China isn't just the manufacturing centre of the modern world, it's an often impenetrable world to the 'outsider' – especially when it comes to doing business with Chinese companies.
Melbourne-based Ruslan Kogan, founder and CEO of online retailer Kogan.com, shares his tips for business success in China.
My company designs, manufactures and sells consumer products around the world. Most of our manufacturing is done in China. Through dealing with our partners in China over the past 8 years, I’ve negotiated, entered into, developed, and ended many business relationships.
A fool learns from his own mistakes. The wise man learns from the mistakes of others. Here are 8 truths I’ve learned the hard way, so you don’t have to make the same mistakes.
1. Money speaks every language
A lot of people ask me: “How do you do business in China if you can’t speak their languages?” I tell them: “I do business in USD – everybody speaks that language.”
Business is always conducted in the language of the person paying the bills. The intelligent seller will always meet the needs of the person writing the cheque. This applies whether you’re an Aussie at a market in Thailand, a French speaker buying a car in Spain, or an American placing an order with a factory in China.
Every good factory ensures they have people who can speak all the languages associated with their export markets. I’ve done trade with China worth hundreds of millions of dollars and have not once had the need to speak anything other than English.
Speaking Cantonese or Mandarin would be great skills to have, and I hope to have the time to learn them one day. But, despite what some books or advisers will tell you, they are not a necessity.
2. Deal direct
In China’s commercial scene, every man and his dog claims to own a factory.
The truth is that every factory has lots of trading companies working for them, and all the trading companies have lots of agents working for them. Everyone along the way understandably wants to make a cut of the profits, so your best bet is to always avoid the middlemen and work direct with the factory.
The problem is, it’s not always easy to verify if you’re working with the factory, the trading company, or third party agents, because they’ll always give you roundabout answers.
There are a few tricks you can use to get around this. Compare the writing on any business card you are given to the writing on the factory mast. Ask the person who’s giving you a tour to open random doors. If he or she needs to make 5 phone calls and wait 10 minutes for the door to be opened, then they’re not the factory owner.
Another way to assess this is to ask tricky questions, get your order customised, and see how long the response takes. If they take a few days to get an answer, chances are they had to wait for replies from up the chain.
In essence, you want to ask them to do things that only the factory could answer directly – this will give you insight into how far up the supply chain the party you are dealing with is.
3. Keep the competitive tension going
While it’s important to build relationships, it’s also important to always maintain competitive tension with all your business partners in China. The moment they sense exclusivity, they’ll take you for a ride.
Depending on your industry, you can try different ways of maintaining competitive tension. You shouldn’t do this in an aggressive or explicit manner, but rather a more subtle approach.
For instance, whenever I am at a trade fair in Asia, I always go and say hello to all our manufacturing partners and compliment them on their booth.
However, before I do this, I always walk around to their competitors first and get a few brochures from them. Then, I’m always holding the brochures and show bags of their competitors when I come to say hello.
This ensures that they know they need to be on their 'A game' all the time with their pricing and service, which helps us maintain our market leadership.
When we think of business networking in the West, we think of fancy cocktail receptions, conferences, and general shmoozing.
The truth is that while networking in China is very different, being able to build a network of relationships can be a huge benefit to your business.
Birds of a feather flock together. If you have a great relationship with a reliable business partner in China, the best way to find other business partners is through recommendations and referrals. Nobody is going to risk their relationship with you by recommending someone bad.
For instance, we ask our LED TV manufacturing partners to introduce us to leading factories that manufacture HDMI cables.
This saves a lot of expensive and time consuming research. Everyone involved has a vested interest in the introduction being a mutually beneficial one, ideally leading to a long term relationship.
6. Compare Pink Lady Apples with Pink Lady Apples
Not everything is always as it seems. Many Chinese businesses are great at making things look the same as something else.
You will often find that 20 different factories have a product that looks identical. Beware: this does not mean the product is identical. All it means is that they all used the same public mould. The vital components and make-up of the product can be completely different.
It’s important in China not just to compare Apples with Apples, but Pink Lady Apples with Pink Lady Apples. Ensure that whenever you are comparing products and prices, you are comparing them at a component level so the offerings are identical.
7. Follow up and remind
It’s important to constantly remind all your Chinese business partners of their contractual obligations and deadlines.
I’ve found in our dealings with Chinese partners that many of them have a different approach to agreements than we do in the West. China has become the world leader in manufacturing due to its excellence in cost efficiency.
However, many factories do not place the same emphasis on contracts, agreements, and deadlines. If you do not end up staying on top of your deadlines with your partners in China, it will be your customers, and ultimately your business, that suffers for it.
8. Lucky Number 8
It’s no secret that the number 8 is very lucky to the Chinese, both in daily life and in business. But, businesses will pay a big price to be ‘lucky’. When you see a Chinese company that has “888” in their phone number, you can rest assured that this didn’t happen by accident.
They paid for it and they knew who to pay. If your potential business partners have lots of 8s in their phone numbers, it means they have a lot of spare cash.
It’s always a good idea to deal with partners who have the bankroll to fix mistakes when things don’t go to plan.
In they same way that 8 is considered very lucky, the number 4 is unlucky, to the point that if your phone number has lots of 4s in it, they won’t deal with you. Notice how there’s no point 4 in this article? :)
This article originally appeared on LinkedIn as part of its Influencer series
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