” Luo heads up operations for Chang International, Inc., a Seattle based seafood company with sales and operations in China as well.
  • Julie Felss Masino, Vice President of Starbucks’ Global Beverage Group and former Vice President of Marketing and Category for Starbucks in China.  I saw Ms. Masino give a great speech at this year’s Wharton China Forum and then I was on a panel with her at an Economist Magazine “Business without Borders.” Julie knows China retail.
  • Michael McCune (see above) will round out this panel.

The next panel will be on consumer products and will consist of the following:

  • Michael A. Zakkour heads up China strategy and implementation for Tompkins International.  Michael has been involved with China for decades and he truly knows its consumer side. I have had the pleasure of working with Michael on a number of China matters and serving with him as a speaker at various China events and I can verify his expertise.
  • Sage Brennan co-founded China Luxury Advisors and he too has been working with China for decades.  China Luxury Advisors assists luxury goods companies in selling to Chinese consumers both inside and outside China.
  • Renee Hartman also co-founded China Luxury Advisors and she too has a wealth of China consumer experience.  Renee wrote The Basics On China Retail — Creating Your Own Customers Is The Key, one of the most popular posts ever on this blog.  I have worked extensively with both Sage and Renee and shared a podium with them at many a China event and I know that they will bring a wealth of expertise and ideas to this one.

The last panel will be on services and will consist of the following:

  • Benjamin A. Shobert heads up the Rubicon Consulting Group, which focuses on assisting healthcare and senior care companies with Asia.  Ben has been involved with China’s health care and senior care industry for many years and he is a frequent writer on the topic as well, oftentimes for the Asia Health Care Blog.  Ben is amazingly knowledgeable on China big picture issues.
  • Darryl Custer.  Darryl Custer is a Vice President of Operations at Callison Inc., an architecture firm which has had tremendous success in China. Callison has been doing business in China for as long as I can remember. Daryl’s focus is on China.

China Law Blog readers will be given a “substantial” discount to this seminar and if you contact us by leaving your email in the comments or by emailing us at firm@harrismoure.com, we will give you the code to make that discount possible.

I look forward to seeing you at the seminar.

Just got back from Los Angeles, where I met with long-time China hands, Sage Brennan and Renee Hartmann.  Since returning to the United States, Sage and Renee have formed China Luxury Advisors, a consultancy focused on helping luxury goods companies market to Chinese consumers both within and outside China.

These days its difficult to find any consumer brand that is not at least considering the potential to sell to Chinese consumers — whether by entering the China market or by targeting the hordes of wealthy Chinese shopping and traveling overseas. In the luxury industry, interest is even stronger. One need only walk down 5th Avenue or Rodeo Drive (or Beverly Drive, for that matter, which is where I met Sage and Renee for coffee) to notice huge numbers of Chinese shoppers and Mandarin speaking sales associates in the boutiques to greet them.  Since Sage and Renee tell me that more than 50% of Chinese luxury purchases are being made abroad, these shops are getting it right.

But simply opening your door to Chinese customers is not enough to build success. Luxury brands need to first understand the underlying motivations behind Chinese consumer preferences and decisions before they can hope to monetize this lucrative customer group.  If you are looking to learn more about the Chinese consumer, have I got the event for you.  This Wednesday, May 16th, in New York, Jing Daily, China Luxury Advisors and China Luxury Network are putting on an event “to provide luxury brands with greater context and understanding” of the Chinese consumer.

The event will include:

An overview of the Global Chinese consumer opportunity, by my friend, Michael Zakkour, of Technomic AsiaInsights into the Chinese luxury consumer, by Professor Pierre Xiao Lu from Fudan University and author of “Elite China, Chinese Luxury Consumers” and “Luxury in China, Market Opportunities and Potentials

  • Insights into the overseas Chinese student community with a Chinese student panel moderated by Sage Brennan
  • Trends in the real estate market, by Sotheby’s International Realty brokers
  • An overview of the current demand for fine art, by Michael Plummer of Artvest
  • Experiences with “the China opportunity,” with Royal Asscher diamonds
  • Tales from wine trips and experiences with Simon Cousins of Illuminant
  • Real life experiences with Chinese affluent travelers, by Christine Lu, CEO of Affinity China
  • Chinese overseas spending, by Renee Hartman

I know about half the people who will be speaking and all of them are incredibly knowledgeable about marketing to China’s consumers.  I am therefore confident in recommending this to anyone with an interest in learning more about China’s consumers. And thanks to Sage and Renee, China Law Blog readers get 30% off the ticket price if they use the code Chinalaw to register at: http://chinalux.eventbrite.com.

Enjoy.

By: Damjan DeNoble

Dr. Adam Powell and Dr. Youfa Wang, two of several presenters at this past weekend’s US-China Intercollegiate Healthcare Conference held on Wharton’s campus, exhibited a shared awe of the rapid changes taking place in China’s healthcare profile. Among the many themes and viewpoints presented at the conference, the sense of awe emerged as the common meeting point for all attendees.

“Just look at what China has been able to do,” Dr. Powell gushed while pointing at a chart depicting the staggering rise of insurance coverage in China from 2000 to 2012. The rate of China insurance coverage has reached 95%, according to the latest numbers put forth in this months March 2nd issue of medical journal the Lancet [link no longer exits]. “In ten years [Chinese health planners] have managed to cover a billion people.”

“Every time I visit China, I’m very surprised by the many changes,” Dr. Wang, a Johns Hopkins Medical School Professor and probably the leading expert on nutrition in China, said as he pointed at his own PowerPoint slide earlier in the day, a map depicting all of China’s KFC restaurant locations. The image made the audience of ninety students and health professionals chuckle and wiggle uncomfortably in their seats.

Yet for all the agreement on the pace of change in China, Dr. Shujun Li, the recently retired head of Beijing United Family Hospital’s surgery unit was still greeted with a roomful of approving nods when he pointed out that “the term ‘market’ does not fit to today’s situation” in the sphere of Chinese hospitals and clinics. Similarly, there was a rustling of pencil on paper and a clattering of laptop keys when keystone speaker Sheldon Dorenfest, CEO of the Dorenfest China Healthcare Group, said that in China’s broader healthcare sphere the market is not the private market. Rather, “the market is the public market.”

For some, one or both statements may seem confusing. Beijing United is one of China’s two largest, private for-profit hospital chains and it is foreign owned. Yet here we have one of its medical officers saying that despite all of this, a healthcare market in China is an illusion. The Health Statistics Yearbook 2011,put out by the Chinese Ministry of Health shows that there were 13,850 public hospitals in China in 2010, compared to 7,068 non-public hospitals, hardly numbers suggesting a non-existent private market.

Two key insights make sense of Dr. Li’s statement.

First, for the majority of Chinese, healthcare is only accessible with the aid of public insurance, so there is no private market to which they can turn for alternative, non-profit services. Moreover, the health institutions they can reasonably access are all regulated by the same price control mechanisms so almost all fees will be identical. Because they cannot choose between healthcare providers on the basis of any meaningful entities, they are not really a market consumer and for them there is no market.  There is a strong argument to be made that a market exists when underground practices like red envelope payments are considered but that’s an article for another day.

Second, for those Chinese who can afford to look towards private healthcare providers they don’t really have 7,068 non-public hospitals and clinics from which to choose.  The majority of these non-public healthcare “hospitals” are mom and pop healthcare businesses, like elective procedure providers and check-up centers, and dental offices, that offer little or no clinical services.  For example, Beijing United is successful because no other non-public hospital in Beijing offers what it does: a full range of clinical and preventative services. So,  even in the realm of non-public, i.e. ‘private’ hospitals and clinics, consumers really have no choice and therefore, in a sense, there is no market.

And the insights that explain Dr. Li’s statements are critical for understanding Mr. Dorenfest’s point on the existence of a public market only. The dominance of public entities in the healthcare market who admit patients, dispense drugs and purchase medical equipment, and the small size of the private healthcare market – and, again, the private healthcare market gets very small if you don’t count the mom and pop enterprises with little or no buying power – means that entrepreneurs have to work with public entities or risk failure by betting on a very short list of private market clients.

As a side note, I am not seriously positing that there is an absence of a healthcare market in China, per se. “The public market is the market,” to be sure, is not equivalent to “there is no market.” There are many things that can be done to operate profitably in a public market, and a public market is a form of market. A combination of pharma sales and hong bao are presently being used to circumvent price controls. Also, even though pricing may be fixed, hospitals may compete with each other to some extent for volume or case-mix (some procedures may be more desirable to perform than others). Further expounding on this point, if Beijing United is really the only hospital in its class as it claims, that does not mean there is no private market in Beijing – it means that Beijing United has a monopoly (a market with one dominant player). Beijing United likely monopolizes a small high-end niche market. Other Beijingers must make the choice between going to a myriad of specialty hospitals, TCM hospitals, village and county clinics, etc. Demand at these various places is determined by the choices of the Beijingers – a market exists.

Getting back to the point, however, the big lesson, which brings together both the points on dynamic change and public market dominance, is that investment in China’s healthcare market is a task which should not be taken lightly. Not only does the gravity of issues implicate — as conference presenter Michael Zakkour principal of Technomic Asia put it — “the future of China.” The complexity of the situation also demands of potential entrepreneurs in the area a sophisticated plan of action and not a ‘shortcut’ strategy which looks to cut out the complicated labyrinth of public institutions and ministries controlling the healthcare space.  Mr. Dorenfest summed it all up with the last few words in his closing address, “Even though I was a very seasoned entrepreneur in the West, I was in preschool in doing business in China and had to learn more to be successful…[I]f I bought hospitals in China with what I knew about doing business in China I would be making bad investments be pouring money down the drain.”

What is looking to be a top-flight China healthcare conference is going to be held on Saturday, March 24, at The University of Pennsylvania’s Wharton School, in Philadelphia. The conference is the 2012 Intercollegiate US-China Healthcare Conference,  an all day event offering a panel of expert speakers and panelists and opportunities for discussion and networking. The theme will be “Transforming the Face of Chinese Healthcare.”

I am writing about this conference because I know two of the panelists very well.  Michael Zakkour of Technomic Asia will be on the Health Policy and Investment Panel. I have worked on a number of matters with Michael and I can vouch for his knowledge of China’s health care industry. Damjan DeNoble will be on the same panel with Michael and he will also moderate the Senior Care Delivery Panel. Damjan is one of the driving forces behind the Asia Health Care Blog, where he describes himself as follows:

Damjan co-founded Asia Healthcare Blog with James Flanagan, in 2009. He is currently a JD/MA dual-degree candidate, in Law and Chinese Studies, at The University of Michigan Law School. Last summer he clerked at the offices of Harris & Moure, a boutique international law firm widely admired for its China Law Blog.  He graduated from Duke University in 2007, with a B.A. in Public Policy, concentration in health policy.

If you have an interest in China healthcare, this would seem to be the conference to attend.  If you go, please report back on how it went.

Last week, we did a post enttitled, “The End of Cheap China, With A Giant Caveat.” The point of that post was to pick up on the widespread discussion regarding the end of cheap China, but to highlight how this “end” has, and will continue to, impact foreign companies very differently. Our initial “end of cheap China” post was based mostly on a “Made in America, Again: Why Manufacturing Will Return to the United States, a Boston Consulting Group study that jump-started the end of cheap China discussion.

Yesterday, i was alerted to two very recent and very good articles addressing the end of cheap China issue. The first is a post by Michael Zakkour over at the China Business Blog and Podcast, entitled, “The End of Cheap China. But Not China Manufacturing.

Michael starts by positing that “the cheap China era is over, but China manufacturing isn’t.” He goes on to note the following, all of which he contends portend just fine for Chinese manufacturing:

  • China is not going to be able to build a service and consumer driven economy within the next five years.  
  • China’s interior provinces are still a viable alternative for manufacturing, as compared to the more expensive and saturated coastal cities. China’s 12th Five Year Plan “makes clear that more equal development and sharing of wealth is a priority.” This equalizing of wealth will mean a continued and increased push to move manufacturing inland.  
  • “America will not win back the “low value-add, commodity based manufacturing jobs it once had.” These jobs are going to SE Asia and South America. 
  • “China is working toward moving commodity based manufacturing inland, but is also developing higher value-add and higher technology manufacturing in the coastal areas. It is NOT abandoning manufacturing and it has the money to support and subsidize it where needed. In other words China will move from selling toothpicks to the machines that make them (formerly bought from Germany).”
  • China’s has “stellar” manufacturing infrastructure, which makes it very difficult for other countries to compete.
  • Western companies are shifting manufacturing to China to create and manufacture products for China. 
  • Chinese manufacturers are improving in terms of efficiency and quality and this will provide a new advantage for China.

I think Michael is right and his explanation above provides support for the fact that we have not really seen much of a slowdown in terms of our clients’ manufacturing in China, other than on the very low end.

The other article is an Economist article, entitled, “The End of Cheap Goods?” This article focuses on what Bruce Rockowitz, CEO of Li & Fung, calls the phases of Asian manufacturing:

He [Rockowitz] argues that Asian manufacturing has gone through a number of phases, each lasting about 30 years. When China was isolated under Mao Zedong, companies in Hong Kong, Taiwan and South Korea grew expert at making things. When China reopened in the late 1970s, after Mao’s death, these experienced Asian operators converged on southern China. With almost free access to land and labour, plus an efficient port and logistics hub in nearby Hong Kong, they started to make things ever more cheaply and sell them to the whole world.

For the next 30 years manufacturers in China helped to keep global inflation in check. But that era is now over, says Mr Rockowitz. Chinese wages are rising fast. A wave of new demand, especially from China itself, is feeding a surge in commodity prices. Manufacturers can find some relief by moving production to new areas, such as western China, Vietnam, Bangladesh, Malaysia, India and Indonesia. But none of these new places will curb inflation the way southern China once did, he predicts. All rely on the same increasingly expensive pool of commodities. Many have rising wages or poor logistics. None can provide the scale and efficiency that was created when manufacturers converged on southern China.

Rockowitz, like Zakkour, does not see manufacturing leaving China. He just sees it getting more expensive:

Nothing can replace the Chinese miracle. “There is no next,” says Mr Rockowitz. Prices will now start to rise by 5% or more each year, with no end in sight. And that may be optimistic. So far this year, Mr Rockowitz says, Li & Fung’s sourcing operation has seen price increases of 15% on average. Other sourcers of Asian toys, clothes and basic household products tell similarly ominous tales.

At the same time, according to the Economist, China is “shifting to more sophisticated products, such as electronics:”

Some of the more striking offerings at the [Computex] fair were ultra-cheap versions of global hits. A company named BananaU advertised tablet computers with Google’s Android operating system for $100. Another pushed Windows-based thin computers looking much like MacBooks for under $250. E-Readers were everywhere and available for a song.

Whether these products can be produced or sold in developed markets is unclear. The quality may be “B” for Banana rather than “A” for Apple. The intellectual property embedded in some devices may not, ahem, have been paid for. But still, the booths were packed.

Amazingly enough, prices for these electronics goods are “falling sharply” and this is attributed to Chinese manufacturers “learning how to get more from fewer hands.” The article concludes by saying that “Li & Fung may be sounding the closing bell on one era of production, but the Taipei [Computex] computer fair suggests that another is emerging.”

What are you seeing out there? What exactly does “the end of cheap China” really mean for manufacturing and overall?

I live in a house with three fashion-conscious females, which means a fairly steady TV diet of Project Runway and Fashion Police (both of which I really like), Say Yes to the Dress (which I hate) and What Not to Wear (which I despise maybe more than any show on TV). Overall, I love fashion because it is a leading source of business for my law firm. For years, we represented companies that sourced their clothes manufacturing to Korea, then China came along, and now Vietnam.

I have always liked fashion related clients because they have such interesting intellectual property issues which can vary so much from country to country. Can you copyright an article of clothing? Can you trademark it?  Can you copyright the design? What about “look and feel.” It depends.

There are no fewer than three excellent fashion law blogs and all frequently discuss the IP issues inherent in the business:

I am talking about fashion today not just because there was no Project Runway episode this week, but because I just learned that Michael Zakkour, who has been helping foreign (mostly Western) fashion companies in Asia for many years (and with whom I have worked on many China/Vietnam projects), will be speaking in New York City next month on China fashion. The title of Mike’s talk is “One Year on the Front Lines in China’s Luxury and Apparel Markets” [link no longer exists]. The talk is being put on by the Manhattan Chamber of Commerce, the Fashion institute of Technology and Technomic Asia and it will be on October 3.

Here’s the blurb on Mike’s talk:

China is now the number one market in the world for apparel and accessories and is also the world’s largest market for a wide-array of other luxury and premium products.  Renowned China expert Michael Zakkour, Principal of Technomic Asia, a consulting firm, will take you on a fascinating journey into the world of Chinese fashion, apparel, accessories and luxury products, detailing a year-long study of what the consumers want, who is selling it to them, and how they do it.

Topics will include:

  • The China apparel and accessory market (market size and scope, current trends, business opportunities and hurdles, case studies, how to get started or expand in China)
  • China’s appetite for fragrances and body care products not made in China
  • A comprehensive look at the Chinese consumer (demographics, spending habits, what they want and what companies can deliver)
  • What the next 1-5 years will bring to China and why winning there is crucial for the survival of commercial pursuits

Mark Greiz, Professor at the Fashion Institute of Technology and Chief Consultant at MG Consulting will also be speaking. Professor Lawrence Delson of the Fashion Institute of Technology and New York University and President of Delson International Inc., will be moderating the event.

If you are involved in or interested in the fashion business as it relates to China, this is a can’t miss event.

More than three years ago, I did a post, entitled, “I Hate Alibaba (The Website, Not The Company),” voicing my concerns with foreign companies thinking that they were safe sourcing through Alibaba. My concern at that time stemmed from the fact that many of the calls my office was getting regarding really bad or never delivered product were coming from people who had sourced through Alibaba.

Just back from China (Hong Kong, actually), where I saw a television interview with Jack Ma of Alibaba. He never fails to impress the hell out of me and every time I see him my first thought is BUY.

But then I think about all the harm Alibaba has caused to so many Western SMEs and I change my mind about calling my broker/brother. Alibaba makes the naive think China sourcing is easy. I realize blaming Alibaba for the mistakes companies make in using its site is really not fair to Alibaba, but at the same time, I do not see much use for the site beyond its serving as a really good directory of potential manufacturers of particular products.

Sourcing from China is not easy and my concern with Alibaba is how so many who use it start to think it is easy and then they fail to take precautions and then they call my firm because they are out hundreds of thousands (more or less) of dollars. Seems it is even worse than I thought.

Now we learn from Time Magazine that not just some of the companies that list on Alibaba are fraudulent, but that Alibaba engaged in fraud as well:

An internal investigation by independent board member Savio Kwan revealed that beginning in late 2009, Alibaba had noticed an increase in fraud claims against sellers designated as “gold suppliers,” which means they had been vetted by an independent party as legitimate merchants. The investigation revealed that about 100 Alibaba sales people, out of a staff of 5,000, were responsible for letting fraudulent entities evade regular verification measures and establish online storefronts.

The company said it uncovered fraudulent transactions by 1,219 of the “gold suppliers” registered in 2009 and 1,107 of those in 2010, accounting for about 1% of the total number of gold suppliers during those years. It further said that “the vast majority of these storefronts were set up to intentionally defraud global buyers” by advertising consumer electronics at cheap prices with low minimum-order requirements.

Whether you use Alibaba or not, there are certain “rules” you should follow when sourcing from China and those rules include conducting due diligence on your potential supplier, notwithstanding the color of star by their name.

Alibaba. A force for good or for evil? What do you think?

UPDATE: Michael Zakkour of the China Business Blog did a post, entitled, “Alibaba Fraud Case Not Surpising,” [link no longer exists] in which he talks of visisting two grossly inferior factories that looked just great on Alibaba. Makes for some good (and funny) reading.

As just about everyone knows by now, Chinese companies are generally not terribly good at marketing and sales, particularly in the United States. For every Haier or Lenovo, there have to be at least ten thousand Chinese companies with good products with no really differentiation from their competitors. How many of you living outside China can in two minutes or less name even five Chinese companies.

Those of us who do work for Chinese companies are constantly bemoaning the difficulty in getting Chinese companies to listen to us as to what it takes to do business in the United States. We see our Chinese clients failing to fulfill their promise in the United States and it greatly frustrates us. For some common reasons for these failures, check out this post, “Ten Reasons Chinese Companies Fail In The United States.

So when I read today’s Wall Street Journal article, “Chinese Firm Meets Global Branding,” I was beaming for two reasons. First, with a bit of “hey I know those guys” pride, and second, with a bit of relief that there may in fact be some light at the end of the proverbial tunnel.

The article is about a Chinese company called Changzhou Asian Endergonic Electronic Technology Company, which had the good sense to listen to its U.S. advisors and re-name itself Züuma(pronounced zoo-ma) for the U.S. market. Now before you laugh, let me stress this is no small feat. A few years ago, I worked on a joint venture deal that made complete sense but never took off because the Chinese company refused to market its home products in the United States using anything other than its own completely unpronounceable Chinese name, right during the zenith of the Chinese pet food scandal.

Züuma (I have to confess I am not a big fan of the umlaot, but I’m guessing they are using it to convey German-ness/Swedish-ness) has been making GPS mounts and selling them to North American and European importers who market them under their own brands. Züuma makes about 40 cents off each mount, which typically sell for about $30 at retail.

Züuma’s owner, Jack Yang, was smart enough to realize that if his company was to greatly increase its profit margins it would need to develop its own brand in the United States and, more importantly, that it would need to bring on top-notch American assistance to accomplish that. As Mr. Yang himself put it, he lacked the necessary knowledge of the U.S. market to conquer it on his own:

“It’s not that small- and medium-sized Chinese companies don’t want to develop global brands,” he [Jack Yang] said in a phone interview in Chinese. “We don’t know how. We don’t understand the U.S. market, culture or business model.”

Yang ended up using Scott Markman of Chicago advertising agency Monogram Group, to help him “create his own brand and to get a richer margin.” I have known Scott for years and we have spoken more than once about what Chinese companies must begin doing if they are to succeed in the United States.

Markman pulled no punches with Yang, telling him, “You’re very passionate about your product, your invention. Why make such a small margin?” Yang bought into the idea and Markman then brought on Michael Zakkour (with whom I have had similar conversations about Chinese companies developing as viable international businesses), managing director of China BrightStar, a China-sourcing company, to oversee marketing and distribution. To get around Mr. Yang’s reluctance to pay full American rates, “Messrs. Markman and Zakkour reduced their fees and agreed to take a commission based on units sold.”

The WSJ article then talks about the Americans jousting with Mr. Yang regarding the Americans putting long term goals over the short term profits Mr. Yang seems to crave, leaving readers to think the jury may still be out on this relationship. But hey, it is a start and I know that Scott and Michael have the U.S. expertise combined with the China knowledge to pull it out.

In my experience working with Korean and Russian companies, their willingness to do the right things to succeed in the United States pretty much went from “no” to “yes” without all that much forewarning. I always describe it as being like a light going from off to on.

So maybe the light for Chinese companies has not yet been pressed, but this story at least lets me know that they at least realize they are in darkness.