China then and now

Back in April 2007, we shared some tips on doing business in China that had appeared in Silk Road International.  As often happens when I delve into our archives, I was amazed at how much of the advice remains current. With that in mind I’m sharing it again, adding some commentary based on what has happened in the intervening decade-plus. Here we go.

First, you’ll get out of China exactly what you expect to get. If you hate China, complain about the dirt, the problems and the lack of QC, etc., etc., that’s what you’ll see everyday and that’s what you’ll take home. This doesn’t mean you have to be Pollyanna and only see the sun that shines through the outhouse window—some things here really, really stink. But it does mean that if you expect to be disappointed or plan to fight for everything you’ll do just that. Do you homework and know what you’re getting into before you come over.

This remains absolutely true. One thing that has changed, though, is there are now many more foreigners who have decided to make China their home and/or long-term business bet, who master the language, and who have made their peace with the less appealing aspects of the country. As a result, whiners will find less sympathy than back in the 2000s, both from other expats and from Chinese who have come to expect a bit more from foreigners in their midst.

Interestingly, as more businesses relocate to Southeast Asia, some seasoned China hands are turning into whiners themselves, complaining and pointing out how good things used to be in China. Don’t be that gal or guy.

Second, practical experience will do you more good than any degree, guide or guanxi. In coming to China this means know your industry and stand firm on your established standards and experiences. And then, when you’re here spend enough time to understand how your industry works over here. If this means that you fly over four or five or ten times before you close any deal, so be it. Get into factories more than once and more than for the guided tour.

Very true. First, with regard to guanxi, as this blog pointed out in a post aptly titled, China Guanxi: You Don’t Have It, “foreign investors who think they have created a guanxi network in China are usually deluding themselves.”  Fortunately, we’ve reached a point where this is better understood, in large part because of all the foreigners who have learned the hard way they couldn’t operate in the same way as Chinese because, well, they weren’t Chinese.

Similarly, by now we have plenty of examples of foreigners who wanted to operate in China on the cheap and/or easy. It just doesn’t work that way. If you want to have good results, you have to be on top of things. There is a reason why world-beating companies have their own staff working onsite at their suppliers’ facilities in China (and elsewhere), getting involved at the granular level. That might not be practical for most companies, but they should try to emulate that approach to the best of their abilities. Trusting the factories and other Chinese partners to get it right on their own is a gamble not worth taking.

Third, invest in your supplier and supply chain. If you expect better quality products you’d better start at the source of the products and spend the time (and money) that it takes to teach multiple levels of the supply chain what you expect, why you expect it and what it will mean to them to meet those standards. If you’re here for the long haul, invest in what it takes to create the supply chain that will justify your investment and provide you the ROI that is expected.

This is getting complicated in China. As we explained in How to Prevent China Factory Problems and Trademark Theft That is Happening Like Never Before,

Chinese factories believe their existing American clients will be leaving China in 2020, and they also believe their newest American clients are using them as “test kitchens” to develop products and then move production outside China once the product is developed and selling. Our China lawyers know this because Chinese factories have told us this and because we see what Chinese factories are doing.

What exactly are Chinese factories doing? They are getting aggressive with requirements to get started on manufacturing with them. They are getting less concerned with the quality of goods they make and sell. And they are stealing IP (especially trademarks) far sooner and far more often than even a year ago.

Under these conditions, it’s hard to establish the trust required to build long-term relationships. At the same time, investing time and resources in perfecting your supply chain will help demonstrate to your Chinese suppliers that you are not planning to cut and run.

Moreover, a worsening business climate in China does not have to mean worsening business relationships with Chinese suppliers. Many Chinese manufacturers have established operations in Southeast Asia. In some instances, the best path forward for you might be for your trusted Chinese supplier to set up shop in a country where your products won’t be subject to China tariffs or duties. If so, consider helping out with that process.

Fourth, be willing to learn from the factories and people [in China]. This doesn’t mean that you need to sacrifice any of your standards. But it does mean that due to technology, logistics, politics and even weather you may have to alter your standard production processes.

This is even truer nowadays, as Chinese factories and their staff have acquired more experience and increasingly innovate.

Fifth, if you expect your suppliers to follow their contracts and respect your IP then you’d better do the same. If you bust your supplier’s butt over IP violations and then have the factory driver take you to the local knock-off golf or DVD shop, what message are you giving to the factory?! Yea, what you do personally does influence how you are seen by your Chinese supplier. Make sure all your legal issues are taken care of in China (and back home) so that the law is always on your side, just in case. Get the right visa, file copy right and trademark applications both at home and in China, if you are going to get an office here in China, do it right.

Live by the local rules, die by the local rules. I once visited a supplier with my client’s local representative to assess the supplier’s IP protection measures. During the visit, whenever we found deficiencies, the representative would scold the staff. A few days later, I ran into one of the supplier’s managers at a coffee shop. In confidence, he told me the representative would take samples for her own use, in violation of company rules. She was in fact responsible for some of the items I found to be missing.

Faced with that kind of hypocrisy, how could suppliers take IP protection guidelines seriously?

Finally, more than ever, it is essential you dot the i’s and cross the t’s when it comes to all sorts of legal requirements, especially in China. Again, what works for the locals won’t necessarily work for you. What works for a particular foreigner might not work for you. What is fine when it involves another foreigner might not be fine when it involves a Chinese national.

Back in the 2000s, people could have been forgiven for thinking they’d get away with a Wild West attitude in China. By now, however, we have plenty of cautionary tales that show how foolhardy it is to roll the dice.

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Photo of Fred Rocafort Fred Rocafort

Fred is a former diplomat who joined Harris Bricken after more than a decade of international legal experience, primarily in China, Vietnam, and Thailand. His wide range of experience includes starting and operating his own business in Asia, working as an in-house counsel…

Fred is a former diplomat who joined Harris Bricken after more than a decade of international legal experience, primarily in China, Vietnam, and Thailand. His wide range of experience includes starting and operating his own business in Asia, working as an in-house counsel for a Hong Kong-based multinational, as well as many years as a State Department official, providing a client-centric perspective to his legal work. Fred co-hosts Harris Bricken’s weekly Global Law and Business podcast, which covers legal and economic developments in locales around the world to decipher global trends in law and business with the help from international guests.

Fred began his career overseas as a U.S. vice-consul in Guangzhou, China, adjudicating thousands of visa applications and advocating for fairer treatment of American companies and citizens in China and for stronger anti-counterfeiting enforcement. After entering the private sector, Fred worked at a Shanghai law firm as a foreign legal advisor and later joined one of the oldest American law firms in China. He also led the legal team at a Hong Kong-based brand protection consultancy, spending most of his time out in the field, protecting clients against counterfeiters and fraudsters from Binh Duong to Buenos Aires.

Fred is an ardent supporter of FC Barcelona—and would be even in the absence of Catalan forebears who immigrated to Puerto Rico in the mid-1800s. An avid explorer of Hong Kong’s countryside, he now spends much of his free time discovering the Pacific Northwest’s natural charms.