foreign companies doing business in China

Had a piece published yesterday on the Forbes China Tracker, entitled, Ten Reasons Chinese companies fail in the U.S. I reprise the Forbes article below and then I add to it by discussing a very insightful e-mail exchange I had in response to it.

 

A couple of years ago, I gave ten reasons why Chinese companies were failing in the United States.

In response to my article, Nina Ying Sun at the Plastics News Blog did her own post entitled Why Chinese Companies Fail the US Market [link no longer exists], explaining, agreeing on and challenging the items on my list.

Chinese companies are still failing in the United States at what I see as an alarming rate–and the reasons I see for that have not changed a bit.

Here is my list, with Ms. Sun’s comments and then my comments on Ms. Sun’s comments:

1. Chinese companies focus on a Chinese consumer, not an American one.

Ms. Sun’s comment: “Chinese companies would like to find out more about their target American consumers, but they mostly rely on personal-level approaches to collect business information, lacking a systematic and scientific market investigation conducted by professional Westerners that understand the market.”

My comment: Very interesting and, I think, accurate observation. Chinese clients have driven me nuts by asking my views on things that I know nothing about, and then completely ignoring my advice when I try to hook them up with real experts. The following are typical conversations:

Chinese client: How much should we pay for that U.S. trademark?

Me: I have absolutely no idea. I just do not know such business well enough to be able to help you at all on this. But, we have worked with a company that does nothing but value IP and I would be happy to give you their name.

Chinese client: But what is your best estimate?

——-

Chinese client: Should we start out selling our product just on the West Coast or should we start out nationally?

Me: Good question. Difficult question. It seems to me the answer to this will hinge greatly on the costs involved and on your ability to set up distribution networks. My firm does not handle questions like this (and even if we did, I do not think it would make sense for you to pay law firm rates for this information) but I would be happy to refer you to top notch business consultants who do.

Chinese client: Should we start out in Los Angeles, Chicago or New York?

2. Chinese companies fail to realize that one reputation-damaging mistake in the United States could doom them forever here.

Ms. Sun’s comment: This one is dead-on. And how come they don’t realize this common sense? Because they get by in China and assume it’s the same in the States.

My comment. Exactly.

3. Chinese companies fail to realize it will take time for them to make an impact in the United States and they are unwilling to spend the time and money necessary to do so.

Ms. Sun’s comment: Chinese people take such pride of the fact that industrialization, urbanization and modernization have happened in China in a much shorter period time than in the West that they believe, if you try hard enough, everything can be done fast and well. Why don’t they invest enough money to lay the ground work for the new market? Well, they look at the exchange rate. The same exchange rate that makes the Chinese production cost in yuan seem so low magnifies the marketing cost in dollars in the States.

My comment: Okay. But see number two above. Haste oftentimes makes waste.

4. Chinese companies focus too much on the end result (making money), and by doing so, they sacrifice the professionalism that would allow them to achieve long- term success.

Ms. Sun’s comment: The Chinese would ideally like long -term success. But the drastic social, economic and political upheavals and changes in the past century have paralyzed Chinese people’s long-term thinking. Fill the pocket as full as possible before the next change hits, be it credit policy, industry standards or consumer interest.

My comment: Absolutely true. Why think long term if there may be no long term? This explains the reason for the problem, but it still needs to be resolved.

5. Chinese companies tell users what they want instead of listening to users.

Ms. Sun’s comment: This obnoxious mentality is a hangover of the old Soviet-Union-style “planned economy” (1949-1978). That period of time featured insufficient supply of necessities and one-sided propaganda. Although it’s hard to question about China running a market, capitalistic economy today, the country skipped some vital steps in the development of the Western countries.

My comment: Same as for number four above.

6. Chinese companies focus too much on making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.

Ms. Sun’s comment: What pops up in my mind includes: vicious and endless price wars, a business environment that has deprived consumers their say, and lack of technology and craftsmanship.

My comment. I agree, but what pops into my mind is that companies must be broad-minded enough to recognize that what makes sense in one country may not make sense in another. Indeed, one might even say this of China’s regions and there are certainly plenty of Chinese companies that have managed to succeed in China as a whole by localizing their product or their marketing by region.

7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.

Ms. Sun’s comment: Traditionally, domestic consumers simply can’t afford beauty and design. Price is the only distinguishing point. Plus, the companies don’t want to invest much on design, because it’s bound to be copied by competitors right away, thanks to the absence of intellectual property protection in China.

My comment: All true, but see my answers to Number four and number seven above.

8. Chinese companies rely too much on phone calls and face-to-face meetings instead of e-mail.

Ms. Sun’s Comment: This is probably part of the Asian culture, underscoring personal communication instead of machine-generated and less interactive e-mail. I don’t think it’s necessarily a disadvantage though. Japanese companies have done well in the U.S. market, despite their preference for in-person meetings and phone calls rather than e-mail.

My comment. When in Rome….. But, I agree this may not be a disadvantage, so long as the Chinese company has the time and the people for it.

9. Chinese companies fail to use “simple and elegant designs.”

Ms. Sun’s comment: Unfortunately, they are trapped in between complicated traditional styles and a blank page of modern Chinese inspiration. Again, they can’t justify investment on design, because it will be copied by competitors overnight.

My comment: See my comment to number seven above.

10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.

Ms. Sun’s Comment: Call them cheap or arrogant. They don’t trust MBAs or Western veterans unless foreseeable return is guaranteed. They also want everything under their control, not threats and risk brought by language barrier and different business values.

My comment: I don’t know what to call this but I know it is not wise.

 

This morning, I received an e-mail from David Ho, a self-described Chinese American techie who did an excellent job flushing out some of the reasons for why Chinese companies are so reluctant to engage real experts to assist them in their United States market entry:

Really liked your article on the 10 reasons Chinese companies fail. Liked it so much that I felt compelled to give you my own personal feedback on #10 in which you claim Chinese companies fail to realize their need to hire MBAs and those with local knowledge.

I used to work for … [a Chinese company] and from my first-hand observations, there are two reasons for this (failing to hire MBAs and those with local knowledge).

1. Many Chinese companies seem to place a high value on technical knowledge, smarts and ability. These company owners (or high level company managers) naturally continue to reinforce the value of technical, engineering or R&D and minimize the value of marketing, advertising (and other such “soft skills”).

2. When they do try to hire local market experts, Ms. Sun is absolutely correct that they simply do not trust the (often inflated) claims they hear from local business consultants. Due to either a language barrier or cultural barrier, they simply cannot evaluate who can provide results vs. who is selling snake oil. Invariably, they hire someone disreputable (but they don’t know it) and get burned by this experience which only reinforces their distrust of local market consultants.

Tied in with my observation #1, since there is no way to quantitatively evaluate the effectiveness of local market and business consultants, it just discourages them from even trying to hire those MBAs and local consultants you talk about and just focus on what they do understand and can accurately measure.

I agree with you when you say “I don’t know what to call this but I know it is not wise”, but until you can show your Chinese clients (in some kind of quantitative way) how to evaluate these local business and market consultants (so they know who is for real and who is just blowing smoke), it will be difficult to overcome the reluctance to hire local consultants.

I responded to Mr. Ho by telling him that I thought he was dead on and requesting I be able to cite him. He responded with the following:

Glad you liked the insight! I’m not one of those MBAs or marketing consultants you’re referring to (I’m an IT consultant, actually, so I’m squarely on the technical side of things), but I’ve had this issue come up several times when talking to various people (sometimes my own clients) why Chinese companies can’t do a better job at _branding_ themselves in foreign (i.e. non-Chinese) markets. When I saw your article talking about the exact same issue, I couldn’t help but chime in!

When I was at … [Chinese company], their “role model” company which they strove to emulate was SONY. Here, they felt was an Asian company that somehow was able to create a globally recognized and admired brand. They understood that SONY had invested plenty of money into local marketing (and product design), but they ultimately felt that it was still product innovation and superior technical ability that allowed SONY to succeed.

So, really, what’s next for Chinese companies trying to break into the U.S. market? Will they remain locked in the catch-22 of being unwilling to spring for high level assistance in the United States and thereby remain locked into being third-tier brands in the United States? Or will more of them break out (a few already have) and become legitimate international companies? What is it going to take?  What, if anything will be the catalyst for change?

What do you think?

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.