Go West, China! But, Find Someone To Meet You There First.
Stories about American companies entering the Chinese marketplace- and royally screwing up in the process- have provoked laughter across the globe while forcing Western executives to pack up what little dignity they have left and take the first flight home. In business, a simple cross-cultural foible may end up translating into a seven-figure mistake and, once you “lose face” in China, it’s difficult to get it back. But, what about Chinese companies that are planning to enter the US market? Can differences in language, technical knowledge, reputation, product safety standards, marketing, design, strategy, R&D, corporate behavior, networking and negotiation (am I forgetting anything?) sabotage Chinese-owned firms heading West?
China is, in fact, quite busy trying to figure out a way to repackage themselves for Western-bound shipment as evidenced by a program launched by the Organizational Department of the Communist Party of China Central Committee, which will offer subsidies to foreign senior managers, patent holders, and entrepreneurs who would be willing to stay in China for 6 months or more and share their technical knowledge. Simultaneous to this effort, more native-born Chinese are setting up consulting shops in the US to assist in market entry. I recently spoke with one of these consulting professionals who assists US-bound Chinese firms in their public relations efforts. One potential stumbling block immediately stood out to me… Her English was rough. Very rough.
In Feb. 2008, US-based international lawyer Dan Harris of China Law Blog published a modified version of a list featured on ThinkChina Blog regarding why Chinese companies are having so much difficulty making it in the United States. A year has passed since this list was first posted, and China’s once slow stroll to the West is looking more like a marathon these days. I asked Dan about how relevant his list was in today’s climate and whether any modifications should be made. As it turns out, this list might outlive a lot of Chinese-owned entities in America- and then some. I therefore decided to unearth this gem from China Law Blog and pry Dan for a little more insight. To recap:
1. Chinese companies focus on a Chinese consumer, not an American one.
2. Chinese companies fail to realize that one reputation damaging mistake in the United States could doom them forever here.
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.
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.
5. Chinese companies tell users what they want instead of listening to users.
6. Chinese companies focus too much making money in the short term, rather than on building the quality necessary to sustain themselves in the long term.
7. Chinese companies fail to understand how beauty and design might distinguish their product from that of their competitors.
8. Chinese companies rely too much on phone calls and face to face meetings instead of email.
9. Chinese companies fail to use “simple and elegant designs.”
10. Chinese companies fail to realize their need to hire MBAs and those with local knowledge.
Source: “Top Ten Reasons For China Business Failure– List After List” China Law Blog Feb. 9, 2008
My take on Dan’s “Top Ten:” Straight shot with a great aim. For his equally direct answers to my follow-up questions, read on:
Given the rising strength of China in the global market, does the country still need to play by “Western-style” guidelines in order to succeed in the West?
Absolutely yes. Just because China is rising does not mean that its companies can succeed in the West by doing everything wrong.
Just how important is design and language in the marketing of Chinese companies overseas?
Very important. It is more important for a Chinese company to get this right in the US than vice-versa. Being Chinese-owned is a definite strike against a company in the US, whereas being American is a plus in China. The less “Chinese” a Chinese company seems, the better it will do in the West.
What legal hurdles do Chinese companies face in entering the US market and how do these compare to the hurdles US businesses encounter when trying to break ground in China?
Very similar. But again, it is more important for the Chinese to get it right here than vice-versa. China does have laws and those laws matter, particularly with respect to Western companies; but, its laws do not matter as much as US laws. China has them on the books, but they are not a big worry. They are a big worry in the US. When a Chinese company gets sued for failing to promote Americans, it is facing a real problem. Product liability laws are another good example. Again, China has the laws on the books, but damages tend to be so low that it’s no big deal. But, if some 12 year old kid gets paralyzed in the US due to a defective product, the manufacturer is likely facing huge damages. American companies generally recognize the need to get insurance. Chinese companies do not.
There appears to be a current trend of Chinese companies relying on Chinese nationals who have studied abroad to supply them with the guidance for a successful entry strategy. Is this going to be enough?
No. The biggest mistake I see is that the Chinese company thinks that because its Chinese employee lived in the United States for ten years, that person knows everything he or she needs to know about doing business in the US. That person is an international lawyer, a labor lawyer, a real estate lawyer, a litigator, a corporate lawyer, an accountant, a chief financial officer, a human relations specialist, a marketer, a publicist… I am working with a Chinese company who has an extremely bright, capable person at the helm, but this person gets grief whenever he tries to bring in outside experts for assistance. [The attitude is] “why do we have you if you need help?” So, what are the drawbacks? They are too numerous to mention, but all you need do is assume that the legal work, the accounting work, the tax work, the marketing work, the human relations work, and the PR work are all being done by someone who doesn’t really know what he or she is doing.
Do you think that the popularity of social networking platforms (Twitter, Linkedin, etc.) are changing the way Chinese companies communicate with prospective partners abroad?
I don’t think these things are changing much beyond the method of initial contact. In the end, the human element is and will always be critically important.
Dan’s bottom line: “If Chinese companies are going to succeed in the West, they are going to have to adapt to the West, just as American companies that succeed in China have adapted to China. If the Chinese company does the wrong thing to save face, it has done the wrong thing. My job at that point is to focus on what I can do to remedy the mistake. Yes, I do have the job of gently explaining to the Chinese company why things need to change, but I am not going to say: yes, go ahead and violate US laws just because that is how you do things in China.”
As I’ve previously written about, one of the main reasons that I’d resigned from my former place of employment was directly related to my big dream of consulting Chinese companies poised to enter the US marketplace (enter choice of insult and/or expletive here). To my pleasant surprise, inquiries rolled in and I soon began negotiations with a major Chinese firm; communications were both positive and swift and my proposal seemed to be well-received. And then… deafening silence. This may be the result of myriad factors tied to either or both sides of the globe, but whether or not they decide to return my correspondence at some point in the future, I can guarantee that US market penetration will be next to impossible for them if they do not seek guidance within the US (and I’m not talking about a Shanghainese associate who just moved to Flushing, Queens). The fact of the matter is, many of these Chinese companies have already hired “inside jobs” to assist with outside expansion. It does not work. If you don’t believe me, I challenge you to:
1. Visit three Chinese company websites with an English-language option
2. Name two widely-recognized Chinese brands represented in the US that would receive your mother’s seal of approval
3. Brag to your neighbor about the new Chinese-made toy that you just bought for your child
I think I’ve made my point, as Dan’s made his. If Chinese companies want to make it in the West, they are going to need a little assistance from the West. The same applies for American companies who have gone digging for gold in China. Without this kind of partnership, losing face and losing your shirt will go hand in hand.
What do you think about this issue? Can Chinese companies really make it to the US on their own, or will they need to hire a foreign partner to accompany them on the ride? Would you add or change any of the points made on Dan’s list? I’d love your input.