Rare is the American pioneer who has ventured into a US-China business frontier that does not yet have a map- catering to Chinese companies heading West. Even rarer still are the ones who have held tightly onto this opportunity while lighting the way for others, despite what can be at times a rough and lonely ride. Meet Scott Markman, President of The Monogram Group, a branding firm based out of Chicago that has focused on Chinese brands since 2006 and conducts an annual survey of US consumer attitudes towards Chinese brands. Scott Markman is not only an enduring explorer in this nebulous territory; his candid approach, on-the-ground experience, and even a few “war wounds” make him an excellent person to ask for directions. And, let’s be honest, when it comes to building brands for a foreign market, Chinese companies could use a little help. To learn more from one of the very first in America to actively pursue this space, read on:

Let’s get straight to the point. Are Chinese companies ready to retain foreign firms like The Monogram Group to establish their presence in the US as recognized brands?
After 30 years of growth, some Chinese companies have reached the point where they are able and willing to consider the leap beyond private label status to build their own brands and service and distribution networks. There are literally hundreds of [Chinese] companies today that have the revenue size and product quality to consider the leap beyond OEM status. They have paid attention to paradigms from Japan and Korea and how some of the dominant companies from those countries went through a similar process 30, 40 and 50 years ago. However, the scale of this opportunity and the amount of companies in China that have the means to consider this would dwarf anything that we have seen from Japan and Korea combined. Many Chinese companies are actively considering the prospect [to build their own brands in the US] but because of cultural issues, very few have taken the leap to put into place the infrastructure and investment. They are looking for other models to follow. Companies like Lenovo and Haier were among the earliest to do this, and other Chinese companies are now sitting back and waiting to see how successful Lenovo and Haier are before they take the leap into the US market. Today is more about potential than reality. Again, you could probably count on two hands the Chinese companies that are actively pursuing this strategy. It is our opinion that, two or three years from now, this will be a much [higher priority]. The Monogram Group has seen this trend for some time and we’ve been building our relationships, our credibility, and our infrastructure in the process. Our objective is to become the dominant consultancy in this specialized expertise within two to three years.

What are some of the challenges that you are currently facing in this new frontier?
There are several. This is not an easy task. Some of the challenges are related to cultural differences between China and the US. There are also issues regarding corporate structure and the role of marketing and brands in the average Chinese company, versus [standard practice] in an American company. There are four or five things that I’d like to point out that [The Monogram Group] has experienced firsthand many, many times. The first is that many Chinese companies have a blind spot about paying for professional services. They very often don’t trust service providers because they put their stock and faith in tangible things- inventory, raw materials, people, factories. But, when it comes to getting advice from a law firm, a branding consultancy, an accounting firm or a management consulting firm, there’s almost a knee-jerk mistrust [which leads to questions like] “What are you telling me?” “Why am I paying this much?” “How do I know you put in all those hours?” “What am I getting in return?” And, “what’s the value?” Very often, they will bypass this type of expertise and counsel, whereas equivalent American companies would never consider bypassing a law firm for major issues like contracts and IP,  or a branding consultancy like ourselves. So, that is a profound difference between Chinese and American companies.
Second, it is a cultural issue with China that only the top person makes important decisions. So, if you have a hierarchy of people in an organization with employees numbered one through eight, for example, two through eight cannot and will not make a decision. It’s only the top individual that is allowed to do that in a Chinese company. Getting access to the top person in order to pull the trigger on decisions can take a while. Again, woven into that you have an inherent lack of trust and bias. [Employees not in the top position] within these companies avoid risk because they are not likely to be rewarded for making the right decision. But, if something does go wrong, they can lose their jobs. So, they tend to be very risk-averse and will overtly and consciously avoid making a decision such as hiring us or proving a budget or coming up with an action plan.
Third, Chinese manufacturing companies tend to be very manufacturing-oriented. They think about making products, negotiating price for products, distributing products, and competition in their category. Very often the mindset is, “I have a good product to sell. Can you go distribute it and get it sold for me?” as opposed to “Who may buy this?” and “What do they want or demand? What could they want but they can’t get a hold of?” This doesn’t really occur to them, so the whole idea of a brand- which is about a relationship and a promise and a value proposition- is not how they think. We’re really teaching them a whole new way of thinking. Eventually, we’re persuading them that, if they want to [establish their own brand], they’ll have to reorient how they think and how they fund certain activities like market research. They typically discount market research, which is at the heart of any American company showing up and being credible, especially on the consumer product side.
Fourth, their orientation towards timeframes and sense of urgency are very different from their American counterparts. If you have an American VP of Marketing whose job it is to hire an agency and launch a new activity, the longer they don’t pull the trigger, the more they’ll get criticized. Eventually, their job will be at risk. With their Chinese counterparts- actually, there probably won’t be a Chinese VP of Marketing focused on these issues- but timeframes and sense of urgency are just different in China. Things take a lot longer. Things are furloughed and considered infinitely longer than they are here.
Finally, because of the gap in hierarchy within a qualified Chinese company where marketing is not on the organizational chart, very often who the point person is on such projects can change more than once during the courtship process, the relationship-building process, and even after the project has been approved. So, who you work with may depend on who the boss decides has that responsibility from week to week. Continuity and the building of knowledge and skills can be fractured at times.
These are some pretty fundamental differences that can often get in the way of not only securing relationships, but also [may impede the process] of doing the work and doing it according to our best practices, which ensures the greatest chance of success.

Scott Markman has 28 years of experience in corporate design and brand development, including the last 19 as President of The Monogram Group. Since 2005, the agency has won nearly 15 awards for creative and strategic excellence. To learn more about Scott Markman, check out his profile on LinkedIn. To learn more about The Monogram Group, visit Monogram China and Monogram USA.

Interviews branding, china, Chinese outbound investment, Haier, Lenovo, Scott Markman, The Monogram Group

Once deemed “the world’s factory,” China has transformed its modern legacy while continuing to thrive beyond expectation despite the international economic crisis. Now a global investor and capital exporter, China’s business relationship with the US is facing a shakeup, one that may encourage the establishment of major Chinese-owned enterprises on US soil and facilitate new economic opportunities for both sides of the fence. Song Jin, a veteran in private equity and management consulting, is also a New York-based investment strategy trailblazer who assists Chinese entities seeking entry into the US market through the acquisition of companies that are in some form of financial distress. This interview with Mr. Jin kicks off a blog series on Chinese investment and expansion in the US, incorporating perspectives and analysis from both sides of the fence. To learn more about why a company structured like Apple would be the perfect Chinese acquisition, where China’s current corporate ethos has room to evolve and how Mr. Jin has become a hot commodity, read on:

Let’s start with your background. You were educated in both the US and China, receiving your MBA from Washington University in St. Louis and Ph.D. from Nanyang Technological University. So, what led you to make the decision to forge a career in the US rather than returning home to China, where your educational and professional achievements are a hot commodity these days?
Yes, I was born in China and went to undergrad at Xi’an Jiaotong University before coming to the US for my MBA. Following that, I worked for Deloitte Consulting and for a couple of years now I’ve worked for a US private equity advisory firm focused on investment strategy, due diligence, and managing portfolio companies. During my time with this firm, I’ve discovered that there is a unique opportunity for Chinese companies to take advantage of the US economic crisis. A lot of US companies have good brands, good products, good engineering and pretty good design; however, they are also in some form of financial distress. On the other hand, China is like the world’s factory now. The margin each Chinese company gets from products sold overseas is actually pretty low- 3 to 5 percent- and that is because Chinese companies don’t have [strong] brands and designs. The only competitive advantage for these companies is cheap labor, and you cannot compete forever with this model. Now, there’s a great, once in a lifetime opportunity for these Chinese companies to move up by coming to the US and acquiring US companies. Through acquisition, they can easily gain access to the US market by acquiring established US brands and utilizing US marketing, R&D, and sales and distribution networks to quickly move up the supply chain.
In terms of why I haven’t returned to China…I have thought about this question a lot. Some of my friends have gone back and been very successful in China, so of course I ask this question to myself nearly every day. But, what I’ve tried to do is [examine] my strengths and weaknesses in terms of what I can offer to my future clients. If I go back to China there are only two types of opportunities I can have: I can either work for a foreign company currently operating in China or, I can go to work for a Chinese company that is trying to compete with those foreign companies already in China. The advantage that I bring to the table here is that, because of my education and working experience in the US, I have a more Westernized way of doing business, which is something that a lot of Chinese companies and foreign companies operating in China need. However, doing business in China needs connections, and because I left China more than ten years ago- even though I go back regularly to visit my family there- it is different than if I had stayed permanently. If I returned, I’d have to recreate those connections.
If I remain here in the US, there aren’t many people who have my skills that can help Chinese companies expand to the US. So, in choosing to stay here in America, I probably have less competition compared to if I returned to China.

The typical conversation about US-China business relations tends to focus on US foreign direct investment opportunities in China. But, as you pointed out, the landscape seems to be changing and Chinese companies are indeed heading west. In fact, China’s outbound investment exceeded FDI for the first time this year, shifting China’s role in the global economy. What factors do you think propelled this shift?
There are a few factors. One very key point is the trade imbalance. Over the last ten or twenty years, China has been running a surplus; they export more product than they import, so they have a huge amount of reserve money. China is now constantly seeking investment opportunities other than just buying US treasury bonds. In other words, the Chinese government now has money and they need to invest it somewhere that will generate a higher return than US treasury bonds can.
A second point to consider is China’s strategy for outbound investment. What do they need? Natural resources. China’s appetite for commodities is caused by its huge growth, and China itself does not have enough natural resources to feed its demand. So, Chinese companies are going around the world- Africa, Middle East, South America, and even Russia- to try to secure desperately needed iron ore, oil and other natural resources. Most of China’s foreign direct investment falls into this category. For political reasons and national security issues, there isn’t actually a lot of these types of transactions for US natural resources. China has attempted it in the past but was blocked by US Congress. So, now they’re being very cautious. At this point, China has partnered with almost every country except for the US in terms of natural resources.

Let’s talk about investment opportunities that China should be focusing on now.
[To address this generally], China should focus on competing with multinationals involved in low-end industries, ones that have already established manufacturing facilities in China. For example, electronic products like laptops, cell phones, digital cameras and TVs. China is the world’s number one producer of these items already. However, there are not many Chinese brands associated with these items. Consider Apple. In the last three months, Apple sold 10 million copies of their iPhone. But, those iPhones are all made in China; they’re not made in the US! It’s a Chinese export, but not a Chinese product. So, China knows how to make these products, but they don’t know how to brand them and China doesn’t necessarily have very good engineering and R&D. Some of China’s engineering and R&D is pretty sophisticated, but it isn’t the most advanced or most modern [in the world]. These types of Chinese companies that already manufacture [American] products are the ones that are in a very good position to come and make some acquisitions; they can buy within the industry that they’re already involved in. And, since these US companies already have very good brands, distribution channels, R&D and engineering- in addition to their massive manufacturing facilities in China- it would be a perfect match.

What are some of the challenges that Chinese companies face when doing business in the US? In this regard, do privatized enterprises have any advantages over state-owned enterprises (SOEs)?
That’s a very good question. There is one major challenge for every Chinese company and it is that they don’t have enough talent to manage cross-border transactions, not to mention managing a US company. In terms of China’s private sector, I would say that they have a slight advantage over the SOEs. One reason is because these privatized enterprises are market driven, and another is because their decision-making process is much faster than the SOEs. However, a state owned enterprise has a huge advantage: they are backed by the government and government-supported banks, which means that their resources are much larger than in the private sector. But, whether state-owned or private, the biggest challenge all of these companies face is lack of management talent. In the past thirty years, there has been huge growth in China. Now, a lot of middle-class individuals have cars, their own phones…If you look at China on this level, it would seem that a lot of Chinese are reaching a standard of living that is close to what you would find in a developed country.
However, management skills within Chinese companies have not become equal to management levels found in developed countries. Harvard Business Review had a good article [which explained three categories of management]. The first is the way Western managers handled uneducated, blue-collar workers in the 1930s- assembly line or construction workers. The most constructive way to manage them was by employing a foreman who wore big boots. If he saw someone who was lazy, he kicked them in the back and they went back to work. In this type of management style, if you want to make your employees work harder, you pay them more money, give them overtime and offer them raises. That’s how you motivate this type of worker. Then, when cost of living increased in the 1970s and ‘80s, a lot of people found themselves working in nice offices with [new technologies]- the work environment became much better and you could no longer kick an employee anymore, as it was illegal and they could sue you. So, how to manage and motivate people during this time? If the boss was not in the office, employees would make phone calls to their friends, read magazines and so forth. But, if they see that the boss is in the office or viewable, they will quickly go back to work. So, the best way to increase productivity in this type of environment is to constantly show the employees that the boss is nearby- the presence of the boss. Then, consider the IT dotcom stage, where companies like Microsoft and Google had a problem managing their employees because all of their employees are already millionaires. These types of employees don’t have to work- they don’t need the money anymore- and the only reason they are still working is [to attain] personal achievement. So, the best way to motivate these types of people is to take care of their needs outside of the work. You don’t have to be there and you don’t have to kick them, you just need to provide a nice environment for them to work, including giving them more vacations. Productivity becomes entirely self-motivated. We see this in the US a lot- on Wall Street- with people making at least six figure salaries. As a boss, you don’t have to be around the office to motivate employees. Instead, the boss sets a target and gives them a deadline. I would say that most of corporate America is managed this way now. But, the majority of the management styles in China’s private sector are still in the first and second phases.

In a recent article you stated that Chinese employers involved in cross-border deals can be expected to favor US-based pros who are fluent in both Chinese and English and who have some connection with China. Where are these employers recruiting and what advice would you give to mid-level and senior-level professionals who fit this profile?
Correct, these employers tend to favor Chinese who were born in China but who have studied and worked in the US for several years, and who speak both Chinese and English. One reason they favor this type of person is that most Chinese entrepreneurs, CEOs, and managers don’t speak English. So, they need someone who can speak Chinese, someone who has no problem communicating with them. At the same time, they need these mid- and senior-level professionals to act as a proxy for them in talking to American counterparties. As I said before, in China business is about relationships. So normally, they look for someone they “know” by asking their friends and getting recommendations. They tend not to use professional recruiting services, unlike US companies. If a US company goes to China and they need to fill ten positions, that US company will normally hire a professional headhunter or search agent. But, Chinese companies don’t like to use this type of service to help them search talent.
In China, people like to do business with friends. They like to get dinner together first, get to know each other and feel comfortable with having a conversation. Then, after [trust is established], they can start doing business. For Chinese, establishing a friendship comes before business relations. In the US, if there’s business to do and money to make, we hire a lawyer to draw up a contract and everyone follows the rules. It’s pure business- very professional. In China, friendship comes first.

Let’s address a rather contentious issue- the US’s massive trade deficit and declining value of the dollar. How will this impact trade with China and more specifically, Chinese investment into the US?
Ironically, it has actually had a positive impact in terms of Chinese FDI- coming to the US to make some acquisitions. China still thinks that the US dollar is overvalued and because of the US government’s current deficit, they are not 100 percent sure how this is going to be repaid. So, one of the things that China is trying to do is diversify their huge reserves by looking for new investments, other than US treasury bonds. One new investment type is to acquire some US companies.

So, what advice could you offer to heads of Chinese companies who want to expand to the US?
This is a very new idea for them, and many Chinese companies aren’t even aware that this is an option. When I talk to CEOs and managers in China, they often say “oh, I didn’t realize we can do this! But, this is interesting- can we talk more? Can you provide more information on how to do this?” My advice to them is that, this is an option and it’s not even that difficult. I understand their concerns- it’s a new, unknown territory operating in a different language with different business practices. But, whoever takes the leap first…there’s a huge opportunity. Think about all the foreign companies that went to China after China opened its doors. The foreign companies that established themselves there first gained [incredible] presence. It’s what we call “first-mover advantage.” If a Chinese company can successfully make one acquisition and integrate it with its current operation in China, it will be a huge competitive advantage. Chinese companies need to think about doing this. Every risk is associated with a huge reward.

Because of the current economic crisis, many educated and business-savvy Westerners who have been unable to advance their careers at home are now looking to China for opportunities. What’s your take on this?
It’s definitely a good international experience for these professionals to have. Most of them will probably be able to find work in the big cities- Beijing, Shenzhen, Shanghai, and Hong Kong. China is still a manufacturing base- 80 percent of GDP comes from manufacturing and only 20 percent comes from the service sector. So, there’s a huge need for Westerners in China’s service sector- [foreigners] who can bring their expertise and experience in the areas of finance, marketing, IT, and customer relations. The pay will be slightly lower than what they earn in Europe or America- probably- but I think it depends. In China, what I’ve noticed in the past few years is that the pay comes out to be pretty close now.

Last question: what’s next for you?
I’m constantly looking for Chinese companies who want to take advantage of this once in a lifetime opportunity to enter the US market and help them find good investment targets, manage the cross-border acquisition transactions, and hopefully to help these companies establish their presence in the US successfully. These are my goals.

Song Jin is a China-born and US-trained veteran in private equity and management consulting who currently works at a boutique private equity firm in New York City. He speaks frequently at conferences and with Chinese media outlets on topics relating to Chinese investment strategies, joint venture structures, intellectual property protection, and building government relationships. To learn more about Song Jin, please visit his LinkedIn profile. Thoughts or questions? Leave your feedback in the comments section.

Interviews china, Chinese FDI, Chinese outbound investment, distressed companies, M&A, management consulting, private equity, Song Jin